------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Form 10-QSB
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From ________to________
Commission file number 1-14076
ALLEGRO NEW MEDIA, INC.
(Exact name of small business issuer in its charter)
Delaware 22-3270045
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification Number)
16 Passaic Avenue, Unit 6, Fairfield, NJ 07004
(Address of Principal executive offices) (Zip Code)
(201) 808-1992
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,444,477 shares of common
stock as of May 12, 1996.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
---------------
<PAGE>
CROSS REFERENCE SHEET
Page
Number
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed balance sheets - March 31, 1996 (unaudited)
and December 31, 1995 3
Condensed statements of operations - Three months
ended March 31, 1996 and 1995 (unaudited) 4
Condensed statements of cash flows - Three months
ended March 31, 1996 and 1995 (unaudited) 5
Notes to condensed financial statements -
March 31, 1996 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Part II. Other Information
Item 1. Legal Proceedings. 10
Item 2. Changes In Securities. 10
Item 3. Defaults upon Senior Securities. 10
Item 4. Submission of Matters to a Vote of Security Holders. 10
Item 5. Other Information. 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
Index to Exhibits 12
<PAGE>
Part I. Financial Information
ALLEGRO NEW MEDIA, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash $2,759,755 $2,928,272
Accounts receivable, net 530,719 342,425
Inventories (Note 2) 190,706 225,013
Other current assets 103,723 103,380
--------- ---------
Total current assets 3,584,903 3,599,090
Equipment, furniture and leasehold improvements -- net of
accumulated depreciation and amortization of $80,615 in
1996 and $73,260 in 1995 47,748 53,150
Royalty advanced and other assets 165,504 206,366
---------- ----------
$3,798,155 $3,858,606
---------- ----------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable $ 276,915 $ 410,818
Accrued liabilities 264,113 309,924
----------- ----------
Total current liabilities 541,028 720,742
Stockholders' equity:
Serial Preferred Stock, authorized 2,000,000 shares:
Class B Voting Preferred Stock, 60,520 shares
issued and outstanding 61 61
Common stock, par value $.001 per share, authorized
18,000,000 shares; issued and outstanding 3,444,477
shares in 1996 and 3,335,077 shares in 1995 3,444 3,335
Additional paid-in capital 6,623,551 6,158,753
Accumulated deficit (3,369,929) (3,024,285)
----------- -----------
Total stockholders' equity 3,257,127 3,137,864
---------- ----------
$3,798,155 $3,858,606
---------- ----------
<FN>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
ALLEGRO NEW MEDIA, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1996 1995
<S> <C> <C>
Net sales $ 445,924 $ 297,587
Costs of goods sold 229,402 180,784
---------- ----------
Gross Profit 216,522 166,803
Selling, general and administrative expenses 510,037 399,627
Product development 82,278 87,010
Interest (income) expense -- net (30,149) (1,416)
---------- ----------
Net Loss $(345,644) $(368,419)
Accretion of carrying value and dividends
attributable to Class A Preferred Stock -- 83,822
---------- ----------
Net loss attributable to Common Stockholders $(345,644) $(452,241)
---------- ----------
Loss per common share:
Net loss per common share $ (.11) $ (.27)
------- -------
Weighted average number of common shares
outstanding 3,050,669 1,698,994
--------- ---------
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
<PAGE>
ALLEGRO NEW MEDIA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1996 1995
<S> <C> <C>
Operating activities
Cash (used in) from Operations $ (631,472) $ (176,323)
Investment Activities
Purchase of equipment, furniture and fixtures ( 1,953) ( 13,982)
Financing activities
Proceeds from sale of common stock 464,907
Net increase in cash (168,518) (190,305)
Cash at beginning of period 2,928,272 212,749
---------- ---------
Cash at end of period $2,759,755 $ 22,444
----------- ------------
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
ALLEGRO NEW MEDIA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 310
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1995.
2. Loss Per Share.
Net loss per share is computed based upon the weighted average number of
shares of common stock and common share equivalents outstanding during the
periods presented. In accordance with the Securities and Exchange Commission
Staff Accounting Bulletin No. 83, shares issuable upon exercise of options
granted during the twelve months immediately preceding the Company's initial
public offering have been included in the calculation of shares used in
computing net loss per share as if they were outstanding for all periods
presented using the treasury stock method. For the period subsequent to the
initial public offering, common share equivalents resulting from outstanding
options to purchase common stock are excluded as the impact is anti-dilutive.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1996 December 31, 1995
Raw materials $ 39,807 $ 65,586
Finished goods 150,899 125,777
---------- ----------
$190,706 $225,013
</TABLE>
4. Shareholder's Equity
During 1994 the Company issued an aggregate of 1,190,250 shares of its
Class A Cumulative, Convertible, Redeemable 10% Preferred Stock ("Redeemable
Preferred Stock") in a private placement transaction. In accordance with its
terms, all of the shares of Redeemable Preferred Stock were converted into an
aggregate of 491,821 shares of the Company's common stock upon completion of the
Company's initial public offering in December 1995. No dividends were declared
or paid on the Redeemable Preferred Stock.
