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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER 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.
(Name of small business issuer in its charter)
DELAWARE 22-3270045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 NORTH MARKET STREET, SAN JOSE CALIFORNIA 95113
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (408) 537-3000
Securities registered under Section 12(b) of the Exchange Act: COMMON STOCK, PAR
VALUE $.001
Securities registered under Section 12(g) of the Exchange Act: NONE
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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's net revenues for its most recent fiscal year.
$4,700,955.
The aggregate market value of the voting stock held by non-affiliates
of the small business issuer was $19,948,117 at April 4, 1997, based on the last
bid price of the Common Stock on such date of $3-3/16, as reported by the Nasdaq
Stock Market.
As of April 4, 1997, there were a total of 8,050,424 shares of the
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
INTRODUCTORY COMMENT - FORWARD LOOKING STATEMENTS.
Statements contained in this Annual Report on Form 10-KSB 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-KSB 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 Allegro New Media, Inc. (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.
As discussed in "Item 1. Description of Business," 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 "Item 1. Description of Business,"
"Item 6. Management's Discussion and Analysis or Plan of Operation" and in other
sections of this Form 10-KSB. Readers of this Form 10-KSB 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.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is an international developer and supplier of computer
software applications and companion utilities, primarily for the corporate and
small office/home office ("SOHO") markets. 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 currently offers 25 products
that operate on the Windows(R) 3.1, Windows 95, Windows NT(R) and DOS operating
systems for IBM personal computers and compatibles.
The Company was incorporated in Delaware on December 23, 1993, and
succeeded to the business of its predecessor New Jersey corporation, which was
formed on July 20, 1992. In July 1996, the Company acquired (the "Serif
Acquisition") Serif Inc. and Serif (Europe) Limited (collectively, "Serif"),
which significantly expanded its product line to include desktop publishing
titles Serif PagePlus(TM) and Serif DrawPlus(TM), among others. In December
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1996, the Company acquired all of the outstanding capital stock of Software
Publishing Corporation ("SPC") as the result of a merger (the "Merger") of a
wholly-owned subsidiary of the Company with and into SPC, as a result of which
the Company's product line expanded further to include SPC's presentation
graphics and other visual communications and business productivity software
products. The Company continues to operate SPC and the Serif companies as
wholly-owned subsidiaries. Unless the context otherwise requires, all references
herein to the Company include Allegro New Media, Inc. and its subsidiaries,
including Software Publishing Corporation, Serif Inc. and Serif (Europe)
Limited, on a consolidated basis.
The Company's primary product families are the Active line of companion
utility products (currently consisting of ActiveOffice(TM)), the ASAP(TM) line
of presentation graphics products, the Serif(TM) line of desktop publishing and
drawing products and the Harvard (TM) line of graphical information presentation
products. ASAP, the first product based upon the Intelligent Formatting
technology acquired as a result of SPC's purchase of Digital Paper, Inc. in
March 1995, was introduced in September 1995. In 1996, the Company introduced
new products including ASAP WordPower(TM), ASAP WebShow(TM), ASAP WebShow
Presentation Kit, Serif PagePlus(TM) 4, Serif DrawPlus(TM) 3, and a suite of
presentation products called the Harvard Graphics Presenter's Pack(TM)
consisting of Harvard Graphics(R), Harvard ChartXL(R), Harvard Spotlight(R), and
Flamingo Plus(TM)(distributed under license from a third party), and also
created two Internet plug-ins, ASAP WebShow for Netscape(R) Navigator(TM) and an
ActiveX version of ASAP WebShow for Microsoft(R) Internet Explorer(TM) 3.0. In
January 1997, the Company introduced ActiveOffice, which is a companion product
to Microsoft Office that is designed to give users of Microsoft(R) Word, Excel,
PowerPoint and Exchange Mail, a quick and easy way to convert plain text and
numbers into visual graphics.
The Company's products are sold primarily through retail, corporate,
direct mail and original equipment manufacturer ("OEM") channels. The Company
has also positioned itself to take advantage of the Internet as an additional
sales medium. Corporate sales are comprised of both individual product sales as
well as volume sales. Most sales to the retail channel are made on a two-step
basis with the initial sales being made to distributors and then to retail
chains. Direct mail sales are generated by inbound and outbound telemarketing
operations in the U.S. and U.K. The Company also distributes its products
through OEMs on a bundled or value-added basis. In addition, the popularity of
the Internet and the World Wide Web has made it feasible for the Company to
distribute its products over the Internet. Currently, the Company distributes
locked versions of its products over the Internet for free. These products can
then be used for a period of time (typically 30 days) before the customer has to
pay the Company for an unlocking code (usually purchased over the telephone),
thereby giving the customer permanent use of the product. As the Internet
evolves mechanisms for efficiently and securely charging customers directly for
software, the Company expects that it may be able to supplement traditional
forms of software distribution with distribution of its software directly over
the Internet medium.
Retail computer stores which sell the Company's products include major
national dealers such as Best Buy, CompUSA, Computer City, Micro Center, Egghead
Discount Software, Staples, Office Depot and OfficeMax, as well as major
software retailers in the U.K. Major corporate resellers of the Company's
products include Stream International, Inc., Softmart Inc., and Software
Spectrum, Inc. The Company's major distributors are Ingram Micro, Inc., Navarre
and Tech Data. Upgrades of the Company's products are sold through resellers and
distributors, as well as directly to customers by the Company's telemarketing
sales force.
The Company believes that there is a strategic fit among the visual
communications software products of its subsidiaries. The anticipated benefits
of the combination of the businesses of the Company and its subsidiaries as a
result of the SPC and Serif acquisitions, or that may result from any potential
future acquisitions, will depend in part on whether these operations can be
integrated in an efficient and effective manner. There can be no assurance that
this will occur.
The successful combination of companies and product lines in the software
applications industry may be more difficult and require a greater period of time
to complete than in other industries. The Company believes that some of the
primary reasons for this difficulty relate to the intricacies of software source
code and the tendency within the software application industry to focus on
specific markets for products. Where software
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companies combine operations, the integration of source codes, which
requires line-by-line coordination, and redefinition of marketing efforts, may
be necessary. With respect to the Company, areas requiring substantial
coordination include integrating the Intelligent Formatting technology into
products previously and newly developed by SPC and Serif and adjusting the
various distribution channels and market targets established in the past.
Further, the success of the integration process will be significantly influenced
by the ability of the Company to attract and retain key management, sales,
marketing and research and development personnel, while concurrently minimizing
the Company's costs and expenses. There is no assurance that the foregoing will
be accomplished smoothly or successfully. The continued integration of
operations will require the dedication of management resources, which may
distract attention from the day-to-day operations of the Company. The inability
of management to successfully fully integrate the operations of the Company and
its subsidiaries could have a material adverse effect upon the business,
operating results and financial condition of the Company. The Company may
acquire other companies, products or technologies in the future. There can be no
assurance that these acquisitions would be effectively integrated, that such
acquisitions will not result in costs or liabilities that could materially and
adversely affect the Company's business, operating results and financial
condition, or that the Company will obtain the anticipated or desired benefits
of any such transactions. See "Business Strategy" below.
Historically, the sales models used by the Company and its subsidiaries
sales organizations have differed significantly. There can be no assurance that
the Company will be able to take full advantage of the combined sales force's
efforts. In addition, uncertainties regarding overlap of products may cause
customers to delay or alter purchasing decisions. The MIS and computer systems
used by the Company and its subsidiaries have differed significantly, and a new
system is planned for implementation in 1997. There can be no assurance that the
implementation of this new system will proceed smoothly and accurately or will
produce the desired information in a timely fashion.
The Company's principal executive offices are located at 111 North
Market Street, San Jose, California 95113; telephone (408) 537-3000. The Company
maintains a website at www.spco.com.
BUSINESS STRATEGY
The Company's strategic objective is to become a leading supplier of
easy-to-use software applications and companion utilities that improve the
graphical appeal and overall effectiveness of documents produced by desktop
publishing, presentation graphics, web page, word processing and similar
applications. To achieve its strategic objective, the Company intends to build
upon what management believes are the advantages provided by the Company's
proprietary Intelligent Formatting technology by including this technology in
companion applications designed for market leading products (such as
ActiveOffice which is designed for Microsoft Office 97) and including this
technology in standalone applications (such as ASAP WordPower) The Company also
intends to create new products in the visual communications category that will
appeal to its existing customer base and to continue to support new computing
environments as they emerge and represent potentially profitable opportunities.
The Company believes that many current graphical presentation software
applications and first-generation Internet publishing tools were designed for
computer specialists, corporate MIS departments, computer consultants and other
technically knowledgeable users. The Company believes that there is a large
market opportunity for software that makes it easy for the average computer user
to create high-quality, graphically rich documents, presentations and web pages.
In order to facilitate the development of products for this market opportunity,
the Company acquired the Intelligent Formatting technology through SPC's
acquisition of Digital Paper, Inc. in March 1995. Using Intelligent Formatting
technology, customers who are not computer specialists can create effective,
well-designed documents using simple high-level commands. With Intelligent
Formatting, users can manipulate graphic design factors such as layout, design
and color, while the software program automatically correlates these factors to
create an effective and visually pleasing design. Moreover, the automated
correlation of these design factors enables the user to make changes even at the
last minute, and to test "what if" scenarios with the confidence that the change
will not create unexpected ripple effects requiring many more changes before a
satisfactory document is produced. In contrast, many experienced users of
traditional graphical presentation programs have learned to be very cautious in
making changes at the last minute because of ripple effects in which one change
necessitates many other changes to restore the visual integrity of the
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document. However, with the Company's Intelligent Formatting technology, when
making such changes, the user's text would be automatically rearranged,
including font sizes being changed, which maintains a visually pleasing design
while retaining the integrity of the document.
The Company believes its Intelligent Formatting technology is well
suited for use with on-line systems such as the Internet because it requires
only unformatted text, along with a small amount of additional information, to
be stored in a file and transmitted across a network. In most applications, the
graphical formatting of the document is derived by the Intelligent Formatting
engine on the user's computer as the object is viewed, substituting relatively
abundant local computing power for relatively scarce network transmission
bandwidth. In addition, the technology's component-based architecture is
relatively compact, efficient and portable across computer operating platforms.
The Company believes that its Serif(TM) technology provides end-users with the
ability to produce high-quality desktop publishing documents with easy to use
interfaces. The Company intends to incorporate its Intelligent Formatting
technology into additional SPC products and certain Serif products. However,
there can be no assurance that such integration efforts will proceed smoothly or
that commercially successful products will result from such efforts.
PRODUCTS
The Company creates products that have identifiable market niches in
which it believes, based on management's experience, that it can attain a
significant market share. The Company generally recommends "street" or "actual
purchase" prices, which may vary from time to time, for its products; however,
these prices may vary from prices that customers actually pay. Customer
preferences for software products are difficult to predict and few software
products achieve sustained market acceptance. The Company is and will continue
to be dependent on the market acceptance of its existing products, the
development of upgrades to its existing products and the development and
introduction of new products which achieve market acceptance.
The Company's primary software application and companion utility
product lines include visual communications and presentation graphics, desktop
publishing, and business productivity applications. Certain of the Company's
product lines are available in languages other than English, including those
product lines with significant foreign revenues. Both the Serif and
Harvard lines of products continue to derive substantial revenues from foreign
sales. See "Item 6. Management's Discussion & Analysis or Plan of Operations".
The Company's primary products are described below:
VISUAL COMMUNICATIONS AND PRESENTATION GRAPHICS
Active Office, which was released in January 1997, is designed as a
companion to Microsoft Office that gives users of Word, Excel,
PowerPoint, and Exchange Mail a quick and easy way to turn plain text and
numbers into high-impact visual elements which are embedded in their text,
thereby increasing the communication effectiveness of their documents. By
highlighting specific text or numbers in the document and then operating the
ActiveOffice formatting product, those words and numbers are graphically
transformed into selected graphics or designs which amplify the author's
message. The Intelligent Formatting technology embedded in ActiveOffice permits
the user to complete complex and time consuming graphics tasks with the click of
a mouse button, thereby simplifying the creation of professional-quality visual
presentations. Different layouts and color schemes, in a wide variety of
arrangements, are available for user experimentation to permit customized visual
communications without the constant fine tuning required by competing products
that require redrafting after each unsuccessful attempt. ActiveOffice works with
Windows 95 or Windows NT 4.0 operating systems. ActiveOffice is available in
international English, domestic English, German, French and Spanish.
ASAP WordPower, v.1.95 is a presentation graphics application that
helps inexperienced users create a presentation within a few minutes. Built on
Intelligent Formatting technology, ASAP WordPower allows the Windows 95 user to
convert text created in ASAP WordPower or MS Word into a professional,
well-designed presentation. ASAP
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WordPower is available in international English, domestic English, German,
Spanish, Italian, French, Portuguese and Dutch.
ASAP WebShow is a viewer for presentations that are created with the
Company's ASAP WordPower presentation software and posted to the World Wide Web.
The combination of ASAP WebShow and ASAP WordPower provides a set of tools to
enhance communications over the Internet. Together, these two products offer
users a solution for creating and viewing presentations on the World Wide Web.
An ASAP WebShow user can view a presentation in interactive or auto-run mode,
download the materials for later viewing, or print hard copies for local use.
ASAP WebShow Presentation Kit is a suite of products, consisting of
ASAP WordPower, ASAP WebShow, Progressive Network's RealAudio Personal Server
2.0, the RealAudio Player and the RealAudio Encoder 2.0. The ASAP WebShow
Presentation Kit provides the user with a solution for creating, viewing and
hearing presentations on the World Wide Web. Working with the RealAudio System
(a client-server based audio-on-demand delivery system for the Internet and
Intranet distributed under license from Progressive Networks, Inc.),
presentations can be enriched with sound and voice. The Company believes that
this type of collection of products in kit form is beneficial for corporate
Intranets because it can be used to distribute critical information to employees
at remote offices. The Kit is also a tool for disseminating information to the
public via the Internet.
ASAP WebShow for Netscape Navigator(TM) 2.0 is a Plug-in presentation
viewer for the World Wide Web bundled with the Netscape Power Pack, which
includes Netscape Navigator 2.0 and companion utilities for Netscape Navigator.
ASAP WebShow enables Netscape Navigator 2.0 users to view, download and print
graphically rich reports and presentations from the Web.
ASAP WebShow for Microsoft Internet Explorer is a Plug-in presentation
viewer for the World Wide Web bundled with Microsoft's Internet Explorer Starter
Kit. ASAP WebShow takes advantage of Microsoft Internet Explorer 3.0's support
for ActiveX technologies to provide a way to access presentations on the Web. By
using the automatic download and update functionality of Microsoft Internet
Explorer 3.0, ASAP WebShow is transparently installed and updated as needed when
viewing an Internet presentation.
Harvard Graphics 4.0 for Windows 95 is a Windows presentation graphics
package offering a range of capabilities that help users create and deliver more
effective presentations. Harvard Graphics 4.0 for Windows 95 has a similar look
and feel to Microsoft Office 95, enabling users to benefit from a common user
interface among all compliant applications. Version 4.0 expands on the Harvard
Graphics Advisor System feature introduced in previous versions, the interactive
design checker and Harvard montage lite, an image browser. The Advisor System is
comprised of pre-designed Quick Presentations, or sample presentations with
common business themes that users can customize; Quick Advice, which provides
users with "how to" advice on the selection and effective use of presentation
styles, output devices and chart types; and the interactive Design Checker,
which checks a user's presentation against a set of design rules, offering
specific design suggestions to improve a slide's appearance. Version 4.0
provides Quick Tips and Design Tips, expands the use of Quick Looks throughout
the product and provides enhancements through an Animation Player with 15
ready-made clips.
Harvard Graphics 3.0 for Windows is a Windows 3.1 presentation graphics
package offering the Advisor System and an interactive Design Checker.
Harvard ChartXL 2.0 for Windows 95 is a charting application that gives
users of spreadsheet software and other major Windows-based applications a tool
for analyzing, viewing and presenting their data more effectively. The new
version offers more than 300 unique two- and three-dimensional business,
statistical, and technical chart types, coupled with spreadsheet capabilities
and "what if" analytical tools.
Harvard Spotlight 2.0 for Windows 95 helps presenters control the flow
and delivery of their electronic presentations. Using Harvard Spotlight,
presenters can set up different views, including current audience slide,
presentation notes, next slide preview, navigation bar, and presentation status
panel. During an electronic presentation,
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the user has access to all this information, while the audience sees only the
current slide. Harvard Spotlight 2.0 also has a dual-display VGA PCMCIA card
feature for notebook computer users.
Harvard Graphics Presenter's Pack is a presentation suite of products
consisting of Harvard Graphics 2.0, Harvard ChartXL, Harvard Spotlight, and
Flamingo Plus (a paint and image-editing program, distributed by the Company
under license from a third party supplier).
BUSINESS PRODUCTIVITY APPLICATIONS
Serif PagePlus 4 Professional Edition for Windows 95 is the Company's
premium desktop publishing application which is designed for the average
computer user, but also includes a range of professional desktop publishing
features. PagePlus 4 can produce professional-quality advertisements, flyers,
reports, banners, brochures, newsletters, greeting cards and other written
documents and includes 17,000 clipart images and photos, 200 fonts and 200
design wizards.
Serif PagePlus Home/Office for Windows 95 is designed for more
price-sensitive SOHO and home computer desktop publishing users who do not need
all the content and advanced features included in PagePlus 4. This product
includes over 7,000 clipart images and photos, 100 fonts and 100 design wizards.
Serif DrawPlus 3 Home/Office Edition for Windows 95, is designed for
the average computer user, but also includes a range of more advanced drawing
and design tools so that they can create logos, posters, cartoons, certificates,
report covers and greeting cards. DrawPlus 3 includes over 120 drawing wizards,
17,000 clipart images and photos, 400 fonts and a photo editor.
Serif Publishing Power Suite is a combination of products consisting of
PagePlus 3, TypePlus, TablePlus, DrawPlus 3, PhotoPlus, Arena 3D Design ED
(licensed from a third party) and PhotoMorph 2.0 (licensed from a third party),
along with 7,000 clipart images, 500 photos and 400 fonts.
Word Processing and Other Products. The Company's word processing and
other business productivity products are generally older, legacy products for
mature market segments. These products include Professional Write, Professional
Write PLUS, OfficeWriter and Professional File. The Company has de-emphasized
this category.
OTHER PRODUCTS
The Company markets a series of interactive multimedia tutorial and
reference products, primarily under the Company's Learn to Do(R) and licensed
Entrepreneur(R) Magazine product brands. These titles include Learn to Do
Windows 95 with John C. Dvorak, and five products made in conjunction with
Entrepreneur Magazine, including Small Business Encyclopedia, Guide to Raising
Money and 1,000 Essential Business Forms and Letters. The Company has
de-emphasized this product category.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company believes that its success depends significantly upon its
proprietary technology. The Company currently relies on a combination of
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions and other written materials under trade secret, patent
and copyright laws to protect its proprietary technology; however, these
generally afford only limited protection. The Company has registered and applied
for registration for certain service marks and trademarks, and will continue to
evaluate the registration of additional service marks and trademarks as
appropriate. Additionally, the Company copyrights its software and related user
documentation, but the copyright laws afford only limited practical protection
against duplication of the media embodying the programs and the related user
manuals. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or
services or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect
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proprietary rights to as great an extent as do the laws of the United States.
Monitoring and identifying unauthorized use of such broadly disseminated
products as personal computer software is difficult. The Company expects
software piracy to be a continuing problem for the software industry. The
Company relies upon software engineering and marketing skills to protect its
market position, in addition to the copyright and trademark or trade secret
protection discussed above. Because the software development industry is
characterized by rapid technological change, the Company believes that factors
such as the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are as important to establishing and maintaining a
technology leadership position as the various legal protections of its
technology.
The Company currently has patent applications pending related to its
Intelligent Formatting technology and the technology contained in its Harvard
Spotlight product. There can be no assurance that any new patent applications
will be submitted, that any pending applications will be approved, that if
issued, any such patent will not be challenged, or that if challenged, any such
patent will not be invalidated. There can be no assurance that any issued patent
will provide the Company with any competitive advantages or will not be
challenged by third parties, any of which may have a material adverse effect on
the Company. The Company believes that it retains ownership rights to all
software, both developed and commercially distributed by the Company, except for
those components of the software that the Company licenses from third parties.
Software offered by the Company is licensed and generally provided in object
code pursuant to shrink-wrap or on-screen license agreements or executed license
agreements which contain restrictions on disclosure and transferability. In
addition, the Company has from time to time licensed to third parties the right
to use, modify, reproduce, sublicense, distribute and market certain of the
Company's software products or portions of its software products. Such licensed
software is provided in object code and, in certain limited circumstances,
source code, pursuant to agreements which contain restrictions on disclosure and
transferability.
Certain technology used in the Company's products is licensed on a
perpetual, fully paid, non-royalty-bearing basis from third parties. If any
event occurred that rendered technology licensed from a third party and
incorporated in the Company's products unavailable to the Company, or if the
technology is not appropriately supported and enhanced by the licensor, the
Company would be forced to expend financial and development resources to replace
that technology. Such expenditures could materially adversely affect the
Company's business, financial condition and results of operations.
The Company is not aware that any of its products materially infringes
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not claim such infringement by the Company or its
licensors with respect to current or future products. The Company expects that
software product developers will increasingly be subject to such claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or might require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company.
