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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[Amendment No.........]
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
BYRON PREISS MULTIMEDIA COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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BYRON PREISS MULTIMEDIA COMPANY, INC.
24 WEST 25TH STREET
NEW YORK, NEW YORK 10010
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 26, 1997
----------------
April 30, 1997
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
of Byron Preiss Multimedia Company, Inc., a New York corporation (the
"Company"), to be held on June 26, 1997, at 3:00 p.m., local time, at The Friars
Club, 57 East 55th Street, New York, New York, or any adjournment or
postponement thereof (the "Meeting") for the following purposes:
1. To elect five directors.
2. To consider and act upon a proposal to approve an amendment of
the Company's 1993 Stock Option Plan to increase by 200,000
shares, the total number of shares of the Company's Common
Stock that may be awarded under the 1993 Stock Option Plan.
3. To transact such other business as may properly come before
the Meeting.
Only holders of record of Common Stock of the Company at the close of
business on May 27, 1997 will be entitled to notice of and to vote at the
Meeting. Please complete, sign, date and mail the enclosed proxy card so that
your shares may be represented at the Meeting if you are unable to attend and
vote in person.
By Order of the Board of Directors.
BYRON PREISS
Chief Executive Officer
<PAGE>
BYRON PREISS MULTIMEDIA COMPANY, INC.
24 WEST 25TH STREET
NEW YORK, NEW YORK 10010
------------------------
PROXY STATEMENT
----------------
1997 Annual Meeting of Shareholders
----------------
April 30, 1997
This Proxy Statement and the enclosed form of proxy (the "Proxy Card")
are being furnished to the holders of Common Stock, par value $.001 (the "Common
Stock"), of Byron Preiss Multimedia Company, Inc., a New York corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Annual Meeting of Shareholders to be
held on June 26, 1997 and at any adjournments or postponements thereof (the
"Meeting"). This Proxy Statement and the Proxy Card are first being sent to
Shareholders on or about May 29, 1997.
At the Meeting, holders of Common Stock ("Shareholders") will be asked:
1. To elect five directors.
2. To consider and act upon a proposal to approve an amendment of
the Company's 1993 Stock Option Plan to increase by 200,000
shares the total number of shares of the Company's Common
Stock that may be awarded under the 1993 Stock Option Plan.
3. To transact such other business as may properly come before
the Meeting.
Shareholders are requested to complete, sign, date and promptly return
the Proxy Card in the enclosed envelope. Common Stock represented by properly
executed proxies received by the Company and not revoked will be voted at the
Meeting in accordance with instructions contained therein. If the Proxy Card is
signed and returned without instructions, the shares will be voted FOR election
of each nominee for director named herein (Proposal No. 1) and FOR the amendment
of the Company's 1993 Stock Option Plan (Proposal No. 2). A Shareholder who so
desires may revoke his proxy at any time before it is voted at the Meeting by
delivering written notice to the Company (attention: Corporate Secretary), by
duly executing a proxy bearing a later date or by casting a ballot at the
Meeting. Attendance at the Meeting will not in and of itself constitute a
revocation of a proxy.
<PAGE>
THE MEETING
Date, Time and Place
The Meeting will be held on June 26, 1997 at 3:00 p.m., local time, at
The Friars Club, 57 East 55th Street, New York, New York.
Record Date, Shares Outstanding and Entitled to Vote
The Board of Directors has fixed the close of business on May 27, 1997
as the record date (the "Record Date") for determining Shareholders entitled to
notice of and to vote at the Meeting. Each such Shareholder will be entitled to
one vote for each share of Common Stock held on all matters to come before the
Meeting and may vote in person or by proxy authorized in writing. As of April
28, 1997, there were approximately 7,174,438 shares of Common Stock outstanding
and entitled to vote, with each share entitled to one vote.
Required Votes
A plurality of the votes cast by the holders of the shares of Common
Stock present in person or represented by proxy at the Meeting is required for
the election of a nominee for director. Only shares of Common Stock that are
voted in favor of a nominee will be counted toward that nominee's achievement of
a plurality. Shares of Common Stock held by Shareholders present in person at
the Meeting that are not voted for a nominee or shares held by Shareholders
represented at the Meeting by proxy from which authority to vote for a nominee
has been properly withheld (including broker non-votes) will not be counted
toward that nominee's achievement of a plurality.
The affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy at the Meeting is
required for amendment of the 1993 Stock Option Plan. With respect to a broker
non-vote on this matter, the shares will not be considered present at the
Meeting for this particular matter and (since it will not be counted in respect
of the matter) the broker non-vote will have the practical effect of reducing
the number of affirmative votes required to achieve a majority vote for the
matter by reducing the total number of shares from which the majority is
calculated. Shares represented by proxies which are marked "abstain" for this
matter will have the same effect as a vote against such matter.
Voting and Revocation of Proxies
Shareholders are requested to complete, sign, date and promptly return
the Proxy Card in the enclosed envelope. Common Stock represented by properly
executed proxies received by the Company and not revoked will be voted at the
Meeting in accordance with the instructions contained therein. If the Proxy Card
is signed and returned without instructions, the shares will be voted FOR
election of each nominee for election as a director named herein and FOR
approval of the amendment of the 1993 Stock Option Plan.
The Board of Directors knows of no matters that are to be brought
before the Meeting other than as set forth in the Notice of Meeting. If any
other matters properly come before the Meeting, the persons named in the
enclosed form of proxy or their substitutes will vote in accordance with their
best judgment on such matters.
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Any Proxy Card signed and returned by a Shareholder may be revoked at
any time before it is voted at the Meeting by delivering written notice to the
Company (attention: Corporate Secretary), by duly executing a proxy bearing a
later date or by casting a ballot at the Meeting. Attendance at the Meeting will
not in and of itself constitute revocation of a proxy.
Proxy Solicitation
The Company will bear the costs of solicitation of proxies for the
Meeting. In addition to solicitation by mail, directors, officers and regular
employees of the Company may solicit proxies from Shareholders by telephone,
telegram, personal interview or otherwise. Such directors, officers and
employees will not receive additional compensation but may be reimbursed for
out-of-pocket expenses in connection with such solicitation. Brokers, nominees,
fiduciaries and other custodians have been requested to forward soliciting
material to the beneficial owners of Common Stock held of record by them and
such custodians will be reimbursed for their reasonable expenses.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information, as of April 28,
1997, to the knowledge of the Company, regarding the beneficial ownership of
Common Stock, which is the Company's only class of outstanding voting
securities, by each Shareholder who owns more than 5% of the outstanding shares,
by each director and nominee for election as director, by each of the named
executive officers of the Company and by all directors and executive officers of
the Company as a group. The information set forth in the table and accompanying
footnotes has been furnished by the named beneficial owners. Since the table
reflects beneficial ownership determined pursuant to the applicable rules of the
Securities and Exchange Commission, the information is not necessarily
indicative of beneficial ownership for any other purpose.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
------------------------ -------------------- ----------------
Byron Preiss 987,000 (1) 13.8%
Viacom International, Inc. 1,167,375 (2) 15.6%
AWM Investment 427,800 (3) 6.0%
Company, Inc.
