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: March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________
Commission file Number: 000-22212
IVI PUBLISHING, INC.
------------------
(Exact Name of Registrant as
specified in its charter)
Minnesota 41-1686038
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
808 Howell Street, Suite 400
Seattle, Washington 98101
(Address of principal executive offices)
(Zip Code)
206-583-0100
(Registrant's telephone number, including area code)
7500 Flying Cloud Drive, #500
Eden Prairie, Minnesota 55344
(Former Address)
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 May 15, 1998
----------------------------------- ------------------------------
Common Stock 10,139,710 shares
Par Value $.01 Per Share
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IVI Publishing, Inc.
Balance Sheets
Unaudited
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Dec. 31, 1997 Mar. 31, 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,488 $ 571
Accounts receivable, net of allowances
for returns and doubtful accounts of
$1,011 in 1997 and $991 in 1998 337 65
Inventories 150 46
Other current assets 332 263
-------- --------
Total current assets 3,307 945
Furniture and equipment:
Computers and software 2,856 2,874
Office equipment 1,403 1,403
-------- --------
4,259 4,277
Accumulated depreciation (2,989) (3,184)
-------- --------
1,270 1,093
Total assets $ 4,577 $ 2,038
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,919 $ 1,725
Other accrued expenses 2,640 2,464
-------- --------
Total current liabilities 4,559 4,189
Shareholders' equity:
Common stock, $.01 par value:
Issued and outstanding shares -
10,106 and 10,125 at 1997
and 1998, respectively 101 101
Additional paid-in capital 78,493 78,577
Accumulated deficit (78,576) (80,829)
-------- --------
Total shareholders' equity (deficit) 18 (2,151)
-------- --------
Total liabilities and shareholders' equity $ 4,577 $ 2,038
======== ========
</TABLE>
<PAGE>
IVI Publishing, Inc.
Statements of Operations
Unaudited
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1998
-------- --------
<S> <C> <C>
Revenue $ 1,719 $ 330
Cost of revenue 770 688
-------- --------
Gross margin 949 (358)
Operating expenses:
Product development 1,311 728
Sales and marketing 394 436
General and administrative 766 743
-------- --------
Total operating expenses 2,471 1,907
Loss from operations (1,522) (2,265)
Interest (expense) income (59) 12
-------- --------
Net loss (1,581) (2,253)
Preferred stock dividends (30)
Preferred stock accretion (13)
-------- --------
Net loss applicable to
common shareholders ($ 1,624) ($ 2,253)
======== ========
Net loss per common share --
basic and diluted ($ 0.21) ($ 0.22)
======== ========
Weighted average number of
common shares outstanding 7,653 10,150
======== ========
</TABLE>
<PAGE>
IVI Publishing, Inc.
Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1998
-------- -------
<S> <C> <C>
Operating activities:
Net loss ($1,581) ($2,253)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 330 195
Changes in assets and liabilities:
Decrease in accounts receivable 970 272
Decrease (increase) in inventories (26) 104
Decrease in other current assets 20 69
Decrease in other long-term assets 27
Decrease in accounts payable and accrued liabilities (1,182) (370)
------- -------
Net cash used in operating activities (1,442) (1,983)
Investing activities:
Net furniture and equipment additions (23) (18)
------- -------
Net cash used in investing activities (23) (18)
Financing activities:
Proceeds from exercised stock options 74 84
------- -------
Net cash provided by financing activities 74 84
------- -------
Net decrease in cash and cash equivalents (1,391) (1,917)
Cash and cash equivalents at beginning of period 3,462 2,488
======= =======
Cash and cash equivalents at end of period $ 2,071 $ 571
======= =======
</TABLE>
<PAGE>
IVI Publishing, Inc.
Notes to the Condensed Financial Statements (Unaudited)
March 31, 1998
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 three-month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. 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, 1997.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
No.128, "Earnings Per Share." This statement establishes standards for computing
and presenting basic and diluted earnings per share (EPS) for financial
statements issued for periods ending after December 15, 1997. The adoption of
this statement will not have a material effect on the Company's reported EPS.
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 television, and advertising 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 or at a
specific hourly rate, depending on the terms of the contract.