Litigation may be necessary to protect the Company's proprietary
technology. Any such litigation may be time-consuming and costly. There can be
no assurance that the Company's means of protecting its proprietary rights will
be adequate or that the Company's competitors will not independently develop
similar technology or duplicate the Company's products or services or design
around patents or other intellectual property rights of the Company. There has
been a substantial amount of litigation in the software industry regarding
intellectual property rights and there can be no assurance that the patents or
other intellectual property rights of others will not have a material adverse
effect on the Company's ability to do business.
Competitors and potential competitors of the Company may resort to
litigation as a means of competition. Such litigation may be costly and expose
the Company to new claims that it may not have anticipated. Although patent and
intellectual property disputes in the software area have often been settled
through licensing, cross-licensing or similar arrangements, costs associated
with such arrangements may be substantial if they may be obtained at all. Any
litigation involving the Company, whether as plaintiff or defendant, regardless
of the outcome, including any litigation relating
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to claims which have been or may in the future be asserted against the Company,
may result in substantial costs and expenses to the Company and significant
diversion of effort by the Company's technical and management personnel. In
addition, there can be no assurance that litigation, either instituted by or
against the Company, will not be necessary to resolve issues that may arise from
time to time in the future with other competitors. Any such litigation could
have a material adverse effect upon the Company's business, operating results
and financial condition. In the event of an adverse result in any such
litigation, the Company could be required to expend significant resources to
develop non- infringing technology, obtain licenses to the technology which is
the subject of the litigation on terms not advantageous to the Company, pay
damages, and/or cease the use of any infringing technology. There can be no
assurance that the Company would be successful in such development, that any
such licenses would be available and/or that the Company would have available
funds sufficient to satisfy any cash awards.
PRODUCT DEVELOPMENT
The personal computer software industry is characterized by rapid
technological change, which requires a continuing high level of expenditures for
the enhancement of existing products as well as development of new software
products. The Company's current product development activities include enhancing
and updating its present software packages and designing new products. The
Company continues to expand and update its Serif software code to meet the
demands of the current market. Since acquiring its Intelligent Formatting
technology, the Company has attempted to position this technology as an industry
leading code base for visual communications by creating products that enable
users to efficiently use the desktop computer environment as well as the
Internet and Intranets (including electronic mail and remote conferencing).
Intelligent Formatting technology is based on an automatic graphical
layout engine with a relatively small memory footprint, low communication
bandwidth requirements and device/media independence. Intelligent Formatting
captures the visual idioms used by graphic designers in both print and
electronic media in the form of intelligent visual objects. This technology has
been recognized for its power and ease-of-use compared to the manual design
techniques required in most traditional software products. The Company is
currently focusing research and development resources on expanding the
Intelligent Formatting technology into a range of products targeted at the
desktop, Intranet and Internet markets. The Company believes that the design
architecture incorporated in its Intelligent Formatting technology provides a
fast, powerful and flexible environment which advances the state-of-the-art in
graphical algorithms and protocols, while also providing a technological
foundation for the ongoing development of a range of products for the desktop,
Internet, Intranet and emerging mobile communication device markets. There can
be no assurance, however, that any Intelligent Formatting-based products, or any
other new products, will be commercially successful.
Since September 1995, the Company has introduced four Intelligent
Formatting-based products for desktop and Internet presentations. For the
Internet, the Company has developed versions of its ASAP WebShow product that
are included as plug-ins (complementary products) for both Netscape Navigator
and Microsoft Internet Explorer products. The latest Intelligent Formatting
product, ActiveOffice (a companion to Microsoft Office), was introduced in
January 1997.
The Company's Serif technology provides advanced desktop publishing and
drawing capabilities while also providing a code base to continue to expand the
products as user requirements evolve. In 1996, the Company introduced three new
products based on its updated Serif technology. The Company has focused research
and development resources to expand its Serif technology, as well as to
integrate the Intelligent Formatting technology into its Serif products.
The Company intends to acquire additional technology through a
combination of internal development, licensing, purchasing and strategic
alliances. There can be no assurance that the Company's product development
efforts or product introductions will result in commercially successful
products. The Company's revenues are based on a combination of products
developed internally, acquired products and products based on licensed
technology. The Company intends to continue a flexible approach to the
development, acquisition and release of new products and technologies,
recognizing that the rapid changes in the software industry require ever shorter
development cycles and
- 9 -
<PAGE> 10
ever higher levels of product quality and functionality. The Company plans to
continue to develop and acquire software technology and products to enhance and
expand its product offerings.
In June 1996, SPC entered into a non-exclusive licensing and joint
development agreement with Oracle Corporation ("Oracle") to embed Intelligent
Formatting technology in the Oracle InterOffice Product Line. Under the
agreement, the Company's Intelligent Formatting engine is being ported to Java
for use in the Oracle InterOffice product line. Intelligent Formatting
technology is intended to enhance the Oracle InterOffice product offerings in
the area of visual communications. The collaborative services offered by Oracle
InterOffice -- messaging, directory services, calendar/scheduling, document
management and workflow -- are designed to enable users to productively share,
exchange and manage information within their group, across the enterprise and
beyond. Intelligent Formatting technology is expected to complement these
services by adding rich visual content to the range of the Oracle InterOffice
applications. Under the terms of this agreement, Oracle is to pay the Company a
development fee and a one-time license fee in installments. The Company believes
that the development fee and license fee will not result in a material financial
benefit to the Company. However, it is possible that the Company will receive
additional sales and marketing benefits through cross-selling of related
products to Oracle's installed customer base, as well as incorporating the Java
version of Intelligent Formatting as part of the Company's own Java products. In
addition, in June 1996, Oracle Corporation purchased a worldwide end-user site
license for the Company's ASAP WordPower visual communications software. Under
the terms of the agreement, the Company granted Oracle and its subsidiaries a
license for the desktop, network and mobile use of ASAP WordPower.
The Company spent approximately $1,077,615 and $295,878 during 1996 and
1995, respectively, for product development and enhancement activities. These
expenditures represented approximately 22.9% and 21.0% of total net revenues for
such years, respectively. The Company, together with SPC and Serif, incurred an
aggregate of approximately $14,179,000 in product development and enhancement
activities during this two fiscal year period.
PRODUCTION
After approval by quality assurance personnel and management, the
Company's product development staff produces the master diskettes, CD-ROMs and
user manuals for its proprietary software as part of its product development
activities. Third party contractors generally print and assemble CD-ROM discs,
diskettes, manuals, catalog inserts and boxes in which the Company's products
are shipped. The Company has multiple sources for major components of its
products, does not rely on any one principal supplier and has not experienced
any material delays in production or assembly. To date, the Company has not
experienced any material difficulties or delays in production of its software
products and related documentation.
SALES AND MARKETING
The Company relies primarily on four basic sales channels: retail,
corporate, direct mail and OEMs, and has positioned itself to take advantage of
the emerging fifth channel, the Internet, as this channel begins to gain
popularity for the purchase of goods such as software. The Company sells its
products on a direct basis and through distributors and resellers to retailers
such as software specialty stores, computer superstores, office superstores,
office supply stores, warehouse clubs, mall based chains, consumer electronics
stores, mass merchants and bookstores. Retailers in the United States purchasing
the Company's products directly from the Company or through distributors over
the past twelve months include Best Buy, CompUSA, Computer City, Micro Center,
Egghead Discount Software, Fry's, Staples, Office Depot and OfficeMax. Retailers
in the United Kingdom purchasing the Company's products over the past twelve
months include PC World and Dixon's. Distributors of the Company's products
include Ingram Micro, Inc., Navarre Corp. and Tech Data. The Company assists
distributors and resellers in selling, promoting and merchandising its products
and also provides training to resellers. The corporate sales group works with
corporate and government evaluators of software to meet the demands of their
personal computer users. Programs include in-house corporate training seminars,
assistance with installation and product updates. Large corporate and government
sales are fulfilled principally through resellers and distributors while all
other sales are fulfilled directly. The Company also offers site licenses and
volume purchase discounts to its corporate customers. The OEM group is
responsible for sales to hardware
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<PAGE> 11
and software original equipment manufacturers, who include the Company's
products in bundles with their equipment. The Company utilizes its telemarketing
operations in conjunction with its direct mail operations to maximize direct
sales to existing and new end user customers. These mailings and direct response
advertisements originate from the Company's offices in the United States and
England and are handled by the Company's inbound and outbound telemarketers in
Nashua, New Hampshire and Nottingham, England. These mailings and advertisements
are varied and tested to attempt to maximize response rates and profitability.
The Company maintains a list of its registered user customers and sends periodic
mailings to sell upgrade versions and new products.
The Company's advertising programs for its product lines are designed
to increase corporate and product brand awareness, as well as to sell directly
to customers. The Company's advertising targets new customers, its installed
customer base and, with competitive upgrade promotions, its competitors'
customers. The Company advertises primarily through business trade periodicals,
direct mailings and participation at trade shows. The Company also promotes its
products through in-house training and direct mail as well as offering volume
purchase discounts and site licenses. The Company implements promotions to
support distributors' and resellers' sales efforts, including advertising,
rebates, training and price promotions, and engages in joint promotional
activities with personal computer, peripheral and other manufacturers.
The Company translates certain of its products, including packaging,
documentation, software, and promotional materials, for international markets.
These translations are generally done by contractors hired by the Company, or by
the Company's local sales and marketing agents. Advertising and promotional
programs are customized for local markets where necessary. International sales
include localized versions of selected products, as well as the English language
versions of the Company's products throughout the United Kingdom, Europe, Latin
America, South America and the Asia/Pacific region. Localized versions include
German, French, Spanish, Italian, Portuguese and Dutch. On a combined pro forma
basis, approximately 44% of the worldwide sales in 1996 of the Company and its
subsidiaries (including SPC) were made outside of the U.S., and the Company
expects to continue to sell internationally and invoice in foreign currencies.
Accordingly, the Company is subject to risks associated with exchange rate
fluctuations.
The Company has a general return policy for its North American
resellers and distributors whereby they may return any products previously
purchased from the Company, provided that the aggregate purchase price for such
returned products does not exceed 10% of the reseller's or distributor's net
purchases for the prior quarter. In addition to this return allowance, North
American distributors and resellers may generally exchange any discontinued
products within ninety days of notification of discontinuation for products of
equal or greater value. For international distributors and resellers, the
general return policy is the same as for North American resellers and
distributors, except that returns with respect to sales in a quarter must be
completed within the first month of the subsequent quarter. For international
distributors and resellers, the policy for the exchange of obsolete products
generally allows returns within thirty days after the announcement of a
product's obsolescence, provided that the product was shipped within thirty days
prior to the announcement. However, to maintain good customer relations, the
Company may accept returns in excess of those allowed under its general policy.
The Company typically ships products within several days after receipt
of orders, which is customary in the personal computer applications software
business. Accordingly, the Company does not believe that its order backlog is a
meaningful indicator of future business.
CUSTOMER SUPPORT
The Company provides free technical support directly in the United
States and the United Kingdom and through third-party contractors in Europe and
other international locations for a period of thirty days from either the first
call to its technical support centers from the customer or from receipt of the
customer's product registration card. The Company expenses the cost of this
support as incurred. After this initial period, technical support is available
for purchase under a variety of value-added support programs. However, to
maintain good customer relations, the Company may provide free technical support
in excess of the initial period.
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<PAGE> 12
COMPETITION
The market for visual communications and business productivity software
is highly competitive and subject to rapid technological change. Many of the
Company's current and potential competitors possess significantly greater
financial, technical and marketing resources, greater name recognition and a
larger installed customer base than the Company. In addition, any of these
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, as well as to devote greater resources to
the development, promotion and sale of their products than the Company.
Furthermore, because there are relatively low barriers to entry in the software
industry, the Company expects additional competition from other established and
emerging companies, which may choose to enter the market by developing products
that compete with those offered by the Company or by acquiring companies,
businesses, products or product lines that compete with the Company. It is also
possible that the competitors may enter into alliances and rapidly acquire
significant market share. The Company also believes that competition will
increase as a result of software industry consolidation. There can be no
assurance that the Company's current or potential competitors will not develop
or acquire products comparable or superior to those developed by the Company,
combine or merge to form significant competitors, or adapt more quickly than the
Company to new technologies, evolving industry trends and changing customer
requirements. Increased competition could result in price reductions, reduced
margins or loss of market share, any of which could materially and adversely
affect the Company's business, operating results and financial condition. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on its business, operating
results and financial condition. If the Company is unable to compete
successfully against current and future competitors, the Company's business,
operating results and financial condition would be materially and adversely
affected.
Some of the competitors of the Company sell "bundles" or "suites" of
products which include products that directly compete with the Company's
products and which are bundled with other office software programs by the same
or multiple competitors. These suite products are sold at an all-inclusive
price. Additionally, application software is increasingly provided as part of
the operating system, or bundled and pre-loaded into new computers. The price
for a stand-alone or pre-loaded bundle or suite of software is typically
significantly less than separately purchased applications, and many end users
are likely to prefer the bundle or suite over a more expensive combination of
other individually purchased applications, even if the latter applications offer
superior performance or features. These factors have resulted in and are
expected to continue to cause significant downward pressures on average selling
prices for the Company's products. There is no assurance that the Company will
be able to adopt strategies to compete successfully in this environment.
Based on product lines and price points, the Company regards Microsoft,
Symantec Corporation, Corel Corporation, Lotus Development Corporation, Adobe
Systems, Broderbund Software, The Learning Company, Micrografix, Fractile,
Visio, Meditools, Deltapoint, Macromedia, IMSI and Design Intelligence as close
competitors. The dominant position of Microsoft in the personal computer
operating system and application program market place provides it with a range
of competitive advantages, including the ability to determine the direction of
future operating systems and to leverage its strength existing in one or more
product areas to achieve a dominant position in new markets. This position may
enable Microsoft to increase its market position even with respect to products
having superior performance, price and ease-of-use features. Microsoft's ability
to offer corporate and SOHO productivity software, to bundle software, to
provide incentives to customers to purchase certain products in order to obtain
favorable sales terms or necessary compatibility or information with respect to
other products, and to pre-load such bundled software on new computers, may
significantly inhibit the Company's ability to maintain or expand its business.
In addition, as Microsoft or other companies create new operating systems and
applications, there can be no assurance that the Company will be able to ensure
that its products will be compatible therewith. The introduction of upgrades to
operating systems or the introduction of new operating systems and standardized
software by Microsoft and others, over which the Company has no control, may
adversely affect the Company's ability to upgrade its own products, and may
cause reduction in sales of the Company's products.
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<PAGE> 13
The Company believes that the principal competitive factors in the
corporate and SOHO software market include pricing (which includes individual
product pricing, standard and competitive upgrade pricing, licensing and volume
discounting), product functionality, ease-of-use, bundling in suites of related
products, distribution through existing and new channels and brand name
recognition. The Company's ability to compete will be contingent on its
continued enhancement of its existing products, its ability to correctly
identify and enter new markets, effectively market and sell its current
products, develop new products and develop new distribution channels. The
Company believes that competition will continue to intensify in the future and
that new product introductions, further price reductions, strategic alliances
and other actions by competitors could materially and adversely affect the
Company's competitive position.
OPERATIONS
The Company coordinates its accounting, product development, sales,
marketing, purchasing and scheduling related to its U.S. operations primarily at
its offices in San Jose, California and Nashua, New Hampshire and its foreign
operations in Nottingham, England and Munich, Germany. The Company's inventory
control, order processing, warehousing and shipping activities related to such
operations are located primarily at its offices in Nashua and Nottingham. The
Company's current computer systems and anticipated new system handle order
entry, order processing, picking, billing, accounts receivable, accounts
payable, general ledger, inventory control, catalog management and analysis, and
mailing list management.
GOVERNMENTAL REGULATION
The Company believes that it does not need any government approval for
production and sale of its products. In addition, the Company knows of no
governmental regulations, either federal, state or local which materially affect
its operations or products. Furthermore, the Company knows of no environmental
laws, either federal, state or local, which would affect the Company or its
products. Consequently, the Company has not incurred any costs nor has it
experienced any effects from compliance with any governmental regulations or
environmental laws.
EMPLOYEES
As of December 31, 1996, the Company had approximately 135 full-time
employees, of whom 30 were in product development, 70 were in marketing, sales
and customer support, 10 were in production and 25 were in general and
administrative functions. Of the total, 85 employees were located in North
America and 50 internationally. In addition, the Company utilized approximately
10 independent contractors in connection with its product development and
marketing activities. As of March 31, 1997, the Company had approximately 127
full-time employees and regular contractors. The Company has never experienced a
work stoppage and believes that it has satisfactory relations with its employees
and contractors.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company's principal executive offices are located at 111 North
Market Street, San Jose, California. The Company's North American executive,
administrative, sales, marketing and product development and support staff are
primarily located at this facility. Pursuant to the lease agreement for this
facility, the Company leased approximately 23,000 square feet of office space
for an annual rent of approximately $335,000, effective January 1996 and
expiring in December 2000. This lease includes two options to extend the lease,
each for an additional two year term and an option to terminate a portion or the
entire lease any time after December 1998. The Company has consolidated its
operations at this facility and currently is attempting to reduce its lease
obligations with respect to this location or sublease a portion of the premises.
The Company also has a three-year lease, terminating in September 1999 and with
average annual rental costs of approximately $73,000, for approximately 13,400
square feet of space in Fairfield, New Jersey, which space the Company has
utilized for certain offices and warehouse. The Company currently is in the
process of attempting to sublease these premises. In addition, Serif Inc. leases
approximately 25,400 square feet of office and warehouse space in Nashua, New
Hampshire pursuant to a lease ending in March 2002. This facility serves
- 13 -
<PAGE> 14
as the Company's primary North American telemarketing, customer support,
warehouse and fulfillment center. Rental costs for the Nashua facility average
approximately $90,000 per year for the remaining term. Serif (Europe) Limited
has agreed to lease approximately 25,000 square feet of office and warehouse
space in Nottingham, England for a five year period beginning in May 1997. This
facility will serve as the Company's United Kingdom telemarketing center and
European warehouse and fulfillment center. The rental cost for the Nottingham
facility is expected to average approximately $168,000 per year for the expected
term. The Company also leases 2,000 square feet of office space in Munich,
Germany pursuant to a lease expiring in June 1997. The Company currently is in
the process of seeking to lease new office space in Munich to commence upon the
expiration of its current lease. The Company believes that its existing space
provides it with adequate space for the foreseeable future. The Company does not
own nor does it contemplate owning any real property in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
In May 1994, a suit was brought against SPC in the Santa Clara Superior
Court by Pyramid Data, Inc. ("Pyramid"), alleging breach of contract and
conversion in connection with certain software packaging materials for which
Pyramid alleges SPC was responsible. In May 1995 and November 1995, Pyramid
served SPC with two amended complaints. The second amended complaint (the
"Complaint") added a new cause of action for negligence. The Complaint seeks
over $840,000 in damages. In August 1994, SPC filed a cross-complaint against
Custom Paper Products seeking indemnification for any liabilities relating to
this proceeding. In January 1996, SPC filed an amended cross complaint relating
to these indemnification claims. SPC believes that the allegations contained in
the Complaint are without merit and is vigorously defending this action and
seeking such indemnification.
The Company also is a plaintiff and a defendant in certain other
litigation. The Company believes that the ultimate outcome of this litigation
will not have a material adverse effect on the business, operating results or
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 20, 1996, a special meeting of the stockholders of
the Company was held at which the following matters were voted upon and adopted
by the votes indicated:
1. Approval of the Merger of SPC Acquisition Corporation
("Acquisition") with and into SPC and the Agreement and Plan
of Reorganization, dated October 1, 1996, among the Company,
Acquisition and SPC:
For: 3,176,841 votes
Against: 69,080 votes
Abstained: 11,465 votes
2. Approval of an amendment of the Company's Certificate of
Incorporation to increase the authorized number of shares of
Common Stock to 30,000,000:
For: 2,534,916 shares of Common Stock and all 60,520 shares of
Class B Voting Preferred Stock
Against: 105,805 shares of Common Stock
Abstained: 11,465 shares of Common Stock
3. Approval of an amendment of the Company's Certificate of
Incorporation to eliminate the Class A
Convertible Preferred Stock:
For: 3,186,481 votes
Against: 50,440 votes
Abstained: 20,465 votes
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<PAGE> 15
4. Approval of an amendment of the Company's 1994 Long Term
Incentive Plan to increase the number of shares of Common
Stock available for issuance thereunder:
For: 3,048,146 votes
Against: 191,855 votes
Abstained: 17,385 votes
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<PAGE> 16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
The Company's Common Stock was traded on the Nasdaq SmallCap Market
under the symbol "ANMI" from December 6, 1995 through December 27, 1996, under
the symbol "SPCOD" from December 28, 1996 through January 27, 1997, and has been
traded under the symbol "SPCO" since January 28, 1997. The Common Stock was also
traded on the Boston Stock Exchange under the symbol "APO" from December 6, 1995
through January 20, 1997 and has been traded under the symbol "SPO" since
January 20, 1997. The following table sets forth the range of high and low
closing prices for the Company's Common Stock for the periods indicated as
derived from reports furnished by Nasdaq. The information reflects inter-dealer
prices, without retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
Fiscal 1995
Fourth Quarter*................. $7-5/8 $6-1/4
Fiscal 1996
First Quarter................... 6-3/4 3-1/2
Second Quarter.................. 6-5/8 2-5/8
Third Quarter................... 9-3/8 4
Fourth Quarter.................. 7-13/16 3-1/2
</TABLE>
- ----------
* Fourth Quarter of 1995 data reflects the period from the Company's
initial public offering on December 6, 1995 through December 31, 1995.
