<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
for the fiscal year ended December 31, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) for the
transition period from _____ to _____
COMMISSION FILE NUMBER 1-13084
BYRON PREISS MULTIMEDIA COMPANY, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New York 13-3676574
- ------------------------ ------------------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
24 West 25th Street, New York, New York 10010
- --------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Issuer's telephone number: (212) 989-6252
Securities registered under Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
Common Stock, par value $.001 Boston Stock Exchange
per share
Redeemable Common Stock Boston Stock Exchange
Purchase Warrants
Securities registered under Section 12(g) of the Act:
Units, each Unit consisting of two shares of Common Stock and two
Redeemable Common Stock Purchase Warrants
-----------------------------------------------------------------
(Title of class)
Common Stock, par value $.001 per share
---------------------------------------
(Title of class)
Redeemable Common Stock Purchase Warrants
-----------------------------------------
(Title of class)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO
THE BEST OF
1
<PAGE>
REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PARTY III OF THIS FORM 10-KSB OR ANY AMENDMENT TO
THIS FORM 10-KSB. [ ]
THE ISSUER'S REVENUES FOR YEAR ENDED DECEMBER 31, 1997 WERE $3,965,645.
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES AT APRIL
13, 1998, WAS APPROXIMATELY $7,093,766, COMPUTED BY REFERENCE TO THE CLOSING
PRICE AS REPORTED ON THE NASDAQ SMALL CAP MARKET ON THAT DATE.
THE NUMBER OF SHARES OF THE ISSUER'S COMMON STOCK, PAR VALUE $.001 PER SHARE,
OUTSTANDING AS OF APRIL 13, 1998 WAS 7,799,438. THE NUMBER OF THE ISSUER'S
REDEEMABLE COMMON STOCK PURCHASE WARRANTS OUTSTANDING AS OF APRIL 13, 1997 WAS
1,207,500.
DOCUMENTS INCORPORATED BY REFERENCE. None.
2
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Purpose
This Amendment is designed to transmit and include Part III Items 9, 10, 11
and 12 of this Form 10-KSB.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The executive officers and directors as of the date hereof are as
follows:
Name Age Office
---- --- ------
Byron Preiss 46 Chairman of the Board, Chief Executive
Officer, President and Director
James R. Dellomo 58 Chief Financial Officer, Secretary,
Treasurer and Director
Matthew Shapiro 51 Director
Jack Romanos 56 Director
Roger Cooper 54 Director
Neal Tomblyn 42 Executive Vice President
Byron Preiss, 46, is a founder of the Company and has served
as President, Chief Executive Officer and Chairman of the Board of
Directors since the Company's inception in July 1992. In April 1974,
Mr. Preiss founded Byron Preiss Visual Publications, Inc.,
headquartered in New York City. Since April 1974, Mr. Preiss has served
as the President and Chief Executive Officer of Byron Preiss Visual
Publications, Inc. and certain related entities. Mr. Preiss received a
B.A. degree from the University of Pennsylvania in 1973 and a M.A.
degree from the Film and Broadcast Management program at Stanford
University in 1974.
James R. Dellomo, 58 - has served as Chief Financial Officer
of the Company since June, 1994 and Treasurer and a director since July
1994. From January 1993 through August 1993, Mr. Dellomo served as the
Chief Financial Officer of Rio Sportswear, Inc. From January 1992
through January 1993, Mr. Dellomo was a consultant to the Commonwealth
of Puerto Rico - Industrial Development Administration. From 1974
through 1991, Mr. Dellomo held the positions of Vice President -
Finance, Treasurer and Secretary of Knogo Corporation, a NYSE listed
company. Mr. Dellomo also served as a Director of Knogo Corporation.
<PAGE>
Matthew Shapiro, 51 - has served as Vice President of Network
Development of NBC, Inc. since January, 1996. From September 1995 until
December, 1996, Mr. Shapiro served as a freelance consultant in the
television industry. Mr. Shapiro held several executive positions, such
as Corporate Vice President of Programming, at MMT Inc. (a corporation
which represents and advises television stations throughout the United
States) from 1982 until September 1995 when MMT, Inc. was sold to a
competing company. Mr. Shapiro has served as a director of the Company
since March 1994.
