As filed with the Securities and Exchange Commission on January 21, 1998
Registration No. ___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
--------------------------
FORM S-3
Registration Statement
Under
The Securities Act of 1933
--------------------------
BYRON PREISS MULTIMEDIA COMPANY, INC.
(Exact name of registrant as specified in charter)
New York 13-3676574
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
24 West 25th Street
New York, New York 10010
(212) 989-6252
(Address and telephone number of principal executive offices
and principal place of business)
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BYRON PREISS
President and Chief Executive Officer
Byron Preiss Multimedia Company, Inc.
24 West 25th Street
New York, New York, 10010
(212) 989-6252
(Name, address and telephone number of agent for service)
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Please send copies of all communications to:
KANE KESSLER, P.C.
1350 Avenue of the Americas
New York, New York 10019
Attn: Robert L. Lawrence, Esq.
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Title of each Proposed Proposed
class of maximum maximum Amount of
securities Amount offering price aggregate registration
to be registered registered per share offering price fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.001 par value 3,083,527(1) $1.50(1) $ 4,625,290.5(1) $1,364.47
Common Stock, 6,029,232(2) $1.50(2) $ 9,043,848 (2) $2,667.94
$.001 par value
Total Registration 9,112,759 $1.50 $13,669.138.5 $4,032.41
Fee
================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low sale
prices for the Common Stock on the NASDAQ Small Cap Market on January 16,
1998 of $1.50.
(2) Pursuant to 457(i), the Registrant is registering hereby such indeterminate
number of shares of Common Stock as may be issuable upon conversion of
certain convertible notes and convertible debentures and in lieu of
interest payments in the form of cash under certain of such notes and
debentures, without additional consideration to be received in connection
with such conversion, and the exercise of warrants, the total of which
shares of Common Stock is not anticipated to exceed 6,029,232. The
calculation of the filing fee is calculated with reference to such shares
and is based upon the average high and low sale prices for the Common Stock
on the NASDAQ Small Cap Market on January 16, 1998 of $1.50.
The Company hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Company shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities law of any such State.
SUBJECT TO COMPLETION, DATED JANUARY 21, 1998
PROSPECTUS
9,112,759 SHARES OF COMMON STOCK(1)
BYRON PREISS MULTIMEDIA COMPANY, INC.
This Prospectus relates to the registration of up to 9,112,759 shares (the
"Shares") of Common Stock, par value $.001 per share (the "Common Stock"), of
Byron Preiss Multimedia Company, Inc., a New York corporation (the "Company"),
which includes the registration of an indeterminate number of shares (the
"Conversion Shares"), estimated to be up to 6,029,232 shares of Common Stock
issuable upon conversion of certain convertible notes and convertible debentures
and in lieu of accrued interest in the form of cash under such notes and
debentures, and the exercise of certain warrants, that may be offered for sale
from time to time for the account of certain shareholders of the Company (the
"Selling Shareholders"). The Company will not receive any of the proceeds from
the sale of the Shares of Common Stock to be sold by the Selling Shareholders.
See "Use of Proceeds" and "Selling Shareholders."
The Common Stock is traded on the National Association of Securities
Dealers Automated Quotation System Small Cap Market ("NASDAQ Small Cap Market")
under the symbol "CDRM" and on the Boston Stock Exchange ("BSE") under the
symbol "BYP". On January __, 1998, as reported by the NASDAQ Small Cap Market,
the high and low bid prices of a share of Common Stock were $_________ and
$_________ per share, respectively.
The distribution of Shares of Common Stock by the Selling Shareholders may
be effected from time to time in one or more transactions (which may involve
block transactions) in the over-the-counter market, on the NASDAQ Small Cap
Market, the BSE, or on any exchange on which the Common Stock may then be
listed, in negotiated transactions, through the writing of options on shares
(whether such options are listed on an options exchange or otherwise), or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices. The Selling Shareholders may effect such transactions by selling Shares
to or through broker-dealers, and such broker-dealers may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Selling Shareholders and/or purchasers of shares for whom they may act as agent
(which compensation may be in excess of customary commissions). The Selling
Shareholders also may pledge shares as collateral for margin accounts and such
shares could be resold pursuant to the terms of such accounts. See "Selling
Shareholders."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. FOR A DISCUSSION OF CERTAIN
MATERIAL RISKS TO BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SHARES
OFFERED HEREBY, SEE "RISK FACTORS," WHICH BEGINS ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(1) To the extent allowable under the Securities Act of 1933, as amended,
including Rule 416 thereto, this Prospectus shall be deemed to cover an
indeterminate number of additional shares of Common Stock of the Company as may
become issuable upon conversion of the convertible debenture and convertible
notes of the Company issuable in exchange for the debentures and the exercise of
the warrants (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions, or (ii) by reason of changes in the
conversion price of the convertible debentures, convertible notes or the
exercise of warrants in accordance with the terms thereof.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
The date of this Prospectus is __________ __, 1998
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<PAGE>
INCORPORATION BY REFERENCE
The Company hereby incorporates into this Prospectus by reference the
following documents and the exhibits thereto previously filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act of 1993, as amended (the "Securities Act") and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"):
1. The Company's description of the Common Stock contained in the
Company's Registration Statement on Form 8-A pursuant to Section 12 of
the Exchange Act, including any amendment or report filed for the
purpose of updating such description;
2. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996;
3. Current Report on Form 8-K, dated February 5, 1997;
4. Current Report on Form 8-K, dated March 21, 1997, as amended on Form
8-K/A-1;
5. Current Report on Form 8-K, dated April 14, 1997;
6. Current Report on Form 8-K, dated November 3, 1997;
7. Current Report on Form 8-K, dated November 18, 1997;
8. Current Report on Form 8-K, dated November 26, 1997;
9. Current Report on Form 8-K, dated December 8, 1997;
10. Definitive Proxy Statement dated May 28, 1997, relating to the annual
meeting of shareholders held on June 26, 1997;
11. 1996 Annual Report to Shareholders, filed during May 1997;
12. Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1997;
13. Quarterly Report on Form 10-QSB for the quarterly period ended June
30, 1997; and
14. Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 1997.
In addition, all reports and other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the shares
shall be deemed to be incorporated herein by reference and to be a part hereof
from the date of filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified, or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person who receives a
Prospectus, upon the written request of such person, a copy of any of the
aforementioned documents, and all exhibits and amendments thereto, including the
financial statements and schedules, as filed with the Commission. Written
requests for such copies should be directed to the Company's Corporate Secretary
at c/o Byron Preiss Multimedia Company, Inc., 24 West 25th Street, New York, New
York 10010, (212) 989-6252.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus or incorporated by reference
herein. As used in the Prospectus, unless otherwise indicated or the context
otherwise requires, the terms "Company" or "BPMC" refer to Byron Preiss
Multimedia Company, Inc. and its consolidated subsidiaries.
THE COMPANY
Byron Preiss Multimedia Company, Inc. specializes in the development and
marketing of educational software and is a publisher of books and software for
the educational and consumer markets. The Company develops, publishes and
distributes interactive multimedia software on CD-ROM (Compact Disc-Read Only
Memory) and for on-line delivery and in such other formats as the Company deems
commercially viable in partnership with leading publishers and corporations. The
Company's primary business strategies include: (i) offering appealing products
developed through the exploitation of brand-name licenses in such fields as
business (Forbes), history (American Heritage) and science (Scientific
American); (ii) licensing the use and brand names of its already existing
products internationally to create additional revenue streams; and (iii)
developing strategic partnerships with market leaders to create new products
which appeal to consumers, including schools and libraries. The Company intends
to focus its business activities in the following three areas: (i) education;
(ii) multimedia, which includes on-line, Internet, CD-ROM and DVD (Digital
Versatile Disc) applications; and (iii) publishing.
The principal elements of the Company's growth strategy are: (i) promotion
of its educational software development business; (ii) internal growth of its
publishing business through maximization of its existing strategic partnerships
and the cultivation of new relationships; and (iii) the pursuit of strategic
acquisitions aimed at expanding or complementing its existing businesses.
However, there can be no assurance that the Company will be successful in
achieving its expansion goals.
The Company's strategy of growth through acquisition has enabled the
Company to expand its activities in the education market, which has in turn
permitted the Company to begin meeting its objective of refocusing its core
business on education and publishing from a prior concentration in the
development and marketing of CD-ROM products for the consumer market. The
Company's acquisition of Dolphin, Inc., a New Jersey corporation ("Dolphin"), a
producer of educational, training and tutorial software, has allowed the Company
to further penetrate the school and textbook markets. The Company already has
strategic international publishing relationships in the education software area
with: (i) Simon & Schuster ("S&S"), one of America's largest educational
publisher; (ii) Von Holtzbrink, a leading German publisher; (iii) Anaya, one of
the largest Spanish language publishers in the world; and (iv) Macmillan, one of
the largest educational publishers in the United Kingdom. In addition, as a
result of the Company's recent acquisition of Multi Dimensional Communications,
Inc., a New York corporation ("MDC"), a publisher and direct marketer of
multimedia educational products to schools, and New Media Schoolhouse, Inc., a
New York corporation ("NMS"), a catalog marketer of educational software, the
Company intends to expand its core business in areas that have greater potential
for continued growth is and for which development costs are lower than the
traditional CD-ROM consumer market. As the Company develops its educational
business and successfully integrates the businesses recently purchased, it hopes
to acquire other educational companies in order to become prominent in this
sector.
The Company is devoting considerable resources to establish an
Internet-based educational software store, using the NMS direct marketing
catalog as its basis. The Company hopes to become one of the leading sellers of
third party educational software to schools and libraries on the Internet. The
Company intends to continue to expand its publishing business by exploiting
current and developing new strategic partnerships which will enhance the
Company's market penetration. The current partnerships include relationships
with S&S, including the Pocket Books division of S&S
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<PAGE>
("Pocket Books"), and with Penguin Putnam Group, Inc. ("Penguin Putnam"). The
products developed through these strategic partnerships include books intended
to exploit the synergies between traditional print books, multimedia and the
Internet, such as books with the National Basketball Hall of Fame and Virtual
Comics paperbacks, as well as a book and CD-ROM packages, such as The Ultimate
Einstein(TM), which was authorized by the Estate of Albert Einstein. Some of
these titles will allow the Company to re-package or use in multiple media
formats underlying digital content of previously developed products and hence
derive additional revenue streams from the same license or property. In
addition, the Company is among the first to be selected by Intel to develop the
first DVD-ROM software products.
The Company's historic concentration on traditional self-financed and
marketed consumer entertainment CD-ROMs is no longer a primary focus of the
Company's core business, and the Company expects that portion of its business to
further decrease substantially. The Company believes that the redirection of its
core business will reduce the historic losses incurred by the Company in the
consumer software market and lead to the Company's profitability. The Company
only intends to continue the development of CD-ROMs with strategic partners that
are willing to assist in or completely underwrite the financing of the costs of
such efforts, such as its current X-Files: Unrestricted Access, which is
financed by Fox Interactive. If such partnerships can be created, the Company
will continue to develop and publish software on the Internet, CD-ROM or DVD-ROM
for use with personal computers, including Windows compatible and Apple
Macintosh PCs.
An investment in the Shares is subject to various risks. See "Risk
Factors."
The Company's executive offices are located at 24 West 25th Street, New
York, New York 10010. Its telephone number is (212) 989-6252.
The Offering
Common Stock outstanding at January _____, 1998(1) 7,399,438 shares
Common Stock offered by the Company ..................... 0 shares
Common Stock offered by the Selling Shareholders ........ 9,112,759 shares
Common Stock to be outstanding after the offering (1) ... 13,428,670 shares
Use of proceeds ......................................... The Company will
receive no proceeds
from the sale of the
shares of Common Stock
offered hereby. All
proceeds will be
received by the
Selling Shareholders.
See "Use of Proceeds"
NASDAQ Small Cap Market symbol .......................... "CDRM"
Boston Stock Exchange symbol ............................ "BYP"
- ----------
(1) Excludes (i) 725,000 shares of Common Stock reserved for issuance upon the
exercise of outstanding options under the Company's 1993 Stock Option Plan;
(ii) 22,000 shares of Common Stock reserved for issuance upon the exercise
of outstanding options not granted pursuant to any stock option plan; (iii)
1,417,500 shares of Common Stock available for issuance upon the conversion
of certain warrants of the Company issued in connection with the
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<PAGE>
Company's initial public offering and an underwriter's warrant issued in
connection therewith; and (iv) 350,000 shares of Common Stock reserved for
issuance upon the conversion of the 6% Debentures and the Reva Warrants
(each as hereinafter defined). See "Significant Developments."
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully the
following risk factors relating to the offering and the business of the Company,
together with the information and financial data set forth elsewhere in this
Prospectus, prior to making an investment decision. This Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements are indicated by words
or phrases such as "anticipate," "estimate," "project," "management believes,"
"the Company believes" and similar words or phrases. Such statements are based
on current expectations and are subject to risks, uncertainties and assumptions.
Certain of these risks are described below. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.
History of Losses from Operations and Retained Deficit; Future Losses
The Company has experienced losses since its inception in July 1992. The
Company's operations to date have been funded primarily by the proceeds of its
initial public offering (the "IPO"), the issuance of certain convertible notes
and convertible debentures, advance royalties and development fees from a
co-publisher, funds received as a result of the purchase by Viacom International
Inc. ("Viacom") in March 1995 of a 20% interest in the Company and to a lesser
degree from the sale of the Company's products. See "Business" and Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company's operating loss for the year ended December 31, 1996 was $3,692,794, as
compared with $5,327,503 for the nine month period ended September 30, 1997
("third quarter 1997"). At December 31, 1996, the Company had a retained deficit
of $6,289,105, as compared with $11,583,466 through third quarter 1997. The
Company is seeking to reduce its annual losses by reducing its costs, by
emphasizing those segments of its business which are profitable and through the
performance of its acquired businesses. There can be no assurance, however, that
the Company will be able to reduce its annual losses and turn profitable.
The Company is in its early stages of growth and is subject to the risks
inherent in such a business enterprise. The Company's future success will depend
upon increased revenue from the development and marketing of its book publishing
business and its ability to fully exploit the potential of recently acquired
educational businesses and businesses which may be acquired in the future. The
Company's future success will also significantly depend on its ability to reduce
costs as a percentage of revenues, which had dramatically increased in the last
several years as a result of higher development costs for certain CD-ROM titles
as well as the greater number of CD-ROM titles and books shipped and a general
decline in both wholesale and retail selling prices of consumer CD-ROM titles
without a corresponding reduction in costs of development of CD-ROM titles. The
Company believes that cost of revenues as a percentage of revenues will improve
as the Company refocuses its core business away from the development and
marketing of consumer CD-ROM titles. However, there can be no assurance that the
Company will be able to generate sufficient revenues with favorable gross
margins to cover its selling, general and administrative expenses or become
profitable.
In addition, the development and publishing process often encounters
unanticipated delays and expenses, extending projected time schedules and
increasing estimated expenses. The likelihood of the success of the Company's
business must be considered in light of the problems, expenses, difficulties,
complications and unforeseen delays frequently encountered in connection with
operation of a business and development of new technologies. Other factors
affecting the Company's future success include, but are not limited to, intense
competition, the need to develop customer support capabilities, dependence on
distribution of its products by third parties, the ability of the Company to
overcome problems and delays in product development, market acceptance, the cost
of sales and marketing including the cost of catalogs and postage for Multi
Dimensional Communications, Inc. and New Media Schoolhouse, Inc., and potential
returns of a material amount of the Company's products. There can be no
assurance that the Company's future results will improve or that the Company
will be able to attain profitability, and failure to do so could have material
adverse effect on the Company.
7
<PAGE>
Future Capital Needs and Substantial Indebtedness
At this time, the Company is pursuing various potential acquisitions. In
order to complete such acquisitions and to fund the future operations of these
acquisitions, as well as, to fund current on-going operations of the Company in
order to support its current working capital requirements, the Company is
required to raise additional capital. There can be no assurance that the Company
will be successful in raising such additional capital or that such additional
capital will be available on a timely basis or available on commercially
acceptable terms to the Company. The failure by the Company to currently raise
capital for each of the purposes discussed above will result in a material
adverse effect to the business and operations of the Company. Furthermore, there
can be no assurance that the Company will be able to pay the approximate $3.7
million owed under its convertible notes and convertible debentures in the event
that the holders thereof demand payment of the amounts due pursuant to the terms
thereof or even make required payments thereunder on a timely basis. Since it is
highly unlikely that the Company would have the funds needed to repay the
amounts outstanding under these debt instruments, non-payment would be an event
of default which could materially adversely affect the Company's ability to
continue its business.
As a result of its issuance of certain convertible notes and convertible
debentures, including the Gardner Convertible Note and the Vazzana Convertible
Notes (each as hereinafter defined), the Company is indebted to various third
parties in an amount equal to approximately $3.7 million. As security for
certain of these obligations, the Company has pledged the shares of Dolphin,
Inc. pursuant to the Dolphin Pledge Agreement (as hereinafter defined) and the
shares of Multi Dimensional Communications, Inc. and New Media Schoolhouse, Inc.
pursuant to the Orange Cherry Pledge Agreements (as hereinafter defined). Events
of default under these debt instruments include, among other things, (i) the
failure by the Company to pay any principal of, or interest on, these debt
instruments, or (ii) the failure by the Company to observe certain terms,
covenants or agreements, such as maintaining net worth and working capital
requirements, and observing capital expenditure limitations. Upon the occurrence
of an event of default, the holders of these debt instruments could foreclose on
their security interest in the Company's assets, the shares of Dolphin, Inc.,
Multi Dimensional Communications, Inc. and New Media Schoolhouse, Inc. Such
action would have a material adverse effect on the Company's business. See
"Significant Developments."
Market Acceptance of Products
The market for educational software and books and software products is
subject to frequent and rapid changes in consumer preferences. As a result, the
Company's development, growth and future financial performance will depend, in
part, upon its ability to profitably develop and market new products and satisfy
clients in order to accommodate the latest educational requirements. There is no
assurance that the Company's book and educational software products will remain
on sale for a period long enough to recoup costs or realize profits or that
other publishers of books and software products or hardware vendors will not
develop and market products which render the Company's products less
competitive. The Company will be required to devote substantial efforts and
financial resources to develop new products and will be required to engage in
the constant development and market introduction of new book and software
products and improvements to existing products. Moreover, legal and other costs
incurred in connection with content license acquisitions and the amount of time
such acquisitions consume may adversely affect the profitability of a title. The
Company's development, growth and future financial performance will also depend
heavily upon the Company's ability to identify and acquire companies which
profitably complement its existing educational businesses and the successful
integration of such newly acquired companies. There can be no assurance that the
Company will be able to identify and acquire strategic, complementary businesses
or successfully integrate them with the Company. The Company's future success
may also depend upon its ability to develop and market software titles in
partnership with companies willing to finance such ventures, since the Company
will no longer finance any entertainment titles independently due to the losses
it has historically incurred.
Possible Delisting of Securities on NASDAQ and the Boston Stock Exchange; Penny
Stock Registration
The Company's Common Stock is listed on the NASDAQ Small Cap Market and on
the BSE. In addition, NASDAQ has recently enacted new rules which are expected
to become effective February 23, 1998 which, among other things, subject a
NASDAQ Small Cap Market-listed company to new and higher maintenance standards,
including higher
8
<PAGE>
net tangible assets of $2.0 million and certain higher market capitalization and
public float requirements. In addition, the Company is subject to delisting if
its stock price falls below $1.00 per share for 30 days. In the event that the
Company is unable to meet any of such requirements, or in the event the
Company's stock price fails to return to the $1.00 per share threshold within 90
days for 10 consecutive trading days, the Company's Common Stock could be
subject to delisting by NASDAQ. If the Company experiences further losses it may
be unable to maintain the standards for continued listing and the listed
securities could be subject to delisting from the NASDAQ Small Cap Market and
the BSE. On January __, 1998, as reported by the NASDAQ Small Cap Market, the
high and low bid prices of a share of Common Stock were $_____ and $_____,
respectively. In light of the Company's current financial condition, it is
possible that the price of the Common Stock could fall below $1.00 per share,
which could result in delisting. In such event, trading, if any, in the listed
securities would thereafter be conducted in the over-the-counter market on an
electronic bulletin board or in what is commonly referred to as the "pink
sheets." As a result, an investor may find it more difficult to dispose of, or
to obtain accurate quotations as to the price of, the Company's securities. In
addition, if the Company's securities were delisted, they would be subject to a
rule that imposes additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally defined as an investor with a net worth in excess of $1.0
million or annual income exceeding $200,000, or $300,000 together with a
spouse). For transactions covered by this rule, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. Consequently,
delisting, if it occurred, may affect the ability of broker-dealers to sell the
Company's securities and the ability of investors to sell their securities in
the secondary market. See "Description of Securities."
The Commission has adopted regulations that define a "penny stock" to be
any equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule prepared by the
Commission relating to the penny stock market. A broker-dealer must also
disclose the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. While many
NASDAQ-listed securities are covered by the definition of penny stock,
transactions in a NASDAQ-listed security are exempt from all but the sole
market-maker provision for (i) issuers who have $2.0 million in tangible assets
($5.0 million if the issuer has not been in continuous operation for three
years), (ii) transactions in which the customer is an institutional accredited
investor, and (iii) transactions that are not recommended by the broker-dealer.
In addition, transactions in a NASDAQ security directly with a NASDAQ
market-maker for such securities are subject only to the sole market-maker
disclosure, and the disclosure with respect to commissions to be paid to the
broker-dealer and the registered representative. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules. The Company's
securities are not presently subject to penny stock rules. If the Company's
securities become subject to the penny stock rules, investors may find it more
difficult to sell their securities.
Substantial Amount of Common Stock Eligible for Future Sale
As of January __, 1998, the Company had 7,399,438 shares of Common Stock
outstanding. Of these shares, ____________ shares are freely tradeable under the
Securities Act by persons who are not "affiliates" of the Company (in general,
an affiliate is any person who has a control relationship with the Company). The
remaining _____________ outstanding shares of Common Stock are deemed to be
"restricted securities" as that term is defined in Rule 144, all of which will
become qualified for sale in the public market in compliance with Rule 144.
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock that are restricted securities, or the availability of
such shares for sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock and could impair the Company's future ability
to raise capital through an offering of equity securities.
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As part of the Company's acquisition strategy, the Company anticipates
issuing additional shares of its Common Stock. To the extent that the Company is
able to execute its acquisition strategy, the number of outstanding shares of
Common Stock that will be eligible for sale in the future is likely to increase
substantially. In addition, the potential issuance of additional shares in
connection with anticipated acquisitions could depress demand for the Common
Stock and result in a lower price than would otherwise be obtained. See "Shares
Eligible for Future Sale."
Immediate Substantial Dilution and Disproportionate Risk of Loss
Dilution to public investors may result to the extent that (i) the Gardner
Convertible Note, the Vazzana Convertible Notes, the European Debenture, the 6%
Debentures, the Bushinghall Debentures and the Additional Bushinghall Debentures
(each as hereinafter defined) are converted, (ii) the VenGua Warrants, the Reva
Warrants, the Bushinghall Warrants, the Additional Bushinghall Warrants, the
Trautman Warrants, the Additional Trautman Warrants (each as hereinafter
defined) certain warrants to purchase shares issued in connection with the
Company's initial public offering, including a warrant to the underwriters in
connection therewith and the Viacom Warrants (as hereinafter defined) and/or
outstanding stock options are exercised at a time when the net tangible book
value per share of Common Stock exceeds the exercise price of such convertible
securities, as the case may be. Furthermore, most of the present shareholders of
the Company have acquired their respective equity interests at a cost
substantially below the exercise price of the Warrants. See "SIGNIFICANT
DEVELOPMENTS."