As of April 4, 1997, the closing price for the Common Stock as reported
on Nasdaq was $3-3/16. At April 4, 1997, there were 721 stockholders of record
of the Company. The Company estimates, based upon surveys conducted by its
transfer agent and the former transfer agent for SPC in connection with the
voting on the Merger, that there are approximately 8,500 beneficial
stockholders.
The Company has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings for reinvestment in its
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and other
relevant factors.
(b) Recent Sales of Unregistered Securities
The information set forth below is a list of all sales by the Company
of the Company's equity securities occurring during 1996 other than pursuant to
the exercise of options to purchase shares of Common Stock under the Company's
Stock Option Plans:
1. On May 16, 1996, the Company issued an aggregate of 17,273 shares of
Common Stock to a corporation and its principal in connection with the Company's
acquisition of certain software assets. This transaction was a transaction by
the issuer not involving any public offering which was exempt from the
registration requirements under the Securities Act pursuant to Section 4(2)
thereof.
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<PAGE> 17
2. Effective July 31, 1996, the Company issued 1,000,000 shares of
Common Stock in connection with the Serif Acquisition. In addition, the Company
issued 14,171 shares of Common Stock and an option to purchase an additional
25,000 shares of Common Stock to an investment banking firm as partial payment
for services rendered in connection therewith. These transactions were
transactions by the issuer not involving any public offering which was exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof.
3. On September 18, 1996, the Company granted M.S. Farrell & Co., Inc.
("MS Farrell") and a designee thereof warrants to purchase an aggregate 500,000
shares of Common Stock in exchange for the modification of certain obligations
of the Company to MS Farrell. This transaction was a transaction by the issuer
not involving any public offering which was exempt from the registration
requirements under the Securities Act pursuant to Section 4(2) thereof.
4. Subsequent to 1996, the Company issued an aggregate 2,475 shares of
Common Stock to one individual pursuant to a Consulting Agreement dated as of
May 1, 1996. This transaction was a transaction by the issuer not involving any
public offering which was exempt from the registration requirements under the
Securities Act pursuant to Section 4(2) thereof.
5. Subsequent to 1996, the Company issued an aggregate 106,455 shares
of Common Stock and an option to purchase an additional 25,000 shares of Common
Stock to two investment banking firms in partial payment for services rendered
by such firms to the Company and SPC in connection with the Merger. These
transactions were transactions by the issuer not involving any public offering
which was exempt from the registration requirements under the Securities Act
pursuant to Section 4(2) thereof.
6. Subsequent to 1996, the Company issued 4,817 shares of Common Stock
to one individual. This transaction was a transaction by the issuer not
involving any public offering which was exempt from the registration
requirements under the Securities Act pursuant to Section 4(2) thereof.
7. Subsequent to 1996, the Company issued an aggregate of 71,428 shares
of Common Stock to MS Farrell Holdings, Inc., the parent holding company of MS
Farrell, and to one other designee of MS Farrell, in payment of a fee to
exercise the Company's right to terminate MS Farrell's investment banking rights
with respect to the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the
historical financial statements, including the notes thereto, of the Company
included elsewhere herein.
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 word
processing and other business productivity software products. The Company has
de-emphasized its word processing and other non-visual communications business
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<PAGE> 18
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. Currently, the Company distributes locked
versions of its products over the Internet for free. These products can then be
used for a period of time (typically 30 days) before the customer has to pay the
Company for an unlocking code (usually purchased over the telephone), thereby
giving the customer permanent use of the product. As the industry evolves
mechanisms for 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 with distribution of its software
directly over the Internet medium.
In July 1996, the Company acquired Serif Inc. and Serif (Europe)
Limited in the Serif Acquisition, which significantly expanded the Company's
product line to include desktop publishing titles Serif PagePlus and Serif
DrawPlus, among others. In December 1996, the Company acquired all of the
outstanding capital stock of SPC upon consummation of the Merger, as a result of
which the Company's product line expanded further to include SPC's presentation
graphics and other visual communications and business productivity software
products. The Company continues to operate SPC and the Serif companies as
wholly-owned subsidiaries.
In 1996, the Company incurred approximately $23,199,533 of certain
non-recurring expenses or charges, relating primarily to the acquisition of
Serif and SPC. These included $2,773,180 relating to the release from escrow of
531,000 shares of Common Stock to two management stockholders, $1,026,000
relating to the issuance of certain warrants to MS Farrell, $1,104,353 in
charges relating to the restructuring of the Company's operations subsequent to
the acquisitions of Serif and SPC, an aggregate of $17,514,000 of in-process
research and development costs associated with the acquisitions of Serif and SPC
and approximately $782,000 associated with settlements of outstanding claims and
employee severance not related to the Company's 1996 restructuring. These
expenses and charges accounted for approximately 85.8% of the Company's net loss
for 1996.
North America and international net revenues for the Company's fiscal
years ended December 31, 1996, 1995 and 1994 and the percentage change of such
net revenues compared to the prior fiscal year, were as follows:
<TABLE>
<CAPTION>
Percentage Percentage
Dollars in millions 1996 Change 1995 Change 1994
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
North America .................... $2,214,587 57.0% $1,410,962 40.2% $1,006,131
International .................... $2,486,368 -- --
---------- ---------- ----------
Total net revenues ............... $4,700,955 233.2% $1,410,962 40.2% $1,006,131
========== ========== ==========
</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
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<PAGE> 19
products to compete successfully with products offered by other vendors, could
adversely affect the Company's net revenues and profitability.
RESULTS OF OPERATIONS
1996 Compared to 1995
Net Sales. Net sales increased $3,289,993 or 233.2% from $1,410,962 in
1995 to $4,700,955 in 1996 as a result of inclusion of the sales from the
Company's Serif subsidiaries for five months in 1996. There are no Serif results
included in 1995. As a result of an increased number of products, the Company
provided in 1996 for returns at approximately 28% of gross sales versus
approximately 20% in 1995.
Cost of Goods Sold. In 1996, cost of goods sold increased by$1,021,958,
or 128.4% from $795,730 in 1995 to $1,817,688 in 1996, largely due to costs
attributable to the Company's Serif products, increased costs of materials and
increased content license royalties, as well as the write-off of approximately
$369,000 relating to license royalties for and inventories of de-emphasized
products. Cost of goods sold decreased as a percentage of net sales from
approximately 56.3% in 1995 to approximately 38.7% in 1996, as these higher
costs and write-offs were offset by the effect 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.
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-ROMs and other media) and
assembly.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $6,056,682 or 420.6% from $1,439,983 in
1995 to $7,496,665 in 1996. 1996 expenses include approximately $2,000,000 of
marketing and administrative expenses for five months of operations of the
Company's Serif subsidiaries which are not included in the 1995 period,
approximately $1,026,000 relating to the issuance of certain warrants to MS
Farrell, approximately $782,000 associated with the settlement of outstanding
claims and employee severance not related to the Company's 1996 restructuring,
approximately $500,000 of increased advertising expenses relating to non- Serif
products and approximately $1,400,000 of increased salaries, professional fees,
insurance costs, bad debt expense and amortization of goodwill relating to
acquired software and products. Bad debt expense increased by approximately
$260,000, primarily due to the Chapter 11 bankruptcy filing of one of the
Company's software distributors.
The Company anticipates 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.
- 19 -
<PAGE> 20
Costs Associated with Release of Escrow Shares. 1996 expenses include
non-cash charges to compensation of $2,773,180 relating to the release from
escrow of 531,000 shares of Common Stock in April and September 1996 to two
management stockholders. See "Liquidity and Capital Resources". There were no
similar expenses in 1995.
Product Development. Product development expenses increased $781,737 or
264.2% from $295,878 in 1995 to $1,077,615 in 1996. The Company expensed
approximately $675,000 relating to the acquisition of a developmental software
program and incurred additional expenses relating to the development of new
Serif products. The Company believes that development expenses will increase in
dollar amount in the future as the Company expands its development activities to
include SPC's product development, 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.
The Company intends to continue to acquire externally developed
technology, explore strategic alliances and other methods of acquiring or
licensing technology, and invest in internal development projects. Because of
the inherent uncertainties associated with software development projects, there
can be no assurance that the Company's research and development efforts will
result in successful product introductions or increased revenues or
profitability.
Restructuring Expenses. The Company expensed $1,104,353 in charges
related to the restructuring of the Company's operations subsequent to the
acquisitions of Serif and SPC. This restructuring program, which is expected to
be completed by December 31, 1997, consisted of approximately $185,000 relating
to severance arrangements for ten employees at various levels, approximately
$375,000 relating to the elimination of duplicate lease facilities in New Jersey
and Europe and $544,000 of other related costs. There were no similar expenses
in 1995.
In-Process Research and Development. In 1996, based on an allocation of
the Serif purchase price, the Company expensed $3,514,000 of in-process research
and development costs associated with its acquisition of the Serif companies,
and based on an allocation of the SPC purchase price, the Company expensed
$14,000,000 of in-process research and development costs associated with its
acquisition of SPC.
Interest Income. In 1996, the Company received interest income of
$121,380 as compared to a net interest expense of $34,934 in 1995, primarily as
a result of higher cash balances and royalty income. The Company had no royalty
income in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company's cash, cash equivalents and short-term
investments increased by $8,233,362 to $11,161,634, primarily as a result of the
inclusion of SPC's cash and cash equivalent balance at December 31, 1996. The
Company believes that its existing cash and cash equivalents and cash generated
from operations, if any, should be sufficient to meet its 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 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 available on terms acceptable to the Company. The
Company is pursuing a possible offering of its equity securities. However, there
can be no assurance that the Company will be successful in completing such an
offering.
The Company's operating activities for 1996 used cash of $213,604,
primarily related to costs associated with its restructuring. The Company
intends to continue to utilize its working capital in 1997 for software
development, marketing and advertising, to finance the higher level of inventory
and accounts receivable necessary to support the anticipated continued increase
in sales and for capital expenditures, including the purchase of computer
equipment and financial software. However, the Company's working capital
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.
- 20 -
<PAGE> 21
The Company's principal future cash commitments at December 31, 1996
consisted primarily of a note payable related to SPC's acquisition of Digital
Paper, Inc., and real estate lease commitments. Payments of approximately
$1,650,000 were made by SPC to Digital Paper, Inc. subsequent to 1996 (through
April 7, 1997). See Item 12. "Certain Relationships and Related Transactions".
In 1996, 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 December 31, 1996, 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 December 31, 1996, 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 April 4, 1997 the closing
price of the CCC common stock on The Nasdaq National Market was $.625.
From December 1993 through May 1995, Barry A. Cinnamon and Richard
Bergman, the Company's former Vice President of Product Development, placed an
aggregate of 542,500 shares of Common Stock in escrow pending the Company's
attainment of certain minimum net revenue or Common Stock price per share
thresholds. Five hundred and thirty-one thousand (531,000) of these shares have
been released from escrow (500,000 shares to Barry A. Cinnamon and 31,000 to
Richard Bergman) by the Board, although the initial thresholds have not been
reached. In connection therewith, the Company recognized compensation expense of
approximately $2,773,180 in 1996.
The Company has made a demand for the repayment of the balance of a
loan made to a former President and Chief Executive Officer of SPC which was due
in February 1997 and remains unpaid as of April 4, 1997. See "Item 12. Certain
Relationships and Related Transactions."
NET OPERATING LOSS CARRYFORWARDS
The Company estimates its consolidated tax net operating loss
carryforwards to be approximately $78 million at December 31, 1996. Under
Section 382 of the Code, certain changes in the ownership or the business of a
corporation that has net operating loss carryforwards result in the inability to
use or the imposition of significant restrictions on the use of such net
operating loss carryforwards to offset future income and tax liability of such
corporation. After giving effect to the Merger, an "ownership change" was deemed
to have occurred under Section 382 of the Code and the regulations thereunder
with respect to both the Company and SPC, and, as a result thereof, the use by
the Company of these net operating loss carryforwards will be limited.
Utilization of the net operating loss carryforwards of SPC may be further
limited by reason of the consolidated return separate return limitation year
rules, and the SPC net operating loss carryforwards are also subject to the
additional limitation that such losses can only be utilized to offset the
separate company taxable income of SPC. The Company estimates that the maximum
utilization of such net operations loss carry forwards to be approximately
$1,200,000 per year through 2011. There can be no assurance that the Company
will be able to utilize all of its net operating loss carryforwards. In
addition, the foreign losses incurred by SPC may decrease or otherwise restrict
the ability of the Company to claim U.S. tax credits for foreign income taxes.
The Company intends to enter into a closing agreement with the Internal Revenue
Service pursuant to which the Company will become jointly and severally liable
for SPC's tax obligations upon occurrence of a "triggering event" requiring
recapture of dual consolidated losses previously utilized by SPC. Such closing
agreement will avoid SPC being required to recognize a tax of approximately $8
million on approximately $24.5 million of SPC's previous dual consolidated
losses upon the Merger. While the Company believes that it will obtain this
agreement, failure to do so could result in the recognition of this tax
liability. Any future acquiror of the Company may also be required to agree to a
similar closing agreement, to the extent it is able to do so. Non-U.S. persons
generally would be ineligible to do so. This could have a material adverse
effect on the future ability of the Company to sell SPC to such an ineligible
person.
- 21 -
<PAGE> 22
SEASONALITY
The computer software market is characterized by significant seasonal
swings in demand, which typically peak in the fourth quarter of each calendar
year. The seasonal pattern is due primarily to the increased demand for software
during the year-end holiday buying season and reduced retail and corporate
demand for business software during the European summer vacation period. 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.
ITEM 7. FINANCIAL STATEMENTS.
Set forth below is a list of the financial statements of the Company
included in this Annual Report on Form 10-KSB.
<TABLE>
<CAPTION>
Item Page*
- ---- -----
<S> <C>
Independent Auditors Report...................................................................... F-2
Balance Sheet as of December 31, 1996............................................................ F-3
Statements of Operations for the years ended December 31, 1996 and 1995.......................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1996 and 1995................ F-5
Statements of Cash Flows for the years ended December 31, 1996 and 1995.......................... F-6
Notes to Financial Statements.................................................................... F-7
</TABLE>
- ----------
* Page F-1 follows page 40 to this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
- 22 -
<PAGE> 23
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
OFFICERS AND DIRECTORS
The current executive officers and directors of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Principal Office Held
- ---- --- ---------------------
<S> <C> <C>
Barry A. Cinnamon 39 Chairman of the Board, President, Chief Executive Officer and
Director
Mark E. Leininger 46 Chief Operating Officer, Vice President - Finance, Treasurer,
Chief Financial Officer and Director
Joseph V. Szczepaniak 38 Vice President - Sales and Marketing
Daniel J. Fraisl 35 Vice President - Research and Development
Lori Kramer Cinnamon 37 Assistant Vice President - Marketing and Director
Neil M. Kaufman, Esq. 36 Secretary and Director
Norman W. Alexander 67 Director
Neil R. Austrian, Jr. 32 Director
Marc E. Jaffe, Esq. 45 Director
Eng Chye Low 59 Director
</TABLE>
Set forth below is a brief description of the background of the
officers and directors of the Company based on information provided by them to
the Company.
BARRY A. CINNAMON has been the President and Chief Executive Officer of
the Company since the inception of its business in 1992 and has been Chairman of
the Board since August 1995. From 1988 through September 1992, Mr. Cinnamon was
President, Treasurer, Director and co-founder of the Bureau of Electronic
Publishing, Inc., a CD- ROM company. Mr. Cinnamon received an MBA from the
Wharton School of Business, University of Pennsylvania, in 1986, and received a
BS from the Massachusetts Institute of Technology in 1980. Mr. Cinnamon is the
husband of Lori Kramer Cinnamon.
MARK E. LEININGER has been the Chief Operating Officer of the Company
since September 1996, has been the Chief Financial Officer of the Company since
July 1995 and has been Vice President - Finance and Treasurer of the Company
since August 1995. From February 1994 through April 1995, Mr. Leininger was the
President of Phoenix Leasing Corporation, a passenger and cargo air carrier and
aircraft leasing company, which filed for bankruptcy protection in 1996. From
February 1986 through February 1994, Mr. Leininger held various positions,
including Chief Financial Officer and Chief Operating Officer, with Mid Pacific
Air Corporation, a transportation and service company whose stock was traded on
NASDAQ. Mr. Leininger received an MBA from National University, San Diego,
California in 1979 and a BA from Miami University, Oxford, Ohio in 1972.
JOSEPH V. SZCZEPANIAK has served as the Company's Vice President -
Sales and Marketing since December 1996. He also served as Vice President -
Sales of SPC in May 1996, and has served as the Vice President - Sales and
Marketing of SPC since June 1996. Prior to joining SPC, Mr. Szczepaniak served
as Senior Vice President of Sales for Grolier Electronic Publishing, a Lagardere
Group company, from 1993 until May 1996. Prior to his position at Grolier, Mr.
Szczepaniak served as Vice President of Sales and Marketing at Timeworks, Inc.,
a privately-held software company specializing in desktop publishing and SOHO
productivity software, from 1992 until 1993. Prior to that, Mr.
- 23 -
<PAGE> 24
Szczepaniak was the founder of a company that he started and subsequently sold
in a non-related industry. Mr. Szczepaniak holds a BS degree from Lewis
University.
DANIEL J. FRAISL has served as the Company's Vice President - Research
and Development since December 1996. He also served as Vice President - Research
and Development of SPC since October 1995. Prior to joining SPC, Mr. Fraisl was
a founder and President of Digital Paper, Inc., a software development company,
from 1993 until April 1995, when Digital Paper, Inc. was acquired by SPC. Prior
to Digital Paper, Mr. Fraisl was employed by GO Corporation, a hand-held
computer and software company, from 1988 until 1993, as Chief Architect and
Group Manager for Operating System Components. Mr. Fraisl holds a BS degree from
the University of Illinois.
LORI KRAMER CINNAMON has been the Company's Assistant Vice President -
Marketing since August 1996, was Assistant Vice President - Marketing and
Secretary of the Company from August 1996 through December 1996 and was Vice
President - Marketing and Secretary of the Company from December 1993 through
August 1996. From 1990 through June 1992, Ms. Cinnamon was the Marketing
Director of the Bureau of Electronic Publishing, Inc. From 1988 through 1990,
Ms. Cinnamon was Associate Product Manager of Durkee French Foods, a consumer
packaged goods company. Ms. Cinnamon received MBA and BS degrees from the
Wharton School of Business, University of Pennsylvania, in 1986 and 1981,
respectively. Ms. Cinnamon is the wife of Barry A. Cinnamon.
NEIL M. KAUFMAN, ESQ. has been a director and Secretary of the Company
since December 1996. Mr. Kaufman is currently a member of Moritt, Hock &
Hamroff, LLP, general counsel to the Company. For four years prior thereto, he
was a member of Blau, Kramer, Wactlar & Lieberman, P.C., former general counsel
to the Company. Prior thereto, he was associated with Lord Day & Lord, Barrett
Smith, former counsel to the Company. Mr. Kaufman received a JD degree from New
York University School of Law in 1984 and a BA degree from SUNY Binghamton in
1981.
NORMAN W. ALEXANDER has been a director of the Company since October
1996. Mr. Alexander is a retired former director of Imperial Foods Ltd., a food
products company, and formerly was the chairman of several subsidiaries thereof.
NEIL R. AUSTRIAN, JR. has been a director of the Company since April
1996. Mr. Austrian has been the Vice President of Operations at Tescorp., Inc.,
a cable television company, since October 1994. Prior to joining Tescorp., Inc.,
Mr. Austrian was an associate at Rust Capital, Ltd., a venture capital firm,
from 1988 to October 1994. Mr. Austrian holds a BA degree from Swarthmore
College.
MARC E. JAFFE, ESQ. has been a director of the Company since May 1995.
From 1992 until the present time, Mr. Jaffe has been President of Electronic
Licensing Organization, Inc., which has acted as the Company's agent in the
acquisition of electronic publishing rights. From 1988 to 1991, Mr. Jaffe was
Executive Vice President of Database Management for Franklin Electronic
Publishers, a New York Stock Exchange company engaged in the business of
publishing electronic books on hand held media. From 1985 through 1987, Mr.
Jaffe was President of the software and video division of Simon & Schuster, a
publishing company. Mr. Jaffe received a JD degree from Columbia University
School of Law in 1976 and a BA from Columbia College in 1973.
ENG CHYE LOW has been a director of the Company since May 1995. From
1980 until the current time, Mr. Low has been President of Seacom, Inc., a real
estate company. Mr. Low is also a director of Allegro Property, Inc., a real
estate company, which has no relationship to the Company.
The Company's Board of Directors is classified into three classes. The
directors in each class serve for three- year terms. Barry A. Cinnamon, Neil R.
Austrian, Jr. and Marc E. Jaffe are members of Class I which serves until the
Company's 1997 Annual Meeting of Stockholders. Norman W. Alexander, Neil M.
Kaufman and Eng Chye Low are members of Class II which serves until the
Company's 1998 Annual Meeting of Stockholders. Lori Kramer Cinnamon and Mark E.
Leininger are members of Class III which serves until the Company's 1999 Annual
Meeting of Stockholders. In December 1996, George L. Lauro resigned as a
director of the Company. In January 1997, Miriam
- 24 -
<PAGE> 25
Frazer resigned as a director of the Company. In April 1997, Fred M. Gibbons
resigned as a director of the Company. Directors receive no cash compensation
for their services to the Company as directors, but are reimbursed for expenses
actually incurred in connection with attending meetings of the Board of
Directors. Members of the Board of Directors who are not employees of the
Company, of which there currently are five, are eligible to participate in the
Company's Outside Director and Advisor Stock Option Plan. During 1996, the Board
of Directors met twelve times. All current directors of the Company attended not
less than 75% of such meetings of the Board and committees thereof on which they
serve, except Eng Chye Low who attended eight of the twelve meetings of the
Board of Directors.