In connection with certain financing transactions, certain of the then
existing employee/stockholders of the Company agreed to place certain newly
issued shares of the Company's common stock into escrow. Under the terms of the
escrow agreement such shares are to be released to the stockholders based upon
the Company achieving certain financial results, as defined. When such escrowed
shares are released, Securities and Exchange Commission rules require
recognition by the Company of compensation expense based on the fair value of
the shares at the date of release. Any shares not released are to be returned to
the Company. At March 31, 1996, 542,500 shares remain outstanding under escrow
agreements. See Note 5.
<PAGE>
ALLEGRO NEW MEDIA, INC.
NOTES CONDENSED TO FINANCIAL STATEMENTS
(Unaudited)
4. Shareholder's Equity (continued)
On January 23, 1996 the Company issued 109,400 shares of common stock to
its underwriter, upon the underwriter's exercise of its over-allotment option,
and received net proceeds of $464,907.
5. Subsequent Events.
In April 1996, the Company signed a Letter of Intent to acquire all of the
outstanding capital stock of Serif, Inc. and Serif (Europe) Limited principally
for 1,000,000 shares of common stock, subject to, among other things, completion
of due diligence and the execution of definitive documentation. Serif, Inc. and
Serif (Europe) Limited develop, market and sell computer software primarily for
the desktop publishing market. In May 1996, the Company loaned $50,000 to Serif,
Inc. and Serif (Europe) Limited to assist the Serif companies in meeting their
liquidity needs. The Company anticipates that funding the working capital needs
of the Serif companies after the acquisition is consummated will require
additional working capital. In addition, on April 26, 1996, the Company's Board
of Directors amended certain employment agreements and an escrow agreement to
release 217,000 shares of common stock held in escrow to certain stockholders.
In connection with this release of escrow shares, the Company will record
compensation expense of approximately $600,000 in the second fiscal quarter
ending June 30, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Three Month Period Ended March 31, 1996 Compared to the Three Month Period
Ended March 1995
Net Sales. Net sales increased approximately 50% from $297,587 in the three
month period ended March 31, 1995 to $445,924 in the three month period ended
March 31, 1996. This increase in net sales was largely attributable to the
greater number of products offered by the Company and the introduction of the
Company's two new products; Entrepreneur Small Business Encyclopedia and Betty
Crocker Cooking with Kids. In addition to the increased number of products
offered by the Company, the Company increased its retail distribution channel
through adding two additional software distributors. The Company provided in the
three month period ended March 31, 1996 for returns at approximately 21% of
gross sales versus approximately 26% in the three month period ended March 31,
1995 based on a change in its sales mix.
Cost of Goods Sold. Cost of goods sold increased approximately 27% from
$180,784 in the three month period ended March 31, 1995 to $229,402 in the three
month period ended March 31, 1996, primarily as a result of increased sales
volume and slightly higher production costs. As a percentage of net sales, cost
of goods sold decreased from approximately 61% of net sales in the three month
period ended March 31, 1995 to approximately 51% of net sales in the three month
period ended March 31, 1996 primarily as a result of increased sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $110,410 or approximately 28% from $399,627
in the three month period ended March 31, 1995 to $510,037 in the three month
period ended March 31, 1996 but decreased as a percentage of net sales from
approximately 134% to approximately 114%. General and Administrative Expenses
remained relatively constant, increasing approximately 1% from $189,687 in the
three month period ended March 31, 1995 to $191,654 in the three month period
ended March 31, 1996. However, during the three month period ended March 31,
1996 the Company incurred approximately $40,000, or approximately 8% of its
total general and administrative expenses, associated with certain acquisition
efforts, which are expected to be non-recurring. Total selling expenses
increased approximately 54% from $108,009 in the three month period ended March
31, 1995 to $166,470 in the three month period ended March 31, 1996, primarily
as a result of an approximate 98% increase in trade and co-operative advertising
with the Company's retail vendors associated with the introduction of the
Company's two new products and an increase of approximately $20,000 or 12% of
the total selling costs in the three month period ended 1996 for public
relations and marketing expenses. Total salaries and wages increased $49,983, or
approximately 49%, from $101,931 in the three month period ended March 31, 1995
to $151,914 in the three month period ended March 31, 1996. Of the $49,983
increase, approximately $25,500 or 51% is represented by wage increases to key
personnel in accordance with their employment agreements while the remaining
increases are associated with additional staffing required to support the
expansion plans of the Company.
Product Development. Product development expenses decreased approximately
5% from $87,010 in three month period ended March 31, 1995 to $82,278 in the
three month period ended March 31, 1996 as the majority of development expenses
associated with the new products introduced to the market by the Company in the
three month period ended March 31, 1996 were incurred in 1995. In addition, the
Company experienced lower start-up costs associated with new products begun
under development in the three month period ended March 31, 1996. As a
percentage of net sales, product development expenses decreased from
approximately 29% in the three month period ended March 31, 1995 to
approximately 18% in the three month period ended March 31, 1996. The Company
believes that development expenses will increase in dollar amount in the future
as the Company expands its development activities, although the Company's
long-term goal is to continue to reduce product development costs as a
percentage of sales. All development costs have been expensed in the period
incurred.
