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 quarterly period ended March 31, 1997
[ ] 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 as specified in its charter)
Delaware 22-3270045
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
111 N. Market Street, San Jose, CA 95113
(Address of principal executive offices)
(408) 537-3000
(Issuer's telephone number)
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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 8,050,424 shares of Common
Stock as of May 1, 1997.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [ X ]
---------------
<PAGE>
CROSS REFERENCE SHEET
Page
Number
Cover Page 1
Cross Reference Sheet 2
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Condensed consolidated balance sheets as of March 31, 1997
and December 31, 1996 3
Condensed consolidated statements of operations for the three
months ended March 31, 1997 and 1996 4
Condensed consolidated statements of cash flows for the three
months ended March 31, 1997 and 1996 5
Notes to condensed financial statements - March 31, 1997 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
Part II. Other Information
Item 1. Legal Proceedings. 11
Item 2. Changes In Securities. 11
Item 3. Defaults Upon Senior Securities. 11
Item 4. Submission of Matters to a Vote of Security Holders. 11
Item 5. Other Information. 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Index to Exhibits 13
<PAGE>
Part I. Financial Information
ALLEGRO NEW MEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
Assets (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $3,039,829 $ 4,833,454
Restricted cash 1,650,000 1,650,000
Short-term investments 4,359,337 6,328,180
Accounts receivable, net 2,128,046 1,991,790
Inventories (Note 3) 465,700 713,586
Other current assets 395,400 235,849
---------- ----------
Total current assets 12,038,312 15,752,859
Property and euipment, net 444,623 450,867
Acquired software, net 6,420,319 6,787,614
Goodwill and other intangibles, net 3,953,830 4,262,033
----------- ------------
$22,857,084 $27,253,373
Liabilities and Stockholders' Equity
Current liabilities:
<S> <C> <C>
Accounts payable $ 2,135,691 $ 3,509,060
Accrued liabilities 8,832,608 10,186,059
Notes payable 1,798,392 1,882,548
----------- -----------
Total current liabilities 12,766,691 15,577,667
Stockholders' equity:
<S> <C> <C>
Serial Preferred Stock, authorized 1,939,480
shares, none issued and outstanding:
Class B Voting Preferred Stock, authorized
60,520 shares; issued and
outstanding 60,520 shares 61 61
Common stock, par value $.001 per share,
authorized 30,000,000 shares; issued and
outstanding 7,860,243 shares in 1996 and
8,050,424 shares in 1997 8,050 7,860
Additional paid-in capital 42,843,535 41,731,437
Accumulated deficit (32,761,253) (30,063,652)
------------ ------------
Total stockholders' equity 10,090,393 11,675,706
------------ ------------
Total liabilities and stockholders'
equity $22,857,084 $27,253,373
</TABLE>
Note: The balance sheet at December 31, 1996 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.
<PAGE>
ALLEGRO NEW MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Net sales $3,950,252 $ 445,924
Cost of goods sold 951,766 229,402
---------- ---------
Gross profit 2,998,486 216,522
Selling, general and administrative
expenses 3,669,915 502,683
Depreciation and amortization of acquired
technology and goodwill 866,919 7,354
Product development 1,252,656 82,278
Other (income) expense net (93,403) (30,149)
---------- ---------
Net loss $(2,697,601) $(345,644)
Net loss per share $(.34) $(.11)
Weighted average number of common
shares outstanding 7,932,743 3,150,669
--------- ---------
</TABLE>
See notes to condensed financial statements.
<PAGE>
ALLEGRO NEW MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1997 1996
Operating activities
<S> <C> <C>
Cash (used in) operations $(2,780,212) $ (631,472)
Investment activities
Cash used to pay acquisition costs ( 959,935)
Purchase of property and equipment ( 32,321) ( 1,953)
Proceeds from sale of short term
investments 1,968,843
Financing activities
Proceeds from sale of common stock 10,000 464,907
Net (decrease) in cash (1,793,625) (168,518)
Cash at beginning of period 4,833,454 2,928,272
----------- ------------
Cash at end of period $ 3,039,829 $ 2,759,755
</TABLE>
See notes to condensed financial statements.
<PAGE>
ALLEGRO NEW MEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated 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 Item
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, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996. Certain prior year
information has been reclassified to conform to the current year's presentation.
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, common share equivalents resulting from
outstanding options to purchase common stock are excluded as the impact is
anti-dilutive.
3. Inventories
<TABLE>
<CAPTION>
Inventories consist of the following:
March 31, 1997 December 31, 1996
<S> <C> <C>
Raw materials $ 80,801 $ 81,570
Finished goods 384,899 632,016
--------- ----------
$ 465,700 $ 713,586
</TABLE>
4. Stockholder's Equity
During the quarter ending March 31, 1997, the Company issued (a) 71,428
shares of common stock to M. S. Farrell & Co., Inc. ("MSF") and a designee
thereof in connection with the Company's exercise of its right to terminate its
exclusive investment banking and other obligations to MSF and (b) an aggregate
of 118,747 shares of common stock to investment bankers, consultants and upon
the exercise of certain stock options under the Company's 1994 Long-Term
Incentive Plan.