Martin L. Berman 142,000 (4) 2.0%
Phyllis Berman 177,833 (4) 2.5%
Alison A. Berman 177,833 (4) 2.5%
Lifetime Income Trust
Mark K. Berman 177,833 (4) 2.5%
Lifetime Income Trust
James R. Dellomo 26,665 (5) *
Matthew Shapiro 8,333 (6) *
Jack Romanos -0- (7) *
Marvin Sharfstein 3,333 (8) *
Roger Cooper -0- (9) *
Andrew K. Gardner 704,348 (10) 9.4%
Allied Balkan 785,176 (11) 10.9%
Baybridge Securities 753,769 (12) 10.5%
Blue Chip Securities 753,769 (13) 10.5%
AT Investments 219,849 (14) 3.1%
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Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
------------------------ -------------------- ----------------
All Directors and 1,025,331 (1)(5)(6) 14.2%
Executive Officers (7)(8)(9)
as a Group (6 persons)
- -----------------------
* Less than 0.1%
(1) Excludes approximately 78,987 shares of Common Stock owned by Preiss
Charitable Foundation, Inc., a New York not-for-profit corporation, of
which Mr. Preiss is a Director and Officer. Mr. Preiss disclaims
beneficial ownership of such shares. Mr. Preiss' business address is
c/o Byron Preiss Multimedia Company, Inc. 24 West 25th Street, New
York, New York 10010.
(2) These shares are owned of record by Viacom International Inc., which is
a subsidiary of Viacom Inc. The address of Viacom International Inc. is
1515 Broadway, New York, New York 10036. National Amusements, Inc. is a
controlling shareholder of Viacom Inc. Sumner M. Redstone is the
controlling shareholder of National Amusements, Inc. and is the
Chairman of the Board and Chief Executive Officer of Viacom Inc. and
Viacom International Inc. The address of National Amusements, Inc. is
200 Elm Street, Dedham, Massachusetts 02026. Includes warrants to
purchase an additional 315,000 shares of Common Stock, which can be
exercised within 60 days by Viacom International Inc. at $7.00 per
share. Excludes the shares underlying the Additional Warrant (as
hereinafter defined). See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(3) In a Schedule 13G dated January 31, 1997 it was reported that 427,800
shares of common stock of the Company are beneficially owned by Austin
W. Marxe and AWM Investment Company, Inc., a Delaware corporation
("AWM"). This amount is comprised of 176,300 shares of common stock and
153,500 Warrants owned by Special Situations Fund III, L.P., a Delaware
limited partnership (the "Special Fund"), and 56,700 shares of common
stock and 41,300 Warrants owned by Special Situations Cayman Fund,
L.P., a limited partnership formed under the laws of the Cayman Islands
(the "Cayman Fund"). Austin W. Marxe is the President and Chief
Executive Officer of AWM, which is an investment adviser registered
under the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act") and an investment advisor and general partner of the
Cayman Fund. Austin W. Marxe is the principal limited partner of MGP
Advisers Limited Partnership, a Delaware limited partnership ("MGP"),
which is an investment adviser under the Investment Advisers Act and an
investment adviser and general partner of the Special Fund. AWM, which
is principally owned by Austin W. Marxe, serves as the sole general
partner of MGP. Mr. Marxe is principally responsible for the selection,
acquisition and disposition of the portfolio securities by AWM on
behalf of MGP, the Special Fund and the Cayman Fund. The principal
office and business address of said reporting persons is 153 East 53rd
Street, New York, New York 10022.
(4) On December 28, 1994, as a result of the liquidation by the Berman
CD-Rom Partnership, L.P. a New York limited partnership, of all of such
partnership's holdings of Common Stock of the Company, 1,067,000 shares
of Common Stock were distributed, in part, as follows: Martin L. Berman
(182,000 shares), Phyllis Berman (177,833 shares), Alison A. Berman
Lifetime Income Trust (177,833 shares), Mark K. Berman Lifetime Income
Trust (177,833 shares), Steven E. Berman (45,000 shares) and Martin L.
Berman Foundation (51,033 shares) (the "Berman Group"). In the
aggregate, the Berman Group owns approximately 19% of the Company's
Common Stock. Each of the persons or entities comprising the "Berman
Group" disclaims beneficial ownership of shares of Common Stock owned
by each of the other persons or entities within the Berman Group, and
each of them expressly disaffirms the existence of a group. The address
of each of the persons or entities comprising the Berman Group is c/o
Steven E. Berman, One Bridge Plaza, Fort Lee, New Jersey 07024. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(5) Mr. Dellomo's business address is c/o Byron Preiss Multimedia Company,
Inc., 24 West 25th Street, New York, New York 10010. Includes 26,665
shares that Mr. Dellomo has a right to acquire within 60 days upon the
exercise of options.
(6) Mr. Shapiro's business address is c/o NBC, 30 Rockefeller Plaza, room
4625E, New York, New York. Includes 8,333 shares that Mr. Shapiro has a
right to acquire within 60 days upon the exercise of options.
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(7) Excludes the shares of Common Stock beneficially owned by Viacom
International Inc., of which Mr. Romanos is an executive officer of an
affiliate thereof. Mr. Romanos' business address is c/o Simon &
Schuster, Consumer Group, 1230 Avenue of the Americas, New York, New
York 10020.
(8) Mr. Sharfstein's business address is 6 Three Ponds Road, Newtown,
Pennsylvania 18940. Includes 3,333 shares that Mr. Sharfstein has a
right to acquire within 60 days upon the exercise of options.
(9) Mr. Cooper's business address is c/o The Doubleday Book and Music Club,
1540 Broadway, New York, New York.
(10) Mr. Gardner's business address is c/o Dolphin, Inc. 10 Foster Street,
Suite A2, Gibbsboro, NJ 08026. Includes 304,348 shares of common stock,
which can be exercised within 60 days by Andrew K. Gardner at $5.75 per
share, pursuant to the terms of a Convertible Note issued by the
Company to Andrew K. Gardner. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(11) The address of Allied Balkan is Bowater House, Knightsbridge, London
U.K.
(12) The address of Baybridge Securities is 11 Quai Des Berges, Geneva,
Switzerland.
(13) The address of Blue Chip Securities is, 78 Rue Du Rhone, Geneva,
Switzerland.
(14) The address of AT Investments is, 78 Rue Du, Rhone, Geneva,
Switzerland.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Meeting, five directors are to be elected to serve until the
next annual meeting of Shareholders or until their successors are elected and
qualified. The persons named in the enclosed form of proxy have advised that,
unless contrary instructions are received, they intend to vote FOR the election
of the five individuals named in the following table. All of the nominees are
currently directors of the Company.
The Board of Directors does not expect that any of the nominees will be
unavailable for election as a director. If by reason of an unexpected occurrence
one or more of the nominees is not available for election, however, the persons
named in the form of proxy have advised that they will vote for such substitute
nominees as the Board of Directors of the Company may propose. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" for information regarding
such persons' beneficial ownership of Common Stock.