Interest (Income). Interest income increased from $1,416 in the three month
period ended March 31, 1995 to $30,149 in the three month period ended March 31,
1996, as a result of higher average cash balances. The Company had no interest
bearing liabilities in either period.
Liquidity and Capital Resources
The Company historically has been unable to generate sufficient cash flow
to fund operations. Working capital deficiencies had been funded principally
through private placements of securities until the Company's initial public
offering ("IPO"), completed in December 1995, and the exercise by the
underwriter of its over-allotment option in January 1996. The Company, through
its IPO, raised net funds of $4,156,411 ($2,906,411 after retiring debt) and
$464,907 from the over-allotment. Management believes that the Company has
working capital sufficient for the Company's current operations for at least the
next twelve months. As of March 31, 1996 the Company had working capital of
$3,208,978, including cash and cash equivalents of $2,759,755.
The Company's operating activities used $631,472 of cash, primarily related
to the increase in accounts receivable and inventories associated with higher
net revenues, as well as a reduction of trade accounts payable. The Company
intends to continue to utilize its working capital in 1996 for product
development, marketing and advertising, to finance the higher level of inventory
and accounts receivable necessary to support an anticipated increase in sales,
for capital expenditures, including the purchase of computer equipment, for
software development and content rights and for acquisitions. However, the
Company's working capital requirements may change depending upon numerous
factors, including, without limitation, the need to finance acquisitions, with
the costs associated with such, as well as increased inventory and accounts
receivable arising from the sale and shipment of new products.
The Company has no bank or other credit facility and there can be no
assurance that the Company will be able to obtain such financing on favorable
terms, if at all, or that such financing will be on terms acceptable to the
Company.
In April 1996, the Company signed a Letter of Intent to acquire all of the
outstanding capital stock of Serif, Inc. and Serif (Europe) Limited principally
for 1,000,000 shares of common stock, subject to, among other things, completion
of due diligence and the execution of definitive documentation. Serif, Inc. and
Serif (Europe) Limited develop, market and sell computer software primarily for
the desktop publishing market. In May 1996, the Company loaned $50,000 to Serif,
Inc. and Serif (Europe) Limited to assist the Serif companies in meeting their
liquidity needs. The Company anticipates that funding the working capital needs
of the Serif companies after the acquisition is consummated will require
additional working capital. In addition, on April 26, 1996, the Company's Board
of Directors amended certain employment agreements and an escrow agreement to
release 217,000 shares of common stock held in escrow to certain stockholders.
In connection with this release of escrow shares, the Company will record
compensation expense of approximately $600,000 in the second fiscal quarter
ending June 30, 1996.
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.30 Amendment Number 5, dated April 26, 1996, to the Employment Agreement
dated as of December 27, 1993, as amended, between the Company and
Barry A. Cinnamon.
10.31 Amendment Number 4, dated April 26, 1996, to the Employment
Agreement dated as of December 27, 1993, as amended, between the
Company and Richard Bergman.
10.32 Amendment Number 4, dated April 26, 1996, to the Escrow Agreement
dated December 27, 1993, as amended, among the Company, Barry A.
Cinnamon, Richard Bergman and Blau, Kramer, Wactlar & Lieberman, P.C.,
as escrow agent.
10.33 Distribution Agreement dated as of February 3, 1996 between the
Company and Tech Data Corporation.
10.34 Letter of Intent, dated April 26, 1996, between the Company and Serif,
Inc. and Serif (Europe) Limited.
27 Financial Data Schedule.
(b) Reports filed on Form 8-K during the quarter ended March 31, 1996:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ALLEGRO NEW MEDIA, INC.
Date: May 17, 1996 By:/s/ Barry A. Cinnamon
Barry A. Cinnamon
Chairman of the Board and President
Date: May 17, 1996 By:/s/ Mark E. Leininger
Mark E. Leininger
Vice President - Finance, Treasurer
and Chief Financial Officer
Amendment No. 5
to
Employment Agreement
This Amendment No. 5 dated as of April 26, 1996 to the Employment Agreement
(the "Employment Agreement"), as amended, dated as of December 27, 1993 between
Allegro New Media, Inc., a Delaware corporation (the "Company") and Barry A.
Cinnamon, residing at 121 Norwood Avenue, Upper Montclair, New Jersey 07043 (the
"Employee").
WHEREAS, the Company and the Employee entered into the Employment Agreement
and now desire to modify certain of the terms and provisions thereof;
NOW, THEREFORE, it is agreed as follows:
1. The Employment Agreement is hereby amended as follows:
(a) A new paragraph (j) shall be added to section 4, at the end thereof,
to be and read as follows:
"(j) In the event that the Company executes and delivers a letter of intent
to acquire all of the issued and outstanding capital stock of Serif, Inc. and
Serif (Europe), Ltd., 200,000 shares of Common Stock then remaining in escrow
hereunder shall be released from escrow and delivered to the Employee not later
than five (5) days after such event."
2. All capitalized terms used herein, unless otherwise defined herein, are
used herein as defined in the Employment Agreement. Except as expressly provided
herein, all terms and provisions of the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
ALLEGRO NEW MEDIA, INC.