5. Business Combinations
On July 31, 1996, the Company acquired all of the outstanding common stock
of Serif Inc. and all of the outstanding preference and ordinary shares of Serif
(Europe) Limited (collectively "Serif"). The aggregate purchase price was
approximately $4,200,000 and was principally financed through the issuance of
1,000,000 shares of the Company's common stock. The acquisition has been
accounted for as a purchase and the results of operations of Serif are included
in the Company's consolidated financial statements beginning August 1, 1996.
On December 27, 1996, the Company acquired all of the outstanding common
stock of Software Publishing Corporation ("SPC"). The aggregate purchase price,
including all direct costs, was approximately $30,000,000 and was principally
financed through the issuance of 3,376,162 shares of common stock.
<PAGE>
ALLEGRO NEW MEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation.
Statements contained in this Quarterly Report on Form 10-QSB that are not
based upon historical fact are "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements included
in this Form 10-QSB involve known and unknown risks, uncertainties and other
factors which could cause actual results, performance (financial or operating)
or achievements expressed or implied by such forward looking statements not to
occur or be realized. Such forward looking statements generally are based upon
the best estimates by the Company of future results, performance or achievement,
based upon current conditions and the most recent results of operations.
Forward-looking statements may be identified by the use of forward-looking
terminology such as "may," "will," "expect," "believe," "estimate,"
"anticipate," "continue," or similar terms, variations of those terms or the
negative of those terms.
The Company has recently acquired three operating software companies with
the expectation that such transactions will result in long-term strategic
benefits. The realization of these anticipated benefits will depend in part on
whether the operations of the Company and its recently acquired subsidiaries can
be fully integrated in an efficient and effective manner. This requires, among
other things, integration of the Company's and such subsidiaries' respective
product offerings and coordination of the Company's and such subsidiaries'
sales, marketing and research and development efforts and distribution channels.
While the Company has substantially implemented its integration plans, there can
be no assurance that the expected long-term strategic benefits of the recent
acquisitions will be realized.
Additional potential risks and uncertainties include, among other things,
such factors as the overall level of business and consumer spending for computer
software, the amount of sales of the Company's products, the competitive
environment within the computer software industry, the level and costs incurred
in connection with the Company's product development efforts and the results of
such efforts, the financial strength of the retail industry, market acceptance
of the Company's products, certain technological considerations, competition,
dependence on key personnel and the other factors and information disclosed and
discussed in this "Item 2. Management's Discussion and Analysis or Plan of
Operation" and in other sections of this Form 10-QSB. Readers of this Form
10-QSB should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward-looking statements.
General
The Company is an international supplier of computer software applications
and companion utilities primarily for the corporate and SOHO business market.
These software applications and companion utilities are targeted towards the
visual communications product category, and improve the graphical appeal and
overall effectiveness of documents produced by desktop publishing, presentation
graphics, web page, word processing and similar applications. The Company's
product lines include several products based upon its patent-pending Intelligent
Formatting+ technology ActiveOffice, ASAP WordPower, ASAP WebShow and ASAP; as
well as its traditional products such as Serif PagePlus, Serif DrawPlus, Harvard
Graphics, Harvard ChartXL, Harvard Spotlight, Learn to Do Windows 95 with John C
Dvorak, and a line of interactive multimedia products based on Entrepreneur
Magazine publications. In January 1997, the Company introduced ActiveOffice,
which is a companion product to Microsoft Office that is designed to give users
of Microsoft Word, Excel, PowerPoint and Exchange Mail, a quick and easy way to
convert plain text and numbers into visual graphics. The Company also continues
to offer other business productivity software products. The Company has
de-emphasized its word processing and other non-visual communications, business
productivity and interactive multimedia products. The Company currently derives
substantially all of its net sales from products sold directly to end-users by
its direct mail and telemarketing centers, and to retailers, distributors and
corporate purchasers by its internal corporate and retail sales force and
independent sales representatives. As the industry evolves mechanisms for
<PAGE>
efficiently and securely charging customers directly for software over the
Internet, the Company expects that it may be able to supplement traditional
forms of software distribution and distribute software directly over the
Internet medium.