Information Concerning the Director-Nominees
The name, age, principal occupation, other business affiliations and
other information (relating to the past five or more years) concerning each
nominee, and, where applicable, the year each was first elected a director of
the Company, are set forth below:
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Byron Preiss, 44, is a founder of the Company and has served
as President, Chief Executive Officer and Chairman of the Board of
Directors since the Company's inception in July 1992. In April 1974,
Mr. Preiss founded Byron Preiss Visual Publications, Inc.,
headquartered in New York City. Since April 1974, Mr. Preiss has served
as the President and Chief Executive Officer of Byron Preiss Visual
Publications, Inc. and certain related entities. Mr. Preiss received a
B.A. degree from the University of Pennsylvania in 1973 and a M.A.
degree from the Film and Broadcast Management program at Stanford
University in 1974.
James R. Dellomo, 56 - has served as Chief Financial Officer
of the Company since June, 1994 and Treasurer and a director since July
1994. From January 1993 through August 1993, Mr. Dellomo served as the
Chief Financial Officer of Rio Sportswear, Inc. From January 1992
through January 1993, Mr. Dellomo was a consultant to the Commonwealth
of Puerto Rico - Industrial Development Administration. From 1974
through 1991, Mr. Dellomo held the positions of Vice President -
Finance, Treasurer and Secretary of Knogo Corporation, a NYSE listed
company. Mr. Dellomo also served as a Director of Knogo Corporation.
Matthew Shapiro, 49 - has served as Vice President of Network
Development of NBC since January, 1996. From September 1995 until
December, 1996, Mr. Shapiro served as a freelance consultant in the
television industry. Mr. Shapiro held several executive positions, such
as Corporate Vice President of Programming, at MMT Inc. (a corporation
which represents and advises television stations throughout the United
States) from 1982 until September 1995 when MMT, Inc. was sold to a
competing company. Mr. Shapiro has served as a director of the Company
since March 1994.
Jack Romanos, 54 - since 1991, Mr. Romanos has served as the
President of the Consumer Group of Simon & Schuster, the publishing
operation of Viacom Inc., where he is responsible for the publishing
activities of all divisions of the Consumer Group. Prior thereto, Mr.
Romanos served as the President of the Mass Market Division of Simon &
Schuster, since 1987. Mr. Romanos has served as a director of the
Company since June, 1995.
Roger Cooper, 52 - has served as Vice President and Editorial
Director of Doubleday Direct since August, 1995. Doubleday Direct is a
book club division of Bertelsmann, consisting of twelve bookclubs
including The Literary Guild. From August, 1993 through August, 1995,
Mr. Cooper served as the Senior Vice President, Publisher of the Mass
Market Division of St. Martin's Press. Prior thereto, Mr. Cooper was
the Senior Vice President, Publisher of Berkeley Publishing Group. Mr.
Cooper has served as a director of the Company since October, 1995.
The Board of Directors recommends that the Shareholders vote FOR the
election of each nominee for director named above.
PROPOSAL NO. 2
PROPOSED AMENDMENT TO THE 1993 STOCK OPTION PLAN
At the Meeting, Shareholders will be asked to consider and act upon a
proposal to amend the Company's 1993 Stock Option Plan, as amended (the "1993
Plan"), to increase by 200,000 shares the total number of shares of the
Company's Common Stock that may be awarded under the 1993 Plan.
On April 21, 1997 the Board of Directors approved an amendment to the
1993 Plan to increase the number of shares of Common Stock available for
issuance pursuant to the 1993 Plan by 200,000 shares to a total of 725,000
shares of Common Stock of the Company and directed that such amendment be
submitted for approval of Shareholders at the 1996 Annual Meeting. The 1993
Plan, which was adopted as of September 30, 1993, originally provided for the
grant to employees, officers, directors and consultants of stock options to
purchase up to 260,000 shares of Common Stock. On June 1, 1995, the Shareholders
approved an
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amendment to the 1993 Plan to increase the number of shares to a total of
425,000 shares of Common Stock of the Company. On June 12, 1996, the
Shareholders approved an amendment to the 1993 Plan to increase the number of
shares to a total of 525,000 shares of Common Stock of the Company. Should the
amendment not be approved, the 1993 Plan will remain in force without taking
into effect this proposed amendment.
The purpose of the 1993 Plan, which is unchanged by the proposed
amendment, is to advance the interests of the Company by encouraging and
enabling the acquisition of a financial interest in the Company by its
directors, officers, employees and consultants. The 1993 Plan is intended to aid
the Company in attracting and retaining competent employees, to stimulate the
efforts of such employees and to strengthen their desire to remain with the
Company. In order that the Plan may continue to serve its intended purposes, the
proposed amendment would increase the number of shares of Common Stock available
for issuance under the 1993 plan.
The following summary of the 1993 Plan, is qualified in its entirety by
reference to the text of the 1993 Plan, as amended.
Summary Description of the 1993 Plan
The 1993 Plan can be administered by either the Stock Option Committee
or the Board of Directors, who determine those individuals who will receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock that may be purchased under each
option and the option exercise price.
Options may be either "incentive stock options" within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified options, and may be issued to officers, directors and consultants,
as well as to employees of the Company. The per share exercise price of the
Common Stock subject to an incentive stock option may not be less than the fair
market value of the Common Stock on the date the option is granted. The per
share exercise price of the Common Stock subject to a non-qualified option may
be established by the Board of Directors of the Company, except that the Company
will not grant non-qualified options at an exercise price of less than 50% of
the fair market value of the Common Stock on the date the option is granted. No
person who owns, directly or indirectly, at the time of the granting of an
incentive stock option to him, 10% or more of the total combined voting power of
all classes of stock of the Company (a 10% Stockholder") will be eligible to
receive any incentive stock options under the 1993 Plan unless the option price
is at least 110% of the fair market value of the Common Stock subject to the
option, determined on the date of grant.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution, and, during the lifetime of an optionee,
the option will be exercisable only by him or by his legal guardian or legal
representative. In the event of termination of employment other than by death or
for cause the optionee will have three months after such
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termination during which he can exercise the option. Upon termination of
employment of an optionee by reason of death, his option remains exercisable for
one year thereafter to the extent it was exercisable on the date of such
termination.
No options under the 1993 Plan are permitted to be granted after the
tenth anniversary of the effective date of the 1993 Plan. All options granted
under the 1993 Plan cannot be exercised more than 10 years from the date of
grant except that options issued to a 10% Stockholder are limited to five year
terms. All options granted under the 1993 Plan provide for the payment of the
exercise price in cash or, with the approval of the Board of Directors of the
Company, by delivery to the Company of shares of Common Stock already owned by
the optionee having a fair market value equal to the exercise price of the
options being exercised, or by a combination of those methods of payment.
Therefore, an optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options with no additional investment other than his original shares.
Any unexercised option that terminated, is canceled or expires for any
reason without being exercised in full may again become available for issuance
under the 1993 Plan, unless the 1993 Plan has been terminated.
The Board of Directors may amend the 1993 Plan at any time, but except
in accordance with certain provisions of the 1993 Plan relating to certain
adjustments made if there is a reclassification or change of the share structure
of the Company, no change shall be made which will have a material adverse
effect upon any option previously granted unless the consent of the optionee is
obtained; provided, however, that the Board may not, without further approval of
the shareholders, (a) increase the maximum number of shares for which options
may be granted under the 1993 Plan, or (b) change the class of persons eligible
to receive options.