Jack Romanos, 56 - since 1991, Mr. Romanos has served as the
President of the Consumer Group of Simon & Schuster, the publishing
operation of Viacom Inc., where he is responsible for the publishing
activities of all divisions of the Consumer Group. Prior thereto, Mr.
Romanos served as the President of the Mass Market Division of Simon &
Schuster, since 1987. Mr. Romanos has served as a director of the
Company since June, 1995.
Roger Cooper, 54 - has served as Vice President and Editorial
Director of Doubleday Direct since August, 1995. Doubleday Direct is a
book club division of Bertelsmann, consisting of twelve book clubs
including The Literary Guild. From August, 1993 through August, 1995,
Mr. Cooper served as the Senior Vice President, Publisher of the Mass
Market Division of St. Martin's Press. Prior thereto, Mr. Cooper was
the Senior Vice President, Publisher of Berkeley Publishing Group. Mr.
Cooper has served as a director of the Company since October, 1995.
Neal Tomblyn, 42 has served as Executive Vice President of the
Company since March 1998. Mr. Tomblyn is currently serving as the CEO
of the Internet Education Group, Inc. During early 1997, Mr. Tomblyn,
Co-founded OnRamp School Productions, which merged into Internet
Education Group, Inc. in February 1998. a subsidiary of the Company.
From May 1995 to January 1997, Mr. Tomblyn served as President and
CEO of Ingenius, a TCI/Reuters educational multimedia joint venture
company. Mr. Tomblyn is a founding executive of Bell Atlantic
Corporation's BVS, an interactive multimedia TV and PC company, where
he was a founding member of "Project Explore". Mr. Tomblyn has held
senior management positions with Xerox Corporation, Philips
Corporation and has assisted with the start-up of several high
technology-based educational-oriented, media and multimedia companies.
In addition, Andrew K. Gardner is the Chief Executive Officer,
President and a Director of Dolphin, Inc., a New Jersey corporation ("Dolphin"),
which has been a wholly-owned subsidiary of the Company since March 21, 1997.
Prior to the Company's acquisition of Dolphin, Mr. Gardner was the Chief
Executive Officer, President, a Director and sole Shareholder of Dolphin since
its inception in 1990.
Mr. Jack Romanos is the nominee of Viacom International, Inc. pursuant
to the terms of the Shareholders' Agreement (as hereinafter defined). See
"Certain Relationships and Related Transactions." There is no family
relationship among any of the Officers and Directors of the Company.
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<PAGE>
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership in respect of the Company's securities with the
Securities and Exchange Commission. Such persons are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations of certain of its officers and directors,
the Company believes that during 1997 all persons subject to the reporting
requirements of Section 16(a) filed the required reports on a timely basis
except for Byron Preiss and James Dellomo, who filed Forms 5 in February 1998
reflecting the grant of options during 1997 to each of them.
Item 10. Executive Compensation
The following table sets forth all compensation, in excess of $100,000,
awarded to, earned by, or paid to the Company's Chief Executive Officer and the
four other most highly compensated executive officers (the "named executive
officers") for the years ended December 31, 1997, 1996 and 1995.
Summary Compensation Table
Securities
Name and Principal Position Fiscal Annual Compensation Underlying
- --------------------------- Year Salary ($) Bonus ($) Options
------ ---------- ----------- --------
Byron Preiss, 1997 $350,000(1) ________ 100,000
President and Chief Executive 1996 $300,000 0 0
Officer 1995 $224,317 $100,000 0
James R. Dellomo, 1997 $125,000 0 75,000
Chief Financial Officer and 1996 $125,000 0 0
Treasurer 1995 $94,692 $10,000 10,000
- --------------------
(1) Mr. Preiss voluntarily deferred approximately $98,000 of salary during
1997, which he was entitled to receive pursuant to the terms of his
Employment Agreement.