North America and international net revenues for the Company's three month
periods ending March 31, 1997 and 1996 and the percentage of such revenues were
as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
Net Revenues % Net Revenues %
<S> <C> <C> <C> <C>
North America $1,872,165 47% $445,924 100%
International 2,078,087 53% -0- 0%
---------- --- -------- ----
Total net revenues $3,950,252 100% $445,924 100%
</TABLE>
The Company believes that end users are continuing to migrate from the
Windows 3.1 to the Windows 95 platform and potentially will migrate to Internet
computing. The Company expects increased competition, including price
competition, in the Windows 3.1, Windows 95 and Windows NT markets in the
future. Several of the Company's competitors have introduced suites of products
which include products that directly compete with the Company's products. These
suites of products may be bundled with other office software programs by the
same or other competitors, or are sold free or included as part of the operating
system. The Company believes these offerings of product suites adversely affect
net revenues, and will continue to adversely affect sales of the Company's
products in the future as the individual products within the suites continue to
gain increased levels of inter-operability and functionality. The Company
currently does not offer a suite of general purpose office products; however,
the Company currently offers two suites of products, Serif Publishing Power
Suite and Harvard Presenters Pack, as well as products that complement
competitive suite products. The Company believes that in order to increase its
net revenues, it must introduce new marketing strategies and continue to develop
and introduce new technologies and products through strategic alliances,
acquisitions or internal development. Any inability or delay in executing these
strategies, difficulties encountered in introducing new products or marketing
programs, or failures of the Company's current and future products to compete
successfully with products offered by other vendors, could adversely affect the
Company's net revenues and profitability.
Results of Operations
Three Month Period Ended March 31, 1997 Compared to the Three Month Period
Ended March 31, 1996
Net Sales. Net sales increased approximately 786% from $445,924 in the
three month period ended March 31, 1996 to $3,950,252 in the three month period
ended March 31, 1997 as a result of the inclusion of sales from Serif and SPC in
the 1997 three-month period. There were no Serif or SPC results in the 1996
period. The Company provided for returns in the three month period ended March
31, 1997 at approximately 25% of gross sales versus approximately 21% in the
three month period ended March 31, 1996.
Cost of Goods Sold. Cost of goods sold increased approximately 315% from
$229,402 in the three month period ended March 31, 1996 to $951,766 in the three
month period ended March 31, 1997, as a result of higher sales volume. As a
percentage of net sales, cost of goods sold decreased from approximately 51% of
net sales in the three month period ended March 31, 1996 to approximately 24% of
net sales in the three month period ended March 31, 1997 as a result of
increased sales volumes providing lower per unit production costs.
The Company's gross margins and operating income may be affected in
particular periods by the timing of product introductions, promotional pricing
and rebate offers, as well as by return privileges and marketing promotions in
connection with new product introductions and upgrades. These promotions may
have a negative influence on average selling prices and gross margins. Gross
margins have also been, and may continue to be, adversely affected by
competitive pricing strategies in the industry as a whole, including competitive
upgrade pricing, the OEM business and alternative licensing arrangements.
<PAGE>
Costs of goods sold consists primarily of product costs, freight charges,
royalties and an inventory allowance for damaged and obsolete products. Product
costs consist of the costs to purchase the underlying materials and print both
boxes and manuals, media costs (CD-ROM's and other media) and assembly.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by approximately 630% from $502,683
in the three month period ended March 31, 1996 to $3,669,915 in the three month
period ended March 31, 1997. Substantially all expenses have increased since the
1996 period due to the inclusion of expenditures associated with the operations
of Serif and SPC which were not included in the 1996 period. Total selling
expenses increased approximately 702% from $166,470 in the three month period
ended March 31, 1996 to $1,334,644 in the three month period ended March 31,
1997, primarily as a result of an increase in direct mail advertising associated
with the Company's telemarketing operations and the roll-out costs associated
with the release of the Company's new ActiveOffice product. Total salaries and
wages increased $1,447,150 or approximately 953%, from $151,914 in the three
month period ended March 31, 1996 to $1,599,064 in the three month period ended
March 31, 1997, primarily due to the inclusion of wages attributable to the
operations of Serif and SPC, which were not included in the three-month period
ended March 31, 1996.
The Company is utilizing a consumer rebate offer in connection with its
marketing of its new ActiveOffice product. No assurance can be given that rebate
redemptions will not be at a rate in excess of amounts that the Company may
reserve for such redemptions or that redemptions in excess of such reserve would
not have a material adverse effect on the Company's business, operating results
or financial condition.
The Company establishes several of its marketing expenditure levels based
on expected net revenues. If orders and shipments do not occur when expected,
expenditure levels could be disproportionately high compared to recognized
revenues for the reported period, and the Company's operating results could be
adversely affected. The Company periodically reviews and adjusts its variable
expenditure levels based on actual sales volumes. In the future, the Company's
net revenues and operating results could be adversely affected by these and
other factors, such as delays in new product introductions, the mix of product
sales or distribution channels and customer choices regarding operating systems.
Depreciation and Amortization of Acquired Technology and Goodwill. In the
three-month period ended March 31, 1997, the Company recorded approximately
$866,919 in depreciation and amortization of acquired technology and goodwill
associated with its acquisitions of Serif and SPC, which was not included in the
three month period ended March 31, 1996.