By:/s/Mark E. Leininger
Mark E. Leinginger
Vice President
/s/Barry A. Cinnamon
Barry A. Cinnamon
Amendment No. 4
to
Employment Agreement
This Amendment No. 4 dated as of April 26, 1996 to the Employment Agreement
(the "Employment Agreement"), as amended, dated as of December 27, 1993 between
Allegro New Media, Inc., a Delaware corporation (the "Company") and Richard
Bergman, residing at 98 Laurelwood Court, Rockaway, New Jersey 07866 (the
"Employee").
WHEREAS, the Company and the Employee entered into the Employment Agreement
and now desire to modify certain of the terms and provisions thereof;
NOW, THEREFORE, it is agreed as follows:
1. The Employment Agreement is hereby amended as follows:
(a) A new paragraph (j) shall be added to section 4, at the end thereof, to
be and read as follows:
"(j) In the event that the Company executes and delivers a letter of intent
to acquire all of the issued and outstanding capital stock of Serif, Inc. and
Serif (Europe), Ltd., 17,000 shares of Common Stock then remaining in escrow
hereunder shall be released from escrow and delivered to the Employee not later
than five (5) days after such event."
2. All capitalized terms used herein, unless otherwise defined herein, are
used herein as defined in the Employment Agreement. Except as expressly provided
herein, all terms and provisions of the Employment Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
ALLEGRO NEW MEDIA, INC.
By:/s/Barry A. Cinnamon
Barry A. Cinnamon
Chairman
/s/Richard Bergman
Richard Bergman
Amendment No. 4
to
Escrow Agreement
This Amendment No. 4 dated as of April 26, 1996 to the Escrow Agreement
(the "Escrow Agreement") dated as of December 27, 1993 between Allegro New
Media, Inc., a Delaware corporation (the "Company"), Barry A. Cinnamon, Richard
Bergman and Blau, Kramer, Wactlar & Lieberman, P.C.
WHEREAS, the parties thereto entered into the Escrow Agreement, as amended,
and now desire to modify certain of the terms and provisions thereof;
NOW, THEREFORE, it is agreed as follows:
1. The Escrow Agreement is hereby amended as follows:
(a) A new Section 2(e) shall be added to the Escrow Agreement, to be and
read as follows:
"(e) In addition, notwithstanding the foregoing, in the event that the
Company executes and delivers a letter of intent to acquire all of the issued
and outstanding capital stock of Serif, Inc. and Serif (Europe), Ltd., 217,000
shares of Common Stock then remaining in escrow hereunder shall be released from
escrow and delivered to the Stockholders not later than five (5) days after such
event, 200,000 of which shares shall be delivered to Barry A. Cinnamon and
17,000 of which shares shall be delivered to Richard Bergman."
2. All capitalized terms used herein, unless otherwise defined herein, are
used herein as defined in the Escrow Agreement. Except as expressly provided
herein, all terms and provisions of the Escrow Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
ALLEGRO NEW MEDIA, INC.
By:/s/Mark E. Leininger
Mark E. Leininger
Vice President
<PAGE>
/s/Barry A. Cinnamon
Barry A. Cinnamon
/s/Richard Bergman
Richard Bergman
BLAU, KRAMER, WACTLAR & LIEBERMAN, P.C.,
as escrow agent
By:/s/Neil M. Kaufman
Neil M. Kaufman
Member
TECH DATA CORPORATION
dba
SOFTWARE RESOURCE
Distribution Agreement
(Revised 1-18-94)
THIS AGREEMENT (the "Agreement") is made as of the 3rd day of February,
1994, by and between, Tech Data Corporation, a Florida corporation and its
subsidiaries and affiliates (the "Distributor") with its principal place of
business located at 5350 Tech Data Drive, Clearwater, Florida 34620 and Allegro
New Media, Inc. a Delaware corporation (the "Manufacturer") with its principal
place of business located at 16 Passaic Avenue, Fairfield, New Jersey 07004
(201) 808-1992 Fax (201) 808-2645 Contact: Jim Tsonas. In consideration of the
promises and covenants set forth below, the parties agree as follows:
1. DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
respective meanings indicated:
1.1 The Term "Product(s)" shall mean all retail computer software and
hardware and computer related products manufactured or marketed by Manufacturer
during the term of this Agreement.
1.2 The term "Reseller" shall mean any third party or entity to which
Distributor markets any Products for remarketing.
2. GRANT OF CERTAIN MARKETING RIGHTS
2.1 Manufacturer grants to Distributor and Distributor accepts from
Manufacturer the right to distribute Products and to market Products to
Resellers anywhere.
2.2 Manufacturer agrees to provide to Distributor on a consignment basis,
on the initial order, the Products specified in Exhibit "E" which is attached
hereto.
3. TERM
3.1 The initial term of this Agreement shall commence upon the date set
forth above and shall continue for two (2) years, unless earlier terminated as
provided herein.
3.2 The initial term of this Agreement shall be automatically renewed for
successive two (2) year periods following expiration of the initial or any
<PAGE>
subsequent term of the Agreement unless either party gives written notice to the
contrary to the other party not less than ninety (90) days prior to the
expiration of the then current term in which event this Agreement shall expire
at the end of the then-current term.