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<PAGE>
Aggregated Option Exercises and Fiscal Year End Option Values
The following table shows certain information as of December 31, 1997
concerning unexercised stock options held by the named executive officers that
were granted under the Company's 1993 Stock Option Plan, as amended. The Company
has not granted any SARs. None of the named executive officers exercised any
stock options during fiscal 1997.
Number of Securities Value of Unexercised in-the-
Underlying Unexercised Money Options at 1997
Options at 1997 Year End (#) Year End ($)
---------------------------- -------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
Byron Preiss 0/200,000 0
James R. Dellomo 41,666/120,000 0
Employment Agreements
- ---------------------
On April 1, 1994, Byron Preiss entered into an Employment Agreement
with the Company, which was amended pursuant to an Amendment dated March 22,
1995 (the "Employment Agreement"). See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Agreements in connection with the Viacom Purchase Agreement." The
Employment Agreement provided for compensation of $112,500 for the nine-month
period commencing on April 1, 1994 and ending on December 31, 1994; $250,000 in
1995; $300,000 in 1996 $350,000 in 1997; and $350,000 plus such additional
amounts as is determined by the Board of Directors in 1998. Mr. Preiss may also
receive such additional compensation including, bonuses and raises, which the
Company's Board of Directors shall in the exercise of good faith and reasonable
discretion determine. The Employment Agreement terminates on December 31, 1998
and provides that Mr. Preiss will devote, on average, approximately seventy
(70%) percent of his working time to the Company. The agreement also provides
that Mr. Preiss has the option, in his discretion, to extend the term of the
Employment Agreement for an additional period of one year, at a base salary not
less than the base salary being paid at the end of the term. Mr. Preiss is
entitled to participate in all group health and insurance programs and other
fringe benefit or retirement plans or other plans effective generally with
respect to executive and other employees of the Company. In the event that the
Employment Agreement is terminated by the Company upon Mr. Preiss' death, his
estate shall be entitled to receive any accrued, but unpaid base salary as of
the date of death, plus Mr. Preiss' immediate family members shall be entitled
to continue to receive health insurance benefits for the balance of the term
with all premiums or other costs relating thereto being paid by the Company.
Upon termination of Mr. Preiss' employment because of permanent disability, Mr.
Preiss shall be entitled to receive the full base salary for a period of six
months and one-half base salary for an additional period of one year thereafter.
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<PAGE>
The Employment Agreement further provides that if (i) Mr. Preiss
voluntarily terminates his employment on or within ninety (90) days subsequent
to a "change of control" (the "Evaluation Period"), or (ii) Mr. Preiss'
employment is terminated during the Evaluation Period other than for cause, then
in either such event, the Company (a) shall pay to Mr. Preiss a lump sum payment
in an amount equal to one half of the aggregate annual rate of compensation then
being paid to or for the benefit of Mr. Preiss at the time of termination and
(b) during the 12 months following the termination date, shall continue certain
benefits to the extent that the same were available to Mr. Preiss or his
dependents prior to such termination. In addition, if Mr. Preiss has not entered
into full time gainful employment as a chief executive officer of a business or
non-profit enterprise within 180 days following the date of his termination,
then the Company shall pay to Mr. Preiss, in equal weekly installments, an
amount equal to one fifty-second (1/52nd) of the base amount for each week that
Mr. Preiss is not so employed, but in no event shall such payments continue
beyond the first anniversary of such termination date.
Under the Employment Agreement, a "change of control" shall be deemed
to have occurred if any person or group of persons acting in concert to control
the business, affairs or management of the Company, becomes the beneficial
owner, directly or indirectly, of securities of the Company representing more
than thirty-five (35%) percent of the combined voting power of the Company's
then outstanding securities other than by purchase of shares held by Mr. Preiss
or any affiliate thereof, or the Berman Group (as hereinafter defined).