The number of stock options that will be awarded to the Company's Chief
Executive Officer and the other named executive officers of the Company pursuant
to the 1993 Plan are not currently determinable. No awards to the Company's
Chief Executive Officer and the other named executive officers were made in
1996. In 1996, no stock options under the 1993 Plan were granted to current
executive officers and approximately 30,640 stock options were granted to a
total of 2 employees and consultants, including all current officers who are not
executive officers. In 1996, no stock options were granted to Directors who were
not executive officers. To date, stock options have been granted at exercise
prices which range from $2.18 per share to $7.875 per share.
The closing market price of the shares of Common Stock underlying the
options as of April 28, 1997, was $1.50 per share.
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Federal Income Tax Consequences to the Company and the Optionees
The following is a summary of the Federal income tax consequences to
optionees in the 1993 Plan and to the Company, based upon current provisions of
the Code and regulations and rulings thereunder, and does not address the
consequences under any other applicable tax laws.
Incentive Stock Options. Some of the options granted under the 1993
Plan may constitute "Incentive Stock Options" ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Under
present federal tax regulations, there will be no Federal income tax
consequences to either the Company or an optionee upon the grant of an ISO, nor
will an optionee's exercise of an ISO result in Federal income tax consequences
to the Company. Although an optionee will not realize ordinary income upon his
exercise of an ISO, the excess of the fair market value of the Common Stock
acquired at the time of exercise over the option price may constitute an
adjustment in computing alternative minimum taxable income under Section 56 of
the Code, and, thus, may result in the imposition of the "alternative minimum
tax" pursuant to Section 55 of the Code on the optionee. If an optionee does not
dispose of Common Stock acquired through an ISO within one year of the ISO's
date of exercise, any gain realized upon a subsequent disposition of Common
Stock will constitute long-term capital gain to the optionee. If an optionee
disposes of the Common Stock within such one-year period, an amount equal to the
lesser of (i) the excess of the fair market value of the Common Stock on the
date of exercise over the option price or (ii) the actual gain realized upon
such disposition will constitute ordinary income to the optionee in the year of
the disposition. An additional gain upon such disposition will be taxed as
short-term capital gain. The Company will receive a deduction in an amount equal
to the amount constituting ordinary income to an optionee.
Non-Qualifying Stock Options. Certain stock options which do not
constitute ISOs ("Non-Qualifying Options") may be granted under the 1993 Plan.
Under present Federal income tax regulations, there will be no Federal income
tax consequences to either the Company or the optionee upon the grant of a
Non-Qualifying Option. However, the optionee will realize ordinary income upon
the exercise of a Non-Qualifying Option in an amount equal to the excess of the
fair market value of the Common Stock acquired upon the exercise of such option
over the option price, and the Company will receive a corresponding deduction.
The gain, if any, realized upon a subsequent disposition of such Common Stock
will constitute short-term or long-term capital gain, depending on the
optionee's holding period.
Recommendation
The Board of Directors recommends that the Shareholders vote FOR this
Proposal No. 2.
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INFORMATION CONCERNING MEETINGS OF THE BOARD OF
DIRECTORS AND BOARD COMMITTEES AND DIRECTOR COMPENSATION
During the year ended 1996, the Board of Directors held 3 meetings and
executed 2 unanimous written consents. During fiscal year 1996, all incumbent
directors attended or executed written consents with respect to at least 75% of
the aggregate of the total number of meetings and written consents of the Board
of Directors and the committees thereof on which they served, held during the
period that they served. The Board of Directors has standing stock option,
executive, audit and compensation committees. Each of the executive, audit and
compensation committees were formed by the Board of Directors on June 1, 1995.
The Board of Directors does not have any other committees. The usual functions
of a nominating committee are performed by the entire Board of Directors.
The functions of the stock option committee are to administer and grant
awards pursuant to the Company's stock option plan. The committee, which
executed 2 unanimous written consents, during 1996, currently consists of Marvin
Sharfstein, Matthew Shapiro and Roger Cooper.
The Executive Committee has all the Authority of the Board of Directors
except for certain authority relating to prohibited matters described in the
Company's Bylaws and in Section 712 of the Business Corporation Law of the State
of New York. The Committee, which did not meet during 1996, currently consists
of Byron Preiss, James Dellomo and Jack Romanos.
The functions of the Audit Committee are to consult with the Company's
internal accountants and independent auditors to review the Company's financial
statements and ascertain compliance with appropriate audit procedures. The
committee, which did not meet during 1996, currently consists of Jack Romanos,
Roger Cooper and Matthew Shapiro.
The functions of the Compensation Committee are to review and establish
compensation of the officers and employees of the Corporation. The Compensation
Committee, which did not meet during 1996, currently consists of Matthew
Shapiro, Jack Romanos and Byron Preiss.
The Company does not compensate directors for any service provided as
director of the Company. However, during 1996, directors (other than those
serving on the Stock Option Committee) were eligible to participate in the
Company's 1993 Stock Option Plan.
The New York Business Corporation Law ("NYBCL") authorizes the
indemnification of directors and officers in the defense of a civil or criminal
action or proceeding and the purchase of insurance in connection therewith. The
Company's By-Laws also provides for indemnification of present and former
directors and officers of the Company and the Company maintains insurance
covering certain liabilities of the directors and officers of the Company.
During 1996, there were no claims for any such indemnity.
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In accordance with Section 726(d) of the NYBCL, set forth hereafter is
a brief statement with respect to the directors and officers liability insurance
maintained by the Corporation. For the period April 28, 1996 to April 28, 1997,
such insurance coverage was obtained from National Union Fire Insurance Company
of Pittsburgh, P.A. The coverage is limited to $3,000,000 in the aggregate.
EXECUTIVE OFFICERS
Certain information is set forth below concerning the executive
officers of the Company who have been elected to hold office for such terms as
may be prescribed by the Board, and unless sooner removed in accordance with the
Bylaws of the Company or Dolphin, Inc., as the case may be, or until their
successors are duly elected and qualified. The executive officers of the Company
are as follows:
Name Age Position
- ---- --- --------
Byron Preiss................. 44 Chairman of the Board, President
and Chief Executive Officer
James R. Dellomo.......... 56 Chief Financial Officer,
Secretary and Treasurer
The business experience and current positions with the Company of Byron
Preiss and James Dellomo are described above. See "ELECTIONS OF DIRECTORS."
In addition, Andrew K. Gardner is the Chief Executive Officer,
President and a Director of Dolphin, Inc., a New Jersey corporation ("Dolphin"),
which has been a wholly-owned subsidiary of the Company since March 21, 1997.
Prior to the Company's acquisition of Dolphin, Mr. Gardner was the Chief
Executive Officer, President, a Director and sole Shareholder of Dolphin since
its inception in 1990.
There is no family relationship among any of the Officers and Directors
of the Company.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation, in excess of $100,000,
awarded to, earned by, or paid to the Company's Chief Executive Officer and the
four other most highly compensated executive officers (the "named executive
officers") for the years ended December 31, 1996, 1995 and 1994.
Summary Compensation Table
Securities
Name and Principal Position Fiscal Annual Compensation Underlying
- ----------------------------- Year Salary ($) Bonus ($) Options
------ ---------- ------------ ----------
Byron Preiss, 1996 $300,000 0 0
President and Chief 1995 $224,317 $100,000 0
Executive Officer 1994 $156,250 0 0
James R. Dellomo, 1996 $125,000 0 0
Chief Financial Officer 1995 $94,692 $10,000 10,000
and Treasurer 1994 $32,346 (1) 0 35,000
(1) Mr. Dellomo's employment by the Company commenced in June, 1994.