In connection with the Viacom Purchase Agreement (hereinafter defined) the
Company issued to Viacom (collectively, the "Viacom Warrants") (i) warrants to
purchase 315,000 shares of Common Stock at an exercise price of $7.00 per share
and (ii) an additional warrant (the "Additional Viacom Warrant") to purchase up
to an aggregate of a number of shares of Common Stock (the "Additional Viacom
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 (the "1993 Plan"), and (y) granted to employees
not pursuant to any stock option plan, at an exercise price of $7.00 per share.
The existence of the Viacom Warrants, the Additional Viacom Warrants, the
Gardner Convertible Note, the Vazzana Convertible Notes, the European Debenture,
the VenGua Warrant, the Bushinghall Debenture, the Bushinghall Warrants, the
Additional Bushinghall Debentures, the Additional Bushinghall Warrants, the
Trautman Warrants, the Additional Trautman Warrants and the options that have
been or may be issued under the 1993 Plan or otherwise may prove to be a
hindrance to future financing efforts by the Company. Further, the holders of
such options and warrants may be able to exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. Furthermore, sales of substantial amounts of
shares underlying the aforesaid warrants and options could adversely affect
prevailing market prices for the Common Stock and the exercise of any such
options or warrants may dilute the net tangible book value of the Common Stock.
See "--Substantial Amount of Common Stock Eligible for Future Sale,"
"Significant Development," and "Selling Shareholders."
Risks Associated with Future Acquisitions
A key element of the Company's growth strategy is the acquisition of
businesses and assets that will complement its current businesses. There can be
no assurance that the Company will be able to identify attractive acquisition
opportunities, obtain financing for acquisitions on satisfactory terms or
successfully acquire identified targets. In addition, there can be no assurance
that the Company will be successful in integrating acquired businesses into its
existing operations or that such integration will not result in unanticipated
liabilities or unforeseen operational difficulties, which may be material, or
require a disproportionate amount of management's attention. Such acquisitions
may result in the Company incurring additional indebtedness or issuing preferred
stock or additional Common Stock. There can be no assurance that competition for
acquisition opportunities in the industry will not escalate, thereby increasing
the cost to the Company of making acquisitions or causing the Company to refrain
from making further acquisitions.
In addition, the Company may in the future incur certain obligations to
consultants or other parties in the course of its acquisition of new businesses
which may be dilutive to shareholders.
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Risks Associated with Managing a Growing Business
The Company has rapidly refocused its operations, and has placed
significant demands on its management, administrative, operating and financial
resources. The continued growth of the Company and the types of products offered
can be expected to continue to place a significant strain on the Company's
resources. The Company's future performance and profitability will depend in
large part on its ability to attract and retain additional management and other
key personnel, its ability to implement successfully enhancements to its
management systems and its ability to adapt those systems, as necessary, to
respond to growth in its business. No assurance can be made that the Company
will be able to hire such qualified persons as and when required.
Dependence Upon Key Personnel
The Company is substantially dependent upon the personal efforts and
abilities of Byron Preiss, the Company's President and Chief Executive Officer
and the Chairman of its Board of Directors, James R. Dellomo, its Chief
Financial Officer, the principal members of management of MDC and NMS. Should
any of these members of the Company's senior management be unable or unwilling
to continue in their present roles, the Company's business could be materially
adversely affected. The multimedia industry is characterized by a high level of
employee mobility and aggressive recruiting of skilled personnel. An inability
to attract, retain and motivate personnel required for the development,
maintenance and expansion of the Company would have an adverse effect on its
business. There can be no assurance that the Company will be successful in
attracting and retaining such personnel.
Software Technology; Lack of Patent Protection and Clearance of Rights;
Trademarks; Copyright
The Company will rely on a combination of contractual rights, trademarks,
trade secrets and copyright laws to establish or protect its technology in the
countries where it will conduct business. The Company will not possess patents
or other registered intellectual property rights with respect to some of its
software technology. There can be no assurance that the steps taken by the
Company to protect its rights will be adequate to deter misappropriation.
Furthermore, there can be no assurance that claims relating to the Company's
alleged infringement on the intellectual property of others will not be asserted
against the Company. Copyright and other proprietary rights to the use of
software and book material and material licensed for use therein is subject to
legal challenges in respect of all such rights. Moreover, as is the case in the
music recording industry, software is capable of being reproduced by
unauthorized persons. Any such unauthorized reproduction might be difficult to
police and could detrimentally affect the Company. Further, there can be no
assurance that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's. As
the number of interactive software products in the market increases and the
functionality of these products further overlaps, the Company believes that
interactive software may increasingly become the subject of claims that such
software infringes the copyrights or patents of others. Any such claims, with or
without merit, can be time consuming and difficult and expensive to defend. In
addition, the laws of some foreign countries do not protect proprietary rights
in products and technology to the same extent as do the laws of the United
States.
In addition, practically all of the content (text, excerpts, artwork, film,
photographs, plot, concepts, music, talent, programming and software) of the
Company's products will be used by the Company pursuant to rights obtained in
licensing agreements from others or under contracts with creative talent
including programmers, some of whom will be employees of the Company and others
who will be third party suppliers. See "Certain Relationships and Related
Transaction/Conflicts of Interest." The Company will, therefore, necessarily be
dependent upon the validity of its licensors' rights and the agreement and
financial capability of each licensor to indemnify the Company against any
claims, litigation and eventual damages from any such claims. This exposure is
increased by reason of the fact that each of the Company's products is expected
to include materials based upon rights obtained from a variety of different
licensors.
The Company currently owns federal trademarks which are Arts and
Commerce(R), Crayon Multimedia(R), The Ultimate Robot(R), Digital Bauhaus(R) and
Virtual Comics(R). In addition, the Company has approximately thirteen 13 active
trademark applications pending, including Baby Rom(TM), Hard Hat(TM), 21st
Century Classics(TM) and Brooklyn Multimedia(TM). There can be no assurance that
the Company will be granted registrations on any or all of such trademarks. The
failure
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to obtain a trademark registration may require the Company to select an
alternative trademark for that product or imprint, as the case may be.
Although the Company implements protective measures, by primarily filing
copyright and trademark applications when deemed appropriate, in order to defend
its material proprietary rights, there can be no assurance that such efforts
will be successful. The failure and ability of the Company to effectively
protect its proprietary information could have an adverse effect on the
Company's business.
Lack of Independent Distribution Capability and Other Distribution Risks
The Company is currently relying on a title by title basis on the retail
distribution capabilities of third parties, including Simon & Schuster
Interactive, Pocket Books, Penguin, Putnam and the use of other third party
distributors who also distribute products developed and published by competitors
of the Company. The success of these sales and distribution efforts from the
Company's perspective is predicated upon the quality and demand for its products
and those of its competitors, prices, the sales pitch and consumer tastes.
Without its own dedicated sales force, the Company cannot control the manner in
which its products are marketed and sold to the ultimate consumer. There can be
no assurance that the Company's current sales and distribution apparatus will
successfully promote and market the Company's products. If the Company were to
lose all or a significant portion of the revenue attributable to its principal
distributors, or if its principal distributors were to lose sales of the
Company's products to their principal accounts, the loss could have a material
adverse effect on the Company's operating results. The distribution channels
through which consumer software products are sold have been characterized by
rapid change, including consolidations and financial difficulties of certain
distributors and the emergence of new channels for distribution of consumer
products such as mass merchandisers. In addition, there is an increasing number
of companies competing for access to those channels. Intense competition exists
for recognition from large volume wholesalers and for retail shelf space in the
consumer software industry. A number of factors, including discounts to
wholesalers, customer service, marketing and promotional efforts and purchase of
shelf space, affect access to wholesalers and retailers. The Company believes
that its success will also be dependent on penetrating distribution channels,
including schools, libraries, bookstores and mass merchants. There can be no
assurance that the Company will be able to distribute its titles successfully or
compete for such limited shelf space with other companies, many of whom are
better financed and have superior marketing power than that of the Company. In
addition, any change, sale or merger of any company with whom the Company
currently has a distribution agreement could materially adversely affect the
Company. The Company's ability to market titles to the educational market is
subject in part to its ability to effectively mail its New Media Schoolhouse
catalog and update its Website.
Budget Considerations
NMS is a recipient of educational software funding by federal, state and
local governments and local boards of education. Budgetary allocations for
education are dependent, in part, upon government tax revenues and budgetary
constraints, which fluctuate from time to time. The federal, state and local
governments and boards of education have experienced budget deficits that have
led to decreased expenditures in education. The Company's results of operations
may be subject to substantial period-to-period fluctuations as a result of these
and other factors affecting capital spending. A reduction of funding for
education could materially and adversely affect the Company's business,
financial condition and results of operations.
Dolphin's revenues are dependant in part upon the budgets of educational
textbook publishers to commission software. There can be no assurance that such
budgets shall increase or stay at current levels. Moreover, the Internet may
also be a factor in that it may effect such budgets. A reduction of funding for
such software could materially and adversely effect Dolphin's business,
financial conditions and results of operations.
Seasonality and Product Development Schedule
The book and software industries are highly seasonal. Product demand
typically peaks during the holiday season. The Company believes that poor sales
performance by retailers during a holiday season may negatively impact on the
sales of the Company's titles. Timely releases to meet demand are crucial to
success, and delays will result in lost
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sales during peak times. Other factors that may lead to quarterly fluctuations
include delays in market acceptance of new products, timing of orders by
distributors and dealers, and direct-mail and other marketing expenditures.
Delays are prevalent in the business of software production. Schedule overruns
have short and long term effects. In the short term they drive development costs
up; in the long run they delay product shipment, could impair the Company's
credibility in the market place materially adversely effecting the ability of
the Company to obtain shelf space among key retailers and distributors and
possibly result in lower sales and margins. Similarly, cost overruns can slow
down the release of a product, inflate its sales price and diminish its
commercial appeal and profitability. The release dates for certain of the
Company's products are also dependent upon the timely completion of the
development work contracted to third parties over which the Company has only
limited control and the completion of acceptance procedures set forth in certain
of the Company's content license and joint venture agreements. Any delays in
planned delivery or release dates will correspondingly delay the Company's
receipt and recognition of revenues. See "Business--Publishing Schedule;
Marketing & Distribution." In addition, the failure by the Company to release
certain licensed titles by contractually stipulated dates could result in the
termination of many of the content licenses granted to the Company as well as
certain joint venture agreements. There can be no assurance that the Company
will be successful in meeting such contractually stipulated dates or obtaining a
waiver therefrom.
Conflicts of Interest
The business of the Company has been and will continue to be subject to
certain potential conflicts of interest with respect to the licensing of rights
from Byron Preiss Visual Publications, Inc. ("BPVP") and its affiliates, the
payment of continuing fees and royalties to BPVP, the acquisition of properties
and allocation of executive time and the use of certain BPVP staff by the
Company to support its publishing operations. In addition, the Company has
entered into certain agreements with Simon & Schuster Interactive, an affiliate
of Viacom, which owns approximately 13% of the outstanding Common Stock of the
Company. Furthermore, the Board of Directors of the Company includes one
director nominated by Viacom. Prospective investors should consider carefully
the information provided in "Certain Relationships and Related
Transactions/Conflicts of Interest."
Competition
The market for the Company's products is extremely competitive and the
Company expects competition to increase. The Company faces competition
principally in the areas of financial resources, technical know-how, access to
rights of popular licenses, attractiveness and efficacy of products, marketing
and distribution. It can be expected that there will be thousands of competitive
products on the market during the next several years. Many of the Company's
current and prospective competitors have significantly greater market
recognition and greater financial, technical, marketing and human resources than
the Company. There can be no assurance that the Company will be able to compete
successfully against existing companies or new entrants to the marketplace.
Furthermore, the development by competitors of new or improved products or
technologies, including the Internet, may render the Company's catalog or
products obsolete or less competitive.
Volatility of Market Price for Common Stock and Warrants
While the Company's Common Stock has been listed on the NASDAQ Small Cap
Market since May 1994, trading in the Company's Common Stock has been
characterized by a high degree of volatility. The market price of the Common
Stock is subject to significant fluctuations in response to variations in
quarterly operating results and other factors. In addition, the securities
markets have experienced significant price and volume fluctuations from time to
time in recent years, particularly with respect to companies in the technology
and computer related industries, that have often been unrelated or
disproportionate to the operating performance of particular companies. These
broad fluctuations may adversely affect the market price of the Common Stock. In
addition, trading in the Company's Common Stock, to date, have been dominated by
a related small number of firms which make a market in such securities. To the
extent that the market continues to be dominated by such market makers, the
market in the Company's Common Stock may continue to experience a high degree of
volatility. Such degree of volatility and market dominance may adversely affect
the price and liquidity of the Company's securities in the future.
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Possible Issuance of Preferred Stock; Anti-Takeover Provisions
The Company is authorized to issue up to 5.0 million shares of preferred
stock, $.001 par value (the "Preferred Stock"). The Preferred Stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the board of directors, without further action by shareholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion and
redemption rights and sinking fund provisions. No Preferred Stock is currently
outstanding, and the Company has no present plans for the issuance thereof. The
issuance of any Preferred Stock could affect the rights of the holders of Common
Stock and therefore reduce the value of the Common Stock and make it less likely
that holders of Common Stock would receive a premium upon a sale of their shares
of Common Stock. In particular, specific rights granted to future holders of the
Preferred Stock could be issued to restrict the Company's ability to merge with
or sell its assets to a third party, which could have the effect of delaying or
preventing a change of control of the Company and may adversely affect the
rights of holders of Common Stock and securities convertible into shares of
Common Stock. See "Description of Capital Stock -- Preferred Stock."
No Anticipated Dividends
The Company has not previously paid any dividends on its Common Stock and
for the foreseeable future intends to retain any earnings to finance the
development and expansion of its business. The declaration of dividends in the
future will be at the election of the Board of Directors, and will depend upon
the earnings, capital requirements and financial position of the Company, plans
for expansion, general economic conditions and other pertinent factors. In
addition, under the terms of the Viacom Purchase Agreement, the Company may not
pay any cash dividends to its shareholders without Viacom's prior written
consent. See "Certain Relationships and Related Party Transactions."
FOR ALL OF THE FOREGOING REASONS AND OTHERS SET FORTH IN THIS PROSPECTUS, THE
SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF THESE AND
OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SECURITIES SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY.
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SIGNIFICANT DEVELOPMENTS
The Company has pursued a strategy of growth through the acquisition of
businesses and assets that complement its existing product lines. Through
January ______, 1998, the Company has consummated the acquisitions and
transactions discussed below, and is continuing to pursue other acquisition
opportunities. In addition, during 1997 the Company completed the financings
described below through the issuance of convertible notes, convertible
debentures and warrants.
ACQUISITIONS AND OTHER TRANSACTIONS
Dolphin, Inc.
On March 21, 1997, the Company acquired all of the issued and outstanding
capital stock (the "Dolphin Shares") of Dolphin, Inc. pursuant to the terms of a
Stock Purchase Agreement (the "Dolphin Stock Purchase Agreement"), dated as of
March 21, 1997 between the Company and Andrew K. Gardner ("Gardner"). Dolphin is
a provider of educational, tutorial and training software products. The Company
anticipates that Dolphin's business will complement its existing business by,
among other things, enhancing the Company's capabilities to produce content for
educational and corporate clients and providing the Company with access to
testing, tutorial and training businesses for schools and corporations. The
Company has also introduced Dolphin to new clients through its existing
relationships, including Prentice-Hall and Silver Burdett.
Pursuant to the terms of the Dolphin Stock Purchase Agreement, the Company
acquired from Gardner all of the Dolphin Shares, in exchange for the following
consideration (collectively, the "Dolphin Consideration"): (a) $580,000 in cash,
consisting of $500,000 payable by wire transfer and $80,000 deposited into an
interest bearing escrow account pursuant to the terms of an escrow agreement;
(b) a convertible note (the "Gardner Convertible Note") in the principal amount
of $1.75 million, which is secured by a pledge of, among other things, the
Dolphin Shares pursuant to the terms of the Dolphin Pledge Agreement (as defined
below); and (c) approximately 395,947 shares (the "Purchaser Shares") of
unregistered Common Stock.
The Gardner 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 "Gardner Maturity
Date"). The outstanding principal balance of the Gardner Convertible Note on
December 31, 1997, together with interest accruing thereon, shall be repaid in
39 equal monthly installments of approximately $53,087 commencing January 2,
1998 and continuing on the first business day of each succeeding month. The
principal amount of the Gardner 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 "Gardner Conversion Shares") equal to the
then unpaid principal amount of the Gardner Convertible Note being converted,
divided by $5.75, as may be adjusted from time to time in accordance with the
terms of the Gardner Convertible Note. The Gardner Convertible Note may be
prepaid at the Company's option.
Pursuant to its terms, the entire unpaid principal amount of the Gardner
Convertible Note, together with accrued interest and charges thereon shall be
due and payable upon the occurrence of an "Event of Default" under the Gardner
Convertible Note. An "Event of Default" under the Gardner 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 Gardner
Convertible Note, relating to conversion of the Gardner Convertible Note, if
such breach has not been cured within 60 days; (c) a Default (as described
below) under the Dolphin Pledge Agreement giving due recognition of any notice
and cure provisions thereof. The Gardner Convertible Note also provides that the
Gardner Maturity Date may be accelerated in the event that (i) Gardner
terminates his employment under the Gardner Employment Agreement (as defined
below) for "Good Reason" in certain circumstances or (ii) Dolphin terminated
Gardner's employment under the Gardner Employment Agreement without "cause". The
indebtedness evidenced by the Gardner Convertible Note is secured by the Stock
Pledge Agreement, dated as of March 21, 1997 between the Company and Gardner
(the "Dolphin Pledge Agreement").
Pursuant to the terms of the Dolphin Pledge Agreement, the Company, among
other things, granted to Gardner 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 certain levels of working capital
and stockholder's equity, (ii) not to liquidate,
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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 Dolphin 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
Gardner Convertible Note; (ii) failure to perform, observe or comply with a
material provision of the Dolphin Pledge Agreement and cure such breach after
written notice thereof; (iii) a breach of a representation or warranty contained
in the Dolphin Pledge Agreement or a breach of certain representations or
warranties contained in the Dolphin 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, Gardner may, among other rights and remedies, exercise his right to
sell the Dolphin Shares, or any part thereof in accordance with and subject to
the provisions described in the Dolphin Pledge Agreement.
Pursuant to a Registration Rights Agreement (the "Gardner Registration
Rights Agreement"), dated as of March 21, 1997, the Company granted Gardner
certain demand registration rights pertaining to the Gardner Conversion Shares
held by Gardner and incidental "piggyback" registration rights pertaining to the
Purchaser Shares.
In connection with the transactions contemplated by the Dolphin Stock
Purchase Agreement, Gardner and Dolphin entered into an Employment Agreement,
dated March 21, 1997 (the "Gardner Employment Agreement") for a three year term,
subject to the possibility of earlier termination pursuant to the provisions of
paragraph 9 thereof. Pursuant to the terms of the Gardner Employment Agreement,
Gardner shall be employed as the President and Chief Executive Officer of
Dolphin.
Acquisition of Multi Dimensional Communications, Inc. and New Media Schoolhouse,
Inc.
On November 26, 1997, the Company acquired all of the issued and
outstanding capital stock of each of Multi Dimensional Communications, Inc. and
New Media Schoolhouse, Inc., pursuant to the terms of a Stock Purchase Agreement
(the "MDC Stock Purchase Agreement"), dated as of November 26, 1997 among the
Company and each of Nicholas S. Vazzana ("Nicholas") and Elaine Vazzana
("Elaine") (Elaine and Nicholas are collectively referred to herein as
"Vazzana"). The Company anticipates that the businesses of MDC and NMS will
complement its existing businesses by, among other things, enhancing the
Company's capabilities to market content to the educational market. The Company
intends to market most of its new educational titles through the catalogs of
Multi Dimensional Communications, Inc. The Company has also attracted many
previously unrelated software publishers to such Multidimensional catalogs,
including Simon & Schuster Interactive, Fox Interactive and Funk & Wagnalls
Interactive Encyclopedia. The Company is also overseeing the revision of the
catalog and website.
Pursuant to the terms of the MDC Stock Purchase Agreement, the Company
acquired from Vazzana all of the issued and outstanding capital stock of each of
MDC and NMS (the "Orange Cherry Shares"), in exchange for the following
consideration: (a) $36,133 deposited into an escrow account pursuant to the
terms of an escrow agreement; (b) convertible notes of the Company (the "Vazzana
Convertible Notes") in the aggregate principal amount of $375,000, which are
secured by a pledge of, among other things, the Orange Cherry Shares, pursuant
to the terms of the Orange Cherry Pledge Agreements (as defined below); and (c)
225,000 shares (the "Vazzana Purchaser Shares") of unregistered Common Stock.
Pursuant to the terms of the MDC Stock Purchase Agreement, the Company agreed to
guarantee an aggregate selling price of the Vazzana Purchaser Shares at $2.00
per share, before commissions or other transaction fees, for each such share
actually sold on a bona fide trade on the NASDAQ Small Cap Market or such other
exchange that the Common Stock is then listed or traded during the period
beginning one year and ending two years from November 26, 1997.
The Vazzana Convertible Notes bear interest at a rate of 6% per annum and
are due on January 2, 2000 (the "Vazzana Maturity Date"). The outstanding
principal balance of the Vazzana Convertible Notes on December 31, 1997,
together with interest accruing thereon, shall be repaid in 24 equal monthly
installments commencing February 1, 1998 and continuing on the first business
day of each succeeding month. The principal amount of the Vazzana Convertible
Notes, 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 "Vazzana Conversion Shares") equal to the then unpaid principal amount of
the Vazzana Convertible Notes being converted, divided by $5.75, as may be
adjusted from time to time in accordance with the terms of the Vazzana
Convertible Notes. The Vazzana Convertible Notes may be prepaid at the Company's
option.
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Pursuant to the terms thereof, the entire unpaid principal amount of the
Vazzana Convertible Notes, together with accrued interest and charges thereon
shall be due and payable upon the occurrence of an "Event of Default" under the
Vazzana Convertible Notes. An "Event of Default" under the Vazzana Convertible
Notes includes, such things as, (a) the Company's failure to make any payment
due thereunder within 20 business days after the due date therefor and failure
to make such payment for an additional 20 business days after written notice of
such non-payment; (b) the Company's breach of any material obligations under
Section 5 of the Vazzana Convertible Notes, relating to conversion of the
Vazzana Convertible Notes, if such breach has not been cured within 30 days; (c)
a "Default" (as described below) under the Orange Cherry Pledge Agreement giving
due recognition of any notice and cure provisions thereof.
The indebtedness evidenced by the Vazzana Convertible Notes are secured by
each of the Stock Pledge Agreement dated as of November 26, 1997 between the
Company and Elaine relating to the pledge of all of the outstanding shares of
NMS, and the Stock Pledge Agreement, dated as of November 26, 1997 between the
Company and Nicholas relating to the pledge of all of the outstanding shares of
MDC (collectively, the "Orange Cherry Pledge Agreements").