Notwithstanding the foregoing, however, a "change of control" shall not be
deemed to be triggered by any acquisition of the Corporation's securities by Mr.
Preiss or any affiliate thereof, by Viacom International Inc. or any affiliate
thereof, or by the Berman Group. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Agreements in connection with the Viacom Purchase Agreement."
The loss of Mr. Preiss' services could have a material adverse effect
on the business of the Company. The Company has obtained two key-man life
insurance policies aggregating $2,950,000 to insure the life of Mr. Preiss, of
which the Company is the beneficiary.
In connection with the transactions contemplated by the Dolphin Stock
Purchase Agreement, Mr. Gardner and Dolphin entered into an Employment
Agreement, dated March 21, 1997 (the "Gardner Employment Agreement") for a three
(3) year term, subject to the possibility of earlier termination pursuant to the
provisions of paragraph 9 thereof. Pursuant to the terms of the Gardner
Employment Agreement, Mr. Gardner shall be employed as the President and Chief
Executive Officer of Dolphin. The Gardner Employment Agreement provides for
"base salary" of not less than $150,000 per year plus certain guaranteed
incentive compensation which shall not be in excess of $50,000 in a year. Mr.
Gardner does participate in Group Health Insurance programs and other fringe
benefits and other plans made available by the Company to its senior executives
from time to time in accordance with the terms of the Gardner Employment
Agreement.
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<PAGE>
In connection with the transactions contemplated by the merger of
OnRamp School Productions, Inc. with and into Internet Education Group, Inc.
("IEG"), IEG and Neal Tomblyn entered into an Employment Agreement, dated as of
February 27, 1998 (the "Tomblyn Employment Agreement") for a three (3) year
term, subject to the possibility of earlier termination pursuant to the
provisions thereof. Pursuant to the terms of the Tomblyn Employment Agreement,
Mr. Tomblyn shall be employed as the Chief Executive Officer of IEG and shall
serve as an executive of the Company. Pursuant to the terms of the Tomblyn
Employment Agreement, Mr. Tomblyn shall receive a base salary of not less the
salary of $157,500 per year at a minimum per year. In addition, IEG and David
Workman entered into an Employment Agreement, dated as of February 27, 1998 (the
"Workman Employment Agreement") for a three (3) year term, subject to the
possibility of earlier termination pursuant to the provisions thereof. Pursuant
to the terms of the Workman Employment Agreement, Mr. Workman shall be employed
as the Chief Operating Officer of IEG and shall serve as an Vice President of
the Company. Pursuant to the terms of the Workman Employment Agreement, Mr.
Workman shall receive a base salary of not less the salary of $150,000 per year
at a minimum per year.
Item 11. Security Ownership of Certain Beneficial/Owners and Management
The following table sets forth certain information, as of April 22,
1998 to the knowledge of the Company, regarding the beneficial ownership of
Common Stock, which is the Company's only class of outstanding voting
securities, by each Shareholder who owns more than 5% of the outstanding shares,
by each director and nominee for election as director, by each of the named
executive officers of the Company and by all directors and executive officers of
the Company as a group. The information set forth in the table and accompanying
footnotes has been furnished by the named beneficial owners. Since the table
reflects beneficial ownership determined pursuant to the applicable rules of the
Securities and Exchange Commission, the information is not necessarily
indicative of beneficial ownership for any other purpose.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
------------------------ -------------------- ----------------
Byron Preiss 987,000 (1) 12.4%
Viacom International, Inc. 1,316,775 (2) 16.6%
Martin L. Berman 280,866 (3) 3.5%
Foundation
Alison A. Berman 122,402 (3) 1.5%
Lifetime Income Trust
Mark K. Berman 122,402 (3) 1.5%
Lifetime Income Trust
James R. Dellomo 41,666 (4) *
Matthew Shapiro 8,333 (5) *
Jack Romanos -0- (6) *
Roger Cooper -0- (7) *
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<PAGE>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
------------------------ -------------------- ----------------
Andrew K. Gardner 705,278(8) 8.9%
Allied Balkan 785,176(9) 9.9%
Baybridge Securities 753,769(10) 9.5%
Blue Chip Securities 753,769(11) 9.5%
AT Investments 219,849(12) 2.8%
Neal Tomblyn 200,000(13) 2.5%
All Directors and 1,558,441(1)(4)(5) 19.6%
Executive Officers as a (6)(7)
Group (6 persons)
- -----------------------
* Less than 0.1%
(1) Excludes approximately 78,987 shares of Common Stock owned by Preiss
Charitable Foundation, Inc., a New York not-for-profit corporation, of
which Mr. Preiss is a Director and Officer. Mr. Preiss disclaims
beneficial ownership of such shares. Mr. Preiss' business address is
c/o Byron Preiss Multimedia Company, Inc. 24 West 25th Street, New
York, New York 10010.