The Audit Committee, which currently consists of Neil R. Austrian, Jr.
and Eng Chye Low, met one time during 1996. The Audit Committee recommends
engagement of the Company's independent certified public accountants, and is
primarily responsible for reviewing and approving the scope of the audit and
other services performed by the Company's independent certified public
accountants and for reviewing and evaluating the Company's accounting principles
and practices, systems of internal controls, quality of financial reporting and
accounting and financial staff, as well as any reports or recommendations issued
by the independent accountants.
The Compensation Committee, which currently consists of Neil R.
Austrian, Jr., Marc E. Jaffe and Eng Chye Low, met one time during 1996. The
1994 Long-Term Incentive Plan Administrative Committee, whose duties have now
been assigned to the Compensation Committee, held meetings or acted by
unanimous written consent nine times during 1996. The Compensation Committee
generally reviews and approves of the Company's executive compensation and
currently administers all of the Company Stock Plans. In 1996, the Board of
Directors approved increases in the salaries of Barry A. Cinnamon, Chairman of
the Board, Chief Executive Officer, President and principal stockholder of the
Company, and Mark E. Leininger, Chief Operating Officer, Chief Financial
Officer, Treasurer, Vice-President Finance and a director of the Company, and
also approved the payment to such persons and two other executive officers of
the Company of bonuses of $25,000 upon the Company reporting net income for a
fiscal quarter after the effectiveness of the Merger.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company, together with written representations received by the
Company from applicable parties that no Form 5 was required to be filed by such
parties, all parties subject to the reporting requirements of Section 16(a) of
the Exchange Act filed all such required reports, except, due to administrative
errors, Miriam Frazer (since resigned), Fred M. Gibbons (since resigned), Daniel
J. Fraisl, Joseph V. Szczepaniak and Joseph Cirillo (since resigned) each failed
to timely file their Initial Statements on Form 3 and Lori Kramer Cinnamon
failed to timely file a Change in Beneficial Ownership Statement on Form 4
relating to a sale transaction.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth, for the three years ended December 31,
1996, the cash and other compensation paid to the Company's Chief Executive
Officer and the one other individual serving as an executive officer of the
Company on December 31, 1996 whose total salary and bonus, for services rendered
to the Company during 1996, was $100,000 or more (each, a "Named Executive
Officer").
- 25 -
<PAGE> 26
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------- ----------------
Securities All
Other Annual Underlying Other
Name and Principal Position Year Salary Bonus Compensation (1) Options Compensation
--------------------------- ---- ------ ----- ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Barry A. Cinnamon, 1996 $95,000 $39,892 $ -- 60,500 --
Chairman of Board 1995 $46,822 26,922 -- -0- --
Chief Executive Officer 1994 $50,269 6,441 -- 39,744 (2) --
and President
Mark E. Leininger, Chief 1996 $81,000 $35,000 -- 225,000 --
Operating Officer, 1995 29,442 -- -- 20,000 --
Chief Financial Officer 1994 -- -- -- -0- --
Treasurer and Vice
President - Finance
</TABLE>
- ----------
(1) The value of all perquisites provided did not exceed the lesser of
$50,000 or 10% of the officer's salary and bonus.
(2) Represents options to purchase 39,744 shares of Common Stock granted to
Lori Kramer Cinnamon, Mr. Cinnamon's wife, as to which Mr. Cinnamon
disclaims beneficial ownership. See "Item 11. Security Ownership of
Certain Beneficial Owners and Management -- Company Stock Plans."
STOCK OPTION GRANTS IN 1996
The following table sets forth (a) the number of shares underlying
options granted to each Named Executive Officer during 1996, (b) the percentage
the grant represents of the total number of options granted to all Company
employees during the 1996, (c) the per share exercise price of each option, (d)
the expiration date of each option.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Underlying Options Total Options
Granted During Granted to Exercise Expiration
Name Fiscal 1996 Employees Price Date
- ---- ----------- --------- ----- ----
<S> <C> <C> <C> <C>
Barry Cinnamon........... 60,500 6.3 $2.75 4/24/06
Mark E. Leininger........ 10,000 1.0 4.25 2/19/06
70,000 7.3 2.75 4/24/06
145,000 15.2 7.56 9/28/06
</TABLE>
During the 1997 Fiscal Year through the date of this Annual Report on
Form 10-KSB, the Company granted options to the Named Executive Officers as
follows:
- 26 -
<PAGE> 27
<TABLE>
<CAPTION>
Number of Shares Percentage of
Underlying Options Total Options
Granted During Granted to Exercise Expiration
Name Fiscal 1997 Employees Price Date
- ---- ----------- --------- ----- ----
<S> <C> <C> <C> <C>
Barry Cinnamon.................... 300,000 25.1 $3.43 2/4/07
4,000 (1) 0.3 3.875 1/14/07
1,000 (1) 0.1 3.43 2/4/07
Mark E. Leininger................. 300,000 25.1 3.43 2/4/07
</TABLE>
- ----------
(1) Represents options granted to Lori Kramer Cinnamon, the wife of Mr.
Cinnamon, as to which options Mr. Cinnamon disclaims beneficial ownership.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
Set forth in the table below is information, with respect to each of
the Named Executive Officers, as to the (a) number of shares acquired during
1996 upon each exercise of options granted to such individuals, (b) the
aggregate value realized upon each such exercise (i.e., the difference between
the market value of the shares at exercise and their exercise price), (iii) the
total number of unexercised options held on December 31, 1996, separately
identified between those exercisable and those not exercisable, and (iv) the
aggregate value of in-the-money, unexercised options held on December 31, 1996,
separately identified between those exercisable and those not exercisable.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money Options at
at December 31, 1996 December 31, 1996
---------------------------------- ----------------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barry A. Cinnamon.... -0- -0- 6,666 (1) 93,578 (1) $ 12,499 (1) $120,212 (1)
Mark E. Leininger.... -0- -0- 13,333 231,667 1,666 81,250
</TABLE>
- ----------
(1) Includes options to purchase 6,666 (exercisable) and 33,078
(unexercisable) shares of Common Stock granted to Lori Kramer Cinnamon,
the wife of Mr. Cinnamon, as to which options Mr. Cinnamon disclaims
beneficial ownership.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Barry
A. Cinnamon, Lori Kramer Cinnamon and Joseph V. Szczepaniak. In addition, SPC
has entered into an employment agreement with Daniel J. Fraisl.
The employment agreement with Barry A. Cinnamon provides for him to
serve as the President and Chief Executive Officer of the Company for a term
expiring in December 1999, and currently provides for an annual base salary of
$150,000, bonuses of 5% of the Company's consolidated net income before taxes
and extraordinary items, .15% of the Company's consolidated net sales and .75%
of the Company's consolidated gross profits. In October 1996, the Board of
Directors determined to pay to Mr. Cinnamon a bonus of $25,000 following the
first profitable fiscal quarter of the Company after the Merger.
- 27 -
<PAGE> 28
Pursuant to his employment agreement with the Company, Mr. Szczepaniak
receives (i) an annual base salary of $135,000, (ii) an annual bonus of $45,000,
(iii) a bonus of $20,000 upon the Company's attainment of certain agreed-upon
performance targets, (iv) options to purchase 170,000 shares of Common Stock at
an exercise price equal to $3.75 per share, exercisable in equal installments on
the first, second, third and fourth anniversaries of the date of grant or in
full upon a change of control of the Company, and (v) in the event of his
termination other than for cause or within twelve months of a change of control
of the Company, a payment equal to his annual base salary plus the amount of any
accrued but unpaid bonuses, which payment is to be made in a lump sum less an
amount equal to the fair market value of any accelerated options less the
exercise price therefor in the event of a termination following a change of
control; provided, that in no event can the Company terminate Mr. Szczepaniak
other than for cause prior to June 1, 1997. In December 1996, the Board of
Directors determined to pay to Mr. Szczepaniak a bonus of $25,000 following the
first profitable fiscal quarter of the Company after the Merger.
Pursuant to his current employment arrangements with SPC, Mr. Fraisl is
to be employed by SPC as a Vice President - Research and Development, through
April 7, 1998, and receives (i) an annual salary of $130,000, (ii) an annual
bonus of $25,000, (iii) a bonus of $25,000 upon the Company's attainment of
certain agreed upon performance targets, (iv) options to purchase 110,000 shares
of Common Stock at an exercise price equal to $3.75 per share on the date of
grant, exercisable in equal installments on the first, second, third and fourth
anniversaries of the date of grant, or in full upon a change of control of the
Company, (v) options to purchase up to three additional increments of 50,000
shares of Common Stock each at an exercise price equal to the fair market value
thereof on the date of grant upon the release in calendar 1997 of a major new
electronic mail product utilizing the Company's Intelligent Formatting
technology, and the release in each of calendar 1998 and 1999 of an additional
major new product utilizing the Company's Intelligent Formatting technology and
(vi) in the event of his termination other than for just cause, a payment equal
to his annual base salary for one year plus the amount of any accrued but unpaid
bonuses, which payment would be made in a lump sum less an amount equal to the
fair market value of any accelerated options less the exercise price therefor in
the event of a termination following a change of control. Further, in the event
that SPC terminates Mr. Fraisl's employment within twelve months after a "change
in control" (as defined in his employment agreement), Mr. Fraisl is entitled to
a lump sum payment equal to his annual base salary plus the amount of any
accrued but unpaid bonuses and value of all accrued and unused vacation time,
minus an amount equal to the fair market value of any accelerated options less
the exercise price therefor. In December 1996, the Board of Directors determined
to pay to Mr. Fraisl a bonus of $25,000 following the first profitable fiscal
quarter of the Company after the Merger.
The employment agreement with Lori Kramer Cinnamon provides for her to
serve as a Vice President of Marketing of the Company for a term expiring in
December 1999, and provides for an annual base salary of not more than $40,000,
a bonus of 1% of the Company's net income before taxes and extraordinary items
and .75% of the Company's gross profit. Under the terms of Ms. Cinnamon's
agreement, the Board of Directors may increase Ms. Cinnamon's base salary by not
more than 15% per year. For 1996, Ms. Cinnamon received a base salary of
approximately $37,000.
Each of the above-described agreements, as well as an agreement between
the Company and Mark E. Leininger (the "Leininger Agreement"), contains
restrictions on the employee engaging in competition with the Company for the
term thereof and for up to one year thereafter and provisions protecting the
Company's proprietary rights and information. The agreements with Barry A.
Cinnamon and Lori Kramer Cinnamon also provide for the payment of three times
the employee's previous year's cash compensation, less $1.00, upon his
termination in the event of a change in control of the Company, which is defined
therein to mean (a) a change in control as defined in Rule 12b-2 under the
Exchange Act, (b) a person (as such term is defined in Sections 13(d) and 14(d)
of the Exchange Act) other than a current director or officer of the Company
becoming the beneficial owner, directly or indirectly, of 20% or more of the
voting power of the Company's outstanding securities or (c) the members of the
Board of Directors at the beginning of any two-year period ceasing to constitute
at least a majority of the Board of Directors unless the election of any new
director during such period has been approved in advance by two-thirds of the
directors in office at the beginning of such two-year period. The Leininger
Agreement provides for the payment of three times the average annual cash
compensation paid by the Company to Mr. Leininger over the previous five years,
less $1.00, and the accelerated vesting of all outstanding stock options granted
to Mr. Leininger, upon the termination of his employment
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<PAGE> 29
within six months after such a change in control or within six months prior
thereto if such termination was without cause. In October 1996, the Board of
Directors determined to pay to Mr. Leininger a bonus of $25,000 following the
first profitable fiscal quarter of the Company after the Merger.
COMPANY STOCK PLANS
1994 Long Term Incentive Plan
The Company has adopted the Allegro New Media, Inc. 1994 Long Term
Incentive Plan (the "1994 Incentive Plan") in order to motivate qualified
employees of the Company, to assist the Company in attracting employees and to
align the interests of such persons with those of the Company's stockholders.
The 1994 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of the Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," stock appreciation rights, restricted
stock, performance grants and other types of awards to officers, key employees,
consultants and independent contractors of the Company and its affiliates.
The 1994 Incentive Plan, which is administered by the Compensation
Committee of the Board of Directors (currently comprised of Neil R. Austrian,
Jr., Marc E. Jaffe and Eng Chye Low), currently authorizes the issuance of a
maximum of 3,000,000 shares of Common Stock, which may be either newly issued
shares, treasury shares, reacquired shares, shares purchased in the open market
or any combination thereof. Incentive stock options generally may be granted at
an exercise price of not less than the fair market value of shares of Common
Stock on the date of grant, and non-qualified stock options may be granted at an
exercise price of not less than 85% of such fair market value. If any award
under the 1994 Incentive Plan terminates, expires unexercised, or is canceled,
the shares of Common Stock that would otherwise have been issuable pursuant
thereto will be available for issuance pursuant to the grant of new awards. The
Company has issued an aggregate 5,000 shares of Common Stock upon exercise of
options granted under the 1994 Incentive Plan and options to purchase an
aggregate 2,610,047 shares of Common Stock are outstanding under the 1994
Incentive Plan and options to purchase 384,953 shares remain available for grant
under the 1994 Incentive Plan as of April 4, 1997.
Outside Director and Advisor Stock Option Plan
The Company adopted the Outside Director and Advisor Stock Option Plan
(the "Director and Advisor Plan") for the purpose of attracting and retaining
well-qualified persons for service as directors of and advisors to the Company
and to provide such persons with the opportunity to increase their personal
interest in the Company's continued success and further align their interests
with the interests of the stockholders of the Company through the grant of
options to purchase shares of Common Stock. All directors of the Company who are
not employees of the Company (each, a "Non-Employee Director"), of which there
are presently five, are eligible to participate in the Director and Advisor
Plan. None of the Non-Employee Directors who are eligible to participate in the
Director and Advisor Plan participate in any of the other compensation plans of
the Company, except that Marc E. Jaffe currently owns options to purchase 5,000
shares of Common Stock granted under the 1994 Incentive Plan. Currently, up to
500,000 shares of Common Stock may be issued under the Director and Advisor
Plan.
Under the Director and Advisor Plan, each Non-Employee Director of the
Company and each member of the Advisory Committee of the Company (each, an
"Outside Director or Advisor"), upon first becoming an Outside Director or
Advisor, receives options to purchase 25,000 shares of Common Stock at a price
equal to the fair market value of the Common Stock on the date of grant and
thereafter receives options to purchase 10,000 shares of Common Stock at a price
equal to the per share fair market value of the Common Stock on August 1st of
each subsequent year. Options awarded to each Outside Director or Advisor vest
over a period of two years, and are subject to forfeiture under certain
conditions and shall be exercisable by the Outside Director or Advisor upon
vesting. The Company has issued an aggregate 19,666 shares of Common Stock upon
exercise of options granted under the Director and Advisor Plan, options to
purchase an aggregate 370,334 shares of Common Stock are outstanding under the
Director and Advisor Plan and options to purchase 110,000 shares remain
available for grant under the Director and Advisor Plan as of April 4, 1997.
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<PAGE> 30
SPC 1987 Incentive Stock Option Plan
In connection with the Merger, pursuant to an Instrument of Assumption
dated December 20, 1996 (the "Assumption"), the Company assumed all of SPC's
obligations under SPC's 1987 Stock Option Plan (the "SPC 1987 Plan"). The SPC
1987 Plan remains effective and the Company may, until the SPC 1987 Plan
terminates in accordance with its terms, at its discretion, grant additional
options under the SPC 1987 Plan.
The SPC 1987 Plan provides for the grant of incentive stock options and
non-qualified stock options to officers, key employees, consultants and
independent contractors of SPC and the Company. The SPC 1987 Plan, which is
administered by the Compensation Committee of the Board of Directors, currently
authorizes the issuance of a maximum of 341,763 shares of Common Stock, which
may be either newly issued shares, treasury shares, re-acquired shares, shares
purchased in the open market or any combination thereof. Incentive stock options
generally may be granted at an exercise price of not less than the fair market
value of shares of Common Stock on the date of grant, and non-qualified stock
options may be granted at an exercise price of not less than 50% of such fair
market value. If any award under the SPC 1987 Plan terminates, expires
unexercised, or is canceled, the shares of Common Stock that would otherwise
have been issuable pursuant thereto will be available for issuance pursuant to
the grant of new awards. The equivalent of 169,401 shares of Common Stock have
been issued upon exercise of options granted under the SPC 1987 Plan, the
Company has options to purchase an aggregate 144,861 shares of Common Stock
outstanding under the SPC 1987 Plan and options to purchase 27,501 shares remain
available for grant under the SPC 1987 Plan as of April 4, 1997. The SPC 1987
Plan will terminate in November 1997.
SPC 1989 Stock Plan
In connection with the Merger, pursuant to the Assumption, the Company
assumed all of SPC's obligations under SPC's 1989 Stock Plan (the "SPC 1989
Plan"). The SPC 1989 Plan remains effective and the Company may, until the SPC
1989 Plan terminates in accordance with its terms, at its discretion, grant
additional options under the SPC 1989 Plan.
The SPC 1989 Plan provides for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights, stock purchase rights,
incentive stock rights, performance grants and other types of awards to
officers, key employees, consultants and independent contractors of SPC and the
Company. The SPC 1989 Plan, which is administered by the Compensation Committee
of the Board of Directors, currently authorizes the issuance of a maximum of
268,050 shares of Common Stock, which may be either newly issued shares,
treasury shares, re-acquired shares, shares purchased in the open market or any
combination thereof. Incentive stock options generally may be granted at an
exercise price of not less than the fair market value of shares of Common Stock
on the date of grant; non-qualified stock options may be granted at an exercise
price of not less than 50% of such fair market value; incentive stock rights
permit the rightsholder to receive cash or shares of Common Stock based upon the
Company or the rightsholder obtaining results specified at the time of the
granting of such rights; stock appreciation rights (which may be granted in
connection with an option grant or as a separate grant) entitles the grantee to
receive a cash payment based upon the yield of the Common Stock between grant
and exercise; stock purchase rights entitle the rightsholder to purchase shares
of Common Stock at a price of not less than 50% of the fair market price of such
shares with the Company retaining a diminishing right to repurchase such shares
over a specified period should the rightsholder's relationship with the Company
terminate; and long term performance awards allow the Company to customize
incentive award programs to permit the awarding of cash or Common Stock upon the
Company or grantee researching specified levels of performance. If any award
under the SPC 1989 Plan terminates, expires unexercised, or is canceled, the
shares of Common Stock that would otherwise have been issuable pursuant thereto
will be available for issuance pursuant to the grant of new awards. The
equivalent of 13,849 shares of Common Stock have been issued upon exercise of
options granted under the SPC 1989 Plan, the Company has options to purchase
an aggregate 221,623 shares of Common Stock outstanding under the SPC 1989 Plan
and options to purchase 32,578 shares remain available for grant under the SPC
1989 Plan as of April 4, 1997. The SPC 1989 Plan will terminate in October 1999.
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<PAGE> 31
SPC 1991 Stock Option Plan
In connection with the Merger, pursuant to the Assumption, the Company
assumed all of SPC's obligations under SPC's 1991 Stock Option Plan (the "SPC
1991 Plan"). The SPC 1991 Plan remains effective and the Company may, until the
SPC 1991 Plan terminates in accordance with its terms, at its discretion, grant
additional options under the SPC 1991 Plan.
The SPC 1991 Plan provides for the grant of incentive stock options,
non-qualified stock options and stock purchase rights to officers, key
employees, consultants and independent contractors of SPC and the Company. The
SPC 1991 Plan, which is administered by the Compensation Committee of the Board
of Directors, currently authorizes the issuance of a maximum of 428,880 shares
of Common Stock, which may be either newly issued shares, treasury shares,
re-acquired shares, shares purchased in the open market or any combination
thereof. Incentive stock options generally may be granted at an exercise price
of not less than the fair market value of shares of Common Stock on the date of
grant; non-qualified stock options may be granted at an exercise price of not
less than 85% of such fair market value; and stock purchase rights entitle the
rightsholder to purchase shares of Common Stock at a price of not less than 85%
of the fair market price of such shares with the Company retaining a diminishing
right to repurchase such shares over a specified period should the
rightsholder's relationship with the Company terminate. If any award under the
SPC 1991 Plan terminates, expires unexercised, or is canceled, the shares of
Common Stock that would otherwise have been issuable pursuant thereto will be
available for issuance pursuant to the grant of new awards. The equivalent of
1,065 shares of Common Stock have been issued upon exercise of options granted
under the SPC 1991 Plan, the Company has options to purchase an aggregate
338,877 shares of Common Stock outstanding under the SPC 1989 Plan and options
to purchase 88,938 shares remain available for grant under the SPC 1991 Plan as
of April 4, 1997. The SPC 1991 Plan will terminate in October 2001.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides that
indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, may be provided by such
corporation.
The Company's Certificate of Incorporation includes provisions
eliminating the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty except, pursuant to the
limitations of the Delaware General Corporation Law, (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or any amendatory or successor provisions thereto, or (iv) with respect to
any transaction from which the director derived an improper personal benefit.