Pursuant to the terms of the Orange Cherry Pledge Agreements, the Company,
among other things, granted a continuing lien and security interest in and to
the Orange Cherry Shares and the proceeds thereof. The Company also agreed,
among other things, (i) not to liquidate, dissolve, merge or consolidate MDC or
NMS or sell substantially all of their assets, (ii) not to borrow money from any
person other than the Company or loan money to any person other than the Company
and (iii) not to sell, lease, assign or grant a lien on the Orange Cherry
Shares. In addition, the Orange Cherry Pledge Agreements generally provide that
a "Default" shall occur upon the occurrence of certain events described in the
Orange Cherry Pledge Agreements, such as: (i) any "Event of Default" under the
Vazzana Convertible Notes; (ii) failure to perform, observe or comply with a
material provision of the Orange Cherry Pledge Agreements and cure such breach
after written notice thereof; (iii) liquidation, dissolution or termination of
MDC or NMS; (iv) bankruptcy of the Company, or (v) the Company's dissolution or
inability to pay debts or appointment of a trustee of the Company. Upon and
after the occurrence of a Default, Vazzana may, among other rights and remedies,
exercise their right to sell the Orange Cherry Shares, or any part thereof in
accordance with and subject to the provisions described in the Orange Cherry
Pledge Agreements.
Pursuant to a Registration Rights Agreement (the "Vazzana Registration
Rights Agreement"), dated as of November 26, 1997, the Company granted to
Vazzana certain incidental "piggyback" registration rights pertaining to the
Vazzana Purchaser Shares and the Vazzana Conversion Shares.
Current Arrangements with OnRamp
During November 1997 the Company entered into a non-binding letter of
intent to acquire OnRamp Productions, LLC ("OnRamp"). OnRamp is a development
stage company preparing Internet based educational products. The Company is
currently in the process of negotiating definitive purchase agreements pursuant
to which it would acquire the outstanding capital stock and all technologies of
OnRamp in exchange for approximately 400,000 shares of Common Stock.
Virtual Comics
During 1997, Virtual Comics, Inc., a subsidiary of the Company, entered
into arrangements with America On-Line, Inc. and its affiliate ("AOL") pursuant
to which Virtual Comics, Inc. agreed to issue 19.9% of the common stock of
Virtual Comics, Inc. to AOL. In connection therewith, Virtual Comics entered
into a confidential interactive services agreement with AOL pursuant to which
Virtual Comics will provide a comics and comics commerce site through the AOL
network. Furthermore, in December 1997, Virtual Comics entered into a letter of
intent regarding a proposed private offering by Virtual Comics of, between $2.0
million and the maximum of $5.0 million, which may result in a substantial
dilution of the Company's interest in Virtual Comics, Inc. The Company believes
that, among other things, that such reduction in its equity interest is required
to raise sufficient capital necessary to provide adequate working capital for
Virtual Comics. There can be no assurance that the private placement will be
completed.
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High Text Interactive, Inc.
Byron Preiss Multimedia Holdings, Inc. ("BPMH"), a wholly-owned subsidiary
of the Company, is currently negotiating an Asset Purchase Agreement with High
Text Interactive, Inc. ("High Text") for the purchase of rights that High Text
has to certain computer software programs known as "Crash Course" and tangible
embodiments thereof (the "Crash Course Assets"), including the inventory of High
Text related to the Crash Course assets. It is anticipated that the purchase
price for the Crash Course Assets will be 150,000 shares of the Company's Common
Stock. The Company will guarantee an aggregate selling price of such shares at
$1.33 per share, before commissions on other transaction fees, during the period
beginning one year and exceeding 18 months after the closing. There is no
assurance that the acquisition of the Crash Course Assets will be completed or
if completed will not result in any claims being brought against the rights
acquired by BPMC to the Crash Course Assets.
FINANCING TRANSACTIONS
8% Convertible Debentures due January 31, 1999
On February 5, 1997, the Company completed the sale to certain European
investors of its 8% Convertible Debentures due January 31, 1999 (the "European
Debentures") in aggregate principal amount of $2.0 million, in reliance upon the
exemption from registration afforded under Regulation S of the Securities Act.
In connection with the transaction, the Company received net proceeds in
the amount of approximately $1.84 million. The European Debentures are
convertible, at the holders option, anytime commencing 45 days after the issue
thereof, into shares of Common Stock, at a conversion price per share equal to
the lower of (a) 70% of the average closing bid price of the Common Stock for
the five business days immediately preceding the conversion date or (b) 75% of
the average of the closing bid price of the Common Stock for the five business
days immediately preceding the date of subscription by the holder thereof, in
each case as reported by the NASDAQ Small Cap Market. The Company is entitled,
at its option, to redeem all or part of the European Debentures being converted
by paying to the holder thereof the product of (i) the average market price for
the five consecutive trading days as reported by the NASDAQ Small Cap Market
prior to the notice of conversion, and (ii) the number of shares of Common Stock
that would be issuable if the European Debentures were converted.
In addition, as part of its issuance of the European Debentures, the
Company issued to VenGua Capital Markets, Ltd., the European-based broker
involved in such transaction, warrants (the "VenGua Warrants") to purchase
50,000 shares of Common Stock. The VenGua Warrants are exercisable for shares of
Common Stock at any time from and after February 1, 1998 to and including
January 31, 1999, at a purchase price of $2.40 per share, which price may be
adjusted upon the occurrence of certain events.
On or about April 22, 1997, in accordance with the notices of conversion of
the European Debentures presented to the Company by each of the holders of the
European Debentures, the Company issued and delivered 785,176 shares of Common
Stock to Allied Balken, 219,849 shares of Common Stock to AT Investments,
753,769 shares of Common Stock to Baybridge Securities and 753,769 shares of
Common Stock to Blue Chip Securities. In the aggregate, the Company issued
shares of Common Stock, representing, at that time, approximately 35% of the
Company's issued and outstanding shares of Common Stock.
6% Convertible Debentures due October 31, 1999
On October 17, 1997, October 29, 1997 and November 18, 1997, the Company
completed the sale of its 6% Convertible Debentures due October 31, 1999 (the
"6% Debentures") to two investors in the aggregate principal amount of $300,000,
in reliance upon exemption from registration afforded under Regulation S of the
Securities Act.
In connection with the transaction, the Company received net proceeds in
the amount of approximately $227,500 (excluding legal, accounting and other
miscellaneous expenses). The proceeds are net of commissions and unaccountable
expense allowances paid to Heritage Equities Ltd. The 6% Debentures are
convertible, at the holders option, anytime commencing 60 days after the issue
thereof, into shares of Common Stock, at a conversion price per share equal to
the lower
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<PAGE>
of (a) 75% of the average closing bid price of the Common Stock for the five
business days immediately preceding the conversion date or (b) 80% of the
average of the closing bid price of the Common Stock for the five business days
immediately preceding the date of subscription, in each case as reported on the
NASDAQ Small Cap Market. The Company is entitled, at its option, to redeem part
or all of the 6% Debentures being converted by paying to the holder thereof the
product of (i) the aggregate principal amount of the 6% Debentures being
redeemed, and (ii) 130%.
In addition, the Company issued to warrants Reva Trading (Proprietary)
Limited , an investor in the 6% Debentures (the "Reva Warrants") to purchase an
aggregate of 50,000 shares of Common Stock. The Reva Warrants are exercisable
for shares of Common Stock at any time through October 31, 1999, at a purchase
price of $1.00 per share, which price may be adjusted upon the occurrence of
certain events.
6% Convertible Debentures due November 30, 1999
On December 8, 1997, pursuant to the terms of a Securities Purchase
Agreement, the Company completed the sale to Bushinghall Limited ("Bushinghall")
of its 6% Convertible Debentures due November 30, 1999 (the "Bushinghall
Debentures") in the aggregate principal amount of $1.3 million, in reliance upon
the exemption from registration afforded under Regulation D of the Securities
Act.
In connection with such transaction, the Company received net proceeds in
the amount of approximately $1,189,500 million (excluding legal, accounting and
other miscellaneous expenses), which, at this time, the Company intends to use
to complete acquisitions and for additional working capital. The proceeds are
net of a 8% commission and 0.5% unaccountable expense allowance paid to Trautman
Kramer & Company, Incorporated ("Trautman"). The Bushinghall Debentures are
convertible, at Bushinghall's option, anytime commencing 90 days after the issue
thereof, into shares of Common Stock, at a conversion price per share equal to
the lower of (i) the lowest three consecutive trading day average Market Price
(as hereinafter defined) for the 60 trading days ending on the day prior to the
conversion date or (ii) 125% of the Market Price on the issue date. With respect
to the Bushinghall Debentures, the term the "Market Price" generally shall be
the average closing bid price of the Common Stock as reported, at the option of
the holder, by Bloomberg, LP or by the National Association of Securities
Dealers or the closing bid price on the over-the-counter market. The Company
also issued to Bushinghall a warrant (the "Bushinghall Warrants") to purchase an
aggregate of 130,000 shares of Common Stock. The Bushinghall Warrants are
exercisable for shares of Common Stock at any time through November 30, 2002 at
purchase prices that range from $2.25 to $3.0375, which prices may be adjusted
upon the occurrence of certain events.
Pursuant to the terms of the Securities Purchase Agreement, the Company
unconditionally granted an option to Bushinghall (the "Bushinghall Option") to
purchase an additional $1,500,000 principal amount of the debentures (the
"Additional Bushinghall Debentures") on substantially the same terms as the
Bushinghall Debentures, including the issuance to Bushinghall of a Warrant (the
"Additional Bushinghall Warrant") to purchase an aggregate of 150,000 shares of
Common Stock.
In addition, the Company issued to Trautman and certain of its employees
warrants (the "Trautman Warrants") to purchase an aggregate of 182,000 shares of
Common Stock. The Trautman Warrants are exercisable for shares of Common Stock
at any time through November 30, 2002, at a purchase price of $2.70 per share,
which price may be adjusted upon the occurrence of certain events. In the event
that Bushinghall exercises the Bushinghall option, pursuant to the terms of the
Trautman Warrant, the Company has agreed to issue to Trautman a warrant to
purchase an aggregate of 210,000 shares of Common Stock on substantially the
same terms as the Trautman Warrants (the "Additional Trautman Warrant").
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<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered hereby. All proceeds will be received by the
Selling Shareholders. See "Selling Shareholders."
SELLING SHAREHOLDERS
An aggregate of up to 9,112,759 Shares of Common Stock may be offered by
the Selling Shareholders. The Shares offered hereby constitute approximately 68%
of all shares of the Company's outstanding Common Stock, after giving effect to
the issuance of 6,029,232 shares upon (i) the Gardner Convertible Note, the
Vazzana Convertible Notes, and the Bushinghall Debentures the Additional
Bushinghall Debentures and (ii) the Bushinghall Warrants, the Additional
Bushinghall Warrants, the Trautman Warrants and the Additional Trautman
Warrants, and without giving effect to the possible exercise of outstanding
options under the 1993 Plan. The table set forth below contains certain
information with respect to the beneficial ownership of the Company's Common
Stock as of January __, 1998, and as adjusted to reflect the assumed sale of all
of the Shares offered hereby by the Selling Shareholders. The Company will not
receive any proceeds from the sale of the Shares. The material relationships
within the past three years between any of the Selling Shareholders and the
Company or any of its predecessors or affiliates have been provided to the
Company by the Selling Shareholders and are described under the caption "Certain
Relationships and Related Transactions.
The Registration Statement to which this Prospectus is a part has been
filed with the Commission pursuant to and in accordance with certain agreements
relating to registration rights granted by the Company to each of the Selling
Shareholders (collectively the "Registration Rights Agreements"). See
"Significant Developments" and "Certain Relationships and Related Transactions"
for a description of the Registration Rights Agreements. All expenses of the
registration of certain of the Shares covered by this Prospectus will be borne
by the Company pursuant to the terms of the Registration Rights Agreements,
except that the Company will not pay any underwriting discounts and commissions
of underwriters, agents or dealers relating to the distribution of the Shares,
if any, transfer taxes and legal expense of the Selling Shareholders.
Pursuant to Rule 416 of the Securities Act, the Selling Shareholders may
also offer and sell Shares issued with respect to the convertible debentures,
convertible notes and warrants as a result of anti-dilution provisions,
including by reason of changes in the conversion price of the debenture and
stock splits, dividends and similar events.
<TABLE>
<CAPTION>
Maximum
to be sold Beneficial Ownership
Beneficial Ownership as in this After Offering
Selling Shareholder of January --, 1998(1) Offering (#of if Maximum is Sold(2)
Shares)
Amount Amount
(# of (# of
Shares) Percent Shares) Percent
<S> <C> <C> <C> <C> <C>
Andrew K. Gardner(3) 743,702 9.6% 743,702 0 *
Nicholas Vazzana(4) 214,521 2.9% 214,521 0 *
Elaine Vazzana (5) 46,229 * 46,229 0 *
Bushinghall Limited(6) 4,760,000 39.1% 4,760,000 0 *
Trautman Kramer & Company 297,000 3.9% 297,000 0 *
Incorporated(7)
David Stefansky(8) 35,000 * 35,000 0 *
Robert Kramer(8) 10,000 * 10,000 0 *
Gregory Trautman(8) 10,000 * 10,000 0 *
Mark Barbara(8) 5,000 * 5,000 0 *
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Maximum
to be sold Beneficial Ownership
Beneficial Ownership as in this After Offering
Selling Shareholder of January --, 1998(1) Offering (#of if Maximum is Sold(2)
Shares)
Amount Amount
(# of (# of
Shares) Percent Shares) Percent
<S> <C> <C> <C> <C> <C>
Richard Rosenblum(8) 35,000 * 35,000 0 *
Byron Preiss(9) 908,013 12.3% [0] 0 0
Preiss Charitable Foundation, Inc.(10) 78,987 1.1% [0] 0 0
Steven C. Berman(11) 45,000 * 45,000 0 *
Allison A. Berman Lifetime Income 143,333 1.9% 143,333 0 *
Trust(11)
Mark K. Berman Lifetime Income 143,333 1.9% 143,333 0 *
Trust(11)
Martin L. Berman Foundation(11) 320,866 4.3% 320,866 0 *
Viacom International, Inc.(12) 1,316,775 16.7% [0] 0 0
</TABLE>
- ------------------------
* Less than 1%.
(1) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (i) the power to vote, or direct
the voting of, such security or (ii) investment power which includes the
power to dispose, or to direct the disposition of, such security. In
addition, a person is deemed to be the beneficial owner of a security of
that person has the right to acquire beneficial ownership of such security
within 60 days.
(2) Assumes that all the shares of Common Stock offered pursuant to this
prospectus will be sold.
(3) Mr. Gardner's business address is c/o Dolphin, Inc. 10 Foster Street, Suite
A2, Gibbsboro, NJ 08026. Includes 343,702 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 the Gardner Convertible Note. See "Significant
Developments."
(4) Mr. Nicholas Vazzana's business address is c/o Multi Dimensional
Communications, Inc., 69 Westchester Avenue Pound Ridge, New York. Includes
64,521 shares of Common Stock, which can be exercised within 60 days by Mr.
Nicholas Vazzana at $5,75 per share, pursuant to the terms of a Vazzana
Convertible Note. See "Significant Developments."
(5) Ms. Elaine Vazzana's business address is c/o Multi Dimensional
Communications, Inc., 69 Westchester Avenue, Pound Ridge, New York.
Includes 4,609 shares of Common Stock, which can be exercised within 60
days by Ms. Elaine Vazzana at $5.75 per share, pursuant to the terms of a
Vazzana Convertible Note. See "Significant Developments."
(6) The address of Bushinghall Limited is 14 Arlozorov Street, Tel Aviv Israel.
Represents 2,080,000 shares of Common Stock issuable upon conversion of the
Bushinghall Debentures and 130,000 shares underlying the Bushinghall
Warrants. Also, includes 2,400,000 shares of Common Stock issuable upon
conversion of the Additional Bushinghall Debentures and 150,000 shares
underlying the Additional Bushinghall Warrants, which assumes that
Bushinghall fully exercises the Bushinghall Option to purchase all of said
Additional Bushinghall Debentures and Additional Bushinghall Warrants and
converts the maximum number of Additional Bushinghall Debentures and
Additional Bushinghall Warrants into shares of Common Stock. The actual
number of shares of Common Stock issued or issuable upon the conversion of
the Bushinghall Debentures and Bushinghall Warrants is
21
<PAGE>
subject to adjustment and could be materially less or more than such
estimated amount depending on factors that cannot be predicted by the
Company at this time, including, among others, the future market price of
the Common Stock. See "Significant Developments."
(7) The address of Trautman Kramer & Company Incorporated is 500 Fifth Avenue,
14th Floor, New York, NY 10110. Represents 87,000 shares of Common Stock
issuable under the form of Trautman Warrants. Also, includes 210,000 shares
of Common Stock underlying the Additional Trautman Warrants, which assumes
that Bushinghall exercises the Bushinghall Option to purchase all of said
Additional Bushinghall Debentures and Trautman Kramer & Company
Incorporated converts the maximum number of such Additional Trautman
Bushinghall Warrants into shares of Common Stock. See "Significant
Developments."
(8) The address of this Selling Shareholder is c/o Trautman Kramer & Company
Incorporated at 500 Fifth Avenue, 14th Floor, New York, NY 10110.
Represents shares issuable under the Form of Trautman Warrants. See
"Significant Developments."
(9) Excludes 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.
(10) Represents 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. The address is 50 Sutton Place South,
Apartment 8C, New York, New York 10022.
(11) 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 to the partners thereof (the "Berman Group"),
including, among others, Alison A. Berman Lifetime Income Trust, Mark K.
Berman Lifetime Income Trust, Steven E. Berman and Martin L. Berman
Foundation. 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 "Significant
Developments."
(12) 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 and 149,400 shares
underlying the Additional Viacom Warrant. See "Significant Developments,"
and "Immediate Substantial Dilutions and Disproportionate Risk of Loss."
PLAN OF DISTRIBUTION
The distribution of the Shares of Common Stock offered by Selling
Shareholders may be effected from time to time in one or more transactions
(which may involve block transactions) in the over-the-counter market, on the
NASDAQ Small Cap Market or on the BSE (or any exchange on which the Common Stock
may then be listed) in negotiated transactions, through the writing of options
(whether such options are listed on an options exchange or otherwise), or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. A Selling Shareholder may effect such transactions by selling Shares to
or through broker dealers, and such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the Selling
Shareholder and/or purchasers of Shares for whom they may act as agent (which
compensation may be in excess of customary commissions). A Selling Shareholder
also may pledge Shares as collateral for margin accounts and such Shares could
be resold pursuant to the terms of such accounts.
In order to comply with certain state securities laws, if applicable, the
Common Stock will not be sold in a particular state unless such securities have
been registered or qualified for sale in such state or any exemption from
registration
22
<PAGE>
or qualification is available and complied with. In addition, any securities
covered by this Prospectus which qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to this Prospectus.
The Selling Shareholders and any underwriters, dealers or agents that
participate in the distribution of Shares offered hereby may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any profit on the sale of such Shares by them and any discounts, commissions or
concessions received by any such underwriters, dealers or agents might be deemed
to be underwriting discounts and commissions under the Securities Act.
The Selling Shareholders will pay the commissions and discounts of
underwriters, dealers or agents, if any, incurred in connection with the sale of
the Shares. The Company will not receive any of the proceeds from sales of any
of the securities offered pursuant to this Prospectus by the Selling
Shareholders.
Each of the Selling Shareholders entered into a Registration Rights
Agreement with the Company, which generally provides for the registration of the
shares of Common Stock under the Securities Act and the blue sky laws of the
several states. Pursuant to each of such Registration Rights Agreements, the
Company is required, among other things, to bear the cost of such registration
and indemnify the Selling Shareholders against certain liabilities, including
those under the Securities Act. See "Selling Shareholders."
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Restated Certificate of
Incorporation, as amended, and its amended and restated by-laws, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
Common Stock
The Company is authorized to issue 30.0 million shares of Common Stock.
Holders of Common Stock are entitled to one vote for each share owned on all
matters submitted to a vote of shareholders. There is no cumulative voting with
respect to the election of directors. Therefore, the holders of more than 50% of
the shares voted in the election of directors can elect all of the directors.
Subject to the prior rights of any series of Preferred Stock which may be from
time to time outstanding, if any, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the board of
directors of the Company out of funds legally available therefor. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company after
payment of all debts and liabilities and liquidation preferences of any
outstanding shares of Preferred Stock, if any. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights.
As of January 20, 1998, there were 7,399,438 shares of Common Stock
outstanding.
Preferred Stock
The Board of Directors has the authority, without further action by
shareholders, to issue from time to time up to 5.0 million shares of Preferred
Stock in one or more series, and to fix the designation, preferences, powers,
and relative, participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, rights and terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the Common
Stock. The Company's Board of Directors, without shareholder approval, can from
time to time issue Preferred Stock with voting, conversion and other rights
which could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly with terms calculated
to delay or prevent a change in control of the Company without any further
action by the shareholders. No shares of Preferred Stock have been issued and
the Company has no present plan to issue any such shares. See "Risk
Factors--Possible Issuance of Preferred Stock; Anti-Takeover Provisions."
23
<PAGE>
Transfer and Warrant Agent
The Company has appointed Continental Stock Transfer & Trust Company as the
transfer agent for its Common Stock and warrant agent for its Warrants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1992, the Company issued to each of Byron Preiss and Berman CD-ROM
Partnership, L.P., a New York limited partnership (the "Berman Partnership"),
1,067,000 shares of Common Stock 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 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 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 Byron Preiss to serve as its
Chief Executive Officer and President and as Chairman of its Board of Directors.
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. 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 will also continue to serve as President and Chief Executive
Officer of BPVP 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 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
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
24
<PAGE>
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. As part of the Company's refocused efforts on education, certain
licensed titles such Arthur C. Clarke's VenusPrime, are unlikely to be made into
a CD-ROM.
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. During 1997, the Company assumed the lease on half of
the eleventh floor. Furthermore, certain employees of BPVP have continued to
provide services to the Company and BPVP has deferred, but not waived, any
reimbursement for such services. The Company did not enter into a management
services agreement with BPVP for 1997, but it intends to reimburse BPVP for
itemized expenses on an itemized basis. In addition, approximately three former
employees of BPVP have been made employees of the Company since the inception of
the Company and certain BPVP employees have provided freelance services, such as
writing, on a competitive basis. 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, as well as the co-publishing and distribution
agreements with S&S and Penguin Putnam, two companies with whom BPVP and its
affiliates does business. 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
and as books. During 1997, two books under the National Basketball Hall of Fame
name were published by the Company under a license assigned to it for no advance
by an affiliate of BPVP. In addition, a book and CD-ROM were published in 1997
by the Company based on a property owned by General Licensing Company, Inc.'s
"Is Your Teacher an Alien" and "My Teacher is an Alien."
25
<PAGE>
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, 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
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 Common Stock at an exercise price of $7.00 each, and (iii) an
additional warrant (the "Additional Viacom Warrant") to purchase up to an
aggregate of a number of shares of Common Stock (the "Additional Viacom 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 1993 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 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 other
shareholders of the Company who collectively own approximately 20% of the
Company's outstanding Common Stock, entered into a Shareholders' Agreement dated
as of March 22, 1995 (the "Shareholders' Agreement"). See "Security Ownership of
Certain Beneficial Owners and Management." 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 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
seat on the Company's Board of Directors, for so long as it shall continue to
own at least 10% of the Company's issued and outstanding shares of Common Stock.