(2) These shares are owned of record by Viacom International Inc., which is
a subsidiary of Viacom Inc. The address of Viacom International Inc. is
1515 Broadway, New York, New York 10036. National Amusements, Inc. is a
controlling shareholder of Viacom Inc. Sumner M. Redstone is the
controlling shareholder of National Amusements, Inc. and is the
Chairman of the Board and Chief Executive Officer of Viacom Inc. and
Viacom International Inc. The address of National Amusements, Inc. is
200 Elm Street, Dedham, Massachusetts 02026. Includes warrants to
purchase an additional 315,000 shares of Common Stock, which can be
exercised within 60 days by Viacom International Inc. at $7.00 per
share and 149,400 shares underlying the Additional Viacom Warrant. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(3) On December 28, 1994, as a result of the liquidation by the Berman
CD-Rom Partnership, L.P. a New York limited partnership, of all of such
partnership's holdings of Common Stock of the Company, 1,067,000 shares
of Common Stock were distributed, in part, as follows: Martin L. Berman
(182,000 shares), Phyllis Berman (177,833 shares), Alison A. Berman
Lifetime Income Trust (177,833 shares), Mark K. Berman Lifetime Income
Trust (177,833 shares), Steven E. Berman (45,000 shares) and Martin L.
Berman Foundation (51,033 shares) (the "Berman Group"). In the
aggregate, the Berman Group owns approximately 7% of the Company's
Common Stock. Each of the persons or entities comprising the "Berman
Group" disclaims beneficial ownership of shares of Common Stock owned
by each of the other persons or entities within the Berman Group, and
each of them expressly disaffirms the existence of a group. The address
of each of the persons or entities comprising the Berman Group is c/o
Steven E. Berman, One Bridge Plaza, Fort Lee, New Jersey 07024. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(4) Mr. Dellomo's business address is c/o Byron Preiss Multimedia Company,
Inc., 24 West 25th Street, New York, New York 10010. Includes 26,665
shares that Mr. Dellomo has a right to acquire within 60 days upon the
exercise of options.
(5) Mr. Shapiro's business address is c/o NBC, 30 Rockefeller Plaza, room
4625E, New York, New York. Includes 8,333 shares that Mr. Shapiro has a
right to acquire within 60 days upon the exercise of options.
(6) Excludes the shares of Common Stock beneficially owned by Viacom
International Inc., of which Mr. Romanos is an executive officer of an
affiliate thereof. Mr. Romanos' business address is c/o Simon &
Schuster, Consumer Group, 1230 Avenue of the Americas, New York, New
York 10020.
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<PAGE>
(7) Mr. Cooper's business address is c/o The Doubleday Book and Music Club,
1540 Broadway, New York, New York.
(8) Mr. Gardner's business address is c/o Dolphin, Inc. 10 Foster Street,
Suite A2, Gibbsboro, NJ 08026. Includes 304,348 shares of common stock,
which can be exercised within 60 days by Andrew K. Gardner at $5.75 per
share, pursuant to the terms of a Convertible Note issued by the
Company to Andrew K. Gardner. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(9) The address of Allied Balkan is Bowater House, Knightsbridge, London
U.K.