Aggregated Option Exercises and Fiscal Year End Option Values
The following table shows certain information as of December 31, 1996
concerning unexercised stock options held by the named executive officers that
were granted under the Company's 1993 Stock Option Plan, as amended. The Company
has not granted any SARs. None of the named executive officers exercised any
stock options during fiscal 1996.
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Options at 1996 Year at 1996
End (#) Year End ($)
------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
James R. Dellomo 26,665/18,335 0/0
Employment Agreements
On April 1, 1994, Byron Preiss entered into an Employment Agreement
with the Company, which was amended pursuant to an Amendment dated March 22,
1995 (the "Employment Agreement"). See "CERTAIN RELATIONSHIPS AND RELATED
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TRANSACTIONS--Agreements in connection with the Viacom Purchase Agreement." The
Employment Agreement provided for compensation of $112,500 for the nine-month
period commencing on April 1, 1994 and ending on December 31, 1994; $250,000 in
1995; $300,000 in 1996 $350,000 in 1997; and $350,000 plus such additional
amounts as is determined by the Board of Directors in 1998. Mr. Preiss may also
receive such additional compensation including, bonuses and raises, which the
Company's Board of Directors shall in the exercise of good faith and reasonable
discretion determine. The Employment Agreement terminates on December 31, 1998
and provides that Mr. Preiss will devote, on average, approximately seventy
(70%) percent of his working time to the Company. The agreement also provides
that Mr. Preiss has the option, in his discretion, to extend the term of the
Employment Agreement for an additional period of one year, at a base salary not
less than the base salary being paid at the end of the term. Mr. Preiss is
entitled to participate in all group health and insurance programs and other
fringe benefit or retirement plans or other plans effective generally with
respect to executive and other employees of the Company. In the event that the
Employment Agreement is terminated by the Company upon Mr. Preiss' death, his
estate shall be entitled to receive any accrued, but unpaid base salary as of
the date of death, plus Mr. Preiss' immediate family members shall be entitled
to continue to receive health insurance benefits for the balance of the term
with all premiums or other costs relating thereto being paid by the Company.
Upon termination of Mr. Preiss' employment because of permanent disability, Mr.
Preiss shall be entitled to receive the full base salary for a period of six
months and one-half base salary for an additional period of one year thereafter.
The Employment Agreement further provides that if (i) Mr. Preiss
voluntarily terminates his employment on or within ninety (90) days subsequent
to a "change of control" (the "Evaluation Period"), or (ii) Mr. Preiss'
employment is terminated during the Evaluation Period other than for cause, then
in either such event, the Company (a) shall pay to Mr. Preiss a lump sum payment
in an amount equal to one half of the aggregate annual rate of compensation then
being paid to or for the benefit of Mr. Preiss at the time of termination and
(b) during the 12 months following the termination date, shall continue certain
benefits to the extent that the same were available to Mr. Preiss or his
dependents prior to such termination. In addition, if Mr. Preiss has not entered
into full time gainful employment as a chief executive officer of a business or
non-profit enterprise within 180 days following the date of his termination,
then the Company shall pay to Mr. Preiss, in equal weekly installments, an
amount equal to one fifty-second (1/52nd) of the base amount for each week that
Mr. Preiss is not so employed, but in no event shall such payments continue
beyond the first anniversary of such termination date.
Under the Employment Agreement, a "change of control" shall be deemed
to have occurred if any person or group of persons acting in concert to control
the business, affairs or management of the Company, becomes the beneficial
owner, directly or indirectly, of securities of the Company representing more
than thirty-five (35%) percent of the combined voting power of the Company's
then outstanding securities other than by purchase of shares held by Mr. Preiss
or any affiliate thereof, or the Berman Group (as hereinafter defined).
Notwithstanding the foregoing, however, a "change of control" shall not be
deemed to be
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triggered by any acquisition of the Corporation's securities by Mr. Preiss or
any affiliate thereof, by Viacom International Inc. or any affiliate thereof, or
by the Berman Group. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Agreements in connection with the Viacom Purchase Agreement."
The loss of Mr. Preiss' services could have a material adverse effect
on the business of the Company. The Company has obtained two key-man life
insurance policies aggregating $2,950,000 to insure the life of Mr. Preiss, of
which the Company is the beneficiary.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1992, the Company issued to each of Mr. Byron Preiss and Berman
CD-ROM Partnership, L.P., a New York limited partnership (the "Berman
Partnership"), 1,067,000 shares of common stock of the Company for an aggregate
purchase price of $2,134. The Berman Partnership was a New York limited
partnership, comprised of individuals who other than through their ownership of
the Company's Common Stock are not affiliated with the Company. On December 28,
1994, the Berman Partnership was liquidated and all of the Berman Partnership's
holdings of shares of the Company's Common Stock were distributed to its
partners. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Transactions with Byron Preiss
Since inception, the Company has relied upon Mr. Byron Preiss to serve
as its Chief Executive Officer and President. The Company has licensed from
Byron Preiss Visual Publications, Inc. ("BPVP") the rights to materials which
have provided or will provide content for some of those products which the
Company has developed, is developing or plans to develop in the near future.
Currently, at least nine of the Company's products are or will be based, in
varying degrees, on material acquired from or through BPVP. In addition, the
Company's acquisition of properties and licenses from sources other than BPVP
has often been dependent upon Mr. Preiss' experience and contacts in the
book-publishing and audio and video software fields. See "EXECUTIVE
COMPENSATION--Employment Agreements."
Mr. Preiss, the Chief Executive Officer and President of the Company,
will also continue to serve as President and Chief Executive Officer of BPVP;
and as President of Byron Preiss/Richard Ballantine, Inc. and General Licensing
Company, Inc., which are companies that perform the same types of services (such
as book packaging) as performed by BPVP and Byron Preiss Electronic Books, Inc.
("BPEB"), which is currently an inactive company. In connection with Mr. Preiss'
Employment Agreement, BPVP and BPEB have agreed, by a separate agreement dated
April 1, 1994, as amended by an Amendment dated March 22, 1995, that through
January 1, 1997, (i) BPEB will not engage in the acquisition of CD-ROM and
on-line service rights and (ii) until such time as Mr. Byron Preiss is no longer
the Chief Executive Officer of the Company, that all future acquisitions of
CD-ROM rights by BPVP, other than in connection with its acquisition of any book
publication or other rights, shall be made for the
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benefit of and for use by the Company. See "EXECUTIVE COMPENSATION--Employment
Agreements". In addition, BPVP and BPEB have agreed that any sale of CD-ROM
rights by BPVP or BPEB to the Company shall be on terms competitive with the
purchase by the Company of similar rights from unaffiliated third parties. In
the event that BPVP acquires CD-ROM rights that are subsequently sold to anyone
other than the Company, all net profits of BPVP and BPEB from such sale shall be
paid to the Company. If BPVP obtains CD-ROM rights in connection with book
publication rights, BPVP has agreed that, if such rights are transferable, and
BPVP elects, at its option, to sell or license such rights to the Company, then
the Company may purchase or license such rights upon terms and conditions which
are at least as favorable as those it could achieve in arms length negotiations
with an independent third party. The Company has agreed that it will not acquire
additional CD-ROM rights from BPVP or BPEB until January 1, 1997, unless: (i)
the Company's Board of Directors determines that acquisition of additional
CD-ROM rights from BPVP or BPEB is necessary; or (ii) the Company acquires such
CD-ROM rights for a project currently in development. Notwithstanding the
foregoing, CD-ROM rights to certain works which were previously granted to BPVP
and BPEB and other companies controlled by Mr. Preiss may not be assignable to
the Company without further consents from the grantors to BPVP or BPEB, as
appropriate.