In addition, pursuant to the terms of the Shareholders' Agreement, Mr. Preiss
and the Berman Group have granted to Viacom a right of first refusal (the "Right
of First Refusal") with respect to any shares of 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 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 "piggyback" certain registration rights with
respect to any registration statement filed by the Company on behalf of Viacom,
to register shares of Common Stock owned by Viacom.
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 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."
Agreements with Simon & Schuster
Simon & Schuster Interactive
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, a division of S&S and an affiliate of Viacom (the "Development
Agreement"). Pursuant to the terms thereof, the Company and Simon & Schuster
Interactive will jointly develop a minimum of four and possibly up to a maximum
of eight 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, Simon & Schuster Interactive is to pay the
26
<PAGE>
Company an advance of up to $375,000 against future royalty payments. Pursuant
to a letter agreement, the Company and Simon & Schuster Interactive increased
the amount of the advance to up to $450,000.
S&S Interactive Distribution Services
The Company has also entered into a Distribution Services Agreement (the
"S&S Distribution Agreement"), dated as of January 1, 1996 with S&S Interactive
Distribution Services ("S&S Distribution"), pursuant to which the Company, with
a view towards enhancing its distribution activities and expanding its market
penetration, 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 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 the agreement,
effective on the anniversary date of January 1, on not less than 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 certain exceptions.
The Company has not resolved certain accounting issues with S&S Distribution as
of this date.
Pocket Books
Since May 1997, S&S Distribution has distributed certain of the Company's
books. In connection therewith, on January 1, 1998, the Company and S&S
Distribution entered into a Distribution Services Agreement pursuant to which,
among other things, the Company granted to S&S Distribution the right to
distribute 12 to 24 books per year through Pocket Books (the Pocket Books
Distribution Agreement"). Pursuant to the terms of the Pocket Books Distribution
Agreement, Pocket Books distributes a broad array of products under the Byron
Preiss Multimedia Books imprint on such topics as pop culture and sports, both
in book format and in book and CD-ROM packages. Pocket Books will also provide a
variety of other services to the Company, including inventory, warehousing and
fulfillment, billing and collection services for the titles it distributes. The
Company also has co-published eight Marvel young adult books under a separate
agreement with Pocket Books.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Kane Kessler, P.C., 1350 Avenue of the Americas, 26th Floor, New
York, New York 10019.
EXPERTS
The audited financial statements as of and for the fiscal year ended
December 31, 1996, incorporated by reference in this prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
27
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at prescribed rates
at the public reference facilities maintained by the Commission at 450 Fifth
Street , N.W., Judiciary Plaza, Washington, D.C. 20549 and at the Commission's
regional offices located at 7 World Trade Center, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Reports, proxy and information statements
and other information regarding the Company may also be inspected at the offices
of the NASDAQ Small Cap Market, 1735 K Street N.W., Washington, D.C. 20006
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain portions
having been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is hereby made to such Registration Statement and the exhibits
and schedules thereto. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete,
although the material terms thereof are described in this Prospectus, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement. Each such statement is qualified by
such reference to such exhibits. A copy of the Registration Statement may be
inspected by anyone without charge at the Commission's principal office in
Washington D.C., at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and through the Commission's internet site at
http://www.sec.gov. Copies of all or any part of the Registration Statement may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W. Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission.
28
<PAGE>
================================================================================
No dealer, sales person or other person has been authorized to give any
information or to make any representation in connection with this offering other
than those contained in this Prospectus in connection with the offer contained
herein, and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy the shares of Common Stock in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction or in which the
person making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof.
------------------------
TABLE OF CONTENTS
Page
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Incorporation by Reference....................................................
Prospectus Summary............................................................
Risk Factors..................................................................
Significant Developments......................................................
Use of Proceeds...............................................................
Selling Shareholders..........................................................
Plan of Distribution..........................................................
Description of Capital Stock..................................................
Certain Relationships and Related Transactions................................
Legal Matters.................................................................
Experts.......................................................................
Additional Information........................................................
================================================================================
================================================================================
[LOGO]
BYRON PREISS
MULTIMEDIA
COMPANY, INC.
---------------
9,112,759 Shares
Common Stock
PROSPECTUS
___________ ___, 1998
---------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The Company's expenses in connection with the offering of the shares of
Common Stock described in this registration statement are set forth below. No
expenses will be borne by the Selling Stockholders. All amounts except the
Securities and Exchange Commission registration fee are estimated.
Securities and Exchange Commission registration fee............... $
Blue Sky fees and expenses........................................ $
Printing and engraving expenses................................... $
Legal fees and expenses........................................... $
Accounting fees and expenses...................................... $
Transfer agent fees and expenses.................................. $
Miscellaneous..................................................... $
-----
Total ........................................................... $
=====
Item 15. Indemnification of Directors and Officers.
The Company's Restated Certificate of Incorporation, as amended, provides
that the Company's directors have the authority to provide in the Company's
By-laws for the indemnification of directors and officers to the fullest extent
permitted by law, including without limitation to a greater extent than provided
in Sections 721 through 726 of the New York Business Corporation Law (the
"BCL"), as the same may be amended and supplemented, or any successor provisions
thereto.
The Company's Amended and Restated By-laws generally provide that: The
Company shall indemnify any present or former officer or director of the Company
or the personal representatives thereof, made or threatened to be made a party
in any civil or criminal action or proceeding by reason of the fact that he, his
testator or intestate, is or was a director or officer of the Company, or served
any other corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise in any capacity at the request of the Company, against
judgments, fines (including excise tax assessed on such a person in connection
with service to an employee benefit plan), amounts paid in settlement and
reasonable expenses, including without limitation, court costs, attorneys' fees
and disbursements and those of accountants and other experts and consultants
incurred as a result of such action or proceeding or any appeal therein, all of
which expenses as incurred shall be advanced by the Company pending the final
disposition of such action or proceeding. Such required indemnification shall be
subject only to the exception that no indemnification may be made to or on
behalf of any director or officer in the event and to the extent that a judgment
or other final adjudication adverse to the director or officer establishes that
his acts were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled (provided, that indemnification shall be made upon any
successful appeal of any such adverse judgment or final adjudication). For
purposes of indemnification, the Company shall be deemed to have requested such
present or former officer or director to serve an employee benefit plan where
the performance by such person of his duties to the Company also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan. The foregoing right of indemnification shall not
be deemed exclusive of any other rights to which any such person, his testator
or intestate, may be entitled apart from this provision.
II-2
<PAGE>
In addition, the Company and certain other persons may be entitled pursuant
to the Underwriting Agreement to indemnification by the Underwriter against
certain liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the Company or such persons may be
required to make in respect thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provision, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Company's Restated Certificate of Incorporation, as amended, provides
that the personal liability of the directors of the Company shall be eliminated
to the fullest extent permitted by the provisions of paragraph (b) of Section
402 of the BCL as the same may be amended and supplemented, or any successor
provision thereto. Section 402(b) of the BCL enables a corporation in its
Certificate of Incorporation to set forth a provision eliminating or limiting
the personal liability of Directors to the Corporation or its Shareholders for
damages for any breach of duty in such capacity, provided that no such provision
shall eliminate or limit: (i) the liability of a director if a judgment or other
final adjudication adverse to him establishes that his acts or omissions were in
bad faith or involve intentional misconduct or a knowing violation of law or
that he personally gained in fact a financial profit or other advantage to which
he was not legally entitled or that his acts of violated Section 719, or (ii)
liability of any director for any act or admission prior to the adoption of a
provision authorized by said paragraph.
Item 16. Exhibits.
Exhibit
No. Description
- ------- -----------
The following documents heretofore filed by the Company with the Securities
and Exchange Commission ("SEC") are hereby incorporated by reference:
3.1 Restated Certificate of Incorporation and Amendment thereto(1)
3.2 Amended and Restated By-laws(1)
4.1 Specimen Common Stock Certificate(1)
4.2 Specimen Redeemable Warrant Certificate(1)
4.3 Underwriter's Warrant Certificate(1)
4.4 Form of Warrant Agreement between the Company and Continental Stock
Transfer and Trust Company(1)
5.1 Opinion of Kane Kessler, P.C.(9)
10.1 Employment Agreement, dated April 1, 1994, between the Company and Byron
Preiss(1)+
10.2 Multimedia Publishing Agreement, dated July 1993, between the Company
and Microsoft Corporation(1)
10.3 1993 Stock Option Plan(1)+
10.4 Agreement of Lease, dated October 29, 1993, between the Company and
24-28 West 25th St. Associates, L.P.(1)
10.5 Voting Trust Agreement, dated July 15, 1993, among Robert Oehler and the
voting trustees, as amended(1)
10.6 Form of Consulting Agreement between the Company and Thomas James
Associates, Inc.(1)
10.7 Amendment, dated March 21, 1994, to Multimedia Publishing Agreement,
between the Company and Microsoft Corporation(1)
II-3
<PAGE>
10.8 Letter Agreement, dated April 1, 1993, between Byron Preiss Visual
Publications, Inc. ("BPVP"), and the Company.(1)
10.9 Letter Agreement, dated April 1, 1993, between Byron Preiss Electronic
Books, Inc., and the Company.(1)
10.10 $700,00 principal amount Promissory Note, dated June 11, 1993, payable
by the Company to the order of Berman CD-ROM Partnership, L.P., a New
York limited partnership; $25,000 principal amount Promissory Note,
dated June 25, 1993, payable by the Company to the order of Richard S.
Meisenberg; and $30,000 principal amount Promissory Note, dated July 27,
1993, payable by the Company to the order of Craig Gordon(1)
10.11 Agreement, dated March 1, 1993, between the Company and Doubleday, a
division of Bantam Doubleday Dell Publishing Group, Inc.(1)
10.12 Agreement, dated June 16, 1993, between the Company and W.H. Freeman &
Company, a division of Scientific American, Inc.(1)
10.13 Agreement, dated August 9, 1993, between the Company and David Larkin,
Paul Rocheleau and Michael Freeman(1)
10.14 Letter Agreement, dated May 15, 1992, between BPVP and Gahan Wilson and
letter agreement, dated July 14, 1993, between BPVP and Gahan Wilson(1)
10.15 Agreement, dated January 20, 1995, between Byron Preiss Video Production
Inc. and Ray Bradbury, and amendment thereto(1)
10.16 Agreement, dated October 30, 1992, between the Company and Philip
Marlowe, B.V.(1)
10.17 Letter Agreement (the "Letter Agreement"), dated April 1, 1994, among
the Company, BPVP, and Byron Preiss Electronic Books, Inc.(1)
10.18 Agreement, dated February 1, 1994, between the Company and Gaga
Communications, Inc.(1)
10.19 Letter Agreement, dated January 18, 1994, between the Company and Marvel
Entertainment Group, Inc.(1)
10.20 Affiliate Label Distribution Agreement dated June 21, 1994 between Time
Warner Interactive Group and the Company.(2)
10.21 Stock Purchase Agreement dated March 22, 1995 between Viacom
International Inc. and the Company.(2)
10.22 Registration Rights Agreement dated March 22, 1995 between Viacom
International Inc. and the Company.(2)
10.23 Software Development Agreement dated March 21, 1995 between Simon &
Schuster Interactive, a division of Simon & Schuster, Inc. and the
Company.(2)
10.24 Amendment, dated March 22, 1995, to the Employment Agreement, dated
April 1, 1994, between the Company and Byron Preiss(2)+
10.25 Agreement dated September 1, 1994 between Marvel Entertainment Group,
Inc. ("Marvel") and the Company.(2)
10.27 Warrant Agreement and Certificate dated March 22, 1995 between Viacom
International, Inc. and the Company.(2)
10.28 Warrant Agreement and Certificate dated March 22, 1995 between Viacom
International, Inc. and the Company.(2)
10.29 Management Services Agreement dated January 1, 1995 between the Company
and BPVP.(2)
10.30 1993 Stock Option Plan, as amended.(2)
10.31 Co-Publishing Agreement dated September 26, 1994 between Putnam Berkeley
Group, Inc. and the Company.(3)
10.32 Agreement dated as of February 15, 1995, between the Company and
Marvel.(3)
10.33 Agreement dated as of June 15, 1995 between Marvel and the Company.(3)
10.34 Agreement dated as of June 28, 1995 between Marvel and the Company.(3)
10.35 Agreement of Lease, effective as of September 1, 1995, between the
Company and 24-28 West 25th Street Associates, L.P.(3)
10.36 Agreement dated October 20, 1995 between the Company and Penguin
Electronic Publishing, a division of Penguin Books USA Inc.(3)
10.37 Management Services Agreement dated as of January 1, 1996 between the
Company and BPVP.(3)
10.38 CD-ROM Distribution and Replication Agreement dated February 2, 1996
between Macmillan Publishers Limited and the Company.(3)
10.39 Amended and Restated Distribution Agreement dated as of January 1, 1996
between Simon & Schuster Interactive Distribution Services, a division
of Simon & Schuster, Inc. and the Company.(3)
10.40 Amendment No. 3 to Multimedia Publishing Agreement, between the Company
and Microsoft Corporation.(2)
II-4
<PAGE>
10.41 Localization and Distribution Agreement dated as of February 23, 1996
between the Company and Systhema, A.G.(2)
10.42 Form of Offshore Securities Subscription Agreement regarding the
European Debentures.(4)
10.43 Form of European Debenture.(4)
10.44 Form of Warrant issued in connection with the European Debenture.(4)
10.45 Stock Purchase Agreement, dated as of March 21, 1997, between the
Company and Andrew K. Gardner.(5)
10.46 Convertible Note, dated March 21, 1997, in the principal amount of
$1,750,000 from the Company to Andrew K. Gardner.(5)
10.47 Dolphin Pledge Agreement, dated as of March 21, 1997, between the
Company and Andrew K. Gardner.(5)
10.48 Employment Agreement dated as of March 21, 1997 between Dolphin and
Andrew K. Gardner.(5)
10.49 Gardner Registration Rights Agreement, dated as of March 21, 1997,
between the Company and Andrew K. Gardner.(5)
10.50 Form of Offshore Securities Subscription Agreement regarding the 6%
Debentures.(6)
10.51 Form of 6% Debenture.(6)
10.52 Form of Warrant issued in connection with the 6% Debenture.(6)
10.53 Stock Purchase Agreement, dated as of November 26, 1997, among the
Company and each of Nicholas Vazzana and Elaine Vazzana.(7)
10.54 Form of Vazzana Convertible Note, dated November 26, 1997. (7)
10.55 Form of Stock Pledge Agreement, dated as of November 26, 1997. (7)
10.56 Registration Rights Agreement, dated as of November 26, 1997, among the
Company, Nicholas Vazzana and Elaine Vazzana.(7)
10.57 Securities Purchase Agreement, dated as of December 8, 1997 between the
Company and Bushinghall Limited.(8)
10.58 Bushinghall Debenture(8)
10.59 Bushinghall Warrant(8)
10.60 Registration Rights Agreement dated as of December 8, 1997 between the
Company and Bushinghall Limited.(8)
10.61 Form of Trautman Warrants(1)
10.62 Distribution Services Agreement, dated January 1, 1997 between Pocket
Books, a division of Simon & Schuster and the Company.(8)
21.1 Subsidiaries of the Company.(8)
23.1 Consent of Arthur Andersen LLP (8)
23.2 Consent of Kane Kessler, P.C. (included in 5.1)(9)
24.1 Power of Attorney (included on signature page)(8)
- -------------
(1) Incorporated by reference to the Registration Statement on Form SB-2
filed with the Securities and Exchange Commission on May 11, 1994 (No.
33-74990-NY).
(2) Incorporated by reference to the Post-Effective Amendment No. 1 to the
Registration Statement on From SB-2 filed with the Commission (No.
33-74990-NY)
(3) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1995 filed with the Commission on March 29, 1996.
(4) Incorporated by reference to the Current Report on Form 8-K (Date of
Event - February 5, 1997)
(5) Incorporated by reference to the Current Report on Form 8-K (Date of
Event - March 21, 1997)
(6) Incorporated by reference to the Current Report on Form 8-K (Date of
Event - October 17, 1997)
(7) Incorporated by reference to the Current Report on Form 8-K (Date of
Event - November 26, 1997)
(8) Filed herewith
(9) To be filed by amendment
(+) This Exhibit represents a management contract or compensatory plan.
II-5
<PAGE>
Item 17. Undertakings
The Company hereby undertakes
1. To file, during any period in which it offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of the Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
5. The Company hereby undertakes to deliver or cause to be delivered with
the prospectus, to each person to whom the prospectus is sent or given, the
latest annual report to security holders that is incorporated by reference in
the prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Exchange Act; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.
6. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent,
II-6
<PAGE>
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
7. (i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has fully caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in City of New York, State of New York, on January 16, 1998.
BYRON PREISS MULTIMEDIA COMPANY, INC.
By: /s/ Byron Preiss
--------------------------------------
Byron Preiss
Chief Executive Officer and President
January 16, 1998
II-8
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Byron Preiss and James R. Dellomo,
jointly and severally, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and all documents
relating thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Byron Preiss Chief Executive Officer, January 16, 1998
- ------------------------ President (Principal
Byron Preiss Executive Officer),
and a Director
/s/ James R. Dellomo Chief Financial Officer, January 16, 1998
- ------------------------ Treasurer (Principal
James R. Dellomo Financial Officer and
Principal Accounting
Officer), and a Director
/s/ Matthew Shapiro January 16, 1998
- ------------------------
Matthew Shapiro Director
/s/ Jack Romanos Director January 16, 1998
- ------------------------
Jack Romanos
/s/ Roger Cooper Director January 16, 1998
- ------------------------
Roger Cooper
II-9
<PAGE>
EXHIBIT INDEX
The following Exhibits are filed herewith:
Exhibit No. Description
- ----------- -----------
5.1 Opinion of Kane Kessler, P.C.*
10.57 Securities Purchase Agreement, dated as of December 8, 1997
between the Company and Bushinghall Limited.
10.58 Bushinghall Debenture
10.59 Bushinghall Warrant
10.60 Registration Rights Agreement dated as of December 8, 1997
between the Company and Bushinghall Limited.
10.61 Form of Trautman Warrants
10.62 Distribution Services Agreement, dated January 1, 1997
between Pocket Books, a division of Simon & Schuster
and the Company.
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Kane Kessler, P.C. (included in Exhibit 5.1).*
24.1 Power of Attorney (included on signature page)
- -----------------------
* To be filed by amendment
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between BYRON PREISS MULTIMEDIA COMPANY,
INC., a New York corporation, with headquarters located at 24 W. 25th St., New
York, NY 10010 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, 6% Convertible Debentures (the "Debentures"), of
the Company which which will be convertible into shares of Common Stock, $.001
par value per share of the Company (the "Common Stock"), upon the terms and
subject to the conditions of the such Convertible Debentures, together with the
Warrants (as defined below) exercisable for the purchase of shares of Common
Stock (the "Warrant Shares"), and subject to acceptance of this Agreement by the
Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions. (i) The undersigned hereby agrees to
purchase from the Company the Debentures in the principal amount set forth
on the signature page of this Agreement (the "Initial Debentures"), out of
a total offering of $2,800,000 of such Debentures, and having the terms and
conditions and being in the form attached hereto as Annex I. The purchase
price for the Initial Debentures shall be as set forth on the signature
page hereto and shall be payable in United States Dollars.
(ii) As used herein, the term "Debentures" means the Initial
Debentures and the Additional Debentures (as defined below), unless the
context otherwise requires.
(iii) As used herein, the term "Securities" means the Debentures, the
Warrants
1
<PAGE>
and the Common Stock issuable upon conversion of the Debentures or the
exercise of the Warrants.
b. Form of Payment. The Buyer shall pay the purchase price for the
Initial Debenture by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in the
Joint Escrow Instructions attached hereto as Annex II (the "Joint Escrow
Instructions"). No later than the Closing Date or each Additional Closing
Date (as those terms are defined below), as the case may be, but in any
event promptly following payment by the Buyer to the Escrow Agent of the
purchase price of the relevant Debentures, the Company shall deliver the
relevant Debentures duly executed on behalf of the Company to the Escrow
Agent. By signing this Agreement, the Buyer and the Company, and subject to
acceptance by the Escrow Agent, each agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all
of the provisions of which are incorporated herein by this reference as if
set forth in full.
c. Method of Payment. Payment into escrow of the purchase price for
the Initial Debentures shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: 637 - 1657450
Not later than 1:00 p.m., New York time, on the date which is two (2) New
York Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the
aggregate purchase price for the Initial Debentures, in currently available
funds. Time is of the essence with respect to such payment, and failure by
the Buyer to make such payment, shall allow the Company to cancel this
Agreement.
d. Escrow Property. The purchase price and the Debentures delivered to
the Escrow Agent as contemplated by Sections 1(b) and (c) hereof are
referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
2
<PAGE>
a. Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined in the Registration
Rights Agreement defined below), the Buyer is purchasing the Debentures and
the Warrants and will be acquiring the shares of Common Stock issuable upon
conversion of the Debentures (the "Converted Shares") and the Warrant
Shares for its own account for investment only and not with a view towards
the public sale or distribution thereof and not with a view to or for sale
in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the
kind described in this Agreement and the related documents, (iii) able, by
reason of the business and financial experience of its officers (if an
entity) and professional advisors (who are not affiliated with or
compensated in any way by the Company or any of its affiliates or selling
agents), to protect its own interests in connection with the transactions
described in this Agreement, and the related documents, and (iv) able to
afford the entire loss of its investment in the Securities.
c. All subsequent offers and sales of the Debenture and the shares of
Common Stock representing the Converted Shares and the Warrant Shares (such
Common Stock sometimes referred to as the "Shares") by the Buyer shall be
made pursuant to registration of the Shares under the 1933 Act or pursuant
to an exemption from registration.
d. The Buyer understands that the Debentures are being offered and
sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that
the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order
to determine the availability of such exemptions and the eligibility of the
Buyer to acquire the Debentures.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Debentures and the
offer of the Shares which have been requested by the Buyer, including Annex
V hereto. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality
of the foregoing, the Buyer has also had the opportunity to obtain and to
review the Company's (1) Annual Report on Form 10-K SB for the fiscal year
ended December 31, 1996, (2) Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, 1997, June 30, 1997 and September 30, 1997,
and (3) Forms 8-K, dated February 5, 1997, April 4, 1997, November 3, 1997
and November 18, 1997 (the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
3
<PAGE>
g. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of
the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
i. Notwithstanding the provisions hereof or of the Debenture, in no
event (except (i) with respect to an automatic conversion, if any, of a
Debenture as provided in the Debentures and (ii) if the Company is in
default under any Debenture or any of the Transaction Agreements, as
defined below) shall the holder be entitled to convert any Debenture to the
extent that, after such conversion, the sum of (1) the number of shares of
Common Stock beneficially owned by the Buyer and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debenture), and (2) the number
of shares of Common Stock issuable upon the conversion of the Debenture
with respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Buyer and its affiliates of
more than 4.99% of the outstanding shares of Common Stock. For purposes of
the proviso to the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), except as otherwise
provided in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. Concerning the Debentures and the Shares. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the
Debentures, the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or condition (financial or
otherwise) of the Company. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and
traded on The
4
<PAGE>
NASDAQ/SmallCap Market and The Boston Stock Exchange. The Company has
received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has
maintained all requirements for the continuation of such listing.
c. Authorized Shares. The Company has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the conversion of
the Debenture and to issue the Warrant Shares. The Converted Shares and the
Warrant Shares have been duly authorized and, when issued upon conversion
of, or as interest on, the Debenture or upon exercise of the Warrants, each
in accordance with its respective terms, will be duly and validly issued,
fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and
Stock. This Agreement and the Registration Rights Agreement, the form of
which is attached hereto as Annex IV (the "Registration Rights Agreement"),
and the transactions contemplated thereby, have been duly and validly
authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Debentures, the
Warrants and the Registration Rights Agreement, when executed and delivered
by the Company, will be, valid and binding agreements of the Company
enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
e. Non-contravention. Except as provided in Annex V hereto, the
execution and delivery of this Agreement and the Registration Rights
Agreement by the Company, the issuance of the Securities, and the
consummation by the Company of the other transactions contemplated by this
Agreement, the Registration Rights Agreement, and the Debenture do not and
will not conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default under (i) the articles of
incorporation or by-laws of the Company, each as currently in effect, (ii)
any indenture, mortgage, deed of trust, or other material agreement or
instrument to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for the
Common Stock except as herein set forth, (iii) to its knowledge, any
existing applicable law, rule, or regulation or any applicable decree,
judgment, or order of any court, United States federal or state regulatory
body, administrative agency, or other governmental body having jurisdiction
over the Company or any of its properties or assets, or (iv) the Company's
listing agreement for its Common Stock, except such conflict, breach or
default which would not have a material adverse effect on the Company or on
the transactions contemplated herein.
f. Approvals. Except as provided in Annex V hereto, no authorization,
approval or consent of any court, governmental body, regulatory agency,
self-regulatory organization, or stock exchange or market or the
Stockholders of the Company is required to be obtained by the Company for
the issuance and sale of the Securities to the Buyer as contemplated by
this Agreement, except such authorizations, approvals and consents that
have been obtained.