Product Development. Product development expenses increased approximately
1422% from $82,278 in the three month period ended March 31, 1996 to $1,252,656
in the three month period ended March 31, 1997, principally as a result of an
increase in product development costs associated with producing new products. As
a percentage of net sales, the Company's product development costs were
approximately 31.7% in the three month period ended March 31, 1997 versus 18.5%
in the three month period ended March 31, 1996, due to the inclusion of the
costs associated with the Serif and SPC development teams in the 1997 period
which were not included in the 1996 period, as well as increased development
spending on future products. The Company expects that product development
expenses will increase in dollar amount in the future as the Company expands its
product development activities, although the Company's long-term goal is to
reduce product development costs as a percentage of sales. All product
development costs have been expensed in the period incurred.
Other Income. Other income increased from $30,149 in the three month period
ended March 31, 1996 to $93,403 in the three month period ended March 31, 1997,
primarily as a result of higher cash balances.
Liquidity and Capital Resources
During the three month period ended March 31, 1997, the Company's cash,
cash equivalents and short-term investments decreased by $3,762,468 from
$11,161,634 at December 31, 1996 to $7,399,166 at March 31, 1997, primarily as a
result of using $2,780,212 in operations and $959,935 to pay certain acquisition
costs. Although the Company had a working capital deficit of $728,379 at March
31, 1997, the Company believes that its existing cash and cash equivalents and
cash generated from operations, if any, should be sufficient to meet its
<PAGE>
currently anticipated liquidity and capital expenditure requirements for at
least the next twelve months. There can be no assurance, however, that the
Company will be successful in attaining its sales goals, nor that attaining such
goals will have the desired effect on the Company's cash resources. If the
Company does not attain its revenue and cash collection goals or if the
Company's cash resources are not sufficient, it may be necessary to obtain
additional sources of financing. The Company has a line of credit facility of
$300,000; however, there can be no assurances that the Company will be able to
obtain additional financing, if at all, or that such financing will be on terms
acceptable to the Company. The Company is pursuing a possible offering of its
equity or debt securities. However, there can be no assurance that the Company
will be successful in completing such an offering.
The Company's operating activities for the first three months of 1997 used
cash of $2,780,212, which reflected a reduction of $1,373,369 in trade accounts
payable. The Company generated cash of $976,587 in its investment activities,
after giving effect to the use of $959,935 of cash relating to the payment of
acquisition costs. The Company intends to continue to utilize its resources in
1997 for product development, marketing and advertising, to finance the higher
level of inventory and accounts receivable necessary to support the anticipated
increase in sales, for capital expenditures, including the purchase of computer
equipment, and for internal and external software development. However, the
Company's cash requirements may change depending upon numerous factors,
including, without limitation, the need to finance the licensing or acquisition
of third party software as well as increased inventory and accounts receivable
arising from the sale and shipment of new products.
In the three month period ended March 31, 1997, approximately 53% of the
Company's total sales were generated outside the U.S. The Company expects this
practice to continue. The Company's exposure for foreign currency exchange gains
and losses is partially mitigated, as the Company incurs operating expenses in
most of the currencies in which it invoices customers. As of March 31, 1997, the
Company had no foreign exchange contracts outstanding. The Company's foreign
exchange gains and losses may be expected to fluctuate from period to period
depending on the movement in exchange rates.
In June 1994, SPC sold its Superbase product line to Computer Concepts
Corporation ("CCC") (Nasdaq National Market: CCEE) for shares of CCC's
restricted common stock. As of March 31, 1997, SPC owned 3,039,894 shares of
common stock of CCC, which it has or expects to sell during the remainder of
1997, or as soon thereafter as practicable. As of May 12, 1997 the closing price
of the CCC common stock on The Nasdaq National Market was $.53 per share.
Seasonality
The computer software market is characterized by significant seasonal
swings in demand, which typically peak in the fourth quarter of each year. This
seasonal pattern is due primarily to the increased demand for software during
the year-end holiday buying season. The Company expects its net sales and
operating results to continue to reflect this seasonality. The Company's
revenues may also experience substantial variations as a result of a number of
factors, such as consumer and business preferences and introduction of competing
titles by competitors, as well as limited time promotional pricing offers. There
can be no assurance that the Company will achieve consistent growth or
profitability on a quarterly or annual basis.
Inflation
The Company believes that inflation has generally not had a material impact
on its operations.
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings.
Reference is hereby made to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, Item 3 thereof (page 14), filed April
15, 1997 (Commission file No.: 1-14076), and to the references therein, for a
discussion of all material pending legal proceedings to which the Company or any
of its subsidiaries are parties.
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) 10.2 Director and Advisor Stock Option Plan.