Revenues are generated through the licensing of the Company's health and medical
content for use on cable television channels. For the three months ended March
31, 1997, the Company recognized revenue under its cable agreement ratably over
the life of the contract. In 1998, revenue is recognized on a cash basis.
<PAGE>
Revenues are generated through the sale of sponsorships and advertising on the
Company's web site. These revenues are recognized as they are earned.
Note E -- Litigation Settlement
During the quarter, the Company made a payment of $305,000 to Berkshire
Multimedia Group, Inc. to fully satisfy the outstanding judgment against the
Company.
Note F -- Subsequent Event
On April 10, 1998, the Company received gross proceeds of $5 million from a
private placement of 5,000 shares of non-voting Series B 5% Convertible
Redeemable Preferred Stock (the "Preferred Shares") and 66,778 five-year
warrants with an exercise price of $11.23125 per share. The Preferred Shares are
convertible into shares of Common Stock at a price which depends on the market
price and varies with respect to when the conversion occurs.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Since its inception, the Company's strategy has been to develop online and cable
television platforms, as well as maintain its staple platform, CD-ROMs, in order
to enhance an integrated approach to publishing electronic health and medical
information. In 1997, the Company was distributing its health and medical
information to end users via all three platforms. Under this strategy, the
Company was never able to attain profitability, and, at December 31, 1997, had
an accumulated deficit of $78,576,000. In 1997, the Company's Board of Directors
revised its business strategy and brought in an entirely new management team and
other key employees skilled in the development of internet websites. The
Company's current strategy is to focus its resources on the development of an
internet-delivered, consumer-oriented network of health and wellness sites.
Results of Operations
The following table sets forth selected income statement data of IVI Publishing,
Inc. and such data as a percentage of net revenues for the three months ended
March 31, 1998 and 1997.
Three months ended March 31,
(Dollar amounts in thousands)
------------------------------------------------------
1998 1997
---- ----
Net revenues $330 100% $1,719 100%
Gross margin (358) (108%) 949 55%
Operating expenses 1,907 578% 2,471 144%
Operating loss (2,265) (686%) (1,522) (89%)
Net loss ($2,253) (683%) ($1,624) (94%)
Revenues
Revenues for the three months ended March 31, 1998 and 1997 were as follows:
1998 1997
---- ----
Product sales and licensing revenue $ 44 $ 888
Contract development revenue and other 197 338
Cable television licensing revenue 0 493
Online revenue 89 0
------------ ------------
Net revenues $ 330 $ 1,719
Sales for the three months ended March 31, 1998 of $330,000 represent a decrease
of 81% relative to the previous year. The decrease is primarily attributable to
reduced product sales and licensing revenue which decreased from $888,000 to
$44,000 and cable television licensing revenue which decreased from $493,000 to
$0. The decrease in product sales and licensing revenue is a result of market
conditions for CD ROM products, and the Company's lack of new CD ROM product
releases as it transitions to an internet-focused business. The decrease in
cable royalty revenues reflects a cash basis revenue recognition policy related
to a cable television contract with America's Health Network (AHN). Online
revenue was generated from the Company's OnHealth.com web site through site
sponsorships and advertising.
Gross margin
Gross margin as a percentage of net revenues was (108%) for the three months
ended March 31, 1998 compared to 55% for the comparable period in 1997. The
negative gross margin percentage in 1998 is primarily the result of royalty
expenses related to cable television licensing revenue, but is in part due to
the high cost of revenues related to the CD ROM business.
<PAGE>
Operating expenses
Product Development For the three months ended March 31, 1998, product
development expenses were $728,000, representing a $583,000, or 44%, decrease
relative to the same period in 1997. The decrease relates to the shift away from
the CD-ROM product development business and toward an internet focused business.
Sales and Marketing
Sales and marketing expenses for the three months ended March 31, 1998 increased
$42,000, or 11%, relative to the same three months in 1997. Although expenses
are comparable, 1998 expenditures are focused primarily on internet marketing
and sales activities while 1997 activities include expenditures for the
Company's CD-ROM business.
General and Administrative
For the quarter ended March 31, 1998, general and administrative expenses
decreased $23,000, or 3%, relative to the same period in the previous year.