5
<PAGE>
g. SEC Filings. None of the Company's SEC Documents contained, at the
time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements made therein in light of the circumstances under which they
were made, not misleading. Except as set forth on Annex V hereto, the
Company has since September 1, 1996 timely filed all requisite forms,
reports and exhibits thereto with the SEC.
h. Absence of Certain Changes. Since January 1, 1997, there has been
no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or
results of operations of the Company, except as disclosed in Annex V or in
the Company's SEC Documents. Since January 1, 1997, except as provided in
the Company's SEC Documents, the Company has not (i) incurred or become
subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with
past practices; (ii) discharged or satisfied any material lien or
encumbrance or paid any material obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary course of
business consistent with past practices; (iii) declared or made any payment
or distribution of cash or other property to stockholders with respect to
its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims,
except in the ordinary course of business consistent with past practices;
(v) suffered any substantial losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of
any material amount of existing business; (vi) made any changes in employee
compensation, except in the ordinary course of business consistent with
past practices; or (vii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed
in the Company's SEC Documents), that has not been disclosed in writing to
the Buyer that (i) would reasonably be expected to have a material adverse
effect on the business or financial condition of the Company or (ii) would
reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement or any of
the agreements contemplated hereby (collectively, including this Agreement,
the "Transaction Agreements").
j. Absence of Litigation. Except as set forth in Annex V hereto, and
in the Company's SEC Documents, which the Buyer has reviewed, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company,
threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business or financial condition, or results of operation of the
Company and its subsidiaries taken as a whole or the transactions
contemplated by any of the Transaction Agreements or which would adversely
affect the validity or enforceability of, or the authority or ability of
the Company to perform its obligations under, any of the Transaction
Agreements.
6
<PAGE>
k. Absence of Events of Default. Except as set forth in Annex V hereto
and Section 3(e) hereof, no Event of Default (or its equivalent term), as
defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both,
would become an Event of Default (or its equivalent term) (as so defined in
such agreement), has occurred and is continuing, which would have a
material adverse effect on the Company's financial condition or results of
operations.
l. Prior Issues. Except as set forth in Annex V, during the twelve
(12) months preceding the date hereof, the Company has not issued any
convertible securities. The presently outstanding unconverted principal
amount of each such issuance as at November 25, 1997 are set forth in Annex
V.
m. No Undisclosed Liabilities or Events. Except as set forth in Annex
V hereto, the Company has no liabilities or obligations other than those
disclosed in the Company's SEC Documents or those incurred in the ordinary
course of the Company's business since January 1, 1997, and which
individually or in the aggregate, do not or would not have a material
adverse effect on the properties, business, condition (financial or
otherwise), or results of operations of the Company. No event or
circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), or results of
operations, which, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the Company
but which has not been so publicly announced or disclosed.
n. No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust or other
material instrument or agreement to which it is a party or by which it or
its property is bound.
o. No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since September 1, 1996, made any offer or sales of
any security or solicited any offers to buy any security under
circumstances that would eliminate the availability of the exemption from
registration under Rule 506 of Regulation D in connection with the offer
and sale of the Securities as contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of the
Debentures and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior
to the conversion of the Debentures. The Company's executive officers and
directors have studied and fully understand the nature of the Securities
being sold hereby and recognize that they have a potential dilutive effect.
The board of directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that
7
<PAGE>
its obligation to issue the Shares upon conversion of the Debentures and
upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Debentures
have not been and are not being registered under the provisions of the 1933 Act
and, except as provided in the Registration Rights Agreement, the Shares have
not been and are not being registered under the 1933 Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) the Buyer shall
have delivered to the Company and opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Securities to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Debentures and the Warrants, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all necessary
8
<PAGE>
filings in connection with the sale of the Debentures to the Buyer under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyer promptly after such filing.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Debentures, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company will take all reasonable action under its control to
continue the listing and trading of its Common Stock on The NASDAQ SmallCap
Market and will comply in all material respects with the Company's reporting,
filing and other obligations under the by-laws or rules of the National
Association of Securities Dealers, Inc. ("NASD") or The NASDAQ SmallCap Market.
f. Use of Proceeds. The Company will use the proceeds from the sale of the
Debenture (excluding amounts paid by the Company for legal fees, finder's fees
and escrow fees in connection with the sale of the Debentures) for internal
working capital purposes and for acquisitions of independent third parties, and
shall not, directly or indirectly, use such proceeds for any loan to or in any
other corporation, partnership, enterprise or other person, for redemption of
any previously issued securities of the Company or for investment in or
repayment of any obligation to any corporation, partnership, enterprise or other
person affiliated with the Company immediately prior to the execution and
delivery of this Agreement.
g. Future Purchases. (i) The Company unconditionally and irrevocably
agrees, at the option of the Buyer, to issue up to an additional $1,500,000
principal amount of Debentures (the "Additional Debentures") in one tranche (the
"Additional Tranche"), on the terms and subject to the conditions hereinafter
provided.
(ii) The closing for the Additional Tranche shall occur on a date (the
"Additional Closing Date"), which date shall not be later than the forty-five
(45) days after the Effective Date (as defined below) or as otherwise mutually
agreed upon by the Company and the Buyer. The closing of the Additional Tranche
shall be conducted upon the same terms and conditions as those applicable to the
Initial Debentures.
(iii) On the Additional Closing Date, (A) the Registration Statement
required to be filed under the Registration Rights Agreement shall continue to
be effective, (B) the representations and warranties of the Company contained in
Section 3 hereof shall be true and correct in all material respects (and the
Company's issuance of the Additional Debenture shall constitute the Company's
making each such representation and warranty as of such date), and (C) the
Market Price of the Common Stock (as defined below) for the five (5) trading
days immediately preceding the Additional Closing Date shall exceed $2.30 per
share, (D) the dollar volume for trading for the Common Stock for each of the
ten (10) trading days preceding the Additional Closing Date shall have equaled
or exceeded $120,000.00, and (E)
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<PAGE>
there shall have been no material adverse changes (financial or otherwise) in
the business or conditions of the Company from the Closing Date through and
including the Additional Closing Date (and the Company's issuance of the
Additional Debentures shall constitute the Company's making such representation
and warranty as of such date).
(iv) The term "Market Price of the Common Stock" means, the closing bid
price of the Common Stock as reported, at the option of the Buyer, by Bloomberg,
LP or the National Association of Securities Dealers.
h. Certain Agreements. (i) The Company covenants and agrees that it will
not, without the prior written consent of the Buyer, enter into any subsequent
or further offer or sale of Common Stock or securities convertible into Common
Stock with any third party until the date which is the later of (i) one hundred
eighty (180) days after the Closing Date or (ii) sixty (60) days after the
Additional Closing Date.
(ii) The provisions of subparagraph (h)(i) will not apply to (x) the
issuance of securities (other than for cash) in connection with a merger,
consolidation, sale of assets, disposition, (y) the exchange of the capital
stock for assets, stock or other joint venture interests, or (z) the issuance of
securities specified in item 4(h) of Annex V hereto; provided, however, that any
action contemplated under clauses (x) and (y) of this subparagraph (h)(ii) is
subject to the condition that registration rights, if any, in connection with
such action shall not require the filing of a Registration Statement in respect
of such stock prior to sixty (60) days after the Effective Date.
(iii) The term "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as defined in the
Registration Rights Agreement).
i. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield one hundred fifty percent (150%) of the number of shares of
Common Stock issuable (i) at conversion as may be required to satisfy the
conversion rights of the Buyer pursuant to the terms and conditions of the
Debenture and (ii)upon exercise as may be required to satisfy the exercise
rights of the Buyer pursuant to the terms and conditions of the Warrants
j. Warrants. The Company agrees to issue to the Buyer on each of the
Closing Date and the Additional Closing Date transferable, divisible warrants
with cashless exercise rights (the "Warrants") for the purchase of 100,000
shares of Common Stock for each $1,000,000 principal amount of the Debentures
funded on such date (pro rata for amounts less than $1,000,000) . The Warrants
shall bear an exercise price equal to a percentage of the closing bid price of
the Common Stock on the Closing Date in accordance with the following schedule:
At Price (as Percentage of
Amount of Warrants Exercisable Closing Date Closing Bid Price)
------------------------------ -------------------------------
10
<PAGE>
25% of the Warrants 100%
25% of the Warrants 115%
25% of the Warrants 120%
25% of the Warrants 135%
The Warrants shall be exercisable immediately and for a period of five (5) years
thereafter and shall be in the form annexed hereto as Annex VI, together with
registration rights as provided in the Registration Rights Agreement.
k. Limitation on Issuance of Shares. The Company may be limited in the
number of shares of Common Stock it may issue by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded ("Cap Regulations"). Without limiting the other provisions
thereof, the Debentures shall provide that (i) the Company will take all steps
reasonably necessary to be in a position to issue shares of Common Stock on
conversion of the Debentures without violating the Cap Regulations and (ii) if,
despite taking such steps, the Company still can not issue such shares of Common
Stock without violating the Cap Regulations, the holder of a Debenture which can
not be converted as result of the Cap Regulations (each such share, an
"Unconverted Debenture") shall have the option, exercisable in such holders'
sole and absolute discretion, to elect either of the following remedies:
(x) require the Company to issue shares of Common Stock in
accordance with such holder's notice of conversion at a
conversion purchase price equal to the average of the closing bid
price per share of Common Stock for any five (5) consecutive
trading days (subject to certain equitable adjustments for
certain events occurring during such period) during the sixty
(60) trading days immediately preceding the date of notice of
conversion; or
(y) require the Company to redeem each Unconverted Debenture
for an amount (the "Redemption Amount") equal to:
V x M
-----
CP
where:
"V" means the principal of an Unconverted Debenture plus any
accrued but unpaid interest thereon;
"CP" means the conversion price in effect on the date of
redemption (the "Redemption Date") specified in the notice from
the holder of the Unconverted Debentures electing this remedy;
and
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<PAGE>
"M" means the highest closing bid price per share of the
Common Stock during the period beginning on the Redemption Date
and ending on the date of payment of the Redemption Amount.
The Debentures shall contain provisions substantially consistent with the above
terms, with such additional provisions as may be consented to by the Buyer. The
provisions of this paragraph are not intended to limit the scope of the
provisions otherwise included in the Debentures.
l. Hedging Transactions. The Company understands that the Buyer may be a
so-called "hedge" fund, and the Company hereby expressly agrees that the Buyer
shall not in any way be prohibited or restricted from any purchases or sales of
any securities or other instruments of, or related to, the Company or any of its
securities, including, but not necessarily limited to, puts, calls, futures
contracts, short sales and hedging and arbitrage transactions. The Buyer
acknowledges that such purchases, sales and other transactions may be subject to
various federal and state securities laws and agrees to comply with all such
applicable securities laws.
5. TRANSFER AGENT INSTRUCTIONS.
Promptly following the delivery by the Buyer of the aggregate purchase
price for the Initial Debentures in accordance with Section 1(c) hereof, the
Company will irrevocably instruct its transfer agent to issue Common Stock from
time to time upon conversion of the Debentures in such amounts as specified from
time to time by the Company to the transfer agent, bearing the restrictive
legend specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by the Buyer in connection with each
conversion of the Debenture. The Company warrants that no instruction other than
such instructions referred to in this Section 5 and stop transfer instructions
to give effect to Section 4(a) hereof prior to registration and sale of the
Shares under the 1933 Act will be given by the Company to the transfer agent and
that the Shares shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement, and applicable law. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of
this Agreement) permit the transfer of the Securities and, in the case of the
Converted Shares or the Warrant Shares, as the case may be, promptly instruct
the Company's transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by the Buyer.
c. (i) The Company will permit the Buyer to exercise its right to convert
the
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<PAGE>
Debenture by telecopying an executed and completed Notice of Conversion to the
Company and delivering within five (5) business days thereafter, the original
Notice of Conversion and the Debentures being converted to the Company by
express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to any conversion
elected by the holder of the Debentures, the date specified in the Notice of
Conversion, provided the copy of the Notice of Conversion is telecopied to or
otherwise delivered to the Company in accordance with the provisions hereof so
that is received by the Company on or before such specified date. The Conversion
Date for the mandatory conversion at maturity shall be the Maturity Date of the
Debenture.
(iii) The Company will transmit the certificates representing the Converted
Shares issuable upon conversion of any Debentures (together with Debentures not
being so converted) to the Buyer via express courier, by electronic transfer or
otherwise, within three (3) business days after receipt by the Company of the
original Notice of Conversion and the Debentures being converted (the "Delivery
Date").
d. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond five (5) business days from
Delivery Date:
Late Payment For Each $10,000
of Debenture Principal
No. Business Days Late Amount Being Converted
---------------------- -----------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for
13
<PAGE>
the Company's failure to issue and deliver the Common Stock to the Buyer.
Furthermore, in addition to any other remedies which may be available to the
Buyer, in the event that the Company fails for any reason to effect delivery of
such shares of Common Stock within five (5) business days after the Delivery
Date, the Buyer will be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and the
Buyer shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion.
e. If, by the relevant Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon conversion of a Debenture and after such
Delivery Date, the holder of the Debenture being converted (a "Converting
Holder") purchases, in an open market transaction or otherwise, shares of Common
Stock (the "Covering Shares") in order to make delivery in satisfaction of a
sale of Common Stock by the Converting Holder (the "Sold Shares"), which
delivery such Converting Holder anticipated to make using the Shares to be
issued upon such conversion (a "Buy-In"), the Company shall pay to the
Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
f. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
6. DELIVERY INSTRUCTIONS.
The Initial Debenture or the Additional Debenture, as the case may be,
shall be delivered by the Company to the Escrow Agent pursuant to Section 1(b)
hereof, on a delivery against payment basis, no later than on the Closing Date
and on the Additional Closing Date, respectively.
14
<PAGE>
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Initial Debenture shall
occur on the date (the "Closing Date") which is the first NYSE trading day after
the fulfillment or waiver of all closing conditions pursuant to Sections 8 and 9
hereof or such other date and time as is mutually agreed upon by the Company and
the Buyer. The date of the Additional Closing Date shall be the date specified
by either party upon at least five (5) business days' advance notice to the
other party; provided, however, that it shall be a condition of the Additional
Closing Date that (i) the conditions of Section 4(g) be satisfied, and (ii) each
of the conditions contemplated by Sections 8 and 9 hereof shall have been
satisfied or waived on or before such date.
(ii) Each closing of the purchase and issuance of Debenture shall occur on
the Closing Date or the Additional Closing Date, as the case may be, at the
offices of the Escrow Agent and shall take place no later than 12:00 Noon, New
York time, on such day or such other time as is mutually agreed upon by the
Company and the Buyer.
(iii) Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the Escrow Property only upon satisfaction
of the conditions set forth in Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Debentures
to the Buyer pursuant to this Agreement on the Closing Date and on the
Additional Closing Date is conditioned upon:
a. The execution and delivery of this Agreement by the Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the purchase price for the relevant
Debentures in accordance with this Agreement;
c. The accuracy on the Closing Date or the Additional Closing Date, as
the case may be, of the representations and warranties of the Buyer
contained in this Agreement, each as if made on such date, and the
performance by the Buyer on or before such date of all covenants and
agreements of the Buyer required to be performed on or before such date;
and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
15
<PAGE>
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Debentures on the Closing Date and, subject to the other provisions of this
Agreement, on the Additional Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the Registration
Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the relevant
Debentures in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date or the
Additional Closing Date, as the case may be, of the representations and
warranties of the Company contained in this Agreement. each as if made on
such date, and the performance by the Company on or before such date of all
covenants and agreements of the Company required to be performed on or
before such date;
d. On the Closing Date or Additional Closing Date, as the case may be,
the Registration Rights Agreement shall be in full force and effect and the
Company shall not be in default thereunder; and
e. On the Closing Date or the Additional Closing Date, as the case may
be, the Buyer shall have received an opinion of counsel for the Company,
dated the Closing Date or the Additional Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer, substantially to the effect
set forth in Annex III attached hereto.
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
b. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
c. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.
d. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
16
<PAGE>
e. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
f. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(i) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(ii) the seventh business day after deposit, postage prepaid, in
the United States Postal Service by registered or certified mail,
or
(iii) the third business day after mailing by international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: BYRON PREISS MULTIMEDIA COMPANY, INC.
24 W. 25th St.
New York, NY 10010
ATTN: Byron Preiss
Telecopier No.: (212) 627-2788
Telephone No.: (212) 989-6252
with a copy to:
Kane Kessler, PC
1350 Avenue of the Americas
New York, NY 10019
ATTN: Robert L. Lawrence, Esq.
17
<PAGE>
Telecopier No.: (212) 245-3009
Telephone No.: (212) 541-6222
BUYER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Debentures and the Purchase
Price, and shall inure to the benefit of the Buyer and the Company and their
respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
18
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or
one of its officers thereunto duly authorized as of the date set forth below.
AGGREGATE INITIAL PURCHASE PRICE OF SUCH DEBENTURES: $ 1,300,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this 8th day of December, 1997.
Bushinghall Limited
- -------------------------------- ------------------------------------
Address Printed Name of Subscriber
- --------------------------------
By: /s/ Brian Bell
--------------------------------
Telecopier No. _________________ (Signature of Authorized Person)
------------------------------------
- -------------------------------- Printed Name and Title
Jurisdiction of Incorporation
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
BYRON PREISS MULTIMEDIA COMPANY, INC.
By: /s/ James Dellomo
----------------------------
Title: Chief Financial Officer
-------------------------
Date: December 8, 1997
-------------------------
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY
NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER
THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
NNo. 97-1204-01 US$1,300,000.00
BYRON PREISS MULTIMEDIA COMPANY, INC.
6% CONVERTIBLE DEBENTURE DUE NOVEMBER 30, 1999
THIS DEBENTURE is one of a duly authorized issue of up to $2,800,000 in
Debentures of BYRON PREISS MULTIMEDIA COMPANY, INC.,a corporation organized and
existing under the laws of the State of New York (the "Company") designated as
its 6% Convertible Debentures. Such Debentures may be issued in series, each of
which may have a different maturity date, but which otherwise have substantially
similar terms.
FOR VALUE RECEIVED, the Company promises to pay to BUSHINGHALL LIMITED, the
registered holder hereof (the "Holder"), the principal sum of One Million Three
Hundred Thousand and 00/100 Dollars (US $1,300,000.00) on November 30, 1999 (the
"Maturity Date") and to pay interest on the principal sum outstanding from time
to time in arrears (i) quarterly, on the last day of February, May, August and
November of each year prior to Maturity, (ii) upon conversion as provided herein
or (iii) on the Maturity Date, at the rate of 6% per annum accruing from the
date of initial issuance of this Debenture. Accrual of interest shall commence
on the first such business day to occur after the date hereof and shall continue
until payment in full of the principal sum has been made or duly provided for.
Subject to the provisions of Section 4 below, the principal of, and interest on,
this Debenture are payable at the option of the Company, in shares of Common
Stock of the Company, $.001 par value ("Common Stock"), or in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Debenture Register of the Company as designated in writing by the Holder
from time to time. The Company will pay the principal of and interest upon this
Debenture on the Maturity Date, less any amounts required by law to be deducted,
to the registered holder of this Debenture as of the tenth day prior to the
Maturity Date and addressed to such holder at the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a payment of
principal and interest hereunder and shall satisfy and discharge the liability
for principal and interest on this Debenture to the extent of the sum
represented by such check plus any amounts
1
<PAGE>
so deducted.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of principal
of, and interest on, this Debenture any amounts required to be withheld under
the applicable provisions of the United States income tax laws or other
applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, to convert
at any time commencing the earlier of (a) ninety (90) days after the date of
issuance (the "Issue Date") of the Initial Debentures (as that term is defined
in the Securities Purchase Agreement defined below), or (b) the Effective Date
of the Registration Statement filed pursuant to (and as those terms are defined
in) the Registration Rights Agreement between the Company and the Holder (or the
Holder's predecessor in interest) (the "Registration Rights Agreement"), the
principal amount of this Debenture, provided that the principal amount is at
least US $10,000 (unless if at the time of such election to convert the
aggregate principal amount of all Debentures registered to the Holder is less
that Ten Thousand Dollars (US $10,000), then the whole amount thereof) into
shares of Common Stock of the Company at a conversion price for each share of
Common Stock ("Conversion Rate") equal to the lower of (i) the lowest three (3)
consecutive trading day average Market Price (as defined below) for the sixty
(60) trading days ending on the day prior to the Conversion Date or (ii) 125% of
the Market Price on the Issue Date.
B. Conversion shall be effectuated by surrendering the Debentures to be
2
<PAGE>
converted to the Company's transfer agent, Continental Stock Transfer & Trust
Company, with the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of the Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided) hereof, and
accompanied, if required by the Company, by proper assignment hereof in blank.
Interest accrued or accruing from the date of issuance to the date of conversion
shall, at the option of the Company, be paid in cash or Common Stock upon
conversion at the Conversion Rate. No fractional shares of Common Stock or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share. The date on which
notice of conversion is given (the "Conversion Date") shall be deemed to be the
date on which the Holder faxes the conversion notice ("Notice of Conversion"),
substantially in the form annexed hereto as Exhibit A, duly executed, to the
Company, provided that the Holder shall deliver to the Company's transfer agent
or the Company the original of such Notice of Conversion and the original
Debentures being converted within five (5) business days thereafter (and if not
so delivered with such time, the Conversion Date shall be the date on which the
Notice of Conversion and the original Debentures being converted are received by
the Company. Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number (212) 627-2788; ATTN: Byron Preiss. Certificates
representing Common Stock upon conversion will be delivered within three (3)
business days from the date the Notice of Conversion with the original Debenture
is delivered to the Company's transfer agent or the Company.