3.3 The price, discounts, payment terms and returns provision set forth
with respect to any Product shall at not times be less favorable to Distributor
than the price, discounts, payment terms and returns provisions made available
by Manufacturer to any other distributors of such Product. Manufacturer agrees
that if such a sale occurs, Manufacturer will sell the Product to Distributor at
the same terms and reimburse Distributor retroactively from the date of such
sale for the difference.
3.4 Manufacturer represents and warrants that, as of the date of this
Agreement, it does not sell any Products to any distributor not listed on
Exhibit F hereto. If at any time during the term of this Agreement Manufacturer
wishes to sell any Products to any Distributor not listed on Exhibit F,
Manufacturer shall provide written notice to Distributor of its intention to do
so at least seven (7) days prior to Manufacturer's initial shipment of Products
to such distributor.
4. SHIPMENT AND DELIVERY OF PRODUCTS
Manufacturer shall deliver all Products ordered by Distributor within the
time agreed to, which shall not in any event be later than ten (10) days after
receipt of Distributor's oral or written order for such Products. Delivery of
the Products shall be F.O.B. Distributor for orders of one hundred (100) units
or more. Transportation and handling charges for any of the Products shall be
paid by Manufacturer for orders over one hundred (100) units or more.
5. PURCHASE PRICE
5.1 The purchase price for units of the Products ordered by Distributor
pursuant to this Agreement (Purchase Price) shall be Manufacturer's suggested
retail list price, as of the date the Products were ordered, less a fifty-five
percent (55%) discount.
5.2 The current suggested retail list price for each Product manufactured
or marketed by Manufacturer is set forth on Exhibit "A" hereto. Distributor has
the option to add any or all future products manufactured or marketed by
Manufacturer. The respective suggested retail list price of any Product may be
changed only upon sixty (60) days prior written notice given by Manufacturer to
Distributor. In the event that Manufacturer decreases the suggested retail list
price, Manufacturer shall credit to Distributor's account an amount equal to the
difference between the old cost and the new cost times the total as reported by
Distributor of the number of units of such Product in Distributor's inventory on
the effective date of the price reduction.
6. PAYMENT
On or after date of shipment , Manufacturer shall invoice Distributor for
the Purchase of any of the Products sold to Distributor. All amounts specified
<PAGE>
in any net invoice shall be paid by Distributor to the Manufacturer within
forty-five (45) days from the date of receipt of the Products by Distributor.
The terms of any Manufacturer invoice shall not alter or vary the terms of this
Agreement.
7. STOCK BALANCING, RETURNS AND PRODUCT RECALLS
Distributor may return for credit to Manufacturer any unit of a Product
which, in the opinion of Distributor, is defective in material or workmanship,
is overstocked or has been outdated by the release of a new version. Upon
receipt of such Product Manufacturer shall credit Distributor's account with the
amount Distributor originally paid for the Product. In the case there is no A/P
balance, Manufacturer will issue a check to Distributor within forty-five (45)
days. All transportation changes incurred with respect to defective Products
shall be borne by Manufacturer. Distributor shall pay transportation charges for
overstocked Products.
8. WARRANTIES, EXCLUSION OF CONSEQUENTIAL DAMAGES
Except as provided in sections 7, 8 and 9 hereof, neither party shall,
under any circumstances, be liable to the other for consequential, incidental,
indirect or special damages arising out of or related to this agreement or the
transactions contemplated herein, even is such party has been apprised of the
likelihood of such damages occurring.
9. INDEMNIFICATION
Manufacturer shall be solely responsible for the design, development,
supply, production and performance of the Products. Manufacturer agrees to
indemnify and hold Distributor harmless from and against any claim, loss,
damage, expense or liability (including legal fees and costs) that may result,
in whole or in part, from:
(1) Any infringement, or any claim of infringement, of any patent,
trademark, copyright, trade secret or other proprietary right with
respect to the Products.
(11) Any warranty or product liability claim with respect to the Products
or any breach by Manufacturer of this Agreement.
(III) Manufacturer represents and warranties that it has and will
maintain during the term of this Agreement sufficient insurance
coverage, to enable it to meet its obligations under this
Section.
10. ADVERTISING
10.1 Distributor shall have the right to utilize Manufacturer's trade name
and any trademarks and service marks associated with the Products to identify
the origin of the Products in advertising and promotional materials. With
respect to Products made by non-party manufacturer, Manufacturer shall ensure
throughout the term of the Agreement that Distributor has the right to use the
<PAGE>
non-party manufacturer's trademark, service marks and any trademarks and service
marks associated with such Products in advertising and promotional materials.
10.2 Manufacturer agrees that in addition to initial product launch, it
will provide support to Distributor for its advertising, marketing and
promotional activities. This support can be in the form of ad production
assistance, catalog direct mail programs, show and or cooperative advertising in
regional or national trade publications. As a general guideline, Distributor
will deduct from each of Manufacturer's invoices an amount equal to five percent
(5%) of the total dollar amount Distributor has purchased from Manufacturer, for
use in Distributor's advertising and marketing with prior approval.