The Company's By-laws provide indemnification to directors, officers, employees
and agents, including against claims brought under state or Federal securities
laws, to the full extent allowable under Delaware law. The Company also has
entered into indemnification agreements with its directors and executive
officers providing, among other things, that the Company will provide defense
costs against any such claim, subject to reimbursement in certain events. The
Company also maintains a directors and officers liability insurance policy in a
coverage amount of $3,000,000.
The Company has agreed pursuant to the Merger Agreement to maintain
SPC's current directors and officers liability insurance policies in effect
until September 3, 1997 with respect to former directors and officers of SPC and
that to the extent that SPC fails to pay in full any retentions or deductibles
payable thereunder by indemnified parties, the Company shall pay such amounts.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the beneficial ownership of shares of
voting stock of the Company, as of April 4, 1997, of (i) each person known by
the Company to beneficially own 5% or more of the shares of outstanding
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<PAGE> 32
Common Stock based on filings with the SEC and certain other information, (ii)
each of the Company's executive officers and directors, and (iii) all of the
Company's executive officers and directors as a group. Except as otherwise
indicated, all shares are beneficially owned, and investment and voting power is
held by, the persons named as owners.
<TABLE>
<CAPTION>
Amount of Class B
Amount and Nature Percentage Voting Preferred Percentage
Name and Address of of Common Stock Ownership of Stock Beneficially of Voting
Beneficial Owner (1) Beneficially Owned (2) Common Stock (3) Owned (4) Power (3) (4)
- -------------------- ---------------------- ---------------- --------- -------------
<S> <C> <C> <C> <C>
Barry A. Cinnamon .......... 1,106,860(5) 13.7 60,520 19.7
Lori K. Cinnamon ........... 1,106,860(6) 13.7 60,520 (7) 19.7
M.S. Farrell & Co., Inc .... 621,028(8) 7.2 -- 6.8
Martin F. Schacker ......... 621,028(9) 7.2 -- 6.8
Gwyn Jones ................. 469,804(10) 5.8 -- 5.4
Mark E. Leininger .......... 221,374(11) 2.7 -- 2.5
Daniel J. Fraisl ........... 108,181(12) 1.3 -- 1.2
Norman W. Alexander ........ 76,246(13) 0.9 -- 0.9
Neil M. Kaufman ............ 38,333(14) 0.5 -- 0.4
Marc E. Jaffe .............. 19,999(15) 0.2 -- 0.2
Neil R. Austrian, Jr ....... 19,999(16) 0.2 -- 0.2
Joseph V. Szczepaniak ...... 13,401(17) 0.2 -- 0.2
Eng Chye Low ............... 11,666(18) 0.1 -- 0.1
All officers and directors
as a group (10 persons) ... 1,431,351(19) 17.8 60,520 22.8
</TABLE>
- ----------
(1) Unless otherwise indicated, the address for each beneficial owner
listed in the table is c/o Allegro New Media, Inc., 111 North Market
Street, San Jose, California 95113.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed
to be the beneficial owner of securities which may be acquired by such
person within 60 days from the date on which beneficial ownership is to
be determined upon the exercise of options, warrants or convertible
securities.
(3) Each beneficial owner's percentage ownership is determined by assuming
that stock options and warrants that are held by such person (but not
those held by any other person) and which are exercisable within such
60 day period, have been exercised.
(4) Each share of Class B Voting Preferred Stock is entitled to cast ten
votes on all matters subject to a vote of stockholders and, subject to
applicable law, votes together with the holders of Common Stock. Barry
A. Cinnamon owns all of the outstanding Class B Voting Preferred Stock.
(5) Includes (a) an aggregate 52,778 shares of Common stock held by Mr.
Cinnamon as custodian for his minor children under the New Jersey
Uniform Gift to Minors Act, as to which Mr. Cinnamon disclaims
beneficial ownership, (b) options to purchase 20,166 shares of Common
Stock granted to Mr. Cinnamon under the Company Stock Plans which are
exercisable within the next 60 days, (c) options to purchase 6,666
shares of Common Stock granted to Lori Kramer Cinnamon, Mr. Cinnamon's
wife, under the Company Stock Plans which are exercisable within the
next 60 days, as to which Mr. Cinnamon disclaims beneficial ownership,
and (d) the 184,708 shares of Common Stock held by the Serif (Europe)
Share Ownership Trust (the "Serif Trust") of which Mr. Cinnamon acts as
a co-trustee, as to which Mr. Cinnamon disclaims beneficial ownership.
Does not include (a) 60,520 shares of Class B Voting Preferred Stock,
(b) options to purchase 340,334 shares of Common Stock granted to Mr.
Cinnamon under the Company Stock Plans which are not exercisable within
the next 60 days, (c) options to purchase 38,078 shares of Common Stock
granted to Ms. Kramer Cinnamon under the Company Stock Plans which are
not exercisable within the next 60 days and (d) the 1,000,000 shares of
Common Stock issued in connection with the Serif Acquisition and
subject to a Stockholders Agreement, dated as of July 31, 1996 (the
"Stockholders Agreement"), to which Mr. Cinnamon is a party and
pursuant to
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<PAGE> 33
which the holders of such 1,000,000 shares (including the Serif Trust,
Gwyn Jones and Norman Alexander) have agreed to vote their respective
shares of Common Stock for the director-nominees of the Company's Board
of Directors and Mr. Cinnamon has agreed to vote all of the securities
of the Company owned by him for Mr. Jones or Mr. Jones' nominee (Norman
Alexander) as a director of the Company, in each case until July 31,
1998.
(6) Represents (a) 842,542 shares of Common Stock owned of record by Barry
A. Cinnamon, Ms. Kramer Cinnamon's husband, as to which Ms. Kramer
Cinnamon disclaims beneficial ownership, (b) an aggregate 52,778 shares
of Common Stock held by Mr. Cinnamon as custodian for their minor
children under the New Jersey Uniform Gift to Minors Act, as to which
Ms. Kramer Cinnamon disclaims beneficial ownership, (c) options to
purchase 6,666 shares of Common Stock granted to Ms. Kramer Cinnamon
under the Company Stock Plans which are exercisable within the next 60
days, (d) options to purchase 20,166 shares of Common Stock granted to
Mr. Cinnamon under the Company Stock Plans which are exercisable within
the next 60 days, as to which Ms. Kramer Cinnamon disclaims beneficial
ownership, and (e) the 184,708 shares of Common Stock held by the Serif
Trust, as to which Ms. Kramer Cinnamon disclaims beneficial ownership.
Does not include (a) 60,520 shares of Class B Voting Preferred Stock
owned by Mr. Cinnamon, as to which Ms. Kramer Cinnamon disclaims
beneficial ownership, (b) options to purchase 38,078 shares of Common
Stock granted to Ms. Kramer Cinnamon under the Company Stock Plans
which are not exercisable within the next 60 days, (c) options to
purchase 340,334 shares of Common Stock granted to Mr. Cinnamon under
the Company Stock Plans which are not exercisable within the next 60
days, as to which Ms. Kramer Cinnamon disclaims beneficial ownership,
or (d) or the shares subject to the Stockholders Agreement to which Mr.
Cinnamon is a party and as to which Ms. Kramer Cinnamon disclaims
beneficial ownership.
(7) Represents the 60,520 shares of Class B Voting Preferred Stock owned by
Mr. Cinnamon, as to which Ms. Kramer Cinnamon disclaims beneficial
ownership.
(8) Includes (a) warrants owned of record by MS Farrell to purchase 440,000
shares of Common Stock which are exercisable within the next 60 days
and (b) the IPO Underwriters' Purchase Options owned of record by MS
Farrell to purchase 103,300 shares of Common Stock which are
exercisable within the next 60 days. Does not include 13,000 shares of
Common Stock and warrants to purchase an additional 60,000 shares of
Common Stock owned by a managing director of MS Farrell. The address
for MS Farrell is 67 Wall Street, New York, New York 10005.
(9) Represents (a) 77,728 shares of Common Stock owned by MS Farrell, of
which Mr. Schacker is Chairman of the Board and the controlling person,
(b) warrants exercisable within the next 60 days to purchase 440,000
shares of Common Stock owned of record by MS Farrell and (c) the IPO
Underwriters' Purchase Options owned by MS Farrell to purchase 103,300
shares of Common Stock. Does not include 4,000 shares of Common Stock
and warrants to purchase 60,000 shares of Common Stock owned by a
managing director of MS Farrell. The address for Mr. Schacker is c/o MS
Farrell, 67 Wall Street, New York, New York 10005.
(10) Does not include any of the shares of Common Stock or other securities
of the Company owned by any other party to the Stockholders Agreement.
The address for Mr. Jones is c/o Barley Green Farm, Laxfield Road,
Stradbrooke Eye, Suffolk, England IP21 5JT.
(11) Represents (a) options to purchase 36,666 shares of Common Stock
granted to Mr. Leininger under the Company Stock Plans which are
exercisable within the next 60 days and (b) the 184,708 shares of
Common Stock held by the Serif Trust of which Mr. Leininger acts as a
co-trustee, as to which Mr. Leininger disclaims beneficial ownership.
Does not include options to purchase 508,334 shares of Common Stock
granted to Mr. Leininger under the Company Stock Plans which are not
exercisable within the next 60 days.
(12) Includes options to purchase 107,220 shares of Common Stock granted to
Mr. Fraisl under the Company Stock Plans which are exercisable within
the next 60 days. Does not include options to purchase 181,000 shares
of Common Stock granted to Mr. Fraisl under the Company Stock Plans
which are not exercisable within the next 60 days.
(13) Includes options to purchase 8,333 shares of Common Stock granted to
Mr. Alexander under the Company Stock Plans which are exercisable
within the next 60 days. Does not include (a) options to purchase
16,667 shares of Common Stock granted to Mr. Alexander under the
Company Stock Plans which are not exercisable within the next 60 days
or (b) any of the shares of Common Stock or other securities of the
Company owned
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<PAGE> 34
by any other party to Stockholders Agreement. The address for Mr.
Alexander is Burnside, Church Walk, Marholm, Peterborough, PE 67H2
England.
(14) Includes options to purchase 16,666 shares of Common Stock granted to
Mr. Kaufman under the Company Stock Plans which are exercisable within
the next 60 days. Does not include options to purchase 33,334 shares of
Common Stock granted to Mr. Kaufman under the Company Stock Plans which
are not exercisable within the next 60 days. The address for Mr.
Kaufman is c/o Moritt, Hock & Hamroff, LLP, 400 Garden City Plaza,
Suite 202, Garden City, New York 11530.
(15) Represents options to purchase 19,999 shares of Common Stock granted to
Mr. Jaffe under the Company Stock Plans which are exercisable within
the next 60 days. Does not include options to purchase 20,001 shares of
Common Stock granted to Mr. Jaffe under the Company Stock Plans which
are not exercisable within the next 60 days. The address for Mr. Jaffe
is c/o Electric Licensing Organization, 386 Park Avenue South, Suite
1900, New York, New York 10016.
(16) Represents options to purchase 19,999 shares of Common Stock granted to
Mr. Austrian under the Company Stock Option Plans which are exercisable
within the next 60 days. Does not include options to purchase 15,001
shares of Common Stock granted to Mr. Austrian under the Company Stock
Option Plans which are not exercisable within the next 60 days. The
address for Mr. Austrian is c/o Tescorp., Inc., 327 Congress Avenue,
Suite 200, Austin, Texas 78701.
(17) Represents options to purchase 13,401 shares of Common Stock granted to
Mr. Szczepaniak under the Company Stock Plans which are exercisable
within the next 60 days. Does not include options to purchase 344,611
shares of Common Stock granted to Mr. Szczepaniak under the Company
Stock Plans which are not exercisable within the next 60 days.
(18) Represents options to purchase 11,666 shares of Common Stock granted to
Mr. Low under the Company Stock Option Plans which are exercisable
within the next 60 days. Does not include options to purchase 23,334
shares of Common Stock granted to Mr. Low which are not exercisable
within the nest 60 days. The address for Mr. Low is c/o Seacom, Inc.,
200 East 89th Street, Suite 44 South, New York, New York 10128.
(19) Includes an aggregate 260,782 shares of Common Stock issuable upon
exercise of the options and warrants discussed in notes (5), (6) and
(11) through (18) above which are exercisable within the next 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MS Farrell acted as placement agent on behalf of the Company in selling
an aggregate of 1,115,250 shares of Class A Convertible Preferred Stock of the
Company in June 1994 and an additional 75,000 shares of Class A Convertible
Preferred Stock in November 1994 for aggregate gross proceeds of $1,190,250. In
consideration for its services in connection therewith, MS Farrell received a
10% commission and a 3% non-accountable expense allowance on the gross proceeds
of such offering, a warrant which became exercisable for an aggregate of 302,354
shares of Common Stock which MS Farrell has exercised in full for nominal
consideration, and certain other consideration. As a result of such warrant
exercise, MS Farrell became the holder of more than 5% of the outstanding Common
Stock.
In May 1995, MS Farrell loaned $100,000 to the Company (the "MS Farrell
Loan"). The MS Farrell Loan was evidenced by a promissory note (the "MS Farrell
Note") in the principal amount of $100,000, bearing interest at a rate equal to
fourteen percent (14%) per annum, maturing on the earlier of (i) December 25,
1995 or (ii) the consummation of a subsequent offering of securities other than
similar notes. The MS Farrell Note was secured by the Company's accounts
receivable.
In June through August 1995, MS Farrell acted as placement agent with
respect to an aggregate $459,000 principal amount of additional 14% Promissory
Notes issued by the Company to other persons. MS Farrell did not receive any
compensation in connection with the sale of these additional 14% Promissory
Notes.
MS Farrell also acted as placement agent on behalf of the Company in
selling an aggregate of $1,250,000 principal amount of promissory notes and
243,902 shares of Common Stock in August 1995. In connection with its
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<PAGE> 35
services therewith, MS Farrell received a 10% commission and a 3%
non-accountable expense allowance on the gross proceeds of such offering. The MS
Farrell Loan was repaid from the Company's proceeds of such offering.
MS Farrell acted as managing underwriter of the Company's initial
public offering (the "IPO"), consummated on December 12, 1995, pursuant to which
the Company sold an aggregate 1,142,400 shares of Common Stock for gross
proceeds of $5,854,800. As compensation for its underwriting services in
connection with the IPO, MS Farrell received a 10% underwriting discount and a
3% non-accountable expense allowance of the gross proceeds from the IPO and
options (the "IPO Underwriters' Purchase Options") to purchase 103,300 shares of
Common Stock at $6.15 per share for a four year period terminating on December
6, 2000.
Pursuant to an engagement agreement, dated December 23, 1993, between
the Company and MS Farrell, the Company agreed (a) to use MS Farrell as its
exclusive investment banker for a five-year period, (b) to pay monthly
consulting fees to MS Farrell of $2,500 until December 1998, in connection with
which the Company paid MS Farrell $138,128 through August 20, 1996, and (c) to
pay to MS Farrell a fee of 2% of the greater of the maximum commitment under, or
the maximum amount actually borrowed by the Company pursuant to, a conventional
line of credit extended to the Company by a bank or other short-term lender
introduced to the Company by MS Farrell. The Company had the right to terminate
the above-described obligations under this engagement agreement upon the payment
of $250,000 in cash. In August 1996, in exchange for the right to pay such
termination fee in shares of Common Stock, the suspension of payment of
obligations under this engagement agreement and certain other consideration, the
Company granted to MS Farrell and a designee thereof warrants to purchase
500,000 shares of Common Stock exercisable at $6.875 per share for a six-year
period and extended the expiration date of the IPO Underwriters' Purchase
Options to August 22, 2002. In March 1997, the Company exercised its right to
terminate the Company's investment banking obligations to MS Farrell and, in
connection therewith, issued an aggregate of 71,428 shares of Common Stock to
M.S. Farrell Holdings, Inc., the parent holding company of M. S. Farrell, and to
one other designee thereof.
Barry A. Cinnamon, President, Chief Executive Officer, Chairman of the
Board and a principal stockholder of the Company, and Richard Bergman, the
Company's former Vice President of Product Development, placed into escrow an
aggregate of 542,500 shares of Common Stock (the "Escrow Shares"), 500,000 of
which shares were placed in escrow by Mr. Cinnamon and 42,500 of which shares
were placed in escrow by Mr. Bergman. In April 1996, upon the execution and
delivery by the Company of a letter of intent to acquire all of the issued and
outstanding capital stock of Serif Inc. and Serif (Europe) Limited, 217,000
shares of Common Stock then held in escrow were released from escrow and
delivered to the above-named stockholders, 200,000 of which shares were
delivered to Mr. Cinnamon and 17,000 of which shares were delivered to Mr.
Bergman (the "April 1996 Escrow Release"). In September 1996, 314,000 of the
remaining shares of the Company Common Stock then held in escrow were released
from escrow and delivered to Mr. Cinnamon (300,000 shares) and Mr. Bergman
(14,000 shares) (the "September 1996 Escrow Release"; and together with the
April 1996 Escrow Release, the "Escrow Releases"). Presently, no shares remain
in escrow and all of the arrangements relating to the Escrow Shares have been
terminated. The Company incurred a compensation expense of approximately
$2,773,180 in connection with the Escrow Releases. See "Item 6. Management's
Discussion and Analysis or Plan of Operation."
In June 1996, the Company loaned $200,000 to a corporation (the
"Debtor") of which MS Farrell is an affiliate. This loan was represented by a
promissory note (the "Debtor Note") bearing interest at 14% per annum and which
was secured by the assets of Debtor. In connection with this loan, the Company
also received warrants to purchase 100,000 shares of the common stock of a
pharmaceutical company of which MS Farrell may also be considered an affiliate,
at an exercise price of $5.50 per share. In March 1997, in consideration for
warrants to purchase 100,000 shares of common stock of the Debtor at an exercise
price of $1.00 per share, exercisable for a six year period, the Company agreed
to extend the maturity of the Debtor Note and the Company further agreed to
exchange the Debtor Note for a similar note bearing interest at 12% per annum
issued by the pharmaceutical company maturing on the earlier of November 27,
1997 or the consummation of an offering of equity securities of the
pharmaceutical company. The Company established a reserve for the entire loss
of the Debtor Note in 1996.
- 35 -
<PAGE> 36
In April 1996, Barry A. Cinnamon sold 44,000 shares of Common Stock to
MS Farrell for a price equal to $2.00 per share, and, in August 1996, Mr.
Cinnamon sold 42,946 shares of Common Stock to MS Farrell for a price equal to
$6.00 per share.
In July 1996, the Company acquired all of the issued and outstanding
shares of capital stock of Serif Inc. and Serif (Europe) Limited. Pursuant to
the terms of the agreements for such acquisitions (the "Serif Acquisition
Agreements"), the Company issued to Norman Alexander an aggregate 67,913 shares
of Common Stock and agreed to nominate Gwyn Jones or his designee to the Board
of Directors of the Company. Mr. Jones designated Mr. Alexander as his nominee
and Mr. Alexander was elected as a director in October 1996. In addition, Barry
A. Cinnamon, Norman Alexander and the other former stockholders of the Serif
companies entered into a Stockholders Agreement pursuant to which each party
agreed, for a term of two years, to vote their respective shares of Common Stock
in favor of the election as directors of the nominees for directors designated
by the Company's Board of Directors and in favor of the election as a director
of Mr. Jones or Mr. Jones' designee. Pursuant to the terms of the Serif
Acquisition Agreements, the Company entered into a three-year employment
agreement with Gwyn Jones, the founder and largest stockholder of Serif, and the
Company elected Gwyn Jones as a director in Class II. In October 1996, Mr. Jones
resigned as an officer, director and employee of the Company and Serif pursuant
to agreements under which Mr. Jones received or is to receive the base salary
payable under his employment agreement and certain other consideration,
including the elimination of the prohibition on Mr. Jones selling the 469,804
shares of Common Stock which Mr. Jones received pursuant to the Serif
Acquisition Agreements and the substitution, in lieu thereof, of a restriction
allowing him to sell no more than thirty percent (30%) of the average daily
trading volume of Common Stock in any week and certain other restrictions.
Digital Paper, Inc. ("Digital Paper"), and its stockholders, one of
whom is Daniel Fraisl, Vice President Research and Development of the Company,
have entered into an amendment to the Stock Purchase Agreement by which SPC
acquired Digital Paper, which amendment became effective upon consummation of
the Merger. The amendment provides that a remaining payment of $1,650,000 and
two incentive payments with an aggregate total of $325,000 upon the attainment
of certain product sales and development criteria, which is required by the
terms of the Stock Purchase Agreement to be made by SPC to Digital Paper's
stockholders in cash or in shares of SPC common stock, be paid in cash or in
shares of Common Stock, at the option of each such stockholder. None of the
criteria were met in 1996, but are expected to achieved in 1997
During 1995, SPC entered into three-year, non-interest-bearing loan
agreements with Irfan Salim, the then President and Chief Executive Officer of
SPC, in the amount of $300,000, and with Robert T. Iguchi, the then Vice
President of North American Sales and Service of SPC, in the amount of $117,000.
Both of these obligations were secured by the right to a second deed of trust
on their respective homes. During the fourth fiscal quarter of 1996,
Mr. Iguchi repaid to the Company the outstanding balance of his loan,
in the amount of $117,000. During the SPC 1996 Fiscal Year, SPC forgave
$125,000 of Mr. Salim's loan, which was treated as compensation to him.
The $175,000 balance of Mr. Salim's loan was due on February 17, 1997 and
remains outstanding. The Company has made demand ofthis $175,000
debt of Mr. Salim.