(10) The address of Baybridge Securities is 11 Quai Des Berges, Geneva,
Switzerland.
(11) The address of Blue Chip Securities is, 78 Rue Du Rhone, Geneva,
Switzerland.
(12) The address of AT Investments is, 78 Rue Du, Rhone, Geneva,
Switzerland.
(13) Mr. Tomblyn's business address is c/o Internet Education Group, Inc.,
One Broadway Plaza, Suite 222B, Denver, Colorado 80203.
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<PAGE>
Item 12. 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
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<PAGE>
Directors determines that acquisition of additional CD-ROM rights from BPVP or
BPEB is necessary; or (ii) the Company acquires such CD-ROM rights for a project
currently in development. Notwithstanding the foregoing, CD-ROM rights to
certain works which were previously granted to BPVP and BPEB and other companies
controlled by Mr. Preiss may not be assignable to the Company without further
consents from the grantors to BPVP or BPEB, as appropriate.
In addition, by agreement dated April 1, 1993, BPEB, of which Byron
Preiss serves as President and Chief Executive Officer, conveyed to the Company
all of BPEB's CD-ROM rights for Isaac Asimov's the Ultimate Robot and Gahan
Wilson's The Ultimate Haunted House, and the Company assumed all payment and
other obligations of BPEB relating to those properties. The Company paid BPEB
the sum of $49,549.81, constituting reimbursement to BPEB for all costs incurred
in the acquisition of these rights and not as an advance, royalty or by way of
any other compensation to BPEB for these two properties. By a separate
agreement, dated April 1, 1993, BPVP granted the Company the right to purchase
all CD-ROM rights owned by BPVP in six separate properties, i.e. Stan Lee's
Riftworld, Leonard Wolfe's The Essential Frankenstein and the Essential Dracula,
Arthur C. Clarke's Venus Prime, The Ultimate Dinosaur, Isaac Asimov's Robot City
and for certain titles in the Bank Street Ready to Read Series. These agreements
require the Company to pay royalties to BPVP ranging from 2.0% to 8.0% of net
revenues, depending upon the numbers of copies sold and require the Company to
pay certain advance royalties. BPEB does not currently retain CD-ROM rights to
any titles not transferred to the Company. BPVP retains the copyrights to
numerous books and also retains, or has assigned to licensors or co-publishers,
ancillary rights (such as CD-ROM rights) to those properties. BPVP has granted
to the Company certain electronic comic rights and the book rights to one (1)
novel relating to Stan Lee's Riftworld, the terms of which have not been
formalized in writing and are currently subject to negotiation between the
parties. 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
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<PAGE>
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."
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<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,
which percentage by amendment will be lowered to 5%. 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.
-12-
<PAGE>
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 have jointly developed 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 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, (now known as Simon & Schuster Interactive
Macmillan 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 NonExclusive 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
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<PAGE>
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.
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BYRON PREISS MULTIMEDIA COMPANY, INC.
Date: April 28, 1998 By: /s/ Byron Preiss
-------------------------------
Byron Preiss, Chief Executive
Officer and President
<PAGE>
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature and Title Date
------------------- ----
By: /s/ Byron Preiss April 28, 1998
------------------------------------------------
Name: Byron Preiss
Title: Chief Executive Officer,
President (Principal Executive
Officer) and a Director
By: /s/ James R. Dellomo April 28, 1998
------------------------------------------------
Name: James R. Dellomo
Title: Chief Financial Officer,
(Principal Accounting Officer)
and a Director
By: * April 28, 1998
------------------------------------------------
Name: Matthew Shapiro
Title: Director
By: * April 28, 1998
------------------------------------------------
Name: Jack Romanos
Title: Director
By: * April 28, 1998
------------------------------------------------
Name: Roger Cooper
Title: Director
*By: /s/ Byron Preiss
-----------------------------------------------
Attorney-in-Fact
36