C. For purposes of this Agreement, the "Market Price" shall be the average
closing bid price of the Common Stock as reported, at the option of the Holder,
by Bloomberg, LP or by the National Association of Securities Dealers or the
closing bid price on the over-the-counter market, (x) for purposes of clause
(ii) of the last sentence of Section 4(A) hereof, on the Issue Date, (y) if a
specific period is indicated, such as in clause (i) of the last sentence of
Section 4(A) hereof, for such specific period of time, and (z) for all other
purposes, on the five (5) trading days immediately preceding the relevant date.
5. A. Notwithstanding any other provision hereof to the contrary, at any
time prior to the Conversion Date, the Company shall have the right to redeem
all or any portion of the then outstanding principal amount of the Debentures
then held by the Holder for an amount (the "Redemption Payment") equal to the
sum of (a) such outstanding principal of the Debentures plus all accrued but
unpaid interest thereon through the date the Redemption Amount is paid to the
Holder (the "Redemption Payment Date"), multiplied by (b) the Redemption
Percentage (as defined below). The Company shall give at least ten (10) business
days' written notice of such redemption to the Holder (the "Notice of
Redemption").
B. The "Redemption Percentage" shall be 125%; provided, however, that if
the Market Price for the Common Stock for each of twenty (20) consecutive
trading days is sixty cents ($0.60; the "Minimum Specified Price") or less,
then, for as long as the Market Price shall not exceed the Minimum Specified
Price, the Redemption Percentage shall be 117%.
3
<PAGE>
C. Anything in the preceding provisions of this Section 5 to the contrary
notwithstanding, the Redemption Payment shall, unless otherwise agreed to in
writing by the Holder after receiving the Notice of Redemption, be paid to the
Holder at least five (5) but not more than ten (10) business days from the date
of the Notice of Redemption, except that, with respect to any Debentures for
which a Notice of Conversion is submitted to the Company within five (5)
business days of the Holder's receipt of the Company's Notice of Redemption, the
Notice of Conversion shall take precedence and such Debentures shall be
converted in accordance with the terms hereof. Furthermore, in the event such
Redemption Payment is not timely made, any rights of the Company to redeem
outstanding Debentures shall terminate, and the Notice of Redemption shall be
null and void.
6. The Holder recognizes that the Company may be limited in the number of
shares of Common Stock it may issue by the applicable rules and regulations of
the principal securities market on which the Common Stock is listed or traded
("Cap Regulations"). Without limiting the other provisions hereof, (i) the
Company will take all steps reasonably necessary to be in a position to issue
shares of Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture, if it can not be converted as result of the Cap
Regulations shall have the option, exercisable in the Holder's sole and absolute
discretion, to elect either of the following remedies:
(x) require the Company to issue shares of Common Stock in
accordance with such Holder's Notice of Conversion at a
conversion purchase price equal to the average of the closing bid
price per share of Common Stock for any five (5) consecutive
trading days (subject to the equitable adjustments for certain
events occurring during such period as provided in this
Debenture) during the sixty (60) trading days immediately
preceding the date of the Notice of Conversion; or
(y) require the Company to redeem each Unconverted Debenture
for an amount (the "Cap Redemption Amount") equal to:
V x M
---
CP
where:
"V" means the outstanding principal plus accrued interest
through the Cap Redemption Date (as defined below) of an
Unconverted Debenture;
"CP" means the Conversion Rate in effect on the date of
redemption (the "Cap Redemption Date") specified in the notice
from the Holder electing this remedy; and
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<PAGE>
"M" means the highest Market Price during the period
beginning on the Cap Redemption Date and ending on the date of
payment of the Cap Redemption Amount.
7. Subject to the terms of the Securities Purchase Agreement, dated
December , 1997 (the "Securities Purchase Agreement"), between the Company and
the Holder (or the Holder's predecessor in interest), no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
8. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
9. If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture by paying the Redemption Amount
contemplated by Section 5(A) hereof, less all amounts required by law to be
deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.
10. If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the "Spin Off") in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the "Spin Off Securities") to be issued to security holders of the Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which
5
<PAGE>
would have been issued to the Holder had all of the Holder's Debentures
outstanding on the record date (the "Record Date") for determining the amount
and number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Debentures") been converted as of the close of
business on the trading day immediately before the Record Date (the "Reserved
Spin Off Shares"), and (ii) to be issued to the Holder on the conversion of all
or any of the Outstanding Debentures, such amount of the Reserved Spin Off
Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction,
of which (I) the numerator is the principal amount of the Outstanding Debentures
then being converted, and (II) the denominator is the principal amount of the
Outstanding Debentures.
11. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions.
14. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest
on this Debenture and same shall continue for a period of three
(3) days; or
b. Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration
Rights Agreement or in any certificate or financial or other
written statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall be false or
misleading in any material respect at the time made; or
c: The Company fails to issue shares of Common Stock to the Holder
or to
6
<PAGE>
cause its Transfer Agent to issue shares of Common Stock upon
exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Debenture, fails to transfer or
to cause its Transfer Agent to transfer any certificate for
shares of Common Stock issued to the Holder upon conversion of
this Debenture and when required by this Debenture or the
Registration Rights Agreement, and such transfer is otherwise
lawful, or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer on any certificate or any shares of
Common Stock issued to the Holder upon conversion of this
Debenture as and when required by this Debenture, the Agreement
or the Registration Rights Agreement and such legend removal is
otherwise lawful, and any such failure shall continue uncured for
five (5) business days.
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of any Debenture (as defined in the
Securities Purchase Agreement, which term includes this
Debenture) and such failure shall continue uncured for a period
of thirty (30) days after written notice from the Holder of such
failure; or
e. The Company shall fail to perform or observe, in any material
respect, any covenant, term, provision, condition, agreement or
obligation of the Company under the Securities Purchase Agreement
or the Registration Rights Agreement and such failure shall
continue uncured for a period of thirty (30) days after written
notice from the Holder of such failure (other than a failure to
cause the Registration Statement to become effective no later
than ninety (90) days after the Closing Date, as provided in the
Registration Rights Agreement, as to which no such cure period
shall apply); or
f. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
g. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
h. Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties
or assets of the
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<PAGE>
Company and shall not be dismissed within sixty (60) days
thereafter; or
i. Any money judgment, writ or warrant of attachment, or similar
process in excess of Two Hundred Thousand ($200,000) Dollars in
the aggregate shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Company and, if instituted against the Company, shall not be
dismissed within sixty (60) days after such institution or the
Company shall by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or delisted
from an exchange or over-the-counter market from trading for in
excess of two trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
15. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: December 8, 1997
BYRON PREISS MULTIMEDIA COMPANY, INC.
By: /s/ James Dellomo
------------------------------------
8
<PAGE>
James Dellomo
----------------------------------------
(Print Name)
Chief Financial Officer
----------------------------------------
(Title)
9
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
BYRON PREISS MULTIMEDIA COMPANY, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged by BYRON PREISS MULTIMEDIA COMPANY, INC., a New York
corporation (the "Company"), BUSHINGHALL LIMITED or registered assigns (the
"Holder") is hereby granted the right to purchase at any time until 5:00 P.M.,
New York City time, on November 30, 2002 (the "Expiration Date"), One Hundred
Thirty Thousand (130,000) fully paid and nonassessable shares of the Company's
Common Stock, par value $.001 per share (the "Common Stock") at an initial
exercise price per share (the "Exercise Price") specified in the schedule below
subject to further adjustment as set forth in Section 6 hereof:
(a) Warrants for 32,500 shares of Common Stock shares at $2.25 per share.
(b) Warrants for 32,500 shares of Common Stock shares at $2.5875 per
share.
(c) Warrants for 32,500 shares of Common Stock shares at $2.70 per share.
(d) Warrants for 32,500 shares of Common Stock shares at $3.0375 per
share.
2. Exercise of Warrants. This Warrant is exercisable in whole or in part at
the Exercise Price per share of Common Stock payable hereunder, payable in cash
or by certified or official bank check, or by "cashless exercise," by means of
tendering this Warrant Certificate to the Company to receive a number of shares
of Common Stock equal in Market Value to the difference between the Market Value
of the shares of Common Stock issuable upon exercise of this Warrant and the
total cash exercise price thereof. Upon surrender of this Warrant Certificate
with the annexed Notice of Exercise Form duly executed, together with payment of
the Exercise Price for the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased. For the purposes of this Section 2, "Market Value" shall be an
amount equal to the average closing bid price of a share of Common Stock, as
reported, at the option of the Buyer, by Bloomberg, LP or the National
Association of Securities Dealers, for
<PAGE>
the ten (10) days preceding the Company's receipt of the Notice of Exercise Form
duly executed multiplied by the number of shares of Common Stock to be issued
upon surrender of this Warrant Certificate.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i)
the total number of shares of Common Stock Holder is entitled to purchase
pursuant to this Warrant, multiplied by (ii) the adjusted purchase price
per share, to equal (iii) the dollar amount of the total number of shares
of Common Stock Holder is entitled to purchase before adjustment multiplied
by the total purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment
affecting the Common Stock of the Company, the provisions of this Section 6
shall be applied as if such capital adjustment event had occurred
immediately prior to the date of this Warrant and the original purchase
price had been fairly allocated to the stock resulting from such capital
adjustment; and in other respects the provisions of this Section shall be
applied in a fair, equitable and reasonable manner so as to give effect, as
nearly as may be, to the purposes hereof. A rights offering to stockholders
shall be deemed a stock dividend to the extent of the bargain purchase
element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise
of this Warrant in full, the Company spins off or otherwise divests itself
of a part of its business or operations or disposes all or of a part of its
assets in a transaction (the "Spin Off") in which the
2
<PAGE>
Company does not receive compensation for such business, operations or
assets, but causes securities of another entity (the "Spin Off Securities")
to be issued to security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder's unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Warrants") been exercised as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on
the exercise of all or any of the Outstanding Warrants, such amount of
the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be
adjusted immediately after consummation of the Spin Off by multiplying
the Exercise Price by a fraction (if, but only if, such fraction is
less than 1.0), the numerator of which is the average Market Price of
the Common Stock (as defined in the Securities Purchase Agreement,
dated December ___, 1997, between the Company and the Holder or the
Holder's predecessor in interest with respect to this Warrant) on the
five (5) trading days immediately following the fifth trading day
after the Record Date, and the denominator of which is the average
Market Price of the Common Stock on the five (5) trading days
immediately preceding the Record Date; and such adjusted Exercise
Price shall be deemed to be the Exercise Price with respect to the
Outstanding Warrants after the Record Date.
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act of 1933,
as amended, (the "Act") and has been issued to the Holder for investment and not
with a view to the distribution of either the Warrant or the Warrant Shares.
Neither this Warrant nor any of the Warrant Shares or any other security issued
or issuable upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under the Act
relating to such security or an opinion of counsel satisfactory to the Company
that registration is not required under the Act. Each certificate for the
Warrant, the Warrant Shares and any other security issued or issuable upon
exercise of this Warrant shall contain a legend on the face thereof, in form and
substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares, on Form S-3 or another available form (the
"Registration Statement"), pursuant to the Act, by the 30th calendar day after
the date this Warrant was issued (the "Original Issuance Date") and to have the
registration of the Warrant Shares completed and effective by the 90th calendar
day after the Original Issuance Date (the "Effective Date").
3
<PAGE>
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
BYRON PREISS MULTIMEDIA COMPANY, INC.
24 W. 25th St.
New York, NY 10010
ATTN: Byron Preiss
Telecopier No.: (212) 627-2788
Telephone No.: (212) 989-6252
(ii) if to the Holder, to:
BUSHINGHALL LIMITED
11 Arlozorov St.
Tel Aviv, Israel
ATTN:
Telecopier No.: ( ) -
Telephone No.: ( ) -
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
Telephone No.: (212) 689-3322
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be amended
or supplemented only by an instrument in writing signed by the parties hereto.
This Warrant of even date herewith contain the full understanding of the parties
hereto with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be governed by and
construed in
4
<PAGE>
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several Sections of
this Warrant are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
__ th day of _____________ 1997.
BYRON PREISS MULTIMEDIA COMPANY, INC.
By: /s/ James Dellomo
---------------------------------
Name: James Dellomo
Its: Chief Financial Officer
Attest:
__________________________
Name:
Title:
5
Annex IV
to
Securities Purchase
Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 8, 1997 (this
"Agreement"), is made by and between BYRON PREISS MULTIMEDIA COMPANY, INC., a
New York corporation (the "Company"), and the entity named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of December ___, 1997, between the Initial Investor
and the Company (the "Securities Purchase Agreement"; terms not otherwise
defined herein shall have the meanings ascribed to them in the Securities
Purchase Agreement), the Company has agreed to issue and sell to the Initial
Investor one or more 6% Convertible Debentures of the Company, in an aggregate
principal amount not exceeding $2,800,000 (the "Debentures"); and
WHEREAS, the Company has agreed to issue the Warrants to the Initial
Investor in connection with the issuance of the Initial Debentures and the
Additional Debentures; and
WHEREAS, the Debentures are convertible into shares of Common Stock (the
"Conversion Shares") upon the terms and subject to the conditions contained in
the Debentures and the Warrants may be exercised for the purchase of shares of
Common Stock (the "Warrant Shares") upon the terms and conditions of the
Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the following
1
<PAGE>
meanings:
(i) "Investor" means the Initial Investor and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (b) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(iii) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iv) "Registrable Securities" means the Conversion Shares and the Warrant
Shares.
(v) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, as soon as possible after the Closing Date but no later than thirty (30)
days following the Closing Date, either a Registration Statement on Form S-3
registering for resale by the Investor a sufficient number of shares of Common
Stock for the Initial Investors (or such lesser number as may be required by the
SEC, but in no event less than two hundred percent (200%) of the aggregate
number of shares (i) into which the Initial Debentures and the Additional
Debentures would be convertible at the time of filing of the Form S-3 (assuming
for such purposes that the maximum Additional Debentures had been issued at such
date and that all Debentures had been
2
<PAGE>
eligible to be converted, and had been converted, into Conversion Shares in
accordance with their terms, whether or not such issuance, eligibility or
conversion had in fact occurred as of such date) and (ii) which would be issued
upon exercise of all of the Warrants issued on or about the Closing Date and the
Additional Closing Date at the time of filing of the Form S-3 (assuming for such
purposes that the maximum Additional Debentures had been issued at such date and
that all Warrants had been eligible to be exercised and had been exercised in
accordance with their terms, whether or not such issuance, eligibility or
exercise had in fact occurred as of such date). Such Registration Statement or
amended Registration Statement shall also state that, in accordance with Rule
416 and 457 under the Securities Act, it also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon conversion of
the Debentures and the exercise of the Warrants resulting from adjustment in the
Conversion Price or the Warrant exercise price, as the case may be, or to
prevent dilution resulting from stock splits, or stock dividends. The Company
will use its reasonable best efforts to cause such Registration Statement to be
declared effective no later than sixty (60) days after the Closing Date. If at
any time the number of shares of Common Stock into which the Debentures may be
converted and which would be issued upon exercise of the Warrants exceeds the
aggregate number of shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of a written notice from any
Investor, either (i) amend the Registration Statement filed by the Company
pursuant to the preceding sentence, if such Registration Statement has not been
declared effective by the SEC at that time, to register all shares of Common
Stock into which the Debentures may currently or in the future be converted and
which would be issued currently or in the future upon exercise of the Warrants,
or (ii) if such Registration Statement has been declared effective by the SEC at
that time, file with the SEC an additional Registration Statement on Form S-3 to
register the shares of Common Stock into which the Debentures may currently or
in the future be converted and which would be issued currently or in the future
upon exercise of the Warrants that exceed the aggregate number of shares of
Common Stock already registered.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable Securities
is not filed in proper form with the SEC within thirty (30) days after the
Closing Date (the "Required Filing Date"), the Company will make payment to
the Initial Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the Registrable Securities
is not effective (a) within the earlier of (1) five (5) days after notice
by the SEC that it may be declared effective or (2) ninety (90) days
following the Closing Date (the "Required Effective Date"), or (b) after a
Suspension Period (as defined below), then the Company will make payments
to the Initial Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the Company to
the Initial Investor shall be determined as of each Computation Date (as
defined below) and such
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amount shall be equal to (A) one percent (1%) of the purchase price paid by
the Initial Investor (the "Purchase Price") for all Debentures then
purchased and outstanding pursuant to the Securities Purchase Agreement for
the period from the date following the Required Filing Date or the Required
Effective Date, as the case may be, to the first relevant Computation Date,
and (B) three percent (3%) to each Computation Date thereafter. By way of
illustration and not in limitation of the foregoing, if the Registration
Statement is timely filed but is not declared effective until one hundred
sixty-five (165) days after the Closing Date, the Periodic Amount will
aggregate seven percent (7%) of the Purchase Price of the Debentures (1%
for days 91-120, plus 3% for days 121-150, plus 3% for days 151-165).
(iv) Each Periodic Amount will be payable by the Company in cash or
other immediately available funds to the Investor upon demand of the
Investor.
(v) The parties acknowledge that the damages which may be incurred by
the Investor if the Registration Statement is not filed by the Required
Filing Date or if the Registration Statement has not been declared
effective by the Required Registration Date may be difficult to ascertain.
The parties agree that the Periodic Amount represent a reasonable estimate
on the part of the parties, as of the date of this Agreement, of the amount
of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this provision shall not be payable to the extent any delay in
the effectiveness of the Registration Statement occurs because of an act
of, or a failure to act or to act timely by the Initial Investor or its
counsel, or in the event all of the Registrable Securities may be sold
pursuant to Rule 144 or another available exemption under the Act.
(vii) "Computation Date" means (i) the date which is the earlier of
(A) thirty (30) days after the Required Filing Date and the Required
Effective Date, as the case may be, or (B) the date after the Required
Filing Date or the Required Registration Date on which the Registration
Statement is filed (with respect to payments due as contemplated by Section
2(b)(i) hereof) or declared effective (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (ii) each
date which is the earlier of (A) thirty (30) days after the previous
Computation Date or (B) the date after the previous Computation Date on
which the Registration Statement is filed (with respect to payments due as
contemplated by Section 2(b)(i) hereof) or declared effective (with respect
to payments due as contemplated by Section 2(b)(ii) hereof), as the case
may be.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC by thirty (30) days after the
Closing Date, a Registration Statement with respect to not less than the number
of Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause each Registration Statement relating to
Registrable Securities to become effective the earlier of
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(a) five (5) days after notice by the SEC that it may be declared effective, or
(b) sixty (60) days after the Closing Date, and keep the Registration Statement
effective at all times until the earliest (the "Registration Period") of (i) the
date that is two (2) years after the Closing Date, (ii) the date when the
Investors may sell all Registrable Securities under Rule 144 or (iii) the date
the Investors no longer own any of the Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration effective at all times during the Registration Period, and,
during the Registration Period, comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement;
(c) The Company shall permit a single firm of counsel designated by the
Initial Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects.
(d) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
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(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(g) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Registrable Securities
for more than two twenty (20) day periods in the aggregate during any 12-month
period ("Suspension Period") with at least a ten (10) business day interval
between such periods, during the periods the Registration Statement is required
to be in effect;
(h) Use its reasonable efforts to secure designation of all the Registrable
Securities covered by the Registration Statement on the "Small Capitalization
Market" of the National Association of Securities Dealers Automated Quotations
System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on The NASDAQ SmallCap Market; or if,
despite the Company's reasonable efforts to satisfy the preceding clause, the
Company is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(i) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(j) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(k) Take all other reasonable actions necessary to expedite and facilitate
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disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses (other than
underwriting discounts and commissions of the Investor) incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company and a fee for a single counsel for the Investor not exceeding
$3,500, shall be borne by the Company.
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6. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents against any claims arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer
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of the Registrable Securities by the Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently incurred by
such Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action of its final conclusion. The Indemnified
Person or Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
reasonable out-of-pocket expenses of such counsel shall not be at the expense of
the indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the Indemnified Person or
Indemnified Party. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
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8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any Debenture of the Company which is
convertible into such securities) only if: (a) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold an eighty (80%) percent
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
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11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by hand,
by courier, by telephone line facsimile transmission, receipt confirmed, or
other means) or sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid (i) if to the Company, BYRON PREISS
MULTIMEDIA COMPANY, INC., 24 W. 25th St., New York, NY 10010, ATTN: Byron
Preiss, Telecopier No.: (212) 627-2788; with a copy to Kane Kessler, PC, 1350
Avenue of the Americas, New York, NY 10019, ATTN: Robert L. Lawrence, Esq.,
Telecopier No.: (212) 245-3009; (ii) if to the Initial Investor, at the address
set forth under its name in the Securities Purchase Agreement, with a copy to
Samuel Krieger, Esq., Krieger & Prager, 319 Fifth Avenue, Third Floor, New York,
NY 10016, Telecopier No.: (212) 213-2077; and (iii) if to any other Investor, at
such address as such Investor shall have provided in writing to the Company, or
at such other address as each such party furnishes by notice given in accordance
with this Section 11(b), and shall be effective, when personally delivered, upon
receipt and, when so sent by registered or certified mail, four (4) calendar
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(a) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions. (b) If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(c) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
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(d) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(e) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(a) hereof, or any delay in such performance could
result in loss to the Investors, and the Company agrees that, in addition to any
other liability the Company may have by reason of such failure or delay, the
Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. Neither party shall be
liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
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[DRAFT 11/18/97]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
BYRON PREISS MULTIMEDIA COMPANY, INC.
By: /s/ James Dellomo
----------------------------------
Name: James Dellomo
Title: Chief Financial Officer
BUSHINGHALL LIMITED
By: /s/ Brian Bell
----------------------------------
Name: Brian Bell
Title: Director
14
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
BYRON PREISS MULTIMEDIA COMPANY, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions.
For good and valuable consideration, the receipt of which is hereby
acknowledged by BYRON PREISS MULTIMEDIA COMPANY, INC., a New York corporation
(the "Company"), TRAUTMAN KRAMER & COMPANY, INCORPORATED ("TKCI") or registered
assigns (collectively, including TKCI, the "Holder") is hereby granted the right
to purchase at any time until 5:00 P.M., New York City time, on November 30,
2002 (the "Expiration Date"), Eighty-Seven Thousand (87,000) fully paid and
nonassessable shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock") at an initial exercise price of $2.70 per share (the
"Exercise Price"), subject to further adjustment as set forth in Section 6
hereof.