In addition, by agreement dated April 1, 1993, BPEB, of which Byron
Preiss serves as President and Chief Executive Officer, conveyed to the Company
all of BPEB's CD-ROM rights for Isaac Asimov's the Ultimate Robot and Gahan
Wilson's The Ultimate Haunted House, and the Company assumed all payment and
other obligations of BPEB relating to those properties. The Company paid BPEB
the sum of $49,549.81, constituting reimbursement to BPEB for all costs incurred
in the acquisition of these rights and not as an advance, royalty or by way of
any other compensation to BPEB for these two properties. By a separate
agreement, dated April 1, 1993, BPVP granted the Company the right to purchase
all CD-ROM rights owned by BPVP in six separate properties, i.e. Stan Lee's
Riftworld, Leonard Wolfe's The Essential Frankenstein and the Essential Dracula,
Arthur C. Clarke's Venus Prime, The Ultimate Dinosaur, Isaac Asimov's Robot City
and for certain titles in the Bank Street Ready to Read Series. These agreements
require the Company to pay royalties to BPVP ranging from 2.0% to 8.0% of net
revenues, depending upon the numbers of copies sold and require the Company to
pay certain advance royalties. BPEB does not currently retain CD-ROM rights to
any titles not transferred to the Company. BPVP retains the copyrights to
numerous books and also retains, or has assigned to licensors or co-publishers,
ancillary rights (such as CD-ROM rights) to those properties. BPVP has granted
to the Company certain electronic comic rights and the book rights to one (1)
novel relating to Stan Lee's Riftworld, the terms of which have not been
formalized in writing and are currently subject to negotiation between the
parties. With the approval of Simon & Schuster Book Publishing, Inc., a $25,000
payment was made from the Company to Byron Preiss/Richard Ballantine, Inc. in
connection with the Development Agreement (hereinafter defined) in order to
facilitate production of the book The Way Baseball Works, which is also the
title of a separate CD-ROM product being developed by the Company in connection
with the Development Agreement.
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The Company shared office space with BPVP and Byron Preiss Electronic
Books, Inc. from the Company's inception through February 1994. During such
time, BPVP provided all of the secretarial, bookkeeping and maintenance for the
office, for which BPVP charged the Company the amount of $1,700 per week. On
January 1, 1995, the Company entered into a one-year Management Services
Agreement (the "1995 Management Services Agreement") with BPVP pursuant to which
BPVP agreed to provide the Company with the services of certain employees, and
the use of certain office space, equipment, furniture, utilities and such other
items as the Company and BPVP may agree (collectively, the "Management
Services"). Pursuant to the 1995 Management Services Agreement, the Company paid
a total of $195,736 to BPVP during 1995. The Company entered into a one-year
Management Services Agreement, dated as of January 1, 1996 (the "1996 Management
Services Agreement"), with BPVP, which contains substantially the same terms and
conditions as set forth in the 1995 Management Services Agreement. In connection
with the 1996 Management Services Agreement, during 1996 the Company paid to
BPVP a total of $185,319. At this time, during 1997, the Company intends to
assume the lease on the eleventh floor and to sublet a portion of said space to
BPVP and related parties. Furthermore, certain employees of BPVP continue to
provide services to the Company and the Company may enter into a management
services agreement with BPVP for 1997, which agreement, if consummated, will
require the payment of substantially less fees than that required under the 1996
Management Services Agreement. In addition, approximately three former employees
of BPVP have been made employees of the Company since the inception of the
Company. The Company believes that the use of BPVP's facilities, employees,
resources and services have been and will continue to be upon terms and
conditions which the Company believes to be at least as favorable as could have
been obtained in arms-length negotiations with independent third parties.
The business of the Company has been and in the near future will
continue to be subject to certain potential conflicts of interest with respect
to the licensing of rights from BPVP and BPEP, the payment of continuing fees
and royalties to BPVP and BPEP, the acquisition of properties and allocation of
executive and staff time. The Company believes that the rights to properties
which it has obtained from BPVP and BPEP, and the availability of facilities,
resources and services from BPVP and BPEP, during the Company's initial
development stage, have been upon terms and conditions which the Company
believes to be at least as favorable as could have been obtained in arms-length
negotiations with independent third parties. However, the terms and conditions
of these licenses and arrangements with BPVP and BPEP, have not been determined
through arms-length negotiations. For the foreseeable future, the Company will
continue to rely upon the judgment of its Board of Directors, its executive
officers, including Byron Preiss and James Dellomo, to achieve arms-length terms
and conditions in these non arms-length transactions; and no formal oversight or
other independent mechanism will be utilized to ensure the fairness or
independent nature of such determinations. The Company believes that it has
benefitted and will continue to benefit from Mr. Preiss' book publishing and
software experience, from the ability to acquire CD-ROM rights from BPVP and
from the publication and publicity by BPVP and its book publisher licensees and
distributors of works for which the Company will be publishing CD-ROM products.
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Agreements in Connection with the Viacom Purchase Agreement
Pursuant to the terms of a Stock Purchase Agreement dated as of March
22, 1995 (the "Viacom Purchase Agreement"), the Company sold to Viacom
International Inc. ("Viacom"), a subsidiary of Viacom Inc. and an affiliate of
Simon & Schuster, Inc., for a total consideration of $5,964,000, paid in cash:
(i) 852,375 unregistered shares of the Company's Common Stock (representing an
aggregate of approximately 20% of the Company's outstanding Common Stock), (ii)
warrants to purchase an additional 315,000 shares of the Company's common Stock
at an exercise price of $7.00 each, and (iii) an additional warrant (the
"Additional Warrant") to purchase up to an aggregate of a number of shares of
Common Stock (the "Additional Warrant Shares") equal to, at any time, 20% of the
shares of Common Stock issuable upon the exercise of stock options (x) granted
pursuant to the Company's 1993 Stock Option Plan, as such plan may be amended
from time to time, and (y) granted to employees not pursuant to any stock option
plan, at an exercise price of $7.00 per share of Common Stock. The sale of the
Common Stock to Viacom represented the issuance by the Company, and the
ownership by Viacom, of approximately twenty percent (20%) of the Company's
outstanding shares of Common Stock, on a fully diluted basis on the date of
issuance. Pursuant to a Registration Rights Agreement, dated March 22, 1995, the
Company granted Viacom certain demand and incidental registration rights
pertaining to the Common Stock of the Company held by Viacom.