During 1996, the Company incurred approximately $350,000 in legal fees
to Blau, Kramer, Wactlar & Lieberman, P.C., then its general counsel, of which
$95,500 was included in accrued liabilities at December 31, 1996. Neil M.
Kaufman, a director of the Company, was a member of such firm during 1996. Mr.
Kaufman currently is a partner in Moritt, Hock & Hamroff, LLP, general counsel
to the Company.
With respect to compensation paid to Barry A. Cinnamon and Mark E.
Leininger in their capacities as employees of the Company, see "Item 10.
Executive Compensation."
- 36 -
<PAGE> 37
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Set forth below are all exhibits to this Annual Report on Form
10-KSB:
3.1 Composite of Certificate of Incorporation of the Company, as amended to
date.
3.2 By-laws of the Company, as amended. (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-4
(Registration Number: 333-16449), filed with the Commission on November
21, 1996.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on September
21, 1995.)
10.1 Company 1994 Long Term Incentive Plan.
10.2 Company Outside Director and Advisor Stock Option Plan. (Incorporated
by reference to Exhibit 4 to the Company's Registration Statement on
Form S-8 (Registration Number: 333-13063), filed with the Commission on
September 30, 1996.)
10.3 SPC 1987 Stock Option Plan. (Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-8 (Registration
Number: 333-19509), filed with the Commission on January 10, 1997.)
10.4 SPC 1989 Stock Plan. (Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (Registration Number:
333-19509), filed with the Commission on January 10, 1997.)
10.5 SPC 1991 Stock Option Plan. (Incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8 (Registration
Number: 333-19509), filed with the Commission on January 10, 1997.)
10.6 Employment Agreement dated as of December 27, 1993, as amended through
Amendment No. 6, between the Company and Barry A. Cinnamon.
(Incorporated by reference to Exhibit 10.3 to the Company's Amendment
No. 1 to Registration Statement on Form SB-2 (Registration Number:
33-97184), filed with the Commission on November 6, 1995, Exhibit 10.30
to the Company's Quarterly Report on Form 10-QSB (Commission File
Number: 1-14076), for the quarter ended March 31, 1996, filed with the
Commission on May 14, 1996, and Exhibit 10.35 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076), for
the quarter ended September 30, 1996, filed with the Commission on
November 5, 1996.)
10.7 Amendment No. 7 to Employment Agreement between the Company and Barry
A. Cinnamon.
10.8 Employment Agreement dated as of December 27, 1993, as amended through
Amendment No. 3, between the Company and Lori Kramer Cinnamon.
(Incorporated by reference to Exhibit 10.4 to the Company's Amendment
No. 1 to Registration Statement on Form SB-2 (Registration Number:
33-97184), filed with the Commission on November 6, 1995.)
10.9 Employment Agreement dated October 2, 1996 between the Company and
Joseph V. Szczepaniak. (Incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form S-4 (Registration Number:
333-16449), filed with the Commission on November 21, 1996.)
10.10 Employment Agreement, as amended, dated April 7, 1995 between SPC and
Daniel J. Fraisl.
10.11 Agreement dated October 25, 1996 between the Company and Mark E.
Leininger. (Incorporated by reference to Exhibit 10.36 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076), for
the quarter ended September 30, 1996, filed with the Commission on
November 5, 1996.)
10.12 Agreement and Plan of Reorganization dated as of October 1, 1996 among
the Company, SPC and SPC Acquisition Corporation. (Incorporated by
reference to Exhibit 2 to the Company's Registration Statement on Form
S-4 (Registration Number: 333-16449), filed with the Commission on
November 21, 1996.)
10.13 Form of Bridge Unit Subscription Agreement. (Incorporated by reference
to Exhibit 10.7 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on September
21, 1995.)
10.14 Stock Option Agreement dated as of August 2, 1994 between the Company
and Berlitz Publishing Company, Inc. (Incorporated by reference to
Exhibit 10.10 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on September
21, 1995.)
- 37 -
<PAGE> 38
10.15 Settlement and General Release Agreement dated as of January 30, 1997
between the Company and Miriam K. Frazer.
10.16 Agreement dated June 14, 1994, as amended, between the Company, M.S.
Farrell & Co., Inc. and the holders of shares of Class A Convertible
Preferred Stock. (Incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form SB-2 (Registration Number:
33-97184), filed with the Commission on September 21, 1995.)
10.17 Form of Indemnification Agreement between the Registrant and its
executive officers and directors. (Incorporated by reference to Exhibit
10.8 to the Company's Registration Statement on Form SB-2 (Registration
Number: 33-97184), filed with the Commission on September 21, 1995.)
10.18 Underwriter's Purchase Option dated December 12, 1995 issued to M.S.
Farrell & Co., Inc. (Incorporated by reference to Exhibit 4.2 to the
Company's Amendment No. 2 to Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on December
1, 1995.)
10.19 Consulting Agreement dated June 14, 1994 between the Registrant and
M.S. Farrell & Co., Inc. (Incorporated by reference to Exhibit 10.21
to the Company's Registration Statement on Form SB-2 (Registration
Number: 33-97184), filed with the Commission on September 21, 1995.)
10.20 Form of Mergers and Acquisitions Agreement between the Registrant and
M.S. Farrell & Co., Inc. (Incorporated by reference to Exhibit 10.23
to the Company's Registration Statement on Form SB-2 (Registration
Number: 33-97184), filed with the Commission on September 21, 1995.)
10.21 Form of Lock-Up Agreement dated as of July 31, 1996 relating to
limitations on stock sales between the Company and each of the former
stockholders of Serif Inc.
10.22 Form of Lock-Up Agreement dated as of July 31, 1996 relating to
limitations on stock sales between the Company and each of the former
stockholders of Serif (Europe) Limited.
10.23 Agreement and Plan of Reorganization dated as of July 31, 1996 among
the Company, Serif Inc., Gwyn Jones and all other stockholders of Serif
Inc. (Incorporated by reference to Exhibit 4.3 to the Company's Current
Report on Form 8-K (Date of Report: July 31, 1996) (Commission File
Number: 1-14076), filed with the Commission on August 13, 1996.)
10.24 Agreement and Plan of Reorganization dated as of July 31, 1996 among
the Company, Serif (Europe) Limited, Gwyn Jones and all other
stockholders of Serif (Europe) Limited. (Incorporated by reference to
Exhibit 4.4 to the Company's Current Report on Form 8-K (Date of
Report: July 31, 1996) (Commission File Number: 1-14076), filed with
the Commission on August 13, 1996.)
10.25 Registration Rights Agreement dated July 31, 1996 between the Company
and the former stockholders of Serif Inc. and Serif (Europe) Limited.
(Incorporated by reference to Exhibit 10.31 to the Company's Current
Report on Form 8-K (Date of Report: July 31, 1996) (Commission File
Number: 1-14076), filed with the Commission on August 13, 1996.)
10.26 Escrow Agreement dated July 31, 1996, among the Company, Serif Inc.,
the former stockholders of Serif Inc., Gwyn Jones and Blau, Kramer,
Wactlar & Lieberman, P.C. (Incorporated by reference to Exhibit 2 to
the Schedule 13D Statement of Barry A. Cinnamon, with respect to the
Common Stock of the Company, filed with the Commission on October 31,
1996.)
10.27 Localization and Distribution Agreement for Harvard Graphics Windows
Products dated February 16, 1995 between Choten, Inc. and SPC.
(Incorporated by reference to Exhibit 10.21 to Software Publishing
Corporation's Annual Report on Form 10-K (Commission File Number:
0-14025), for the fiscal year ended September 30, 1995, filed with the
Commission on December 29, 1995.)
10.28 Escrow Agreement dated July 31, 1996, among the Company, Serif (Europe)
Limited, the former Stockholders of Serif (Europe) Limited, Gwyn Jones
and Blau, Kramer, Wactlar & Lieberman, P.C.
10.29 Lease Agreement dated September 7, 1995 between Community Towers LLC
and the Company, for facilities located at 111 North Market Street, San
Jose, California. (Incorporated by reference to Exhibit 10.22 to
Software Publishing Corporation's Annual Report on Form 10-K
(Commission File Number: 0-14025), for the fiscal year ended September
30, 1995, filed with the Commission on December 29, 1995.)
10.30 Stockholders' Agreement dated as of July 31, 1996 among Barry A.
Cinnamon, Gwyn Jones and the former stockholders of Serif Inc. and
Serif (Europe) Limited. (Incorporated by reference to Exhibit 1 to the
Schedule 13D Statement of Barry A. Cinnamon, with respect to the Common
Stock of the Company, filed with the Commission on October 31, 1996.)
- 38 -
<PAGE> 39
10.31 Letter Agreement dated October 24, 1996 between the Company and Gwyn
Jones.
10.32 Compromise Agreement executed October 24, 1996 between the Company and
Gwyn Jones.
10.33 Settlement and General Release Agreement dated as of July 23, 1996
among the Company, Richard Bergman and Barry Cinnamon. (Incorporated by
reference to Exhibit 10.32 to the Company's Current Report on Form 8-K
(Date of Report: July 31, 1996) (Commission File Number: 1-14076),
filed with the Commission on August 13, 1996.)
10.34 Escrow Agreement dated as of December 27, 1993, as amended through
September 5, 1996, among the Company, Barry A. Cinnamon, Richard
Bergman and Blau, Kramer, Wactlar & Lieberman, P.C. (Incorporated by
reference to Exhibit 10.25 to the Company's Amendment No. 1 to
Registration Statement on Form SB-2 (Registration Number: 33-97184),
filed with the Commission on November 6, 1995, Exhibit 10.32 to the
Company's Quarterly Report on Form 10-QSB (Commission File Number:
1-14076), for the quarter ended March 31, 1996, filed with the
Commission on May 14, 1996, and Exhibit 10.34 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076), for
the quarter ended September 30, 1996, filed with the Commission on
November 5, 1996.)
10.35 Escrow Agreement dated as of May 25, 1995, as amended through September
5, 1996, among the Company, Barry A. Cinnamon, Richard Bergman and
Blau, Kramer, Wactlar & Lieberman, P.C. (Incorporated by reference to
Exhibit 10.26 to the Company's Amendment No. 1 to Registration
Statement on Form SB-2 (Registration Number: 33-97184), filed with the
Commission on November 6, 1995, and Exhibit 10.34 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076), for
the quarter ended September 30, 1996, filed with the Commission on
November 5, 1996.)
10.36 Deed of Variation (First Amendment) of the Lease between Registrant and
Allied Dunbar Assurance plc for facilities located at the Pyramid
House, Easthampstead Road, Bracknell, Berkshire, United Kingdom.
(Incorporated by reference to Exhibit 10.1 to Software Publishing
Corporation's Quarterly Report on Form 10-Q (Commission File Number:
0-14025), for the quarter ended March 31, 1994, filed with the
Commission on May 13, 1994.)
10.37 Asset Acquisition Agreement dated June 14, 1994 between SPC and
Computer Concepts Corporation. (Incorporated by reference to Exhibit
10.1 to Software Publishing Corporation's Quarterly Report on Form 10-Q
(Commission File Number: 0-14025), for the quarter ended June 30, 1994,
filed with the Commission on August 12, 1994.)
10.38 Stock Purchase Agreement dated March 31, 1995 among SPC, Digital Paper,
Inc., Daniel J. Fraisl, Carl Meyer and Anthony N. Hoeber. (Incorporated
by reference to Exhibit 10.4 to Software Publishing Corporation's
Quarterly Report on Form 10-Q (Commission File Number: 0-14025), for
the quarter ended March 31, 1995, filed with the Commission on May 15,
1995.)
10.39 Amendment to Stock Purchase Agreement dated as of April 2, 1996 among
SPC, Digital Paper, Inc. Daniel J. Fraisl, Carl Meyer and Anthony N.
Hoeber.
10.40 Amendment No. 2 to Stock Purchase Agreement dated October 1, 1996 among
SPC, Digital Paper, Inc., Daniel J. Fraisl, Carl Meyer and Anthony N.
Hoeber.
10.41 Asset Purchase Agreement dated as of May 1, 1996 between the Company
and BizEd, Inc.
10.42 Consulting Agreement dated as of May 1, 1996 between the Company and
Clifford J. Schorer, Jr.
10.43 Warrant dated August 20, 1996 issued to M.S. Farrell & Co., Inc.
10.44 Warrant dated August 20, 1996 issued to Richard L. Klass.
10.45 Letter Agreement dated March 27, 1997 between the Company and M.S.
Farrell & Co., Inc.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney (set forth on the signature page of this Annual
Report on Form 10-KSB).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
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.
- 39 -
<PAGE> 40
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.
- 40 -
<PAGE> 41
Index to Financial Statements
Report of Independent Auditors...............................................F-2
Balance Sheet at December 31, 1996...........................................F-3
Statements of Operations for the years ended December 31, 1996 and 1995......F-4
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1996 and 1995..........................................F-5
Statements of Cash Flows for the years ended December 31, 1996 and 1995......F-6
Notes to Financial Statements................................................F-7
F-1
<PAGE> 42
Report of Independent Auditors
Board of Directors
Allegro New Media, Inc.
We have audited the accompanying consolidated balance sheet of Allegro New
Media, Inc. and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 1996 and 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Allegro New Media,
Inc. and subsidiaries at December 31, 1996 and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1995 in
conformity with generally accepted accounting principles.
/s/Ernst & Young
Hackensack, New Jersey
April 14, 1997
F-2
<PAGE> 43
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,833,454
Restricted cash 1,650,000
Short-term investments 6,328,180
Accounts receivable, less allowances of $452,000 1,991,790
Inventories 713,586
Prepaid expenses and other current assets 235,849
------------
Total current assets $ 15,752,859
Property and equipment, net 450,867
Acquired software, net of accumulated amortization of $157,916 6,787,614
Goodwill and other assets, net of accumulated amortization of $31,237 4,262,033
------------
$ 27,253,373
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,509,060
Accrued liabilities 10,186,059
Notes payable 1,882,548
------------
Total current liabilities 15,577,667
Commitments and contingencies
Stockholders' equity:
Serial Preferred Stock, authorized 1,939,480 shares, none issued and
outstanding
Class B Voting Preferred Stock, Series A, 60,520 shares authorized,
issued and outstanding: 61
Common stock, par value $.001 per share, authorized 30,000,000 shares;
issued and outstanding 7,860,243 shares 7,860
Additional paid-in capital 41,731,437
Accumulated deficit (30,063,652)
------------
Total stockholders' equity 11,675,706
------------
$ 27,253,373
============
</TABLE>
See accompanying notes.
F-3
<PAGE> 44
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Net sales $ 4,700,955 $ 1,410,962
Cost of goods sold 1,817,688 795,730
-----------------------------
Gross profit 2,883,267 615,232
Selling, general and administrative expenses 7,496,665 1,439,983
Costs associated with release of escrow shares 2,773,180 --
Product development 1,077,615 295,878
In-process research and development acquired 17,514,000 --
Restructuring expenses 1,104,353 --
Interest (income) expense, net (121,380) 34,934
-----------------------------
Loss before income taxes and extraordinary item $(26,961,166) $ (1,155,563)
Income taxes 78,201 --
-----------------------------
Loss before extraordinary item (27,039,367) (1,155,563)
Extraordinary item -- 990,928
-----------------------------
Net loss $(27,039,367) $ (2,146,991)
=============================
Loss per common share:
Extraordinary loss per common share $ -- $ (.66)
Net loss per common share $ (7.48) $ (1.44)
Weighted average number of common shares outstanding 3,614,479 1,493,171
</TABLE>
See accompanying notes.
F-4
<PAGE> 45
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Class B Voting
Preferred Stock Common Stock
Series A $.001 Par Value
--------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 60,520 $ 61 1,846,354 $ 1,846
Cancellation of common stock (280,000) (280)
Equity component of Bridge Unit
Accretion of carrying amount of Class A,
cumulative, convertible, redeemable preferred
stock
Conversion of Class A, cumulative convertible,
redeemable preferred stock 491,821 492
Issuance of common stock to 10% note holders 243,902 244
Sale of common stock 1,033,000 1,033
Net loss
------------ ------------ ------------ ------------
Balance at December 31, 1995 60,520 61 3,335,077 3,335
Issuance of common stock from exercise of options 19,666 20
Issuance of common stock upon exercise of
over-allotment option 109,400 109
Issuance of common stock purchase warrants 767,297
Issuance of common stock and options in
connection with business combinations 4,376,162 4,376
Issuance of common stock and common stock to be
issued for services and compensation 19,938 20
Costs associated with the release of escrow shares
Net loss
------------ ------------ ------------ ------------
Balance at December 31, 1996 60,520 $ 61 7,860,243 $ 7,860
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Paid-In Accumulated Equity
Capital Deficit (Deficit)
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 502,383 $ (877,794) $ (373,504)
Cancellation of common stock 280 --
Equity component of Bridge Unit 777,217 777,217
Accretion of carrying amount of Class A,
cumulative, convertible, redeemable preferred
stock (466,019) (466,019)
Conversion of Class A, cumulative convertible,
redeemable preferred stock 1,189,758 1,190,250
Issuance of common stock to 10% note holders (244) --
Sale of common stock 4,155,378 4,156,411
Net loss (2,146,491) (2,146,491)
------------ ------------ ------------
Balance at December 31, 1995 6,158,753 (3,024,285) 3,137,864
Issuance of common stock from exercise of options 73,728 73,748
Issuance of common stock upon exercise of
over-allotment option 464,777 464,886
Issuance of common stock purchase warrants 767,297
Issuance of common stock and options in
connection with business combinations 31,352,643 31,357,019
Issuance of common stock and common stock to be
issued for services and compensation 141,059 141,079
Costs associated with the release of escrow shares 2,773,180 2,773,180
Net loss (27,039,367) (27,039,367)
------------ ------------ ------------
Balance at December 31, 1996 $ 41,731,437 $(30,063,652) $ 11,675,706
============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 46
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(27,039,367) $ (2,146,491)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 293,781 116,810
Costs associated with the release of escrow stock 2,773,180
Costs associated with issuance of common stock and
common stock purchase warrants 908,376
Extraordinary item 990,928
In-process research and development 17,514,000
Provisions for accounts receivable 501,000 321,595
Changes in operating assets and liabilities:
Accounts receivable 209,231 (387,895)
Inventories 14,850 (90,344)
Royalty advances and other assets 171,613 (217,790)
Other current assets (37,417) (91,047)
Accounts payable 22,782 120,139
Accrued expenses 4,454,367 149,032
------------ ------------
Net cash used in operating activities (213,604) (1,235,063)
INVESTMENT ACTIVITIES
Purchase of equipment, furniture and fixtures (116,896) (22,058)
Cash and cash equivalents acquired in business combination, net
of cash paid 1,963,342
------------ ------------
Net cash provided by (used in) investing activities 1,846,446 (22,058)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 124,873 1,625,233
Proceeds from sale of common stock 538,634 4,156,411
Costs incurred to register common stock (391,167)
Repayment of notes (1,809,000)
------------ ------------
Net cash provided by financing activities 272,340 3,972,644
------------ ------------
Increase in cash and cash equivalents 1,905,182 2,715,523
Cash and cash equivalents at beginning of year 2,928,272 212,749
------------ ------------
Cash and cash equivalents at end of year $ 4,833,454 $ 2,928,272
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid
NONCASH FINANCING AND INVESTING ACTIVITY
Activities in connection with business combinations:
Short-term investments acquired $ 6,328,180
Common stock and stock options issued, net 31,357,019
Notes payable assumed 1,757,675
Restricted cash 1,650,000
</TABLE>
See accompanying notes.
F-6
<PAGE> 47
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Allegro New Media, Inc. ("Allegro") and subsidiaries (collectively the
"Company"), is an international developer and supplier of visual communications,
companion utility and business productivity computer software products to
corporate customers, consumers, retail and wholesale customers and original
equipment manufacturers primarily in the United States and, in 1996, Europe.
Principles of Consolidation
The consolidated financial statements include the accounts of Allegro New Media,
Inc. and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The translation of foreign currencies
into U.S. dollars for subsidiaries where the local currency is the functional
currency is performed for balance sheet accounts using the exchange rate in
effect at year end and for revenue and expense accounts using an average rate
for the period. For foreign operations which are considered an extension of U.S.
operations, the U.S. dollar is used as the functional currency. Gains and losses
resulting from remeasurement and foreign currency transactions are included in
the results of operations.
Business Combinations
The Company has accounted for all business combinations under the purchase
method of accounting. Under this method the purchase price is allocated to the
assets and liabilities of the acquired enterprise as of the acquisition date
based on their estimated respective fair values and are subject to revision for
a period not to exceed one year from the date of acquisition. The results of
operations of the acquired enterprise are included in the Company's consolidated
financial statements for the period subsequent to the acquisition. Shares
outstanding at December 31, 1996 includes shares required to be issued in
connection with one of these transactions.
Concentration of Credit Risk
The Company performs periodic credit evaluations of its customers but generally
does not require collateral from its customers. Sales to two customers
representing greater than 10% of net sales in 1995 totaled approximately 36% of
total net sales for the year.
Revenue Recognition
Revenue is generally recognized upon shipment of products to customers and is
recorded net of allowances for anticipated returns for potential excess
quantities in the distribution channel. Certain customers have been provided
goods on a consignment basis. Revenues on these transactions are recognized upon
the sale of products to the ultimate customer. Revenue for "locked versions" of
software are recognized when customers purchase an unlocking code.