27 Financial Data Schedule.
(b) Reports filed on Form 8-K during the quarter ended March 31, 1997:
On January 2, 1997, the Company filed a Current Report on Form 8-K (Date of
Report: December 27, 1996) with the Commission reporting, as an Item 2
disclosure, the Company's acquisition of SPC as a result of the merger of a
wholly owned subsidiary of the Company with and into SPC. The Form 8-K included
(by incorporation by reference to the Company's Registration Statement on Form
S-4 (Registration No.: 333-16449), filed with the Commission on November 20,
1996) the following financial statements and information:
(i) Financial Statements of Business Acquired.
(A) Audited financial statements of SPC as of September 30, 1996 and
1995 and for the years then ended.
(ii) Pro Forma Financial Information (Unaudited).
(A) Pro forma condensed combined balance sheet of the Company and its
subsidiaries as of September 30, 1996.
(B) Pro forma condensed combined statements of operations of the
Company and its subsidiaries for the year ended December 31, 1995.
(C) Pro forma condensed combined statements of operations of the
Company and its subsidiaries for the nine months ended September 30,
1996.
(D) Notes to unaudited pro forma consolidated financial statements.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALLEGRO NEW MEDIA, INC.
Date: May 14, 1997 By: /s/ Barry A. Cinnamon
Barry A. Cinnamon
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 By: /s/ Mark E. Leininger
Mark E. Leininger
Chief Operating Officer, Vice President-
Finance, Treasurer, Chief Financial
Officer (Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
10.2 Director and Advisor Stock Option Plan.
27 Financial Data Schedule.
ALLEGRO NEW MEDIA, INC.
OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN
(As amended through February 4, 1997)
1. Purpose. Allegro New Media, Inc. (the "Company") hereby adopts the
Allegro New Media, Inc. Outside Director and Advisor Stock Option Plan (the
"Plan"). The Plan is intended to recognize the contributions made to the Company
by the non-employee members of the Board of Directors and Board of Advisors of
the Company or an Affiliate (as defined below), to provide such persons with
additional incentive to devote themselves to the future success of the Company
or an Affiliate, and to improve the ability of the Company or an Affiliate to
attract, retain, and motivate individuals upon whom the Company's sustained
growth and financial success depend, by providing such persons with an
opportunity to acquire or increase their proprietary interest in the Company
through receipt of options to purchase the Company's Common Stock, par value
$.001 per share (the "Common Stock").
2. Definitions. Unless the context clearly indicates otherwise, the
following terms shall have the following meanings:
(a)"Affiliate" means a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of Section
424(e) or (f) of the Code.
(b)"Board of Directors" or "Board" means the Board of Directors or the
Board of Advisors of the Company.
(c)"Change in Control" shall have the meaning as set forth in Section 9 of
the Plan.
(d)"Code" means the Internal Revenue Code of 1986, as amended.
(e)"Committee" shall have the meaning set forth in Section 3 of the Plan.
(f)"Company" means Allegro New Media, Inc., a Delaware corporation.
(g)"Disability" shall have the meaning set forth in Section 22(e)(3) of the
Code.
(h)"Fair Market Value" shall have the meaning set forth in Subsection 8(c)
of the Plan.
(i)"Non-qualified Stock Option" means an Option granted under the Plan
which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(j)"Option" means a Non-qualified Stock Option granted under the Plan.
(k)"Optionee" means a person to whom an Option has been granted under the
Plan, which Option has not been exercised and has not expired or terminated.
(l)"Option Document" means the document described in Section 8 of the Plan,
as applicable, which sets forth the terms and conditions of each grant of
Options.
<PAGE>
(m)"Option Price" means the price at which Shares may be purchased upon
exercise of an Option, as calculated pursuant to Subsection 8(c) of the Plan.
(n)"Outside Director" means a member of the Board of Directors or the Board
of Advisors of the Company who is not an employee of the Company or an
Affiliate.
(o)"Rule 16b-3" means Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended.
(p)"Shares" means the shares of Common Stock of the Company which are the
subject of Options.
3. Administration of the Plan. The Plan shall be administered by the Board
of Directors of the Company; however, the Board of Directors may designate a
committee composed of two or more of its Directors to operate and administer the
Plan in its stead.
(a)Meetings. The Committee shall hold meetings at such times and places as
it may determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee.
(b)Administration. The interpretation and construction by the Committee of
any provisions of the Plan or of any Option granted under it shall be final,
binding and conclusive.
(c) Exculpation. No member of the Board of Directors shall be personally
liable for monetary damages for any action taken or any failure to take any
action in connection with the administration of the Plan or the granting of
Options under the Plan, provided that this Subsection 3(c) shall not apply to
(i) any breach of such member's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) acts or omissions that would
result in liability under Section 174 of the General Corporation Law of the
State of Delaware, as amended, and (iv) any transaction from which the member
derived an improper personal benefit.