2. Exercise of Warrants. This Warrant is exercisable in whole or in part at
the Exercise Price per share of Common Stock payable hereunder, payable in cash
or by certified or official bank check, or by "cashless exercise," by means of
tendering this Warrant Certificate to the Company to receive a number of shares
of Common Stock equal in Market Value to the difference between the Market Value
of the shares of Common Stock issuable upon exercise of this Warrant and the
total cash exercise price thereof. Upon surrender of this Warrant Certificate
with the annexed Notice of Exercise Form duly executed, together with payment of
the Exercise Price for the shares of Common Stock purchased, the Holder shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased. For the purposes of this Section 2, "Market Value" shall be an
amount equal to the average closing bid price of a share of Common Stock, as
reported, at the option of the Holder, by Bloomberg, LP or the National
Association of Securities Dealers, for the ten (10) days preceding the Company's
receipt of the Notice of Exercise Form duly executed multiplied by the number of
shares of Common Stock to be issued upon surrender of this Warrant Certificate.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
<PAGE>
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to purchase
such number of additional shares of Common Stock as will cause (i) the total
number of shares of Common Stock Holder is entitled to purchase pursuant to this
Warrant, multiplied by (ii) the adjusted purchase price per share, to equal
(iii) the dollar amount of the total number of shares of Common Stock Holder is
entitled to purchase before adjustment multiplied by the total purchase price
before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse stock split,
stock dividend, reclassification of the Common Stock, recapitalization, merger
or consolidation, or like capital adjustment affecting the Common Stock of the
Company, the provisions of this Section 6 shall be applied as if such capital
adjustment event had occurred immediately prior to the date of this Warrant and
the original purchase price had been fairly allocated to the stock resulting
from such capital adjustment; and in other respects the provisions of this
Section shall be applied in a fair, equitable and reasonable manner so as to
give effect, as nearly as may be, to the purposes hereof. A rights offering to
stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to the exercise of
this Warrant in full, the Company spins off or otherwise divests itself of a
part of its business or operations or disposes all or of a part of its assets in
a transaction (the "Spin Off") in which the Company does not receive
compensation for such business, operations or assets, but causes securities of
another entity (the "Spin Off Securities") to be issued to security holders of
the Company, then
(a) the Company shall cause (i) to be reserved Spin Off Securities
equal to the number thereof which would have been issued to the Holder had
all of the Holder's unexercised Warrants outstanding on the record date
(the "Record Date") for determining the amount and number of Spin Off
Securities to be issued to security holders of the Company (the
"Outstanding Warrants") been exercised as of the close of
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business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount of
the Outstanding Warrants then being exercised, and (II) the denominator is
the amount of the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be adjusted
immediately after consummation of the Spin Off by multiplying the Exercise
Price by a fraction (if, but only if, such fraction is less than 1.0), the
numerator of which is the average Market Price of the Common Stock (as
defined in that certain Securities Purchase Agreement, dated as of December
8, 1997 [the "Securities Purchase Agreement"], between the Company and the
Buyer named therein) on the five (5) trading days immediately following the
fifth trading day after the Record Date, and the denominator of which is
the average Market Price of the Common Stock on the five (5) trading days
immediately preceding the Record Date; and such adjusted Exercise Price
shall be deemed to be the Exercise Price with respect to the Outstanding
Warrants after the Record Date.
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant has not been registered under the Securities Act of 1933,
as amended, (the "Act") and has been issued to the Holder for investment and not
with a view to the distribution of either the Warrant or the Warrant Shares.
Neither this Warrant nor any of the Warrant Shares or any other security issued
or issuable upon exercise of this Warrant may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement under the Act
relating to such security or an opinion of counsel satisfactory to the Company
that registration is not required under the Act. Each certificate for the
Warrant, the Warrant Shares and any other security issued or issuable upon
exercise of this Warrant shall contain a legend on the face thereof, in form and
substance satisfactory to counsel for the Company, setting forth the
restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares subject to this Warrant plus the Warrant Shares that
would be issued upon exercise of the Additional Warrant (as defined below),
assuming for such purposes that the Warrant and the Additional Warrant
(assuming, for such purposes, that the Additional Warrant is to be issued based
on the maximum Additional Debentures contemplated by the Securities Purchase
Agreement) have been exercised to purchase the maximum number of shares eligible
to be purchased thereunder (but without regard to whether or not the Warrant or
Additional Warrant has been issued, is eligible to be exercised or has in fact
been exercised), on Form S-3 or another available form (the "Registration
Statement"), pursuant to the Act, by the 30th calendar day after the Closing
Date and to have the registration of the Warrant Shares completed and effective
by the 90th calendar day after the Closing Date (the "Effective Date").
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8. Additional Warrant. In addition to the other provisions hereof, the
Company further agrees that it will issue to TKCI or its designees one or more
additional warrants (collectively, the "Additional Warrant") in connection with
the issuance, if any, of the Additional Debentures contemplated by the
Securities Purchase Agreement. The Additional Warrant shall be issued on the
Additional Closing Date (as defined in the Securities Purchase Agreement) and
shall be on the same terms and conditions as this Warrant, including without
limitation the Exercise Price (subject to adjustment as contemplated by Section
6 hereof), except that the number of shares of Common Stock which can be
purchased by exercise of the Additional Warrant shall, in the aggregate, be
equal to 140,000 for each $1,000,000 of Additional Debentures issued to the
Buyer, subject to the adjustment as contemplated by Section 6 hereof. The
Additional Warrant does not need to include this Section in its terms.
9. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if the to Company, to:
BYRON PREISS MULTIMEDIA COMPANY, INC.
24 W. 25th St.
New York, NY 10010
ATTN: Byron Preiss
Telecopier No.: (212) 627-2788
Telephone No.: (212) 989-6252
(ii) if to the Holder, to:
Trautman Kramer & Company, Incorporated
500 Fifth Avenue
14th Floor
New York, NY 10110
Attn: Richard Rosenblum
Telephone: (212) 575-5500
Telecopier: (212) 271-0611
with a copy to:
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, NY 10016
Attn: Samuel M. Krieger, Esq.
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Telephone: (212) 689-3322
Telecopier: (212) 213-2077
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
10. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
11. Governing Law. This Warrant shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
12. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
13. Descriptive Headings. Descriptive headings of the several Sections of
this Warrant are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
8th day of December, 1997.
BYRON PREISS MULTIMEDIA COMPANY, INC.
By:_________________________________
Name:
Its:
Attest:
_______________________________
Name:
Title:
5
DISTRIBUTION SERVICES AGREEMENT
This Agreement is made and entered into as of January 1, 1997 (the
"Effective Date") by and between Pocket Books, a division of Simon & Schuster,
Inc., a New York corporation with offices at 1230 Avenue of the Americas, New
York, NY 10020 ("S&S") and Byron Preiss Multimedia Company, Inc., a New York
corporation with offices at 24 West 25th Street, New York, NY 10010 ("Company").
WHEREAS, S&S is in the business of, among other things, publishing and
distributing books;
WHEREAS, Company is in the business of developing Byron Preiss Multimedia
Books on topics including but not limited to comics, pop culture and sports, in
book formats including rack, trade paper, four-color digest, hardcover and
book/CD rom packages under the Byron Preiss Multimedia Books imprint (herein
collectively referred to as the or "Distributed Works"); and
WHEREAS, Company desires to grant to S&S the right to distribute the Works
and S&S desires to distribute for Company the Works.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, S&S and Company agree as follows:
1. Certain Definitions.
1.1. "Distributed Works" means works distributed by S&S in accordance with
the terms of this Agreement prepared by Company and provided to S&S hereunder.
1.2. "Gross Revenue" means the actual amount billed by S&S, when converted
into U.S. dollars, for Distributed Works shipped by S&S (exclusive of freight,
insurance and taxes).
1.3. "Exclusive Territory" means the United States and Canada.
1.4. "Non-Exclusive Territory" means the rest of the world.
1.5. "Comic Book Distributors" means Diamond Distributors, Syco
Distribution, and such other distributors who sell primarily to comic book
retail channels as Company shall designate from time to time in writing;
provided, however, that such designation shall not be effective to limit S&S's
distribution rights until 90 days after receipt of notice by S&S.
1.6. "Exclusive Channels" means all channels of distribution, including
book stores, book jobbers, independent distributors, department stores, college
book stores,
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scholastic book clubs and school book fairs, and the book departments of mass
market merchandisers.
1.7. "Non-Exclusive Channels" means computer stores, electronic stores,
special markets (including all seminars, third-party catalog sales and corporate
sales), video stores and video wholesalers, and all similar retail and wholesale
channels of distribution, premium and promotional sales, direct sales to
consumers, schools and libraries through programs such as direct mail,
telemarketing, in-book coupon fulfillment and infomercials and on-line sales and
consumer book clubs.
1.8. "Reserved Channels" means Comic Book Distributors, direct sales to
consumers via Company's Web Sites (BYRONPREISS.COM, VIRTUALCOMICS. COM,
DRAGONSCHOOL.COM) and Company's America Online site (Virtual Comics on AOL or
any similar carrier) or any other Web Sites owned by Company.
1.9. "Returns Credit" means the amount credited or refunded by S&S when
converted into U.S. dollars for actual returns of Distributed Work in accordance
with S&S's own returns policies.
1.10. "Production Services Fee" means payment by Company of $1,000 per
Distributed Work for which S&S provides Manufacturing Services.
1.11. "Manufacturing Cost" means all direct actual out-of-pocket costs
associated with the Manufacturing Services, including but not limited to paper,
printing and binding, jacket and insert costs.
1.12. "Distribution Fee" means an amount equal to 18% of net revenue for
the Distributed Works, defined as gross billings less the reserve for returns.
1.13. "Ancillary Materials" means advertising, promotional and all other
solicitation materials such as sell sheets and new title order forms.
2. Grant of Rights/Services.
2.1. Distribution.
(a) Company hereby grants to S&S:
(i) the exclusive right to market and distribute the Distributed
Works in the English language in the Exclusive Territory in the
Exclusive Channels by any and all means now or hereafter known,
and to provide inventory, warehousing and fulfillment, billing
and collection services for such Distributed Works;
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(ii) the non-exclusive right to market and distribute the Distributed
Works in the English language, and to provide inventory,
warehousing and fulfillment services for such Distributed Works
in the Non-Exclusive Channels in the Non-Exclusive Territory; and
(b) the Company reserves the exclusive right to market and distribute
the Distributed Works, directly or through other distributors, in the Reserved
Channels as well as the non-exclusive right to market and distribute the
Distributed Works, directly or through other distributors, in the Non-Exclusive
Channels and in the Non-Exclusive Territory; provided, however, that the parties
shall consult with each other with respect to their solicitation of sales in the
Non-Exclusive Channels and Non-Exclusive Territories.
2.2. Manufacture.
(a) S&S Responsibilities. S&S, itself or through its designee (which
designee must be approved by the Company), shall perform Manufacturing Services
in connection with the Distributed Works as set forth below. As used herein,
"Manufacturing Services" shall mean the physical production of copies of bound
books and all ancillary services which S&S deems necessary in connection
therewith, including estimating, scheduling, specifying paper and other
materials, liaising with manufacturing suppliers, creating purchase orders and
approving invoices.
(i) Standard Trim Sizes. Upon mutual agreement of the parties, S&S,
itself or through its designee (which designee must be approved
by Company), shall perform Manufacturing Services for all
Distributed Works that are one-color text and are standard trim
sizes as set forth on Attachment A hereto.
(ii) Non-Standard Trim Sizes. Upon mutual agreement of the parties,
S&S, itself or through its designee (which designee must be
approved by Company), may perform Manufacturing Services for any
Distributed Work that is of a trim size other than those set
forth on Attachment A. S&S shall be compensated for the
performance of all Manufacturing Services in accordance with the
provisions of paragraph 2.3(b) below.
(b) For each Distributed Work as to which S&S is to provide Manufacturing
Services, Company shall provide, on or before the dates specified on Schedule A
(as such dates may be periodically revised by S&S) all pre-production materials
(the "Materials") for each Distributed Work reasonably necessary to enable S&S
to render Manufacturing Services for such Work. The Materials shall include the
information set forth on Attachment B hereto, as well as any and all other
materials timely and reasonably requested by S&S or its approved designee to
enable it to perform the Manufacturing Services in a timely and adequate manner.
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(c) Imprint. All Distributed Works shall be published under the imprint
Byron Press Multimedia Books, which imprint shall appear on the cover, spine,
title page and copyright page of each work manufactured by S&S pursuant to this
Agreement. The Pocket Books colophon shall appear on the spine, of each
Distributed Work, and the copyright page of each Distributed Work shall further
bear the following notice: "Pocket Books and the colophon are trademarks of
Simon & Schuster, Inc."
(d) Bar Code Positioning. All trade paperbacks, mass market paperbacks and
hardcover books shall bear the applicable bar codes as specified on Attachment C
hereto.
(e) In addition to the foregoing, for works manufactured by Company or its
designee, Company shall deliver all finished solicitation covers or jackets to
the S&S fulfillment house on or before the dates set forth on Schedule A, as
such schedule shall be updated by S&S from time to time. S&S shall be
responsible for providing solicitation covers or jackets for all Distributed
Works for which S&S provides Manufacturing Services.
(f) Company shall be responsible for, and shall reimburse S&S fully for,
any documented excess costs incurred by S&S as a result of late delivery of any
materials set forth herein or reasonably required by S&S, including but not
limited to any costs of separate solicitation, shipping or invoicing
necessitated by Company's late delivery of Materials or advertising and
promotional materials.
(g) Pricing/Product Identification. The Distributed Works shall bear a
suggested catalogue retail price determined by Company in consultation with S&S,
as well as Company's ISBN and S&S's identification on the inside front cover and
as specified by S&S. Company shall be responsible for the costs of this and any
other cover back-up, which shall be defined as all necessary printing on the
covers of a Distributed Work. The ISBN shall contain a 3 digit publication code,
a 5 digit title number and a single check digit all in conformity with S&S's
system and customer requirements. In addition, UPC/EAN bar codes and
strippable/non-strippable symbols are required as set forth in paragraph 2.2(d)
above.
2.3. Manufacturing Costs and Fees.
(a) Company shall reimburse S&S for all direct actual out-of-pocket costs
associated with the Manufacturing Services, including but not limited to paper,
printing and binding, jacket and insert costs and the costs of any advertising
and promotional materials prepared by S&S ("Manufacturing Costs"). Company shall
participate in the approval of such Manufacturing Costs in accordance with the
following procedure:
(i) As soon as practicable following the establishment of a
publication schedule for any Distributed Work, S&S shall provide
Company with an estimate of the projected manufacturing costs for
such Distributed Work;
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(ii) Within 7 working days of receipt of such estimate, Company, in
consultation with S&S, shall determine the size of the print run
for such Distributed Work;
(iii)Within 5 working days of Company's notice to S&S of the size of
the print run, S&S shall provide Company with a calculation of
the actual projected Manufacturing Costs for such Distributed
Work. Company shall not be responsible for any Manufacturing
Costs in excess of such calculation unless S&S obtains Company's
approval prior to incurring such costs.; provided, however, that
if Company fails to respond to a request for such approval within
24 hours of receipt or within such other time as S&S shall
reasonably require, Company's approval shall be deemed given.
(b) In addition to the Manufacturing Costs, and the Distribution Fee set
forth in paragraph 6.1, Company shall pay S&S a fee for its management of the
Manufacturing Services ("Production Services Fee"),which fee shall be $1000 per
Distributed Work for which Manufacturing Services are provided, charged by S&S
during the month in which S&S initially distributes such Distributed Work.
2.4. Costs of Separate Print Run Required by S&S. In addition to the
foregoing costs and fees, Company shall bear the cost of any additional print
run required by S&S for title which Company sells through its Reserved Channels.
Company may elect at any time, with respect to any Distributed Work(s), to
require such a separate print run with separate coding or other mechanism to
prevent returns to S&S of Distributed Works sold by Company through its Reserved
Channels.
3. Obligations of S&S.
3.1. Marketing and Promotion. S&S shall use commercially reasonable efforts
to actively promote and sell each of the Distributed Works consistent with the
manner in which S&S promotes its own products. S&S shall consult with Company on
a periodic basis regarding sales and marketing opportunities for the Distributed
Works. S&S shall include each of the Distributed Works in the Pocket Books
monthly solicitation materials and such other S&S sales and marketing
literature, direct mail materials, retail and consumer promotion materials,
advertising materials, public relations efforts, telemarketing programs and
trade shows as S&S and Company deem appropriate to effectively carry out the
terms of this Agreement, and all S&S's actual out-of-pocket costs directly
related to including Distributed Works in such materials shall be borne by
Company. S&S shall submit to Company any sales, marketing and promotional
materials for the Distributed Works which it intends to provide to distributors,
dealers and end users for Company's review and written approval, which shall not
be unreasonably withheld or delayed; provided, however, that in the event
Company fails to
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<PAGE>
respond to S&S's request for such approval within 72 hours or such other time as
S&S shall reasonably require, Company's approval shall be deemed given.
Notwithstanding the foregoing, in the event that Company has previously approved
materials that are substantially similar to any new materials, S&S shall have no
obligation to resubmit such materials to Company for its approval unless Company
has notified S&S in writing that Company's third-party licensor(s) require that
such substantially similar materials be submitted for approval.
3.2. Books and Records; Audit Rights. S&S shall maintain and retain
complete and accurate books and records relating to any obligation assumed by
S&S under this Agreement, for a period of not less than two years following
expiration or termination of this Agreement. Company, or its designee through
the use of an accountant, upon two weeks prior notice and during business hours,
shall have the right at their own expense twice a year during the term of this
Agreement and for two years following the expiration or termination to inspect
and examine and make copies of such books, records, and correspondence, as
Company may deem appropriate to determine the accuracy of accountings and
reports made pursuant to this Agreement. All accountings and reports rendered by
S&S under this Agreement shall be deemed binding on Company unless objected to
in writing by Company within two years of the statement's being rendered. If any
such audit reveals payments to Company due in excess of five percent (5%) and
$10,000 of the net amount due, all reasonable auditing fees, costs and expenses
shall be borne by S&S.
3.3. Solicitation and Shipment of Orders. With respect to S&S's
distribution of Distributed Works hereunder, S&S shall have the right and
obligation to solicit orders, prepare shipping documents, manage transportation
of the Distributed Works, including shipping copies thereof, receive and process
returns of the Distributed Works, bill all orders at discounts and on such terms
as are in accordance with standard S&S practice and collect all invoices.
3.4. Shipment of Orders to Company. Company shall have the right to order
copies of Distributed Works for distribution through the Reserved Channels
and/or in the Non-Exclusive Territory. Such requests from Company shall be
limited to no more than ten (10) requests each month. S&S shall ship such orders
upon Company's request in case pack quantities only. Company shall be obligated
to pay freight charges on such shipments. S&S shall have no obligation to handle
billing and/or revenue collection on orders placed by Company pursuant to this
paragraph. S&S shall fill such orders at least as promptly as it fills such
orders from its other customers. No Distribution Fee shall be due to S&S on
sales of Distributed Works to Company.
3.5. Changes to Distributed Work. S&S shall not make any changes or
alterations to the Distributed Works delivered to it by Company or, in the case
of Distributed Works for which S&S is providing Manufacturing Services, to the
materials approved or provided by Company without Company's prior written
approval.
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4. Obligations of Company.
Company represents to S&S that it is or intends to be the developer or
publisher of the Distributed Works. Company acknowledges that S&S is assuming no
responsibilities for any obligations with respect to the Distributed Works
except such as are expressly set forth in this Agreement. Company further
represents, covenants and agrees as follows:
4.1. Product Manufactured by Company. On Distributed Works for which S&S is
not providing Manufacturing Services, Company shall be responsible for supplying
finished books packed in cartons containing only 1 ISBN, the carton exterior
clearly marked with ISBN unless otherwise agreed by S&S, title and cover price.
Product must be delivered to an S&S designated warehouse according to S&S's
shipping schedule deadlines.
4.2. Delivery of Distributed Works Manufactured by Company. For those
Distributed Works for which S&S is not providing Manufacturing Services, Company
shall deliver from time to time copies of the Distributed Works f.o.b. S&S's
warehouse in quantities and on dates mutually agreeable to the parties and as
necessary for S&S to perform properly hereunder. Company shall assume all risk
of loss or damage to such Distributed Works until delivered to and accepted by
S&S. The freight for shipping these copies of the Distributed Works to S&S's
warehouse facility or other designated warehouse facilities shall be the
responsibility of Company.
4.3. Delivery of Ancillary Materials. Company shall deliver all finished
advertising, promotional and solicitation materials, including sell sheets, to
S&S on or before the dates set forth on Schedule A, as such schedule shall be
updated by S&S from time to time.
4.4. Marketing Support. Company will provide S&S with reasonable
cooperation and support in S&S's efforts hereunder, including setting up a
reasonably adequate pool of funds to ensure that it can accommodate cooperative
advertising and other promotional expenses to support the Distributed Works,
which are each to be approved in advance in writing by the Company. In addition,
the parties agree to cooperate with each other and to the best of their
abilities link their respective on-line promotional "Web" sites for the purpose
of promoting the Distributed Works, subject to certain licensing restrictions
and third party approvals.
4.5. Promotional Materials and Copies. S&S shall be entitled, at no cost
and in reasonable quantities as available, to promotional copies of the
Distributed Works and other promotional material prepared by Company for
distribution to S&S's reselling customers or to the media for the purpose of
supporting sales or marketing of the Distributed Works as S&S may reasonably
request. It is agreed and understood that S&S shall be provided with a number of
free-of-charge copies of each Distributed Work to be
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mutually agreed upon in quantities consistent with S&S's marketing efforts.
Company agrees to promptly provide copies of the Distributed Work upon the
mutual agreement of the parties.
4.6. Product Advertising. Company may place such advertising and/or
promotion of the Distributed Works as is consistent with Company's own
advertising and promotion practices in the industry and will consult with S&S on
a regular basis concerning such advertising plans, provided that final decisions
shall remain at Company's discretion and, provided further, that Company shall
not use S&S's name or trademarks in the marketing or promotion of the Works
without S&S's prior written approval. Company will also cooperate with S&S in
any other reasonable marketing promotions reasonably requested by S&S. S&S will
provide reasonable consultation in channel marketing and product advertising in
addition to the efforts provided by Company.
4.7. Inventory. Company shall be responsible for maintaining inventory
levels and shall use reasonable best efforts to maintain inventory levels of the
Distributed Works at the S&S warehouse (or that of its designee) sufficient to
process S&S's purchase orders within fifteen (15) working days of receiving the
order. S&S shall report on inventory levels of the Distributed Works in order to
assist Company in maintaining adequate inventory levels. The inventory and
materials supplied by Company or manufactured for the Company pursuant to the
Manufacturing Services provided hereunder shall belong exclusively to Company,
and Company may remove such inventory from S&S's warehouse at its own expense
and as it sees fit, subject to its obligations under this Agreement. Except for
copies of the Distributed Works received by S&S or manufactured hereunder in
damaged or otherwise non-salable condition (provided such copies were not
damaged by S&S or its supplier), S&S shall assume all risk of loss or damage, up
to the per unit manufacturing cost, for all copies of the Distributed Works in
its custody and control; provided that S&S shall not be responsible for
inventory shrinkage that does not exceed 2% of the units inventoried.
4.8. Insurance. During the term of this Agreement, each party shall at all
times maintain at its own cost the following minimum insurance coverage in a
form reasonably acceptable to the other and, upon the request of the other,
shall furnish certificates evidencing such insurance: (i) comprehensive general
liability insurance with a combined single limit of at least One-Half Million
Dollars ($500,000); and (ii) any other insurance coverage which the parties
mutually agree are reasonably necessary or appropriate under the circumstances
in the event there are claims against any existing insurance policy with respect
to the Distributed Works.