F-7
<PAGE> 48
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of three
months or less when purchased.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Royalty Advances
Non-refundable royalty payments in connection with licensing contracts for the
Company's products are generally amortized based on product sales. Management
evaluates the future realization of royalty advances periodically and charges to
cost of goods sold any amounts they believe will not be recovered through future
sales.
Product Development Costs and Acquired Software
Costs incurred in the development of new software products and enhancements to
existing software products are expensed as incurred until technological
feasibility has been established. To date, the Company's product development has
been completed concurrent with the establishment of technological feasibility
and, accordingly, no costs have been capitalized.
Acquired software consists of the value of product development acquired as a
result of business combinations and is being amortized over a three year period.
Property and Equipment
Property and equipment are stated at cost. Depreciation for financial reporting
purposes is provided on a straight-line basis based upon the estimated useful
lives of the related assets, generally 3 to 7 years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the life of the
improvement or the remainder of the lease term.
Goodwill
Goodwill represents costs in excess of net assets of businesses acquired in
purchase transactions. Goodwill is being amortized on a straight-line basis over
5 years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and accompanying notes.
These estimates principally include provisions for sales returns and allowances
and purchase price allocations. Actual results could differ from these
estimates.
F-8
<PAGE> 49
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
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 Securities and Exchange Commission Staff
Accounting Bulletin No. 83, shares issuable upon exercise of options granted
during the twelve months immediately preceding the 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 and warrants to purchase common
stock are excluded as the impact is anti-dilutive.
Advertising and Promotion Costs
Advertising and promotion costs include the costs of advertising, catalogues,
direct mail and postage and are expensed as incurred. These costs amounted to
$1,817,718 and $261,342 in 1996 and 1995, respectively.
2. BUSINESS COMBINATIONS
On July 31, 1996, Allegro acquired all of the outstanding common stock of Serif
Inc. and all of the outstanding preference shares and ordinary shares of Serif
(Europe) Limited (collectively, "Serif"). Serif is engaged in the development
and marketing of personal computer software products in the United States and
Europe, principally the United Kingdom. The aggregate purchase price, including
all direct costs, was approximately $4,200,000 and was principally financed
through the issuance of 1,000,000 shares of the Company's common stock. As a
result of the preliminary purchase price allocation, a charge to earnings of
approximately $3,514,000 was recorded on the date of acquisition representing
the cost assigned to in-process research and development. The cost of the
acquisition exceeded the fair value of Serif's net assets by approximately
$400,000, which has been recorded as goodwill.
On December 27, 1996, Allegro acquired all of the outstanding common stock of
Software Publishing Corporation ("SPC"). SPC is engaged in the development and
marketing of personal computer software products primarily in the United States
and Europe. 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 the Company's common stock. As a result of the preliminary
purchase price allocation, a charge to earnings of approximately $14,000,000 was
recorded on the date of acquisition representing the cost assigned to in-process
research and development. The cost of the acquisition exceeded the fair value of
SPC's net assets by approximately $3,795,000, which has been recorded as
goodwill.
F-9
<PAGE> 50
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS COMBINATIONS (CONTINUED)
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisitions had occurred on January 1, 1995 and does not
purport to be indicative of what would have occurred had the acquisitions
occurred on the date indicated or of the results which may occur in the future.
The write-off of in-process research and development of $17,514,000 associated
with the acquisitions was included in the 1995 pro forma summary as if the
acquisitions had occurred on January 1, 1995, and was excluded from the current
year pro forma summary.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 3L
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net sales $ 21,781,955 $ 42,822,283
Loss before extraordinary item $ 22,259,598 $ 38,562,788
Net loss $ 22,259,598 $ 39,553,716
Net loss per share $ 2.94 $ 6.70
</TABLE>
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments consist primarily of U.S.
Government obligations, municipal obligations, equity securities, and commercial
paper, all of which are carried at fair market value. Investments with
maturities in excess of 90 days at the time of acquisition are considered
short-term investments.
As of December 31, 1996, short-term investments at fair market value consisted
of the following:
<TABLE>
<S> <C>
Common stock of Computer Concepts Corporation $1,400,869
U.S. Government securities 1,483,435
Municipal securities 1,596,908
Mortgage-backed securities 1,492,247
Corporate debt securities 354,721
$6,328,180
==========
</TABLE>
All debt securities mature in less than one year. The Computer Concepts
Corporation common stock is traded on NASDAQ and is being carried at a discount
from the quoted market price due to its lack of liquidity and unregistered
status.
4. INVENTORIES
Inventories at December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Raw material $ 31,570
Finished goods 682,016
--------
$713,586
========
</TABLE>
F-10
<PAGE> 51
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE
The outstanding balance consists principally of a $1,613,425 non-interest
bearing note payable due in April 1997. The balance is fully collateralized by
restricted cash which is deposited in a bank under the terms of an escrow
agreement.
6. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Accrued transaction related costs $ 2,717,378
Accrued restructuring costs 2,929,746
Income taxes payable 1,595,536
Other accruals 2,943,399
-----------
$10,186,059
===========
</TABLE>
7. STOCKHOLDERS' EQUITY AND EXTRAORDINARY ITEM
During 1993, certain of the then existing employee/stockholders of the Company
agreed to place an aggregate of 1,000,000 newly issued shares of the Company's
common stock into escrow. In 1994, 677,500 of these shares were canceled with
the approval of such stockholders. Under the terms of the escrow agreement, the
remaining shares were to be released to the stockholders based upon the Company
achieving certain financial results, as defined. On May 25, 1995, certain
stockholder employees surrendered to the Company a total of 280,000 shares of
the Company's common stock and agreed to place an additional 220,000 shares
under the terms of an additional escrow agreement. These shares were to be
released to the stockholders upon the Company attaining certain financial
results, as defined. During 1996, the Company's Board of Directors released a
total of 531,000 shares held under the escrow agreements. This release resulted
in the recognition of compensation expense totaling $2,773,180 based on the fair
value of the shares on the date of release. The remaining 11,500 shares were
canceled by the Company.
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.
The Class B Voting Preferred Stock, Series A ("Class B Voting Preferred") has
maximum liquidation rights of $.001 per share, but is not permitted to receive
dividends. The holders of Class B Voting Preferred are entitled to 10 votes per
share. These shares are entitled to no other benefits of ownership.
During 1995, the Company issued 14% short-term notes payable aggregating
$559,000 which were payable upon the earlier of December 25, 1995 or the
Company's receipt of sufficient funds from subsequent sales of securities. In
August 1995, the Company completed the sale of $1,250,000 principal
F-11
<PAGE> 52
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY AND EXTRAORDINARY ITEM (CONTINUED)
amount of 10% notes due the earlier of the completion of an initial public
offering of the Company's common stock or February 28, 1997. The Company
received net proceeds of $1,066,233, a portion of which was used to repay all of
the short-term 14% notes payable described above. In addition to the 10% notes,
the holders were entitled to receive a number of shares of the Company's common
stock equal to the principal amount of the notes divided by the issuance price
in an initial public offering of such common stock. At the date of issuance and
based on an assumed fair value of $5.00 per share, the Company allocated
$777,217 (net of offering costs of $160,283) to the equity component and
$312,500 to the 10% notes payable. The carrying amount of these notes was
increased periodically (using the interest method) to equal the principal
balance at maturity.
In December 1995, the Company completed an initial public offering of 1,033,000
shares of its common stock and received net proceeds of $4,156,411. Upon the
completion of this offering the Company repaid all of the 10% notes payable and
issued 243,902 shares of its common stock to the holders thereof. The Company
incurred an extraordinary loss of $990,928 relating to deemed interest and
deferred financing costs associated with the repayment of the 10% notes payable.
In January 1996, the Company issued 109,400 shares of common stock in connection
with the exercise of the over-allotment option by the underwriter of the
Company's initial public offering and received net proceeds of $469,886 in
connection therewith.
In connection with a license agreement, in 1994 the licensor was granted an
option to purchase up to 100,000 shares of the Company's common stock at a price
per share equal to the initial public offering price (less underwriting
discounts). This agreement expires on July 31, 1998.
The Company agreed to issue 71,428 shares of stock and granted warrants to
purchase 500,000 shares of Common Stock to the underwriter of its initial public
offering and previous financial adviser, and a designee thereof, to modify and
terminate this relationship. The related costs amounted to $1,026,000 and are
included in selling, general and administrative expenses.
8. RESTRUCTURING EXPENSES
In connection with the SPC business combination, the Company initiated a
corporate-wide consolidation program. This program, which is expected to be
completed by December 31, 1997, consisted of employee severance arrangements for
10 employees at various levels ($185,000), the elimination of duplicate lease
facilities in New Jersey and Europe ($375,000) and other related costs
($544,000).
9. INCOME TAXES
At December 31, 1996 the Company has available net operating loss carryforwards
of approximately $78 million that expire in years 2002 through 2011, and general
business credit carryovers of approximately $1.5 million, which expire in years
2005 and 2006. These carryforwards are subject to the limitations as described
below.
F-12
<PAGE> 53
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------
<S> <C>
DEFERRED TAX ASSETS
Current:
Reserve on notes and accounts receivable $ 1,581,000
Inventory reserves 1,639,000
Other reserves and accruals 1,400,000
------------
Total current deferred tax assets 4,620,000
Valuation allowance for current deferred tax assets (4,620,000)
------------
Net current deferred tax assets --
Non-current:
Depreciation 1,721,200
General business credit carryforwards 1,527,000
Net operating loss carryforwards 28,928,000
------------
Total non-current deferred tax assets 32,176,200
------------
Valuation allowance for non-current deferred tax
assets (32,176,200)
Net non-current deferred tax assets --
------------
$ --
============
</TABLE>
The Company's loss before taxes is comprised of the following:
<TABLE>
<CAPTION>
December 31
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
United States $(27,154,223) $ (1,155,563)
Foreign 193,057 --
------------ ------------
$(26,961,166) $ (1,155,563)
============ ============
</TABLE>
The provision for income taxes of $78,201 consists principally of foreign taxes
which are currently payable.
F-13
<PAGE> 54
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the federal statutory tax rates to
the recorded income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
----------- -----------
<S> <C> <C>
Tax (benefit) at US statutory rates $(9,167,000) $ (392,900)
Write-off of in-process research and development
costs 5,955,000 --
Costs associated with release of escrow shares 942,900 --
Change in valuation allowance from operations 2,262,600 392,900
Foreign and state income taxes 78,201 --
Other 6,500 --
----------- -----------
$ 78,201 $ --
=========== ===========
</TABLE>
The Tax Reform Act of 1986 enacted a complex set of rules limiting the potential
utilization of net operating loss and tax credit carryforwards in periods
following a corporate "ownership change". In general, for federal income tax
purposes, an ownership change is deemed to occur if the percentage of stock of a
loss corporation owned (actually, constructively and, in some cases, deemed) by
one or more "5% shareholders" has increased by more than 50 percentage points
over the lowest percentage ownership of such stock owned during a three-year
testing period. With regard to the purchase of SPC, such a change in ownership
occurred. As a result of the change, the Company's ability to utilize its net
operating loss carryforwards and general business credits will be limited to
approximately $1.2 million of taxable income per year. The SPC portion of the
net operating loss carryforwards totaling approximately $69 million are also
subject to the additional limitation that such losses can only be utilized to
offset the separate company taxable income of SPC.
In addition, the recognition of the tax benefits associated with these acquired
net operating losses of approximately $69 million and deductible temporary
differences of approximately $12 million will, upon recognition, be recorded as
an adjustment to any remaining goodwill.
In connection with the purchase of SPC, the Company intends to enter into a
closing agreement with the Internal Revenue Service pursuant to which the
Company will become jointly and severally liable for SPC's tax obligations upon
occurrence of a "triggering event" requiring recapture of dual consolidated
losses previously utilized by SPC. Such closing agreement will avoid the Company
being required to recognize a tax on approximately $24.5 million of SPC's
previous dual consolidated losses at the acquisition date.
F-14
<PAGE> 55
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
While the Company believes it will obtain this agreement, failure to do so could
result in the recognition of this tax liability.
10. STOCK OPTION PLANS
The Company has five stock options plans: the Allegro New Media, Inc. 1994
Long-Term Incentive Plan (the "1994 Incentive Plan"), the Outside Directors and
Advisors Stock Option Plan (the "Allegro Directors Plan"), the Software
Publishing Corporation 1987 Stock Option Plan, the Software Publishing
Corporation 1989 Stock Option Plan, the Software Publishing Corporation 1991
Stock Option Plan (collectively, the "SPC Stock Option Plans"). All plans are
administered by the Board of Directors or a committee thereof.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation." ("SFAS No. 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Elements of the Company's various stock option plans include the following:
THE 1994 INCENTIVE PLAN - In December 1993, the Company's Board of Directors and
stockholders adopted the 1994 Incentive Plan. Under the terms of the 1994
Incentive Plan, the Company's Board of Directors or a committee thereof may
grant options, stock appreciation rights, restricted stock performance grants of
the Company's common stock, cash or other assets to employees, consultants and
others who perform services for the Company at such prices as may be determined
by the Board of Directors (which price may be no less than 85% of the fair
market value of the common stock on the date of grant in the case of
nonqualified stock options). The maximum number of shares subject to the 1994
Incentive Plan as of December 31, 1996 is 3,000,000. The options currently
outstanding vest over a period of up to five years and expire after 10 years.
THE ALLEGRO DIRECTORS PLAN - In August 1995, the Company's Board of Directors
and stockholders approved the Allegro Directors Plan. Under the terms of this
plan, each new non-employee director and member of the Advisory Committee
receives options to purchase 25,000 shares exercisable at fair market value on
the date of grant upon becoming such a director or member. In addition, on each
August 1 thereafter each such person will receive options to purchase 10,000
shares of the Company's common
F-15
<PAGE> 56
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLANS (CONTINUED)
stock at an exercise price equal to the fair market value at the respective
dates. The Advisory Committee of the Company was dissolved in 1997. The maximum
number of shares of common stock subject to this plan is 500,000. The options
vest over a period of two years and expire after 10 years.
THE SPC PLANS - Options under the SPC Stock Option plans may be granted for
periods of up to ten years, for the 1987 and 1989 plans, at prices no less than
50% of fair value and for the 1991 plan, an exercise price no lower than 85% of
fair value, in each case for non qualified options, and at not less than fair
market value for incentive stock options. To date all options have been issued
at fair value. Options become exercisable at such times and under such
conditions as determined by the Board of Directors. As a result of the
acquisition of SPC by the Company all options outstanding under the SPC Plans
were converted (based on the exchange ratio used to complete the acquisition) to
options to acquire Allegro common stock.
In addition to the Plan's described above, the Company's Board of Directors from
time-to-time has granted outside consultants and vendors non-plan options.
Specific terms of each such grant are at the sole discretion of the Board of
Directors and are generally at prices not less than the fair market value at the
date of grant.
Option activities under the plans and for the non-plan options are detailed in
the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
1994 ALLEGRO EXERCISE
INCENTIVE DIRECTORS SPC NON- PRICE PER
PLAN PLAN PLANS PLAN SHARE
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at January 1, 1995 340,337 100,000 $ 2.80
Granted 35,000 200,000 - $ 3.75
Exercised
Forfeited (20,600) (25,000) $ 3.19
------------------------------------------------------------------
354,737 175,000 - 100,000 $ 3.13
Outstanding at January 1, 1996
Granted 1,119,310 215,000 50,000 $ 4.43
Assumed -- 651,360 $ 5.01
Exercised -- (19,666) $ 3.75
Forfeited (12,500) $ 3.75
------------------------------------------------------------------
Outstanding at December 31, 1996 1,461,547 370,334 651,360 150,000 $ 3.99
==================================================================
Exercisable at December 31, 1996 98,128 160,325 109,627 150,000 $ 4.76
==================================================================
Exercisable at December 31, 1995 26,667 58,331 100,000 $ 4.36
==================================================================
</TABLE>
F-16
<PAGE> 57
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLANS (CONTINUED)
As of December 31, 1996, 4,334,712 shares of common stock are reserved for
issuance under the plans described above.
The weighted average fair value of options granted was $3.36 and $2.88 for 1996
and 1995, respectively.
At December 31, 1996, for each of the following classes of options as determined
by range of exercise price, the following information regarding weighted-average
exercise prices and weighted average remaining contractual lives of each class
is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average Weighted
Average Remaining Average
Number Exercise Price Contractual Number of Exercise Price
of of Life of Options of Options
Options Outstanding Outstanding Currently Currently
Outstanding Options Options Exercisable Exercisable
Option Class
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prices ranging from
$2.00 - $3.99 1,344,838 $3.21 9.15 195,123 $3.05
$4.00 - $5.99 1,050,973 $4.94 6.75 790,570 $4.77
$6.00 - $7.99 213,310 $7.37 8.59 50,000 $6.75
$8.00 - $16.79 24,120 $14.15 6.32 24,120 $14.15
</TABLE>
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had been accounting for
its employee stock options under the fair value method of that statement. The
fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for 1996 and
1995, respectively: weighted-average risk-free interest rates of 6.5% and 6.4%;
no dividends; volatility factors of the expected market price of the Company's
common stock of .7601 for both years and for both periods, a weighted-average
expected life of the options of 7.5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-17
<PAGE> 58
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLANS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
granted in 1996 and 1995 is amortized to expense over the options' vesting
period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Pro forma net loss $ 27,626,144 $ 2,256,154
Pro forma net loss per share $ 7.64 $ 1.51
</TABLE>
The pro forma disclosures presented above for 1995 reflect compensation expense
only for options granted in 1995 and for 1996 only for options granted in 1995
and 1996. These amounts may not necessarily be indicative of the pro forma
effect of SFAS No. 123 for future periods in which options may be granted.
11. COMMITMENTS AND EXECUTIVE COMPENSATION
The Company leases certain office space and equipment under non-cancelable
operating type leases. In addition to the fixed rentals, certain of the leases
require the Company to pay certain additional amounts based on certain costs
related to the property. Certain of the leases have renewal options for periods
of up to 2 years. Rental expense was approximately $108,000 and $40,900 in 1996
and 1995, respectively.
Future minimum lease payments under non-cancelable operating leases with terms
of one year or more are as follows:
<TABLE>
<S> <C>
1997 $513,000
1998 $463,000
1999 $442,000
2000 $372,000
2001 $90,000
-----------------
Total $1,880,000
=================
</TABLE>
The Company has entered into employment agreements with several key employees.
The agreements provide for an annual base salary plus annual incentive bonuses
based on certain of the Company's operating results, as defined, and certain
termination benefits based on a change in control of the Company. The terms of
the agreements are up to five years. The Company's aggregate annual minimum
commitment under these agreements is $820,000.
F-18
<PAGE> 59
ALLEGRO NEW MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SEGMENT AND GEOGRAPHIC INFORMATION
Allegro conducts its business within the computer software industry segment.
As a result of the acquisition of Serif in July, 1996 the Company began
operating in Europe, principally, the United Kingdom. For 1996 the Company had
net revenues, operating income and identifiable assets of $2,486,368, $187,664
and $2,044,000, respectively, related to its European operations.
13. EMPLOYEE BENEFIT PLAN
A subsidiary of the Company sponsors a defined contribution employee savings
plan pursuant to Internal Revenue Code Section 401(k). The Plan covers
substantially all of the subsidiary's employees. Eligible employees may
contribute up to 15% of eligible compensation up to a maximum of $9,723, as
adjusted. The Company made no contributions during 1996.
14. RELATED PARTY TRANSACTION
During 1996, the Company incurred legal expenses of approximately $350,000 to a
law firm in which a director of the Company was a member, of which approximately
$95,500 is included in accrued liabilities at December 31, 1996.
F-19
<PAGE> 60
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALLEGRO NEW MEDIA, INC.
Date: April 14, 1997 By: /s/ Barry A. Cinnamon
-------------------------------------
Barry A. Cinnamon
Chairman of the Board and President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-KSB has been signed on April 14, 1997 by
the following persons in the capacities indicated. Each person whose signature
appears below constitutes and appoints Barry A. Cinnamon and Mark E. Leininger,
or either of them, with full power of substitution, his/her true and lawful
attorneys-in-fact and agents to do any and all acts and things in his/her name
and on his/her behalf in his/her capacities indicated below which they or either
of them may deem necessary or advisable to enable Allegro New Media, Inc. to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Annual Report on Form 10-KSB, including specifically, but
not limited to, power and authority to sign for him/her in his/her name in the
capacities stated below, any and all amendments thereto, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
such connection, as fully to all intents and purposes as he/her might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
<TABLE>
<S> <C>
/s/ Barry A. Cinnamon Chairman of the Board, President and Chief Executive
- ----------------------------------------------------- Officer and Director (Principal Executive Officer)
Barry A. Cinnamon
/s/ Mark E. Leininger Chief Operating Officer, Chief Financial Officer, Vice
- ----------------------------------------------------- President - Finance, Treasurer and Director (Principal
Mark E. Leininger Financial Officer)
/s/ Lori Kramer Cinnamon Assistant Vice President-Marketing and Director
- -----------------------------------------------------
Lori Kramer Cinnamon
/s/ Neil M. Kaufman Secretary and Director
- -----------------------------------------------------
Neil M. Kaufman
</TABLE>
-41-
<PAGE> 61
/s/ Norman W. Alexander Director
- -----------------------------------------------------
Norman W. Alexander
/s/ Neil R. Austrian, Jr. Director
- -----------------------------------------------------
Neil R. Austrian, Jr.