(d) Indemnification. Service on the Committee shall constitute service as a
member of the Board of Directors of the Company. Each member of the Committee
shall be entitled without further act on his or her part to indemnity from the
Company to the fullest extent provided by applicable law and the Company's
Certificate of Incorporation and/or By-laws in connection with or arising out of
any action, suit or proceeding with respect to the administration of the Plan or
the granting of Options thereunder in which he or she may be involved by reason
of his or her being or having been a member of the Committee, whether or not he
or she continues to be such member of the Committee at the time of the action,
suit or proceeding.
4. Grants under the Plan. Grants under the Plan may only be in the form of
a Non-qualified Stock Option.
5. Eligibility. All Outside Directors shall be eligible to receive Options
hereunder. The Committee, in its sole discretion, shall determine whether an
individual is eligible to receive Options under the Plan.
6. Shares Subject to Plan. The aggregate maximum number of Shares for which
Options may be granted pursuant to the Plan is five hundred thousand (500,000),
subject to adjustment as provided in Section 10 of the Plan. The Shares shall be
issued from authorized and unissued Common Stock or Common Stock held in or
<PAGE>
hereafter acquired for the treasury of the Company. If an Option terminates or
expires without having been fully exercised for any reason, the Shares for which
the Option was not exercised may again be the subject of one or more Options
granted pursuant to the Plan.
7. Term of the Plan. The Plan is effective as of August 2, 1995, the date
on which it was adopted by the Board of Directors, subject to the approval of
the Plan on or before December 31, 1995 by a majority of the votes cast at a
duly called meeting of the stockholders at which a quorum representing a
majority of all outstanding voting stock of the Company is, either in person or
by proxy, present and voting. If the Plan is not so approved on or before
December 31, 1995, all Options granted under the Plan shall be null and void. No
Option may be granted under the Plan after December 31, 2005.
8. Option Documents and Terms. Each Option granted under the Plan shall be
a Non-qualified Stock Option. Options granted pursuant to the Plan shall be
evidenced by the Option Documents in such form as the Committee shall from time
to time approve, which Option Documents shall comply with and be subject to the
following terms and conditions and such other terms and conditions as the
Committee shall from time to time require which are not inconsistent with the
terms of the Plan.
(a) Number of Option Shares. Each Option Document shall state the number of
Shares to which it pertains. An Optionee may receive more than one Option on the
terms and subject to the conditions and restrictions of the Plan.
(b) Timing of Grants; Number of Shares Subject of Options. Each Outside
Director shall be granted, on the earlier of (i) August 1, 1995 or (ii) his or
her becoming an Outside Director, an Option to purchase twenty five thousand
(25,000) Shares. Thereafter, each Outside Director shall be granted annually,
commencing on the first day of August, 1996 and on the first day of each August
thereafter, an Option to purchase ten thousand (10,000) Shares; provided that if
at the time of any grant of Options the number of Shares reserved for issuance
under this Plan is less than the number of Shares underlying the Options to be
granted pursuant to the terms hereof, then the number of Options granted to each
director shall be reduced proportionately.
(c) Option Price. Each Option Document shall state the Option Price, which
shall be equal to the Fair Market Value of the Shares on the date the Option is
granted. If the Common Stock is traded in a public market, then the Fair Market
Value per share shall be, if the Common Stock is listed on a national securities
exchange or included in the NASDAQ National Market System, the average of the
last reported sale prices thereof on the five (5) trading days preceding the
date of grant, or if the Common Stock is not so listed or included, the average
of the mean between the last reported "bid" and "asked" prices thereof on the
five (5) trading days preceding the date of grant, as reported on NASDAQ, or, if
not so reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Common Stock is not traded in a public market, then
the Fair Market Value thereof shall be determined by the Board of Directors or
the Committee.
(d) Exercise. Each Option shall be exercisable on the date of grant to the
extent of not more than thirty-three and one-third percent (33-1/3%) of the
Shares granted. After the expiration of one (1) year from the date of grant, the
Option may be exercised to the extent of not more than sixty-six and two-thirds
percent (66-2/3%) of the Shares granted, and after the expiration of two (2)
years from the date of grant, the Option may be exercised to the extent of not
more than one hundred percent (100%) of the shares granted. No Option shall be
deemed to have been exercised prior to the receipt by the Company of written
notice of such exercise and payment in full of the Option Price for the shares
to be purchased. Each such notice shall specify the number of Shares to be
purchased and shall (unless the Shares are covered by a then current
registration statement or a Notification under Regulation A under the Securities
<PAGE>
Act of 1933, as amended (the "Act")), contain the Optionee's acknowledgment in
form and substance satisfactory to the Company that (a) such Shares are being
purchased for investment and not for distribution or resale (other than a
distribution or resale which, in the opinion of counsel satisfactory to the
Company, may be made without violating the registration provisions of the Act),
(b) the Optionee has been advised and understands that (i) the Shares have not
been registered under the Act and are "restricted securities" within the meaning
of Rule 144 under the Act and are subject to restrictions on transfer and (ii)
the Company is under no obligation to register the Shares under the Act or to
take any action which would make available to the Optionee any exemption from
such registration, (c) such Shares may not be transferred without compliance
with all applicable federal and state securities laws, and (d) an appropriate
legend referring to the foregoing restrictions on transfer and any other
restrictions imposed under the Option Documents may be endorsed on the
certificates. Notwithstanding the foregoing, if the Company determines that
issuance of Shares should be delayed pending (A) registration under federal or
state securities laws, (B) the receipt of an opinion of counsel acceptable to
the Company that an appropriate exemption from such registration is available,
(C) the listing or inclusion of the Shares on any securities exchange or an
automated quotation system or (D) the consent or approval of any governmental
regulatory body whose consent or approval is necessary in connection with the
issuance of such Shares, the Company may defer exercise of any Option granted
hereunder until any of the events described in this Subsection 8(d) has
occurred.