11. TERMINATION
11.1 Either party may terminate this Agreement not less than sixty (60)
days after written notice in the event of a material breach by the other party
to the Agreement and the failure of such other party to cure such breach within
thirty (30) days of such notification.
11.2 Upon expiration or termination of the Agreement, Distributor shall,
for a period of one hundred and twenty (120) days after, have the right to
return to Manufacturer all or a portion of the Products in Distributor's
inventory and Manufacturer agrees to repurchase each such Products at the
Purchase Price therefor.
11.3 Section 8, 9 and 10.1 shall survive expiration or termination of this
Agreement.
12. MISCELLANEOUS
12.1 Except as otherwise provided herein, no remedy made available to
either party hereto by any of the provisions of this Agreement is intended to be
exclusive of any other remedy and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereafter or existing at law or
in equity.
12.2 Except as otherwise specified herein, all notices, requests, demands
or communications required here under shall be in writing, delivered personally,
or sent by certified mail, to the parties at their respective addresses first
set forth in this Agreement (or at such other address as shall be given in
writing by either of the parties to the other in accordance with this Section
12.2). All notices, requests, demands, Product orders or communications shall be
deemed effective upon personal delivery, or four (4) days following deposit in
the U.S. mail in accordance with this Section 12.2.
12.3 No waiver of any provision of the Agreement or any right or
obligations of either party thereunder shall be effective, except pursuant to a
written instrument signed by both parties waiving compliance, and any such
waiver shall be effective only in the specific instance and for the specific
purpose stated in such writing.
<PAGE>
12.4 The parties to this Agreement consent to the jurisdiction of the
courts of the State of California and agree that Marin County, California is a
proper venue for any action brought to enforce or interpret this Agreement.
12.5 Distributor shall have the option to deduct from invoices due
Manufacturer any credits or monies due Distributor from Manufacturer as
specified in this Agreement. In the event Distributor maintains a credit balance
with Manufacturer for any reason (including, but not limited to credits for the
following items: Product returns, market development advertising charges and
price protection credits), Manufacturer shall, upon Distributor's request,
promptly pay Distributor the amount of such credit balance.
12.6 In event that any provision hereof is found invalid or unenforceable
pursuant to judicial decree or decision, the remainder of this Agreement shall
remain valid and enforceable according to its terms.
12.7 This Agreement, including the exhibits which are attached hereto and
incorporated herein by this reference, constitutes the entire understanding and
Agreement between Distributor and Manufacturer with respect to the transactions
contemplated herein. This Agreement shall not be modified, amended or in any way
altered except by an instrument in writing signed by the parties.
12.8 This Agreement shall not be assigned nor any obligations transferred
without the express prior written permission of the Distributor.
12.9 The parties hereto acknowledge that performance by the Manufacturer is
of critical importance to Distributor. Therefore, Manufacturer shall not sell,
transfer or otherwise assign any rights, title or licenses for products covered
by this Agreement without prior written notice to the Distributor.
12.10 Subject to the foregoing, this Agreement shall be binding on and
inure to the benefit of the successors and assigns of the respective parties
hereto.
12.11 In the event of litigation or arbitration under this Agreement, the
prevailing party shall be entitled to an award of all costs of suit, including
reasonable attorney's fees, as shall be determined by the court or arbitrator,
whether or not prosecuted to judgment.
12.12 Nothing in this Agreement shall prevent Distributor from marketing or
distributing products that compete with Manufacturer's Products.
12.13 This Agreement may be executed in two (2) counterparts, each of which
shall be deemed an original and both of which shall constitute one and the same
instrument.
12.14 The parties shall be independent contractors and shall not be
considered as an employee, agent, partner or servant of the other party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives as of the respective dates indicated
below.
MANUFACTURER DISTRIBUTOR
Allegro New Media, Inc. Tech Data Corporation
By: /s/Barry A. Cinnamon By: /s/Isaac Ash
Authorized Signature Authorized Signature
Barry Cinnamon Isaac Ash
Please Print Signature Please Print Signature
Title Title
Date Date
ALLEGRO NEW MEDIA, INC.
16 Passaic Avenue
Fairfield, New Jersey 07006
April 26, 1996
Mr. Gwyn Jones
Serif, Inc.
Serif (Europe), Ltd.
Westbury House
West Wing
187 Derby Road
Nottingham
England NG7 2DA
Dear Gwyn:
Allegro New Media, Inc., a Delaware corporation (the "Buyer"), hereby
submits this Letter of Intent with regard to its proposal to acquire all of the
issued and outstanding shares of capital stock of Serif, Inc., a New Hampshire
corporation (the "Serif Inc.") and Serif (Europe), Ltd., an English company
("Serif Ltd"; and together with Serif Inc., the "Company"), from the
stockholders of the Company (the "Stockholders") subject to the terms herein,
such purchase being referred to herein as the "Transaction". Buyer would expect
to close the Transaction as soon as practical.