Pursuant to the terms of the Viacom Purchase Agreement, the Company,
among other things, has covenanted that it will not pay any cash dividends to
its shareholders without Viacom's prior written consent. In addition, Viacom,
Byron Preiss and the Berman Group (which consists of approximately six (6) other
shareholders of the Company who collectively own approximately twenty percent
(20%) of the Company's outstanding Common Stock, see "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"), entered into a Shareholders'
Agreement dated as of March 22, 1995 (the "Shareholders' Agreement"). Pursuant
to the terms of the Shareholders' Agreement, Mr. Preiss and the Berman Group
have agreed, among other things, to vote their shares of the Company's Common
Stock to elect to the Company's Board of Directors a nominee (or nominees) of
Viacom proportional to Viacom's stock ownership in the Company, with Viacom
being represented by at least one (1) seat on the Company's Board of Directors,
for so long as it shall continue to own at least ten percent (10%) of the
Company's issued and outstanding shares of Common Stock (on March 21, 1995, the
Company's Board of Directors, voted to increase its size from four (4) members
to five (5) members). In addition, pursuant to the terms of the Shareholders'
Agreement, Mr. Preiss and the Berman Group have granted Viacom a right of first
refusal (the "Right of First Refusal") with respect to any shares of the
Company's Common Stock which may in the future be sold by either Mr. Preiss or
members of the Berman Group. Viacom has agreed to provide a similar Right of
First Refusal to Mr. Preiss and the Berman Group with respect to any sales of
the Company's Common Stock sold by Viacom. Additionally, in consideration of the
grant to Viacom by Mr. Preiss and the Berman Group of the Right of First
Refusal, Viacom and the Company have granted to Mr. Preiss and the Berman Group,
incidental "piggy-back" certain registration rights with
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respect to any registration statement filed by the Company on behalf of Viacom,
to register Viacom's shares of the Company's Common Stock.
In connection with the transactions contemplated by the Viacom Purchase
Agreement, Mr. Preiss and the Company entered into an Amendment, dated March 22,
1995, (the "Amendment") to Mr. Preiss' Employment Agreement with the Company.
Pursuant to the terms of the Amendment, among other things, (i) the term of the
Employment Agreement was extended for an additional one (1) year period to
December 31, 1998; (ii) Mr. Preiss' compensation over the term was increased;
(iii) Mr. Preiss entered into a revised non-competition covenant with the
Company; and (iv) Mr. Preiss was given an option, at his discretion, to extend
the term of the Employment Agreement for an additional period of one year. See
"EXECUTIVE COMPENSATION -- Employment Agreements."
Simon & Schuster Agreement
In connection with the various transactions referred to above with
respect to the Viacom Purchase Agreement, the Company entered into a Software
Development Agreement, dated as of March 21, 1995, with Simon & Schuster
Interactive ("S&S"), a division of Simon & Schuster, Inc., which is an affiliate
of Viacom (the "Development Agreement"). Pursuant to the terms thereof, the
Company and S&S will jointly develop a minimum of four (4) and possibly up to a
maximum of eight (8) products in digital electronic media, based upon
pre-existing third-party and original works, using and contributing their joint
property, resources, names, talent and know-how. It is anticipated that the
joint works will initially consist of CD-ROM computer software products. In
connection with each joint work developed, S&S is to pay the Company an advance
of up to $375,000 against future royalty payments. Pursuant to a letter
agreement, the Company and S&S increased the amount of the advance to up to
$450,000.
During 1995, Simon & Schuster Interactive Distribution Services ("S&S"
Distribution"), a division of Simon & Schuster, Inc., distributed three (3) of
the Company's titles without a formal agreement. With a view towards enhancing
the distribution activities of the Company by, among other things, expanding the
Company's market penetration, the Company entered into a Distribution Services
Agreement (the "S&S Distribution Agreement"), dated as of January 1, 1996 with
S&S Distribution pursuant to which the Company granted to S&S Distribution: (i)
the exclusive right to market and distribute certain titles, and to provide
inventory, warehousing and fulfillment services for the titles in the United
States and Canada (the "Exclusive Territory") with the exception of certain
channels, including educational (academic) markets and direct-to-the-consumer
"special markets" (the "Non-Exclusive Channels"); (ii) the non-exclusive right
to market and distribute certain titles, and provide inventory warehousing and
fulfillment services for such titles, in the Non-Exclusive Channels in the
Exclusive Territory. The Company retained the right, directly and through other
distributors, to market and distribute such titles in the Non-Exclusive Channels
in the Exclusive Territory as well as all other territories other than the
Exclusive Territory. The S&S Distribution Agreement also provides for the
availability of manufacturing services and
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technical support services to be provided by S&S Distribution. Pursuant to the
S&S Distribution Agreement, S&S Distribution is required to use commercially
reasonable efforts to actively promote and sell each of the agreed upon titles.
S&S Distribution shall be entitled to receive, among other things, a monthly
distribution fee for rendering services in connection with the S&S Distribution
Agreement. Pursuant to the S&S Distribution Agreement, the Company is
responsible for product and packaging design as well as technical support if the
Company elects not to utilize S&S Distribution technical support services. The
S&S Distribution Agreement commenced on January 1, 1996 and shall continue for a
term of two years through December 31, 1997. The S&S Distribution Agreement is
automatically renewable for successive one-year terms unless either party
thereto elects to terminate such S&S Distribution Agreement, effective on the
anniversary date of January 1, on not less than sixty (60) days prior written
notice. Under the S&S Distribution Agreement various titles are distributed by
S&S Distribution, including The Frasier Companion; The Baywatch Companion with
Screensaver; The Ultimate Einstein; Westworld; Private Eye Game and Spider-Man:
The Sinister Six. In addition, the Company agreed to grant S&S Distribution the
right to distribute any and all titles that the Company develops, publishes or
for which the Company gains distribution rights throughout the term of the S&S
Distribution Agreement, with permitted exceptions.
Since fiscal 1996, Simon & Schuster Distribution Services, a division
of Simon & Schuster, Inc., has distributed certain of the Company's books
including, but not limited to, various Spider-Man books and Iron Man Steal
Terror. In connection therewith, the Company and Simon & Schuster Distribution
Services have been engaged in negotiating a Distribution Services Agreement
pursuant to which, among other things, the Company would grant to Simon &
Schuster Distribution Services the right to distribute 12 to 24 books per year.
Acquisition of Dolphin, Inc.
On March 21, 1997, the Company acquired all of the issued and
outstanding capital stock (the "Dolphin Shares") of Dolphin, Inc., a New Jersey
corporation ("Dolphin"), pursuant to the terms of a Stock Purchase Agreement
(the "Stock Purchase Agreement"), dated as of March 21, 1997 between the Company
and Andrew K. Gardner (the "Seller"). Dolphin is a provider of education,
tutorial and training software products.
Pursuant to the terms of the Stock Purchase Agreement, the Company
acquired from the Seller all of the Dolphin Shares, in exchange for the
following consideration (collectively, the "Consideration"): (a) Five Hundred
Eighty Thousand Dollars ($580,000.00) in cash, consisting of Five Hundred
Thousand Dollars ($500,000.00) payable by wire transfer and Eighty Thousand
Dollars ($80,000.00) deposited into an interest bearing escrow pursuant to the
terms of an escrow agreement; (b) a Convertible Note (the "Convertible Note") in
the principal amount of One Million Seven Hundred Fifty Thousand Dollars
($1,750,000.00), which Convertible Note is secured by a pledge of, among other
things, the Dolphin Shares pursuant to the terms of the Pledge Agreement (is
defined below) and (c) approximately 395,947 shares (the "Purchaser Shares") of
unregistered Common Stock of the Company.