(e) Medium of Payment. An Optionee shall pay for Shares (i) in cash, (ii)
by certified or cashier's check payable to the order of the Company, or (iii) by
such other mode of payment as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board. Without limiting the foregoing, the Committee may provide
an Option Document that payment may be made in whole or in part in shares of the
Company's Common Stock. If payment is made in whole or in part in shares of the
Company's Common Stock, then the Optionee shall deliver to the Company
certificates registered in the name of such Optionee representing the shares
owned by such Optionee, free of all liens, claims and encumbrances of every kind
and having an aggregate Fair Market Value on the date of delivery that is at
least as great as the Option Price of the Shares (or relevant portion thereof)
with respect to which such Option is to be exercised by the payment in shares of
Common Stock, accompanied by stock powers duly endorsed in blank by the
Optionee. In the event that certificates for shares of the Company's Common
Stock delivered to the Company represent a number of shares in excess of the
number of shares required to make payment for the Option Price of the Shares (or
relevant portion thereof) with respect to which such Option is to be exercised
by payment in shares of Common Stock, the stock certificate issued to the
Optionee shall represent (i) the Shares in respect of which payment is made, and
(ii) such excess number of shares. Notwithstanding the foregoing, the Committee
may impose from time to time such limitations and prohibitions on the use of
shares of the Common Stock to exercise an Option as it deems appropriate.
(f) Termination of Options. All Options granted pursuant to this Plan shall
be exercisable until the first to occur of the following:
(i) Expiration of ten (10) years from the date of grant;
(ii) Expiration of three months from the date on which the
Optionee's service as an Outside Director terminates for any reason
other than Disability or death; provided, however, that the Committee,
in its sole discretion, shall have the authority to extend the
expiration date of any or all outstanding Options held by an Optionee
whose service as an Outside Director terminates for any reason other
than Disability or death beyond such three month period, but in no
event shall such extension of the expiration date of an Option be to
a date beyond the tenth anniversary of the grant of such Option; or
(iii) Expiration of one year from the date the Optionee's service with
Company as an Outside Director terminates due to the Optionee's
Disability or death.
<PAGE>
(g) Transfers. No option granted under the Plan may be transferred, except
by will or by the laws of descent and distribution. During the lifetime of the
person to whom an Option is granted, such Option may be exercised only by such
person. Notwithstanding the foregoing, a Non-qualified Stock Option may be
transferred pursuant to the terms of a "qualified domestic relations order,"
within the meaning of Sections 401(a)(13) and 414(p) of the Code or within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, as
amended.
(h) Other Provisions. Subject to the provisions of the Plan, the Option
Documents shall contain such other provisions including, without limitation,
additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.
(i) Amendment. Subject to the provisions of the Plan, the Committee shall
have the right to amend Option Documents issued to an Optionee, subject to the
Optionee's consent if such amendment is not favorable to the Optionee, except
that the consent of the Optionee shall not be required for any amendment made
under Section 9 of the Plan, as applicable.
9. Change in Control. In the event of a Change in Control, the Committee
may take whatever action it deems necessary or desirable with respect to the
Options outstanding, including, without limitation, accelerating the expiration
or termination date in the respective Option Documents to a date no earlier than
thirty (30) days after notice of such acceleration is given to the Optionees. In
addition to the foregoing, in the event of a Change in Control, Options granted
pursuant to the Plan shall become immediately exercisable in full.