5. Damaged Works; Returns; Inventory.
5.1. Remainder Sales; Damaged Works. S&S may not make any remainder sales
of any of the Distributed Works without the prior consent of Company. Company
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retains the right to make remainder sales of the Distributed Works. Company is
obligated to provide S&S with 90 days' notice of Company's plans to remainder
any Distributed Works. Copies of the Distributed Works in S&S's inventory which
are not in salable condition (as determined mutually by Company and S&S in
accordance with its standard practice) shall, at Company's election to be
exercised within 45 days of S&S's request thereof, be returned to Company at
Company's cost and expense (and pursuant to its shipping instructions), sold as
damaged merchandise by S&S, or destroyed at Company's cost and expense. Company
shall be entitled to physically inspect the Distributed Works within the 45 day
period prior to making such election. Upon the failure of Company to provide
instructions to S&S within 45 days following receipt of S&S's notice, S&S may
destroy such inventory without liability. Without limiting the foregoing
sentence, S&S shall make reasonable efforts to notify Company of its plans to
destroy at least one day prior to destruction. S&S shall follow the same
policies and practices regarding returned and/or damaged Distributed Works as it
does for its own products and/or its other distributed lines. The distribution
fees payable to S&S on any sale of the Distributed Works as damaged merchandise
("hurts") or remainders hereunder shall be at a rate of sixteen percent (16%) of
the discounted sales price, and any proceeds of such sale shall be paid to
Company in accordance with the regular payment schedule. In the event that the
Distributed Works in S&S's inventory are damaged as a result of gross negligence
by S&S, S&S shall bear the labor and material costs to replace such damaged
works.
6. Monthly Report of Distribution Fees.
6.1. Compensation.
(a) In consideration for the performance of the services performed by S&S
hereunder, S&S shall be entitled to a Distribution Fee as defined in Attachment
E. At the time specified in Paragraph 6.2 below, S&S shall pay Company a Monthly
Payment, which shall be an amount equal to Gross Revenue less the Distribution
Fee, less the Authorized Deductions (as defined in Attachment E hereto).
(i) On licensing of book club rights, sales made in bulk to book
clubs, special sales or any other sales at discounts of 60% or
more of the retail price, mail order sales and premium sales made
by S&S as agreed to by Company, S&S shall retain a fee to be
adjusted on a case-by-case basis as agreed to by the parties.
(b) In consideration for the Manufacturing Services provided by S&S
pursuant to Paragraphs 2.2, S&S shall be entitled to the Production Services
Fee, as well as to be reimbursed for Manufacturing Costs. In connection
therewith, in addition to the authorized deductions set forth above, S&S shall
deduct from the Monthly Payment the Manufacturing Costs payable to S&S by
Company.
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6.2. Payment/Statements. Within fifteen (15) days of the end of each month,
S&S shall issue to Company a report of Gross Revenues for the Distributed Works.
In addition, within 30 days of the end of each month, S&S shall issue to Company
a statement of Gross Revenues for the Distributed Works, as well as any other
charges or payments due under this Agreement. The statement shall include the
number of copies of each of the Distributed Works shipped, the number of actual
returns, the amount of the reserve for returns, the manner in which past
reserves have been applied, and an itemized listing of any other charges and
fees charged to Company pursuant to the terms hereof in connection with such
shipments (including, without limitation, an itemized and detailed listing of
the services rendered by S&S pursuant to Paragraphs 2.2 hereof for which S&S is
owed Manufacturing Costs hereunder). At the time it renders such statement, S&S
shall pay to Company the amounts set forth in Paragraph 6.1 above. In the event
that the Manufacturing Costs in any given month exceed the Monthly Payment, S&S
shall issue an invoice to Company for the amount of such excess, which invoice
shall be payable within 30 days of its receipt by Company.
6.3. Return Reserve. S&S shall maintain a reserve against customer returns
in accordance with the terms outlined in Attachment D hereto.
6.4. Demonstration/Promotional Copies. No Distribution Fee shall be owing
to S&S in connection with promotional copies of the Distributed Works furnished
to S&S pursuant to paragraph 4.5, nor in connection with copies of the
Distributed Works provided to Company pursuant to paragraph 3.4.
7. Term and Termination.
7.1. Term. This Agreement shall commence on the Effective Date and shall
continue for a term of three (3) years. Thereafter, this Agreement shall
automatically renew for successive one (1) year terms unless either party elects
to terminate, effective on the anniversary date of the Effective Date, on not
less than six (6) months prior written notice.
7.2. Termination for Cause. Upon breach of a material obligation hereunder
by either party, the other party may make written notice of such material
breach. If, after thirty (30) days from notice of such breach, the party in
breach has failed to cure such breach, the party having given notice may
terminate the Agreement.
In addition, either party may, at its option, immediately terminate this
Agreement without liability upon occurrence of any of the following events: if
the other party has a receiver appointed for it or its property; becomes
insolvent or unable to pay its debts as they mature, or makes an assignment for
the benefit of its creditors; seeks relief or if proceedings are commenced
against S&S or on its behalf under any bankruptcy, insolvency or debtor's relief
law, and such proceedings have not been vacated or set aside
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within ninety (90) days from the date of commencement thereof; or is liquidated
or dissolved.
7.3. Effect of Termination. The following provisions shall be in effect
upon the effective date of the termination of expiration of this agreement:
(a) S&S shall discontinue distribution and sale of the Distributed Works.
Based upon the then-current information provided to S&S by Company, S&S shall
not solicit sales for Distributed Works for any month for which it will no
longer be the distributor.
(b) As soon as feasible after the effective date of termination or
expiration, S&S will cease the use of any forms, promotional materials, or
advertising referring to any titles of the Distributed Works or to Company or
any of its trademarks and service marks.
(c) S&S shall immediately forward to Company any and all unfilled orders
for the Distributed Works then in hand and orders received within one year after
the termination of the Agreement.
(d) Company shall be free to sell the Distributed Works to customers by any
means and by its own personnel or through any other distributor.
(e) Each party's obligation to timely pay the other party for any amounts
which have become due shall continue.
(f) At the Company's option for a period of six months after expiration or
termination (the "returns processing grace period"), S&S shall continue to
receive and process returns, to render receiving reports and credits in
accordance with its usual practices and to render required statements and
reports. After the end of the returns processing grace period, S&S shall have no
responsibility for processing returns. At that time Company shall be responsible
for processing all returns and shall reimburse S&S's customers for all such
returns.
(g) S&S shall cease to perform Manufacturing Services for the Distributed
Works.
(h) If this Agreement expires, S&S shall withhold amounts otherwise due
under this agreement beginning 3 months prior to the effective date of
expiration until final accounting settlement, which shall be rendered 12 months
following the date of expiration; provided, however, that S&S shall continue to
render its monthly statements to Company during that period.
(i) In the event of Termination For Cause by S&S due to material breach by
Company, S&S will withhold amounts otherwise due under this Agreement upon
notice
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of termination until the final accounting settlement is issued 3 months after
the end of the returns processing grace period.
(j) In the event of Termination For Cause by Company due to material breach
by S&S, S&S shall not be entitled to withhold amounts otherwise due hereunder
and shall continue to render statements and accountings, along with payments to
Company, for all sales and support activity through the month of termination,
with the final accounting settlement to be issued 3 months after the end of the
returns processing grace period.
(k) If Company contracts with a new distributor who will begin accepting
returns immediately after the effective date of expiration or termination, S&S
shall not withhold monies under subparagraphs (h) and (i) above. In such event,
S&S shall continue to issue accountings and payments due in accordance with the
terms of this Agreement for all sales and support activity through the month of
expiration or termination, with a final accounting to be issued three months
after the end of the returns processing grace period.
(l) During the last month of the term of this Agreement, Company shall
instruct S&S in writing as to the disposition of inventory (including inventory
received during the returns processing grace period), and shall pay any crating
or shipping expenses attendant thereto at S&S's cost. S&S shall receive full
credit in accordance with Company's written instructions. Upon the failure of
Company to provide such instructions S&S may destroy such inventory without
liability, provided that no such destruction shall take place sooner than 30
days following the mailing of a request, by certified or other receipted form of
mail delivery advising Company of S&S's intention to destroy a stated number of
copies absent written instructions from publisher to the contrary.
8. Warranties and Indemnification.
8.1. Company Warranties. Company represents and warrants that:
(a) it has all necessary rights and authority to execute and deliver this
Agreement and perform its obligations hereunder, and to grant to S&S all
rights purported to be granted herein and nothing contained in this
Agreement or in the performance of this Agreement will place Company in
breach of any other contract or obligation;
(b) the Distributed Works and all other materials delivered to S&S
hereunder are and will be original to Company, except for (i) material in
the public domain or (ii) material as to which permission has been obtained
from the proprietary rights owner for Company to grant the rights granted
hereunder and for S&S to perform to the full extent contemplated by this
Agreement;
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(c) it has not granted and will not grant any right in the Distributed
Works to any third party which conflicts with the rights granted to S&S in
this Agreement;
(d) the Distributed Works and all other materials delivered to S&S and any
Company trademarks licensed to S&S hereunder do not (i) invade the right of
privacy of any third person; (ii) contain any libelous, obscene or
otherwise unlawful material; (iii) infringe any U.S. patent, (iv) infringe
any statutory or common law copyright or (v) otherwise contravene any
rights of any third person.
(e) the Distributed Works and all other materials delivered to S&S shall be
of a quality at least comparable to that of other works and materials
currently published by S&S and by Company.
8.2. S&S Warranties. S&S warrants that it has not and will not enter into
any agreement that would conflict with Company's rights under this Agreement;
that all copies of Distributed Works will be manufactured, sold and distributed
in accordance with all applicable federal, state, local, and foreign laws and
regulations; that all copies of Distributed Works shall be manufactured in a
high standard of quality; that it has full power and authority to enter into
this Agreement; and that all material created by S&S, including but not limited
to packaging, advertising, and promotional material related thereto (other than
from material furnished by Company) shall not violate or infringe any right of
privacy or publicity, copyright, or trademark or constitute defamatory, obscene,
or unlawful matter, or otherwise violate or infringe any personal or proprietary
rights of any person, firm, or corporation.
8.3. Indemnification. Company shall indemnify and hold S&S harmless against
any loss, liability, damage, cost or expense (including without limitation fees
and disbursements of counsel incurred by S&S in any action or proceeding between
Company and S&S or between S&S and any third party) arising out of any breach or
alleged breach by Company of this Agreement or any covenant, representation or
warranty made by it herein, or otherwise arising out of the content of any
materials provided or prepared by Company with respect to the Distributed Works.
Company shall be entitled to assume and control the defense and settlement of
any such claim; provided, however, that Company shall choose counsel from among
the list of S&S's regular outside counsel or such other counsel that S&S may
approve and Company shall not, without the prior written consent of S&S, effect
any settlement of any pending or threatened proceeding for which S&S is entitled
to indemnification hereunder, unless such settlement is (i) solely for money
damages, (ii) includes an unconditional release of S&S from all such liability
on claims that are the subject matter of such proceedings, and (iii) does not
impose any obligations upon or otherwise prejudice the rights of S&S. S&S shall
provide reasonable cooperation and assistance in defending against any such
claim. In addition to, and not in limitation of any other rights of S&S, Company
shall bear all costs and expenses incurred by S&S as a result of the recall of
any Distributed Work necessitated by any breach or alleged breach of this
Agreement or any covenant, representation or warranty made by
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Company herein. The Company's obligation to indemnify is conditioned upon S&S
notifying Company promptly of any claim as to which indemnification will be
sought.
8.4. S&S Indemnification. S&S shall indemnify, hold harmless and defend
Company against any loss, liability, damage, cost or expense (including without
limitation fees and disbursements of counsel incurred by Company in any action
or proceeding between Company and S&S or between Company and any third party),
judgments and other expenses relating to or arising out of any breach or alleged
breach by S&S of any covenant, representation or warranty made in connection
with this Agreement. S&S shall be entitled to assume and control the defense of
any such claim provided, however, that S&S shall not, without the prior written
consent of Company, effect any settlement of any pending or threatened
proceeding for which Company is entitled to indemnification hereunder, unless
such settlement is (i) solely for money damages, (ii) includes an unconditional
release of Company from all such liability on claims that are the subject matter
of such proceedings, and (iii) does not impose any obligations upon or otherwise
prejudice the rights of Company. Company shall provide reasonable cooperation
and assistance in defending against any such claim. In addition to, and not in
limitation of any other rights of Company, S&S shall bear all costs and expenses
incurred by Company as a result of the recall of any Distributed Work
necessitated by any breach or alleged breach of this Agreement or any covenant,
representation or warranty made by S&S herein. S&S's obligation to indemnify is
conditioned on Company notifying S&S promptly of any claim as to which
indemnification will be sought. The parties agree to provide each other with
reasonable cooperation in the defense and settlement of any such claim.
9. Confidentiality.
Each party agrees to treat the terms and conditions of this Agreement as
confidential information unless otherwise required by law. In addition, each
party ("Recipient") acknowledges that, pursuant to the terms of this Agreement,
it will come into possession of certain financial information and records
relating to the business of the other party ("Discloser"). Recipient agrees that
any such information shall be treated as the confidential property of Discloser.
Recipient agrees that it shall take every reasonable precaution to safeguard the
confidentiality of such information with the same degree of care for this
purpose that it so exercises to protect the confidentiality of its own
proprietary information. Except as necessary to carry out or enforce the terms
of this Agreement, such confidential information shall not be disclosed to
others. Financial information provided or approved by Discloser for distribution
without restriction to third parties, information already in Recipient's
possession or in the public domain, or information received by Recipient from
third parties whether authorized or not to divulge same, shall not be subject to
this prohibition.
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10. Use of Trademarks and Tradenames.
10.1. License of Company's Trademarks. Subject to the terms of this
Agreement, Company hereby grants to S&S the non-exclusive right to use the name
and logo of Company and the applicable trademarks of Company (the "Company
Trademarks") alone or in conjunction with S&S's name, logo and marks in
connection with the marketing, packaging, promotion, advertising, sale and
distribution of the Distributed Works in accordance with the terms of this
Agreement. S&S shall cause notice of the Company's ownership of the Company
Trademarks to be displayed whenever S&S uses the Company Trademarks. Company
shall have prior approval of materials incorporating the Company Trademarks,
such approval not to be unreasonably withheld or delayed; provided, however,
that in the event Company has previously approved materials that are
substantially similar to any new materials, S&S shall have no obligation to
resubmit such materials to Company for its approval. Upon reasonable notice,
Company will have the right to supply S&S with revised trademarks for future
use. A failure by Company to respond to S&S in writing within ten (10) working
days of Company's receipt of material incorporating such Company Trademarks
submitted for the Company's approval shall constitute Company's approval of such
material in the form submitted to it by S&S.
(a) Use by S&S. S&S hereby recognizes and concedes for all purposes that
all use of Company Trademarks shall inure to the Company's benefit. S&S agrees
that it shall only use, make reference to, or otherwise designate, either orally
or in writing, the Company Trademarks or Company's licensors' trademarks in the
promotion or sale of the Distributed Works, and shall not transfer such right to
use, reference, and designate such trademarks to any other party. Upon
termination of this Agreement in any manner provided herein, S&S will cease and
desist from using all Company copyrights, trademarks, trade names, or
identifying slogans.
(b) Ownership by Company. S&S shall not obtain or try to obtain for itself
anywhere in the world, any trademarks, trade names, copyrights or patents
associated with the Distributed Works. S&S acknowledges and agrees all such
items, including the title to and ownership in the intellectual property rights
or trade secrets in or to the Distributed Works are the exclusive property of
Company or its licensors and agrees to immediately notify Company in writing of
any actual or suspected infringement. S&S acknowledges that all rights
(including good will) in Company's trademarks vest in Company and S&S shall, if
and when requested by Company, enter into a "user agreement" in the form
reasonably required by Company without cost or charge to S&S. S&S agrees not to
use any of Company's trademarks as any part of the name under which it conducts
business; provided, however, that S&S may refer to itself as an authorized
distributor of the Distributed Works. S&S agrees that it has or will acquire no
right in Company's trademarks by virtue of its performance under this Agreement
except for the limited rights of use as provided by this Agreement
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10.2. License of S&S's Trademarks. Subject to the terms of this Agreement,
S&S hereby grants to Company the non-exclusive right to use the name and logo of
S&S and the applicable trademarks of S&S (the "S&S Trademarks") only on the
spine, cover page and copyright page of each Distributed Work and in advertising
solely in connection with such Distributed Work in accordance with paragraph
2.2(c) of this Agreement. S&S shall have prior approval of materials
incorporating the S&S Trademarks, such approval not to be unreasonably withheld
or delayed; provided, however, that in the event S&S has previously approved
materials that are substantially similar to any new materials, Company shall
have no obligation to resubmit such materials to S&S for its approval. A failure
by S&S to respond to Company in writing within ten (10) working days of S&S's
receipt of material incorporating such Trademarks submitted for S&S's approval
shall constitute S&S's approval of such material in the form submitted to it by
Company.
(a) Use by Company. Company hereby recognizes and concedes for all purposes
that all use of the S&S trademarks shall inure to S&S's benefit. Company agrees
that it shall only use S&S's trademarks on the Distributed Works as specifically
set forth herein, and shall not transfer such right to use such trademarks to
any other party. Upon termination of this Agreement in any manner provided
herein, Company will cease and desist from using all S&S Trademarks.
(b) Ownership by S&S. Company acknowledges and agrees that all S&S
Trademarks are the exclusive property of S&S or its licensors and agrees to
immediately notify S&S in writing of any actual or suspected infringement.
Company acknowledges that all rights (including good will) in S&S's trademarks
vest in S&S and Company shall, if and when requested by S&S, enter into a "user
agreement" in the form reasonably required by S&S without cost or charge to S&S.
Company agrees that it has or will acquire no right in the S&S Trademarks by
virtue of its performance under this Agreement except for the limited rights of
use as provided by this Agreement.
11. General.
11.1. Exclusion of Certain Damages. NEITHER PARTY SHALL UNDER ANY
CIRCUMSTANCES BE LIABLE TO THE OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL,
SPECIAL OR PUNITIVE DAMAGES OR LOST OR IMPUTED PROFITS OR ROYALTIES ARISING OUT
OF THIS AGREEMENT OR ITS TERMINATION, WHETHER FOR BREACH OF WARRANT OR ANY
OBLIGATION ARISING THEREFROM OR OTHERWISE, WHETHER LIABILITY IS ASSERTED IN
CONTRACT OR TORT (INCLUDING NEGLIGENCE AND STRICT PRODUCT LIABILITY) AND
IRRESPECTIVE OF WHETHER THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY
SUCH LOSS OR DAMAGE. EACH PARTY HEREBY WAIVES ANY CLAIMS THAT THESE EXCLUSIONS
DEPRIVE SUCH PARTY OF AN ADEQUATE REMEDY.
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11.2. Notices. All notices or requests, including communications and
statements which are required or permitted under the terms of this Agreement,
shall be in writing and shall be sent by telex or facsimile, or sent by
recognized commercial overnight courier, or mailed by United States registered
or certified mail. Notices shall be effective upon receipt. Notices shall be
sent to the parties at the following addresses:
For S&S: Simon & Schuster Distribution Services
1230 Avenue of the Americas
New York, NY 10020
Attention: Jack Romanos
FAX #: (212) 698-4380
with a copy of notices to:
Simon & Schuster Legal Department
1230 Avenue of the Americas
New York, NY 10020
Attention: General Counsel
FAX #: (212) 698-7171
For Company: Byron Preiss Multimedia Company, Inc.
24 West 25th Street
New York, NY 10010
Attention: Byron Preiss, President
Fax #: (212) 627-2788
Attention: Michael Hobson
Executive Vice President
Fax #: (212) 627-2788
With a copy
of notices to: Kane Kessler, P.C.
1350 Avenue of the Americas
New York, NY 10019
Attention: Robert L. Lawrence, Esq.
Fax #: (212) 245-3009
11.3. Governing Law. The validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties hereto
shall be governed by and construed in accordance with the substantive laws of
the State of New York, notwithstanding the application of any choice of law or
rule to the contrary. The parties agree to submit to the exclusive jurisdiction
over all disputes hereunder in the federal and state courts in the State of New
York located in New York County.
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11.4. Force Majeure. Neither party will be deemed in default of this
Agreement to the extent that performance is prevented by reason of any act of
God, fire, natural disaster, accident, act of government, shortages of material
or supplies or any other cause beyond the control of such party; provided that
the party affected gives the other party written notice thereof within 10
working days of any such event or occurrence. In the event of such a Force
Majeure, the time for performance or cure will be extended for a period equal to
the duration of the Force Majeure, but not in excess of six (6) months.
11.5. Captions. All indices, titles, subject headings, section titles and
similar items contained in this Agreement are provided for the purpose of
reference and convenience only and are not intended to be inclusive, definitive
or to affect the meaning, content or scope of this Agreement.
11.6. Amendment. No amendment or modification of this Agreement will be
made except by an instrument in writing signed by both parties. No failure of
either party hereto to prosecute its right with respect to any single or
continuing breach of this Agreement will act as a waiver of the right of that
party to later exercise any right or remedy granted hereunder with respect to
that same or any other breach of this Agreement by the other party hereto.
11.7. Relationship. The relationship between S&S and Company with respect
to all matters relating to this Agreement will be that of independent
contractors. Each party agrees that under no circumstances is it an agent,
partner, franchisor/franchisee or joint venturer of the other, and neither party
has or owes the other any special or fiduciary responsibility. Each party
acknowledges that it is not relying on the other for legal advice of any kind
and has had the opportunity to review this Agreement with legal counsel of its
own choosing.
11.8. Severability. If any provision of this Agreement is found invalid or
unenforceable pursuant to judicial decree, such provision shall be enforced to
the maximum extent permissible and the remainder of this Agreement shall remain
in full force and effect according to its terms.
11.9. Binding Agreement/Assignment. The parties intend to be bound only
upon full execution of a written agreement and no negotiation, exchange of draft
or partial performance shall be deemed to imply an agreement. This Agreement,
upon execution by both parties, will be binding upon the parties hereto. This
Agreement shall not be assigned by either party, nor its rights or obligations
hereunder assigned, without the prior written consent of the other.
Notwithstanding the provisions of the preceding sentence, both S&S and Company
may assign its rights under this Agreement to any affiliated entity or to its
successor or the transferee(s) of all or substantially all of its stock or all
or substantially all of its business assets by reason of merger, consolidation
or sales or exchange of assets or other corporate reorganization.
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11.10. Entire Agreement. This Agreement and the Exhibits hereto (which are
incorporated herein by this reference) constitute the entire agreement between
the parties and supersede all prior negotiations, understandings, correspondence
and agreements with respect to the same subject matter.
11.11. Survival The provisions of Sections 8.3, 9, 10, 11, and 12 shall
survive termination or expiration of this agreement.
Byron Preiss Multimedia Company, Inc. Simon & Schuster
By: /s/ Byron Preiss By: /s/ Jack Romanos
Title: President Title: President-Consumer Group
Date: ______________________ Date: ____________________
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EXHIBIT 21.1
SUBSIDIARIES OF BYRON PREISS MULTIMEDIA COMPANY, INC.
Name State of Incorporation
- ---- ----------------------
Byron Preiss Multimedia On-Line Services, Inc. Delaware
Byron Preiss Multimedia Holdings, Inc. Delaware
Virtual Comics, Inc. Delaware
Dolphin, Inc. New Jersey
Multi Dimensional Communications, Inc. New York
New Media Schoolhouse, Inc. New York
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 7, 1997
(except with respect to the matter discussed in the last paragraph of Note 13 as
to which the date is March 21, 1997) included in Byron Preiss Multimedia
Company, Inc.'s Form 10-KSB for the year ended December 31, 1996 and to all
references to our Firm included in this registration statement on Form S-3,
registering 9,112,759 shares of Common Stock.
ARTHUR ANDERSEN LLP
New York, New York
January 21, 1998