Lower professional fees in 1998 were partially offset by higher travel and
related expenses.
Interest Income (Expense)
The quarter ended March 31, 1998 has net interest income of $12,000 compared to
net interest expense of $59,000 for the quarter ended March 31, 1997. The 1998
net interest income includes interest income generated from cash equivalents.
The 1997 net interest expense includes interest income from cash equivalents
that is more than offset by interest expense related to $3,500,000 in
convertible subordinated debentures, which were converted into common stock
during the fourth quarter of 1997.
Financial Condition, Liquidity and Capital Resources
At March 31, 1998, the Company had cash and cash equivalents of $571,000. Total
cash used by operating activities during the three months ended March 31, 1998
totalled $1,983,000 and is primarily due to a net loss of $2,253,000. Investing
activities used cash of $18,000 for purchases of computer equipment. Financing
activities provided cash of $84,000 from stock option exercises.
On April 10, 1998, the Company completed a $5,000,000 non-voting Convertible
Redeemable Preferred Stock financing. The Company believes that the proceeds
from this financing transaction, in addition to cash and cash equivalents and
anticipated operating cash flows will allow the Company to continue to meet its
ongoing financial obligations and operate through, at least, December 31, 1998.
Forward Looking Statements
The statement made in this Form 10-Q relating to the Company's ability to meet
its ongoing financial obligations and operations through December 31, 1998
depends on (i) the ability of the Company to meet its expected operating
revenues, which are variable with respect to consumer demand and advertising
revenues, (ii) the success of its ongoing development efforts and market
acceptance of the OnHealth web site, (iii) the success and effectiveness of the
Company's new management team; and (iv) other general market conditions and
competitive conditions within this market, including the introduction and
further development of competitive web sites.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1996, Berkshire Multimedia Group, Inc. ("Berkshire") initiated mediation
regarding a dispute with the Company. Shortly after an unsuccessful mediation
conference was held in September 1996, Berkshire Multimedia Group filed a demand
for arbitration alleging that the Company breached its obligations under a
contract. An arbitration hearing was completed in January 1997, and in February
1997 the arbitration panel awarded Berkshire $300,000. Hennepin County
(Minnesota) District Court vacated that award on May 29, 1997, and Berkshire
appealed the case. The Court of Appeals heard the case in late 1997 and
reinstated the original decision of the arbitration panel in January 1998. On
February 25, 1998, the Hennepin County (Minnesota) District Court issued an
order directing that judgment be entered against the Company in the amount of
$300,000 plus interest. In March 1998, the Company made a payment of $305,000
to Berkshire Multimedia Group, Inc. in full satisfaction of such judgment.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(10.1) Nonqualified Stock Option Agreement dated December 11, 1997
between the Company and Robert N. Goodman*
(27) Financial Data Schedule (included only in electronic version).
*Management contract or compensatory agreement.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1998.
<PAGE>
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/ Michael D. Conway
Michael D. Conway
Chief Financial Officer
Date: May 20, 1998
IVI PUBLISHING, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made effective as of this 11th day of December, 1997,
by and between IVI PUBLISHING, INC., a Minnesota corporation (the "Company"),
and ROBERT N. GOODMAN ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionee on the date hereof is a key employee of the Company;
and
WHEREAS, as an inducement for the Optionee to become an employee of the
Company, the Company wishes to grant a nonqualified stock option to Optionee to
purchase shares of the Company's Common Stock, which option is granted outside
of any of the Company's current stock option plans; and
WHEREAS, the Board has authorized the grant of a nonqualified stock
option to Optionee and has determined that, as of the effective date of this
Agreement, the fair market value of the Company's Common Stock is $2.50 per
share;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee on the date
set forth above (the "Date of Grant"), the right and option (the "Option") to
purchase all or portions of an aggregate of four hundred fifty thousand
(450,000) shares of Common Stock at a per share price of $2.50 on the terms and
conditions set forth herein, subject to adjustment pursuant to Paragraph 4
below. This Option is not intended to be an incentive stock option within the
meaning of Section 422, or any successor provision, of the Code, and the
regulations thereunder.