1. The Buyer will purchase all of the issued and outstanding capital stock
of the Company for an aggregate purchase price (the "Purchase Price") equal to
1,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"), of the Buyer (the "Stock"), of which 200,000 shall be allocated toward
Serif, Inc. and 800,000 shall be allocated toward Serif, Ltd. The Stockholders
and the Buyer shall execute and deliver an agreement pursuant to which the
Stockholders shall be permitted to sell in brokerage transactions in the
aggregate (a) up to ten percent (10%) of the Stock during the period from six
(6) months after the closing date (the "Closing Date") of the Transaction until
twelve (12) months thereafter, (b) an additional ten (10%) of the Stock during
the period from twelve (12) months after the Closing Date until eighteen (18)
months thereafter, (c) an additional ten percent (10%) during the period from
eighteen (18) months after the closing date until twenty-four (24) months
thereafter, and (d) any remaining Stock after the second anniversary of the
Closing Date. In addition, on the Closing Date the Buyer shall pay to the
Stockholders an aggregate amount equal to $150,000 in proportions to be
determined by Gwyn Jones.
2. Consummation of the Transaction is contingent upon the Buyer's
completing, and being satisfied with the results of, a due diligence review of
the Company. The purpose of such a review is to provide the Buyer with
information with regard to the operations and prospects of the Company, to
ensure that the acquisition is appropriate as proposed. To assist the Buyer in
conducting this review, the Company will provide, or cause to be provided, all
<PAGE>
information with respect to itself as the Buyer may reasonably request,
including any interim unaudited financial statements. In addition, the Company's
auditors, counsel, officers and directors and other agents or representatives
will be made available to discuss with the Buyer at reasonable times any aspect
of the Company's business or financial condition or the Transaction which the
Buyer may deem relevant. Assuming compliance with the foregoing provisions of
this paragraph 2, the Buyer would expect to complete this due diligence
investigation within sixty (60) days after the date this letter of intent is
executed and delivered.
3. Consummation of the Transaction is subject to (a) the execution of
mutually acceptable definitive documentation which contains such
representations, warranties, covenants and other terms as are customary, and
which shall include a provision requiring the Buyer to nominate Gwyn Jones for
election as a director of the Buyer, which definitive documentation the Buyer,
the Company and the Stockholders agree to use their best efforts to negotiate,
execute and consummate by June 30, 1996, (b) approval of the Transaction by the
Board of Directors of the Buyer, (c) consent to the Transaction and the granting
of any necessary waivers by any necessary third parties, (d) receipt by the
Buyer of audited financial statements of the Company for the last three fiscal
years or such shorter period as the Company has been in operation or an
assurance by Ernst & Young LLP that such audited financial statements can be
completed within forty-five (45) days after the Closing Date without
unreasonable effort or expense of the Company, (e) the absence of any material
adverse change in the revenues assets, financial condition, operations and
prospects of the Company, (f) receipt by the Buyer from Ernst & Young LLP of a
report indicating that there are no serious internal control issues relating to
the Company and that such firm has not discovered any fraud at the Company,
other than as previously disclosed in writing by the Company to the Buyer; (g)
the absence of any pending or threatened litigation or other contingent
liabilities or obligations which could prevent the closing of the Transaction or
materially adversely affect the Business, (h) the execution and delivery to the
Buyer by the Stockholders of an agreement reflecting the limitations on the sale
of Stock by the Stockholders set forth in paragraph 1 above, (i) compliance by
the Company with the requirements of paragraph 8 below, (j) the execution and
delivery to the Company of a three-year employment agreement between the Company
and each of Gwyn Jones, James Bryce, and Peter Beedham providing for (i) an
annual salary payable to Mr. Jones of $75,000 per year and to each of Messrs.
Bryce and Beedham of $60,000 per year, (ii) an annual bonus of one percent (1%)
of the gross profit of the Business in the aggregate for all such persons, (iii)
in the second year of the term thereof, the grant of options to purchase an
aggregate of 50,000 shares of Common Stock by Messrs Jones, Bryce and Beedham
allocated at the discretion of Mr. Jones, exercisable at such times as are
consistent with the Company's past practice at the fair market value of the
Common Stock on the date of grant, and (iv) which shall also contain such
person's agreement not to compete with the business of the Company or the Buyer
for one year after the term thereof, (k) the execution and delivery to the
Company of an irrevocable proxy agreement with a term of two (2) years in favor
of Barry A. Cinnamon covering the Stock (which proxy shall lapse upon sale of
any such Stock to an unaffiliated third party), (l) the Buyer being eligible to
account for the Transaction as a "pooling of interests"; (m) the Company having
consolidated net revenues of not less than $8,820,000 in calendar year 1995; (n)
the Company's monthly revenues in 1996 will not be more than five percent (5%)
less than the Company's current budget, a copy of which has been delivered to
the Buyer and attached hereto as Schedule A (the "Budget"); (o) the Company's
expenses and liabilities will not exceed the amount set forth in the Budget by
ten percent (10%) or more; and (p) the Company's working capital (current assets
less current liabilities, in accordance with U.S. GAAP) shall not be less than
the amounts set forth in the Budget.
<PAGE>
4. Whether or not the Transaction is completed, each party will bear its
own expenses relating to its legal representation incurred in connection with
this letter and the Transaction.