A "Change in Control" shall be deemed to have occurred upon the earliest to
occur of the following events: (i) the date the stockholders of the Company (or
the Board of Directors, if stockholder action is not required) approve a plan or
other arrangement pursuant to which the Company will be dissolved or liquidated,
or (ii) the date the stockholders of the Company (or the Board of Directors, if
stockholder action is not required) and the stockholders of the other
constituent corporation (or its board of directors, if stockholder action is not
required) have approved a definitive agreement to merge or consolidate the
Company with or into such other corporation, other than, in either case, a
merger or consolidation of the Company in which holders of shares of the
Company's Common Stock immediately prior to the merger or consolidation will
hold at least a majority of the ownership of common stock of the surviving
corporation (and, if one class of common stock is not the only class of voting
securities entitled to vote on the election of directors of the surviving
corporation, a majority of the voting power of the surviving corporation's
voting securities) immediately after the merger or consolidation, which common
stock (and if applicable voting securities) is to be held in the same proportion
as such holders' ownership of Common Stock of the Company immediately before the
merger or consolidation, or (iv) the date any entity, person or group (within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange
Act of 1934, as amended) other than (A) the Company or any of its subsidiaries
or any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its subsidiaries, or (B) any person who, on the date the Plan
is effective, shall have been the beneficial owner of or have voting control
over shares of Common Stock of the Company, possessing more than ten percent
(10%) of the aggregate voting power of the Company's Common Stock shall have
become the beneficial owner of, or shall have obtained voting control over, more
than ten percent (10%) of the outstanding shares of the Company's Common Stock,
or (v) the first day after the date this Plan is effective when directors are
elected such that a majority of the Board of Directors shall have been members
of the Board of Directors for less than two (2) years, unless the nomination for
election of each new director who was not a director at the beginning of such
two (2) year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period.
10. Adjustments on Changes in Capitalization. The aggregate number of
Shares and class of Shares as to which Options may be granted hereunder, the
number and class or classes of Shares covered by each outstanding Option and the
Option Price thereof shall be appropriately adjusted in the event of a stock
dividend, stock split, recapitalization or other change in the number or class
of issued and outstanding equity securities of the Company resulting from a
<PAGE>
subdivision or consolidation of the Common Stock and/or, if appropriate, other
outstanding equity securities or a recapitalization or other capital adjustment
(not including the issuance of Common Stock on the conversion of other
securities of the Company which are convertible into Common Stock) affecting the
Common Stock which is effected without receipt of consideration by the Company.
The Committee shall have authority to determine the adjustments to be made under
this Section, and any such determination by the Committee shall be final,
binding and conclusive.
11. Amendment of the Plan. The Board of Directors of the Company may amend
the Plan from time to time in such manner as it may deem advisable. The
provisions of the Plan relating to (i) which directors shall be granted Options
pursuant to Section 8; (ii) the amount of Shares subject to Options granted
pursuant to Section 8; (iii) the price at which Shares subject to Options
granted pursuant to Section 8 may be purchased; and (iv) the timing of grants of
Options pursuant to Section 8, shall not be amended more than once every six (6)
months, other than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended. No amendment to the Plan
shall adversely affect any outstanding Option, however, without the consent of
the Optionee that holds such Option.
12. No Commitment to Retain. The grant of an Option pursuant to the Plan
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee as a member of the Company's Board of Directors or in any other
capacity.
13. Withholding of Taxes. Whenever the Company proposes or is required to
deliver or transfer Shares in connection with the exercise of an Option, the
Company shall have the right to (a) require the recipient to remit or otherwise
make available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such Shares or (b) take whatever other
action it deems necessary to protect its interests with respect to tax
liabilities. The Company's obligation to make any delivery or transfer of Shares
shall be conditioned on the Optionee's compliance, to the Company's
satisfaction, with any withholding requirement.
14. Interpretation. The Plan is intended to enable transactions under the
Plan with respect to directors and officers (within the meaning of Section 16(a)
under the Securities Exchange Act of 1934, as amended) to satisfy the conditions
of Rule 16b-3; to the extent that any provision of the Plan, or any provisions
of any Option granted pursuant to the Plan, would cause a conflict with such
conditions or would cause the administration of the Plan as provided in Section
3 to fail to satisfy the conditions of Rule 16b-3, such provision shall be
deemed null and void to the extent permitted by applicable law.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
condensed financial statements for the quarter ended March 31, 1997 and is
qualified in its entirety by reference to such statements. (Replace this text
with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-30-1997
<CASH> 4,690
<SECURITIES> 4,359
<RECEIVABLES> 3,277
<ALLOWANCES> (1,149)
<INVENTORY> 466
<CURRENT-ASSETS> 12,038
<PP&E> 6,721
<DEPRECIATION> (6,277)
<TOTAL-ASSETS> 22,857
<CURRENT-LIABILITIES> 12,767
<BONDS> 0
0
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<OTHER-SE> 10,082
<TOTAL-LIABILITY-AND-EQUITY> 22,857
<SALES> 3,950
<TOTAL-REVENUES> 3,950
<CGS> 952
<TOTAL-COSTS> 952
<OTHER-EXPENSES> 5,665
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,697)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,697)
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<NET-INCOME> (2,697)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
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