2. Duration and Exercisability.
a. Term and Vesting Schedule. The term during which this
Option may be exercised shall terminate on December 10, 2007, except as
otherwise provided in Paragraphs 2(c) through 2(f) below. This Option shall vest
and become exercisable according to the following schedule:
37,500 shares on November 10, 1998
3,125 shares on the tenth day of each month from December 10,
1998 through November 10, 2001
300,000 shares on November 10, 2002 (subject to acceleration as
outlined in Paragraph 2(b) below) Once the Option becomes exercisable to the
extent of one hundred percent (100%) of the aggregate number of shares specified
in Paragraph 1, Optionee may continue to exercise this Option under the terms
and conditions of this Agreement until the termination of the Option as provided
herein. If Optionee does not purchase upon an exercise of this Option the full
number of shares which Optionee is then entitled to purchase, Optionee may
purchase upon any subsequent exercise prior to this Option's termination such
previously unpurchased shares in addition to those Optionee is otherwise
entitled to purchase.
b. Acceleration of Exercisability. The exercisability of the
300,000 shares which become exercisable on November 10, 2002 shall be
accelerated as to:
<PAGE>
(i) 25,000 shares upon the occurrence of each of the following
events:
o Closing price of the Company's Common Stock is $5.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $6.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $7.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $8.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $9.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $10.00
per share or more for forty (40) consecutive trading
days;
(ii) 30,000 shares upon the occurrence of each of the
following events:
o Closing price of the Company's Common Stock is $11.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $12.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $13.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $14.00
per share or more for forty (40) consecutive trading
days;
o Closing price of the Company's Common Stock is $15.00
per share or more for forty (40) consecutive trading
days;
c. Termination of Employment (other than Change of Control,
Disability or Death). If Optionee's employment with the Company or any
Subsidiary is terminated for any reason other than because of a "change of
control transaction" as described in Paragraph 4 below or because of disability
or death, this Option shall completely terminate on the earlier of (i) the close
of business on the three-month anniversary date of such termination of
employment, and (ii) the expiration date of this Option stated in Paragraph 2
above.
<PAGE>
In such period following the termination of Optionee's employment, this
Option shall be exercisable only to the extent the Option was exercisable on the
vesting date immediately preceding such termination of employment but had not
previously been exercised. To the extent this Option was not exercisable upon
such termination of employment or if Optionee does not exercise the Option
within the time specified in this Paragraph 2(c), all rights of Optionee under
this Option shall be forfeited.
d. Change of Control. If Optionee's employment with the
Company or any Subsidiary is terminated because of a "change of control
transaction (as set forth in Paragraph 4 below)", this Option shall completely
terminate on the earlier of (i) the close of business on the three-month
anniversary date of such termination of employment and (ii) the expiration date
of this Option stated in Paragraph 2(a) above; provided, however, that if (a)
such transaction is treated as a "pooling of interests" under generally accepted
accounting principles and (b) Optionee is an "affiliate" of the Company or
Subsidiary under applicable legal and accounting principles, this Option shall
completely terminate on the later of (A) the close of business on the
three-month anniversary date of such termination of employment or (B) the close
of business on the date that is sixty (60) days after the date on which
affiliates are no longer restricted from selling, transferring or otherwise
disposing of the shares of stock received in the change of control transaction.
In such period following the termination of Optionee's employment upon
a change of control transaction, this Option shall be fully exercisable unless
the acceleration of the exercisability of this Option has been prevented as
provided in Paragraph 4 below, in which case, this Option shall be exercisable
only to the extent the Option was exercisable on the vesting date immediately
preceding such termination of employment, but had not previously been exercised.