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The Convertible Note bears interest at a rate of 7% per annum from and
after March 21, 1997 and is due on March 1, 2001 (the "Maturity Date"). The
outstanding principal balance of the Convertible Note on December 31, 1997,
together with interest accruing thereon, shall be repaid in 39 equal monthly
installments of $53,087.35 commencing January 2, 1998 and continuing on the
first business day of each succeeding month. The principal amount of the
Convertible Note, at the holder's option, may be converted into the number of
duly authorized, validly issued, fully-paid and non assessable shares of Common
Stock (the "Conversion Shares") equal to the then unpaid principal amount of the
Convertible Note being converted, divided by $5.75, as may be adjusted from time
to time in accordance with the terms of the Convertible Note. The Convertible
Note may be prepaid at the Company's option.
Pursuant to the terms of the Convertible Note, the entire unpaid
principal amount of the Convertible Note, together with accrued interest and
charges thereon shall be due and payable upon the occurrence of an "Event of
Default" under the Convertible Note. An "Event of Default" under the Convertible
Note shall include, such things as, (a) the Company's failure to make any
payment due thereunder within 10 days after the due date therefor and failure to
make such payment for an additional 30 days after written notice of such
non-payment; (b) the Company's breach of any material obligation under Section 5
of the Convertible Note, relating to conversion of the Convertible Note, if such
breach has not been cured within 60 days; (c) a Default (as described below)
under the Pledge Agreement giving due recognition of any notice and cure
provisions thereof. The Convertible Note also provides that the Maturity Date
may be accelerated in the event that (i) the Seller terminates his employment
under the Employment Agreement (as defined below) for "Good Reason" in certain
circumstance or (ii) Dolphin terminate Seller's employment under the Employment
Agreement without "cause". The indebtedness evidenced by the Convertible Note is
secured by the Stock Pledge Agreement, dated as of March 21, 1997 between the
Company and the Seller (the "Pledge Agreement").
Pursuant to the terms of the Pledge Agreement, the Company, among other
things, granted to the Seller a continuing lien and security interest in and to
the Dolphin Shares and the proceeds thereof. The Company also generally agreed,
among other things, (i) to maintain working capital (as defined in the Pledge
Agreement) and stockholder's equity (as defined in the Pledge Agreement) levels,
as provided therein, (ii) not to liquidate, dissolve, merge or consolidate
Dolphin or sell substantially all of its assets, (iii) not to borrow money from
any person other than the Company or loan money to any person other than the
Company and (iv) not to sell, lease, assign or grant a lien on the Dolphin
Shares. In addition, the Pledge Agreement, generally, provides that a "Default"
shall occur upon the occurrence of certain events including, but not limited
to,: (i) any "Event of Default" under the Convertible Note; (ii) failure to
perform, observe or comply with a material provision of the Pledge Agreement and
cure such breach after written notice thereof; (iii) a breach of a
representation or warranties contained in the Stock Purchase Agreement or any
officer certificate relating thereto; (iv) liquidation, dissolution of
termination of Dolphin; or (v) bankruptcy of the Company. Upon and after the
occurrence of a Default, the Seller may, among other rights and remedies,
exercise his right to sell the Collateral, or any part thereof in accordance
with and subject to the provisions described in the Pledge Agreement.
20
<PAGE>
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"), dated as of March 21, 1997, the Company granted Seller certain
demand registration rights pertaining to the Conversion Shares held by the
Seller and incidental "piggyback" registration rights pertaining to the
Purchaser Shares.
In connection with the transactions contemplated by the Stock Purchase
Agreement, Mr. Gardner and Dolphin entered into an Employment Agreement, dated
March 21, 1997 (the "Employment Agreement") for a three (3) year term, subject
to the possibility of earlier termination pursuant to the provisions of
paragraph 9 thereof. Pursuant to the terms of the Employment Agreement, Mr.
Gardner shall be employed as the President and Chief Executive Officer of
Dolphin. See "EXECUTIVE OFFICERS".
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP, certified
public accountants, as independent auditors to audit the accounts of the Company
for the fiscal year ending December 31, 1997. The Company has been advised that
representatives of Arthur Andersen, the Company's independent auditors for year
ended 1996, will attend the Meeting, will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership in respect of the Company's securities with the
Securities and Exchange Commission. Such persons are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations of certain of its officers and directors,
the Company believes that during 1994 all persons subject to the reporting
requirements of Section 16(a) filed the required reports on a timely basis
except for each of Allied Balkan, Baybridge Securities and Blue Chip Securities.
ANNUAL REPORT
A copy of the Company's 1996 Annual Report to Shareholders accompanies
this Proxy Statement. Any shareholder who has not received a copy of the 1996
Annual Report to Shareholders and wishes to do so should contact the Company's
Corporate Secretary, by mail at the address set forth on the notice of annual
meeting or by telephone at (212) 989-6252.
The Company will provide, without charge, to each Shareholder as of the
Record Date, on the written request of the Shareholder, a copy of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996, including the
financial statements and schedules, as filed with the Securities and Exchange
Commission. Shareholders should direct the written request to the Company's
Corporate Secretary at c/o Byron Preiss Multimedia Company, Inc. 24 West 25th
Street New York, New York 10010.
PROPOSALS BY SHAREHOLDERS
Any proposal of a Shareholder intended to be presented at the Annual
Meeting of Shareholders to be held in 1998, must be received by the Company no
later than January 30, 1998 to be considered for inclusion in the Proxy
Statement and form of proxy for the 1998 annual meeting. Proposals must comply
with Rule 14a-8 promulgated by the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934.
By Order of the Board of Directors.
BYRON PREISS
Chief Executive Officer
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BYRON PREISS MULTIMEDIA COMPANY, INC.
P
R Proxy Solicited on Behalf of the Board
O of Directors of the Company for the Annual
X Meeting of Shareholders - July 10, 1997
Y
The undersigned shareholder hereby appoints Byron Preiss and James R. Dellomo
and each of them, the true and lawful attorneys and proxies of the undersigned
with full power of substitution, to vote all shares of Common Stock of Byron
Preiss Multimedia Company, Inc. which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company to be held on July 10, 1997 and at
any and all adjournments and postponements thereof, for the transaction of such
business as may properly come before the Meeting, including the items set forth
on the reverse side hereof.
The shares represented by this Proxy will be voted in the manner directed
herein, but if no direction is made with respect to the voting of Common Stock,
this Proxy will be voted FOR the election of all listed directors and FOR
Proposal 2, all as more fully described in the accompanying Proxy Statement.
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The proxies cannot vote your
shares unless you sign and return this card.
<PAGE>
/ X / Please mark your votes as in this example
The Board of Directors recommends a vote FOR the Proposals.
1. Election of Directors. / / FOR all nominees listed below
/ / WITHHELD AUTHORITY to vote
for
all nominees below.
Byron Preiss, James R. Dellomo, Matthew Shapiro, Jack Romanos and Roger
Cooper.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name below.)
FOR AGAINST ABSTAIN
2. Amendment to the 1993
Stock Option Plan / / / / / /
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
Signature(s) __________________________ Date _________________
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