5. The Buyer knows of no brokerage claims other than with respect to Frost
Capital, and the Buyer and the Company each agree to indemnify and hold harmless
the other from and against and in respect to any claim for finders fees or
brokerage claims relating to the Transaction or the consummation thereof, based
in any way on agreements, arrangements or understandings claimed to have been
made by the indemnifying party with any third party.
6. The Buyer agrees to treat in confidence any and all information
furnished to it by the Company, except information (a) which is publicly
available or becomes publicly available through no act of the Buyer, (b) which
was in the Buyer's possession prior to its disclosure to the Company, (c) which
is disclosed to the Buyer by a third party which did not acquire the information
under an obligation of confidentiality, (d) which is independently acquired by
the Buyer as a result of work carried out by an employee of the Buyer to whom no
disclosure of such information has been made, (e) which is required to be
disclosed by law, rule, regulation or judicial process, or (f) which Buyer may
consider necessary for the purpose of enforcing its rights hereunder. Neither
the Company nor any Stockholder will make any announcement regarding this letter
of intent or the agreement to this Transaction without the prior written consent
of the Buyer.
7. The Company agrees that it will not, and it will not permit its
officers, directors, employees, stockholders or agents to negotiate directly or
indirectly with or furnish any information relating to any potential sale of the
Company or its business or assets to any other third parties until the earlier
of September 30, 1996 or the termination by the Buyer in writing of the
negotiations relating to the Transaction.
8. The Company agrees that during the period from the date hereof through
the closing of the Transaction (a) the Business will be operated only in the
ordinary course, (b) the Company will not dispose of any of its assets used in
connection with its business other than in the ordinary course of business, and
(c) the Company will not make any distribution or any other payment to its
shareholders, officers, directors or its or their affiliates, other than salary
paid in the ordinary course of business consistent with past practice.
Additionally, the Company represents and warrants that the Business has been
operated in the ordinary course of business since January 1, 1996.
9. You and the Buyer agree to use their respective best efforts to retain
for the benefit of the Company all employees of the Company determined by the
Buyer to be necessary to the Company's operations and to arrange the most
economical relocation of and transition for such employees.
10. Upon the execution and delivery of this letter of intent, the Buyer
will provide to Serif a loan facility in principal amount not exceeding $400,000
in the aggregate, which loan may be drawn down by Serif in tranches not
exceeding $25,000 and aggregate drawdowns of an amount not exceeding $100,000
until the due diligence investigation referred to in paragraph 2 above is
completed, in each case except to the extent otherwise agreed by the Buyer. This
loan shall bear interest at a rate equal to the prime rate plus two percent (2%)
per annum, with such interest payable monthly. The proceeds of this loan shall
<PAGE>
be used by the Company solely for working capital purposes, and no part of such
proceeds shall be used to repay any indebtedness or make any payment to any
officer, director or stockholder of the Company. The obligations under this loan
shall be secured by a first priority lien on the assets of the Company. In
connection with this loan, each of Serif Inc. and Serif Ltd. shall grant to the
Buyer common stock purchase warrants exercisable at par value for such number of
shares of common stock of Serif, Inc. and ordinary shares of Serif Ltd. as
equals ten percent (10%) of the fully diluted outstanding shares of common stock
of Serif Inc. and ordinary shares of Serif Ltd. If the Transaction is not
consummated by September 30, 1996, then this loan shall mature on the earlier of
(a) the first anniversary of the date of this letter of intent, or (b) the
occurrence of any adverse change in the working capital of the Company which is
not satisfactory to the Buyer in its sole discretion.
11. In the event either you or the Borrower breaches its obligations under
this letter of intent, the breaching party shall pay to the other party, as
liquidated damages and not as a penalty, an amount equal to $100,000.
12. This agreement may be executed in counterparts, each of which shall be
deemed an original and all of which shall constitute one and the same
instrument.
<PAGE>
If the above properly meets with your approval with respect to the proposed
Transaction, please sign where indicated below.
ALLEGRO NEW MEDIA, INC.
By:/s/Barry A. Cinnamon
Barry A. Cinnamon
Chairman of the Board
Accepted and Agreed as of
the date first above written:
SERIF, INC.
By:/s/Gwyn Jones
Gwyn Jones
Title:
SERIF (EUROPE), LTD.
By: /s/Gwyn Jones
Gwyn Jones
Title:
/s/Gwyn Jones
Gwyn Jones
/s/James Bryce
James Bryce
/s/Peter Beedham
Peter Beedham
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
condensed financial statements for the quarter ended March 31, 1996 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 528
<SECURITIES> 2,232
<RECEIVABLES> 982
<ALLOWANCES> 451
<INVENTORY> 191
<CURRENT-ASSETS> 3,750
<PP&E> 129
<DEPRECIATION> 81
<TOTAL-ASSETS> 3,798
<CURRENT-LIABILITIES> 541
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 3,254
<TOTAL-LIABILITY-AND-EQUITY> 3,798
<SALES> 446
<TOTAL-REVENUES> 446
<CGS> 229
<TOTAL-COSTS> 229
<OTHER-EXPENSES> 571
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (346)
<INCOME-TAX> 0
<INCOME-CONTINUING> (346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (346)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