To the extent this Option was not exercisable upon such termination of
employment or if Optionee does not exercise the Option within the time specified
in this Paragraph 2(d), all rights of Optionee under this Option shall be
forfeited.
e. Disability. If Optionee ceases to be an employee of the
Company or any Subsidiary due to disability (as such term is defined in Code
Section 22(e)(3), or any successor provision), this Option shall completely
terminate on the earlier of (i) the close of business on the twelve-month
anniversary date of such termination of employment, and (ii) the expiration date
under this Option stated in Paragraph 2(a) above. In such period following such
termination of employment, this Option shall be exercisable only to the extent
the Option was exercisable on the vesting date immediately preceding the date of
Optionee's termination of employment. If Optionee does not exercise the Option
within the time specified in this Paragraph 2(e), all rights of Optionee under
this Option shall be forfeited.
f. Death. In the event of Optionee's death, this Option shall
terminate on the earlier of (i) the close of business on the twelve-month
anniversary date of the date of Optionee's death, and (ii) the expiration date
of this Option stated in Paragraph 2(a) above. In such period following
Optionee's death, this Option shall be exercisable by the person or persons to
whom Optionee's rights under this Option shall have passed by Optionee's will or
by the laws of descent and distribution only to the extent the Option was
exercisable on the vesting date immediately preceding the date of Optionee's
death. If such person or persons do not exercise this Option within the time
specified in this Paragraph 2(f), all rights under this Option shall be
forfeited.
<PAGE>
3. Manner of Exercise.
a. General. The Option may be exercised only by Optionee (or
other proper party in the event of death or incapacity), subject to such
administrative rules as the Administrator may deem advisable, by delivering
within the Option Period the attached form or such other form acceptable by the
Administrator ("Exercise Notice") to the Company at its principal office. The
Exercise Notice shall state the number of shares as to which the Option is being
exercised and shall be accompanied by payment in full of the Option price for
all shares designated in the notice. The exercise of the Option shall be deemed
effective upon receipt of such notice by the Company and upon payment that
complies with the terms of this Agreement. The Option may be exercised with
respect to any number or all of the shares as to which it can then be exercised
and, if partially exercised, may be so exercised as to the unexercised shares
any number of times during the Option period as provided herein.
b. Form of Payment. Payment of the Option price by Optionee
shall be in the form of cash, personal check, certified check or previously
acquired shares of Common Stock of the Company, or any combination thereof. Any
stock so tendered as part of such payment shall be valued at its Fair Market
Value (as defined in Paragraph 5(c) below) on the date of exercise of the
Option. For purposes of this Agreement, "previously acquired shares of Common
Stock" shall include shares of Common Stock that are already owned by Optionee
at the time of exercise.
c. Stock Transfer Records. As soon as practicable after the
effective exercise of all or any part of the Option, Optionee shall be recorded
on the stock transfer books of the Company as the owner of the shares purchased,
and the Company shall deliver to Optionee one or more duly issued stock
certificates evidencing such ownership. All requisite original issue or transfer
documentary stamp taxes shall be paid by the Company.
4. Recapitalization, Sale, Merger, Exchange or Liquidation. In the
event of an increase or decrease in the number of shares of Common Stock
resulting from a subdivision or consolidation of shares or the payment of a
stock dividend or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company, the
number of shares of Option Stock covered by this Option, to the extent
outstanding and the price per share thereof shall be adjusted by the Board to
reflect such change. Additional shares which may be credited pursuant to such
adjustment shall be subject to the same restrictions as are applicable to the
shares with respect to which the adjustment relates. In the event of:
(i) an acquisition of the Company by a corporation, partnership,
trust or other entity not controlled by the Company through
(A) the sale of substantially all of the Company's assets and
the consequent discontinuance of its business or (B) through a
merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or
liquidation of the Company, other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation (collectively
referred to as a "transaction"), or
<PAGE>
(ii) a change of control such that (A) any individual, partnership,
trust or other entity becomes after the effective date of this
Option the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 35% or more of
the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors of the Company, or (B) individuals who constitute
the Board of Directors of the Company on the effective date of
this Option cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to the effective date of this Option whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors comprising the Board of Directors of the Company
on the effective date of this Option (either by a specific
vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director, without
objection to such nomination) shall be, for purposes of this
clause (B) considered as though such person were a member of
the Board of Directors of the Company on the effective date of
this Option ((A) and (B) collectively with the transactions
described in (i) above referred to as "change of control
transactions"),
this Option shall become immediately exercisable, whether or not such Option had
become exercisable prior to the change of control transaction; provided,
however, that if the acquiring party seeks to have the transaction accounted for
on a "pooling of interests" basis and, in the opinion of the Company's
independent certified public accountants, accelerating the exercisability of
this Option would preclude a pooling of interests under generally accepted
accounting principles, the exercisability of this Option shall not accelerate.
In addition to the foregoing, in the event of such a change of control
transaction, the Board may provide for one or more of the following:
(a) the complete cancellation of this Option to the extent not
exercised prior to a date specified by the Board (which date shall give
Optionee a reasonable period of time in which to exercise the Option
prior to the effectiveness of such change of control transaction);
(b) the Optionee holding this Option shall receive, with respect to
each share of Option Stock subject to this Option, as of the effective
date of any such change of control transaction, cash in an amount equal
to the excess of the Fair Market Value of such Option Stock on the date
immediately preceding the effective date of such change of control
transaction over the Option price per share of this Option; provided
that the Board may, in lieu of such cash payment, distribute to the
Optionee shares of stock of the Company or shares of stock of any
corporation succeeding the Company by reason of such change of control
transaction, such shares having a value equal to the cash payment
herein; or
(c) provide to the Optionee the right to exercise this Option as to an
equivalent number of shares of stock of the corporation succeeding the
Company by reason of such transaction.
The Board may restrict the rights of or the applicability of this Paragraph 4 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
The right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets shall not be limited in any way.
<PAGE>
5. Miscellaneous.
a. Employment; Rights as Shareholder. This Agreement shall not
confer on Optionee any right with respect to continuance of employment by the
Company or any of its Subsidiaries, nor will it interfere in any way with the
right of the Company to terminate such employment. Optionee shall have no rights
as a shareholder with respect to shares subject to this Option until such shares
have been issued to Optionee upon exercise of this Option. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is
prior to the date such shares are issued, except as provided in Paragraph 4
above.
b. Securities Law Compliance. The exercise of all or any parts
of this Option shall only be effective at such time as counsel to the Company
shall have determined that the issuance and delivery of Common Stock pursuant to
such exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will not be
transferred or disposed of except in compliance with applicable state and
federal securities laws.
c. Fair Market Value. "Fair Market Value" shall mean (i) if
the Company's Common Stock is reported by the Nasdaq National Market or Nasdaq
SmallCap Market or is listed upon an established stock exchange or exchanges,
the reported closing price of such stock by the Nasdaq National Market or Nasdaq
SmallCap Market or on such stock exchange or exchanges on a certain date or, if
no sale of such stock shall have occurred on such date, on the next preceding
day on which there was a sale of stock; (ii) if such stock is not so reported by
the Nasdaq National Market or Nasdaq SmallCap Market or listed upon an
established stock exchange, the average of the closing "bid" and "asked" prices
quoted by the National Quotation Bureau, Inc. (or any comparable reporting
service) on such date, or if there are no quoted "bid" and "asked" prices on
such date, on the next preceding date for which there are such quotes; or (iii)
if such stock is not publicly traded as of such date, the per share value as
determined by the Board, or the Committee, in its sole discretion by applying
principles of valuation with respect to all such stock.
d. Withholding Taxes. In order to permit the Company to
receive a tax deduction in connection with the exercise of this Option, the
Optionee agrees that as a condition to any exercise of this Option, the Optionee
will also pay to the Company, or make arrangements satisfactory to the Company
or make arrangements satisfactory to the Company regarding payment of, any
federal, state local or other taxes required by law to be withheld with respect
to the Option's exercise.
e. Nontransferability. During the lifetime of Optionee, the
accrued Option shall be exercisable only by Optionee or by the Optionee's
guardian or other legal representative, and shall not be assignable or
transferable by Optionee, in whole or in part, other than by will or by the laws
of descent and distribution.
<PAGE>
f. Lockup Period Limitation. Optionee agrees that in the event
the Company advises Optionee that it plans an underwritten public offering of
its Common Stock in compliance with the Securities Act of 1933, as amended, and
that the underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the
underlying Common Stock, Optionee hereby agrees that for a period not to exceed
180 days from the date of the prospectus, Optionee will not sell or contract to
sell or grant an option to buy or otherwise dispose of this Option or any of the
underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).
g. Blue Sky Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event the Company makes any public offering of
its securities and determines in its sole discretion that it is necessary to
reduce the number of issued but unexercised stock purchase rights so as to
comply with any state securities or Blue Sky law limitations with respect
thereto, the Board of Directors of the Company shall have the right (i) to
accelerate the exercisability of this Option and the date on which this Option
must be exercised, provided that the Company gives Optionee 15 days' prior
written notice of such acceleration, and (ii) to cancel any portion of this
Option which is not exercised prior to or contemporaneously with such public
offering. Notice shall be deemed given when delivered personally or when
deposited in the United States mail, first class postage prepaid and addressed
to Optionee at the address of Optionee on file with the Company.
h. Accounting Compliance. Optionee agrees that, in the event a
"change of control transaction" (as defined in Paragraph 4 above) is treated as
a "pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of Rule 145 of
the Securities Act of 1933, as amended, and the requirements of such other legal
or accounting principles, and will execute any documents necessary to ensure
such compliance.
i. Stock Legend. If applicable, the Company may put an
appropriate legend on the certificates for any shares of Common Stock purchased
by Optionee (or, in the case of death, Optionee's successors) to reflect the
restrictions of Paragraphs 5(b), 5(f), 5(g) and 5(h) of this Agreement.
j. Scope of Agreement. This Agreement shall bind and inure to
the benefit of the Company and its successors and assigns and Optionee and any
successor or successors of Optionee permitted by Paragraph 5(e) above.
<PAGE>
k. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement of any
such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be a retired state or federal judge or an attorney
who has practiced securities or business litigation for at least ten years. If
the parties cannot agree on an arbitrator within 20 days, any party may request
that the chief judge of the District Court for Hennepin County, Minnesota,
select an arbitrator. Arbitration will be conducted pursuant to the provisions
of this Agreement, and the commercial arbitration rules of the American
Arbitration Association, unless such rules are inconsistent with the provisions
of this Agreement. Limited civil discovery shall be permitted for the production
of documents and taking of depositions. Unresolved discovery disputes may be
brought to the attention of the arbitrator who may dispose of such dispute. The
arbitrator shall have the authority to award any remedy or relief that a court
of this state could order or grant; provided, however, that punitive or
exemplary damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys' fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
IVI PUBLISHING, INC.
By: /s/ Charles a. Nickoloff
Charles A. Nickoloff, Vice President
COMPANY
/s/ Robert N. Goodman
Robert N. Goodman
OPTIONEE
<PAGE>
OPTION EXERCISE FORM
To: IVI Publishing, Inc.
I hereby exercise stock options granted to purchase shares of Common
Stock of IVI Publishing, Inc. (the "Company") as follows:
Date of Options Exercise Number of
Grant Awarded Price Shares Exercised
As payment for the exercise of the above listed stock options and for
the amount of federal, state and local tax which the Company is required by law
or believes appropriate to withhold and the cost of any applicable state or
federal documentary tax stamps, I am enclosing and elect the following method of
payment (check appropriate box):
[ ] Check (cashier's, certified or personal) in the amount of $________________
[ ] Shares of the Company's Common Stock which have been held by
me for at least six months and which are valued at fair market value
listed below.
Certificate No. Acquisition Date Number of Shares Fair Market Value
NOTE: All shares of Common Stock must be properly assigned to IVI Publishing,
Inc.
[ ] Irrevocable instructions, a copy of which is attached hereto
and is subject to the Company's approval, to my broker who must be
acceptable to you to promptly deliver to the Company an amount
sufficient to pay such amounts from either (i) the proceeds of sale
through the broker of a sufficient number of shares purchased by me
upon exercise of the Option as set forth above or (ii) the loan
proceeds from borrowings by me from the broker, and the Company is
hereby instructed to issue and deliver the shares purchased by me upon
exercise of the option as set forth above directly to and in the name
of the broker.
Unless the third payment option above is selected, in which case the
shares will be issued and delivered as described therein, please have _____
certificates issued in blocks of ________ shares per certificate registered as
follows:
Name
Mailing Address
Social Security Number
Very truly yours,
Signature of Optionee
Printed Name of Optionee
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