/s/ Marc E. Jaffe Director
- -----------------------------------------------------
Marc E. Jaffe
/s/ Eng Chye Low Director
- -----------------------------------------------------
Eng Chye Low
- 42 -
<PAGE> 62
ALLEGRO NEW MEDIA, INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1996
EXHIBIT INDEX
Set forth below are all exhibits to this Annual Report on Form 10-KSB:
3.1 Composite of Certificate of Incorporation of the Company, as amended to
date.
3.2 By-laws of the Company, as amended. (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-4
(Registration Number: 333-16449), filed with the Commission on November
21, 1996.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on September
21, 1995.)
10.1 Company 1994 Long Term Incentive Plan.
10.2 Company Outside Director and Advisor Stock Option Plan. (Incorporated
by reference to Exhibit 4 to the Company's Registration Statement on
Form S-8 (Registration Number: 333-13063), filed with the Commission on
September 30, 1996.)
10.3 SPC 1987 Stock Option Plan. (Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-8 (Registration
Number: 333-19509), filed with the Commission on January 10, 1997.)
10.4 SPC 1989 Stock Plan. (Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (Registration Number:
333-19509), filed with the Commission on January 10, 1997.)
10.5 SPC 1991 Stock Option Plan. (Incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8 (Registration
Number: 333-19509), filed with the Commission on January 10, 1997.)
10.6 Employment Agreement dated as of December 27, 1993, as amended through
Amendment No. 6, between the Company and Barry A. Cinnamon.
(Incorporated by reference to Exhibit 10.3 to the Company's Amendment
No. 1 to Registration Statement on Form SB-2 (Registration Number:
33-97184), filed with the Commission on November 6, 1995, Exhibit 10.30
to the Company's Quarterly Report on Form 10-QSB (Commission File
Number: 1-14076), for the quarter ended March 31, 1996, filed with the
Commission on May 14, 1996, and Exhibit 10.35 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076), for
the quarter ended September 30, 1996, filed with the Commission on
November 5, 1996.)
10.7 Amendment No. 7 to Employment Agreement between the Company and Barry
A. Cinnamon.
10.8 Employment Agreement dated as of December 27, 1993, as amended through
Amendment No. 3, between the Company and Lori Kramer Cinnamon.
(Incorporated by reference to Exhibit 10.4 to the Company's Amendment
No. 1 to Registration Statement on Form SB-2 (Registration Number:
33-97184), filed with the Commission on November 6, 1995.)
10.9 Employment Agreement dated October 2, 1996 between the Company and
Joseph V. Szczepaniak. (Incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form S-4 (Registration Number:
333-16449), filed with the Commission on November 21, 1996.)
10.10 Employment Agreement, as amended, dated April 7, 1995 between SPC and
Daniel J. Fraisl.
10.11 Agreement dated October 25, 1996 between the Company and Mark E.
Leininger. (Incorporated by reference to Exhibit 10.36 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076), for
the quarter ended September 30, 1996, filed with the Commission on
November 5, 1996.)
10.12 Agreement and Plan of Reorganization dated as of October 1, 1996 among
the Company, SPC and SPC Acquisition Corporation. (Incorporated by
reference to Exhibit 2 to the Company's Registration Statement on Form
S-4 (Registration Number: 333-16449), filed with the Commission on
November 21, 1996.)
10.13 Form of Bridge Unit Subscription Agreement. (Incorporated by reference
to Exhibit 10.7 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on September
21, 1995.)
- 43 -
<PAGE> 63
10.14 Stock Option Agreement dated as of August 2, 1994 between the Company
and Berlitz Publishing Company, Inc. (Incorporated by reference to
Exhibit 10.10 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on September
21, 1995.)
10.15 Settlement and General Release Agreement dated as of January 30, 1997
between the Company and Miriam K. Frazer.
10.16 Agreement dated June 14, 1994, as amended, between the Company, M.S.
Farrell & Co., Inc. and the holders of shares of Class A Convertible
Preferred Stock. (Incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form SB-2 (Registration Number:
33-97184), filed with the Commission on September 21, 1995.)
10.17 Form of Indemnification Agreement between the Registrant and its
executive officers and directors. (Incorporated by reference to Exhibit
10.8 to the Company's Registration Statement on Form SB-2 (Registration
Number: 33-97184), filed with the Commission on September 21, 1995.)
10.18 Underwriter's Purchase Option dated December 12, 1995 issued to M.S.
Farrell & Co., Inc. (Incorporated by reference to Exhibit 4.2 to the
Company's Amendment No. 2 to Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on December
1, 1995.)
10.19 Consulting Agreement dated June 14, 1994 between the Registrant and
M.S. Farrell & Co., Inc. (Incorporated by reference to Exhibit 10.21
to the Company's Registration Statement on Form SB-2 (Registration
Number: 33-97184), filed with the Commission on September 21, 1995.)
10.20 Form of Mergers and Acquisitions Agreement between the Registrant and
M.S. Farrell & Co., Inc. (Incorporated by reference to Exhibit 10.23
to the Company's Registration Statement on Form SB-2 (Registration
Number: 33-97184), filed with the Commission on September 21, 1995.)
10.21 Form of Lock-Up Agreement dated as of July 31, 1996 relating to
limitations on stock sales between the Company and each of the former
stockholders of Serif Inc.
10.22 Form of Lock-Up Agreement dated as of July 31, 1996 relating to
limitations on stock sales between the Company and each of the former
stockholders of Serif (Europe) Limited.
10.23 Agreement and Plan of Reorganization dated as of July 31, 1996 among
the Company, Serif Inc., Gwyn Jones and all other stockholders of Serif
Inc. (Incorporated by reference to Exhibit 4.3 to the Company's Current
Report on Form 8-K (Date of Report: July 31, 1996) (Commission File
Number: 1-14076), filed with the Commission on August 13, 1996.)
10.24 Agreement and Plan of Reorganization dated as of July 31, 1996 among
the Company, Serif (Europe) Limited, Gwyn Jones and all other
stockholders of Serif (Europe) Limited. (Incorporated by reference to
Exhibit 4.4 to the Company's Current Report on Form 8-K (Date of
Report: July 31, 1996) (Commission File Number: 1-14076), filed with
the Commission on August 13, 1996.)
10.25 Registration Rights Agreement dated July 31, 1996 between the Company
and the former stockholders of Serif Inc. and Serif (Europe) Limited.
(Incorporated by reference to Exhibit 10.31 to the Company's Current
Report on Form 8-K (Date of Report: July 31, 1996) (Commission File
Number: 1-14076), filed with the Commission on August 13, 1996.)
10.26 Escrow Agreement dated July 31, 1996, among the Company, Serif Inc.,
the former stockholders of Serif Inc., Gwyn Jones and Blau, Kramer,
Wactlar & Lieberman, P.C. (Incorporated by reference to Exhibit 2 to
the Schedule 13D Statement of Barry A. Cinnamon, with respect to the
Common Stock of the Company, filed with the Commission on October 31,
1996.)
10.27 Localization and Distribution Agreement for Harvard Graphics Windows
Products dated February 16, 1995 between Choten, Inc. and SPC.
(Incorporated by reference to Exhibit 10.21 to Software Publishing
Corporation's Annual Report on Form 10-K (Commission File Number:
0-14025), for the fiscal year ended September 30, 1995, filed with the
Commission on December 29, 1995.)
10.28 Escrow Agreement dated July 31, 1996, among the Company, Serif (Europe)
Limited, the former Stockholders of Serif (Europe) Limited, Gwyn Jones
and Blau, Kramer, Wactlar & Lieberman, P.C.
10.29 Lease Agreement dated September 7, 1995 between Community Towers LLC
and the Company, for facilities located at 111 North Market Street, San
Jose, California. (Incorporated by reference to Exhibit 10.22 to
Software Publishing Corporation's Annual Report on Form 10-K
(Commission File Number: 0-14025), for the fiscal year ended September
30, 1995, filed with the Commission on December 29, 1995.)
- 44 -
<PAGE> 64
10.30 Stockholders' Agreement dated as of July 31, 1996 among Barry A.
Cinnamon, Gwyn Jones and the former stockholders of Serif Inc. and
Serif (Europe) Limited. (Incorporated by reference to Exhibit 1 to the
Schedule 13D Statement of Barry A. Cinnamon, with respect to the Common
Stock of the Company, filed with the Commission on October 31, 1996.)
10.31 Letter Agreement dated October 24, 1996 between the Company and Gwyn
Jones.
10.32 Compromise Agreement executed October 24, 1996 between the Company and
Gwyn Jones.
10.33 Settlement and General Release Agreement dated as of July 23, 1996
among the Company, Richard Bergman and Barry Cinnamon. (Incorporated by
reference to Exhibit 10.32 to the Company's Current Report on Form 8-K
(Date of Report: July 31, 1996) (Commission File Number: 1-14076),
filed with the Commission on August 13, 1996.)
10.34 Escrow Agreement dated as of December 27, 1993, as amended through
September 5, 1996, among the Company, Barry A. Cinnamon, Richard
Bergman and Blau, Kramer, Wactlar & Lieberman, P.C. (Incorporated by
reference to Exhibit 10.25 to the Company's Amendment No. 1 to
Registration Statement on Form SB-2 (Registration Number: 33-97184),
filed with the Commission on November 6, 1995, Exhibit 10.32 to the
Company's Quarterly Report on Form 10-QSB (Commission File Number:
1-14076), for the quarter ended March 31, 1996, filed with the
Commission on May 14, 1996, and Exhibit 10.34 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076), for
the quarter ended September 30, 1996, filed with the Commission on
November 5, 1996.)
10.35 Escrow Agreement dated as of May 25, 1995, as amended through September
5, 1996, among the Company, Barry A. Cinnamon, Richard Bergman and
Blau, Kramer, Wactlar & Lieberman, P.C. (Incorporated by reference to
Exhibit 10.26 to the Company's Amendment No. 1 to Registration
Statement on Form SB-2 (Registration Number: 33-97184), filed with the
Commission on November 6, 1995, and Exhibit 10.34 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076), for
the quarter ended September 30, 1996, filed with the Commission on
November 5, 1996.)
10.36 Deed of Variation (First Amendment) of the Lease between Registrant and
Allied Dunbar Assurance plc for facilities located at the Pyramid
House, Easthampstead Road, Bracknell, Berkshire, United Kingdom.
(Incorporated by reference to Exhibit 10.1 to Software Publishing
Corporation's Quarterly Report on Form 10-Q (Commission File Number:
0-14025), for the quarter ended March 31, 1994, filed with the
Commission on May 13, 1994.)
10.37 Asset Acquisition Agreement dated June 14, 1994 between SPC and
Computer Concepts Corporation. (Incorporated by reference to Exhibit
10.1 to Software Publishing Corporation's Quarterly Report on Form 10-Q
(Commission File Number: 0-14025), for the quarter ended June 30, 1994,
filed with the Commission on August 12, 1994.)
10.38 Stock Purchase Agreement dated March 31, 1995 among SPC, Digital Paper,
Inc., Daniel J. Fraisl, Carl Meyer and Anthony N. Hoeber. (Incorporated
by reference to Exhibit 10.4 to Software Publishing Corporation's
Quarterly Report on Form 10-Q (Commission File Number: 0-14025), for
the quarter ended March 31, 1995, filed with the Commission on May 15,
1995.)
10.39 Amendment to Stock Purchase Agreement dated as of April 2, 1996 among
SPC, Digital Paper, Inc. Daniel J. Fraisl, Carl Meyer and Anthony N.
Hoeber.
10.40 Amendment No. 2 to Stock Purchase Agreement dated October 1, 1996 among
SPC, Digital Paper, Inc., Daniel J. Fraisl, Carl Meyer and Anthony N.
Hoeber.
10.41 Asset Purchase Agreement dated as of May 1, 1996 between the Company
and BizEd, Inc.
10.42 Consulting Agreement dated as of May 1, 1996 between the Company and
Clifford J. Schorer, Jr.
10.43 Warrant dated August 20, 1996 issued to M.S. Farrell & Co., Inc.
10.44 Warrant dated August 20, 1996 issued to Richard L. Klass.
10.45 Letter Agreement dated March 27, 1997 between the Company and M.S.
Farrell & Co., Inc.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney (set forth on the signature page of this Annual
Report on Form 10-KSB).
27 Financial Data Schedule.
- 45 -
<PAGE> 1
EXHIBIT 3.1
COMPOSITE
CERTIFICATE OF INCORPORATION
OF
ALLEGRO NEW MEDIA, INC.
(A DELAWARE CORPORATION)
* * * * * *
FIRST: The name of the corporation is:
ALLEGRO NEW MEDIA, INC.
SECOND: The location of the registered office of the
Corporation in the State of Delaware is at Corporation Trust Center, 1209 Orange
Street, City of Wilmington, County of New Castle. The name of the registered
agent of the Corporation in the State of Delaware at such address upon whom
process against the Corporation may be served is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: (a) The total number of shares of all classes of
stock which the Corporation shall have authority to issue is THIRTY-TWO MILLION
(32,000,000) shares. Of these (i) THIRTY MILLION (30,000,000) shares shall be
shares of Common Stock of the par value of $.001 per share; (ii) ONE MILLION
NINE HUNDRED THIRTY-NINE THOUSAND FOUR HUNDRED EIGHTY (1,939,480) shares shall
be Serial Preferred Stock of the par value of $.001 per share; and (iii)
SIXTY-THOUSAND FIVE HUNDRED TWENTY (60,520) shares shall be Class B Voting
Preferred Stock, Series A of the par value of $.001 per share.
(b) The statement of the relative rights, preferences and
limitations of the shares of each class is as follows:
A. Serial Preferred Stock. The Serial Preferred Stock may be
issued from time to time in classes or series and shall have such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions of the Board of Directors providing for the issuance
of such stock.
<PAGE> 2
1. Designation. (a) The designation of the series of Serial
Preferred Stock created hereby shall be "Class B Voting Preferred Stock, Series
A" (hereinafter called the "Class B Preferred"), and the number of shares
constituting the Class B Preferred is 60,520.
(b) All shares of Class B Preferred shall be identical with
each other in all respects. All shares of Class B Preferred shall rank, as to
the payment of dividends and of distributions of assets upon any dissolution,
liquidation or winding up of the Corporation, prior to the common stock, par
value $.001 per share, of the Corporation, and any other stock which by its
terms ranks junior to the Class B Preferred and on a parity with any other class
or series of stock of the Corporation ranking on a parity with the Class B
Preferred as to distribution upon dissolution, liquidation or winding up of the
Corporation.
(c) Shares of the Class B Preferred that have been redeemed,
purchased or otherwise acquired by the Corporation shall not be reissued as
Class B Preferred and when retired as provided by the General Corporation Law of
the State of Delaware, shall have the status of authorized but unissued shares
of Serial Preferred Stock, without designation as to series until such shares
are once more designated as part of a particular series by the Board of
Directors of the Corporation or a duly authorized committee thereof.
2. Dividends. Each holder of shares of Class B Preferred
(each a "Holder") shall not be entitled to receive any dividends.
3. Liquidation Rights. (a) Upon the dissolution, liquidation
or winding up of the affairs of the Corporation, whether voluntary or
involuntary, the Holders of shares of Class B Preferred then outstanding shall
be entitled to receive, out of the assets of the Corporation available for
distribution to stockholders after satisfying claims of creditors but before
distributions of assets shall be made on the Common Stock or any other class or
series of stock ranking junior to the shares of Class B Preferred upon
liquidation, dissolution or winding up of the Corporation, the amount of $.001
per share plus an amount equal to all accrued but unpaid dividends on such
shares to the date of final distribution.
(b) Neither the sale, lease or exchange (for cash, shares of
stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation, nor the merger or consolidation of the
Corporation into or with any other corporation, or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this paragraph.
(c) After payment to the Holders of the full preferential
amount provided for in this paragraph 3 ($605.20), holders of shares of Class B
Preferred in their capacity as Holders shall have no right or claim to any of
the remaining assets of the Corporation.
(d) If the assets of the Corporation available for
distribution to the Holders upon dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, shall be insufficient to pay in
full all amounts to which the Holders are entitled pursuant to clause (a) of
this paragraph 3, and to which holders of any other class or series of stock of
the Corporation ranking on a
2
<PAGE> 3
parity with the Class B Preferred as to distribution upon dissolution,
liquidation or winding up of the Corporation (collectively, the "Parity
Stockholders") are entitled pursuant to the Certificate of Incorporation, as it
may be amended from time to time (including any Certificate of Designations),
then such assets shall be distributed among the Holders of the Class B Preferred
and the Parity Stockholders ratably in proportion to the full amounts otherwise
due such Holders and Parity Stockholders.
4. Voting Rights. (a) The Holders of shares of Class B
Preferred shall vote together with the shares of Common Stock of the
Corporation. The Holder of each share of Class B Preferred shall be entitled to
ten (10) votes per share of Class B Preferred.
(b) Voting rights hereunder shall be exercised at each
meeting of stockholders for the election of directors or otherwise or in
connection with a written consent in lieu thereof, as the case may be.
B. Common Stock. Subject to the rights, privileges,
preferences and priorities of any holders of Serial Preferred Stock, the Common
Stock shall be entitled to dividends out of funds legally available therefor,
when, as and if declared and paid to the holders of Common Stock, and upon
liquidation, dissolution or winding up of the Corporation, to share ratably in
the assets of the Corporation available for distribution to the holders of
Common Stock. Except as otherwise provided herein or by law, the holders of the
Common Stock shall have full voting rights and powers, and each share of Common
Stock shall be entitled to one vote. All shares of Common Stock shall be
identical with each other in every respect.
FIFTH: The name and mailing address of the incorporator is
as follows:
Neil M. Kaufman
Blau, Kramer, Wactlar
& Lieberman, P.C.
100 Jericho Quadrangle
Suite 225
Jericho, New York 11753
SIXTH: (a) The number of directors of the corporation shall
be determined in the manner prescribed by the by-laws of this corporation.
(b) The Board of Directors shall be divided into three (3)
classes as nearly equal in number as possible, and no class shall include less
than one (1) director. The terms of the office of the directors initially
classified shall be as follows: that of Class I shall expire at the next annual
meeting of shareholders to be held in 1994, Class II at the second annual
meeting of shareholders to be held in 1995 and Class III at the third succeeding
annual meeting of shareholders to be held in 1996. The foregoing
3
<PAGE> 4
notwithstanding, each director shall serve until his successor shall have been
duly elected and qualified, unless he shall resign, become disqualified,
disabled or shall otherwise be removed. Whenever a vacancy occurs on the Board
of Directors, a majority of the remaining directors have the power to fill the
vacancy by electing a successor director to fill that portion of the unexpired
term resulting from the vacancy.
(c) At each annual meeting of shareholders after such
initial classification, directors chosen to succeed those whose terms then
expire at such annual meeting shall be elected for a term of office expiring at
the third succeeding annual meeting of shareholders after their election. When
the number of directors is increased by the Board of Directors and any newly
created directorships are filled by the Board of Directors, there shall be no
classification of the additional directors until the next annual meeting of
shareholders. Directors elected, whether by the Board of Directors or by the
shareholders, to fill a vacancy, subject to the foregoing, shall hold office for
a term expiring at the annual meeting at which the term of the Class to which
they shall have been elected expires. Any newly created directorships or any
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as possible.
SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware as the by-laws may provide. The books of the
corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the by-laws of the corporation.
Election of directors need not be by written ballot unless the by-laws of the
corporation shall so provide.
EIGHTH: Subject to the provisions contained in Article
TWELFTH hereof, the corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
NINTH: Any action required to be taken or which may be taken
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
TENTH: Special meetings of stockholders may be called by the
Chairman of the Board, President or a majority of the Board of Directors or at
the written request of stockholders owning at least sixty-six and two-thirds
percent (66-2/3%) of the entire voting power of the corporation's capital stock.
ELEVENTH: In the event that it is proposed that the
corporation enter into a merger or consolidation with any other corporation and
such other corporation or its affiliates singly or in the aggregate own or
control directly or indirectly fifteen (15%) percent or more of the outstanding
voting power of the capital stock of this corporation, or that the corporation
sell substantially all of its assets or
4
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business to such other corporation, the affirmative vote of the holders of not
less than sixty-six and two-thirds (66-2/3%) percent of the total voting power
of all outstanding shares of capital stock of this corporation shall be required
for the approval of any such proposal; provided, however, that the foregoing
shall not apply to any such merger, consolidation or sale of assets or business
which was approved by resolutions of the Board of Directors of this corporation
prior to the acquisition of the ownership or control of fifteen (15%) percent of
the outstanding shares of this corporation by such other corporation or its
affiliates, nor shall it apply to any such merger, consolidation or sale of
assets or business between this corporation and another corporation, fifty (50%)
percent or more of the total voting power of which is owned by this corporation.
For the purposes hereof, an "affiliate" is any person (including a corporation,
partnership, trust, estate or individual) who directly or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the person specified; and "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of management and
policies of a person, whether through the ownership of voting securities, by
contract, or otherwise.
TWELFTH: The provisions set forth in Articles SIXTH, NINTH,
TENTH AND ELEVENTH above may not be altered, amended or repealed in any respect
unless such alteration, amendment or repeal is approved by the affirmative vote
of the holders of not less than sixty-six and two-thirds percent (66-2/3%) of
the total voting power of all outstanding shares of capital stock of the
corporation.
THIRTEENTH: Each person who at any time is or shall have
been a director or officer of the Corporation and is threatened to be or is made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is, or he or his testator or intestate was, a director, officer,
employee or agent of the Corporation, or served at the request of the
Corporation as a director, officer, employee, trustee or agent of another
corporation, partnership, joint, venture, trust or other enterprise, shall be
indemnified against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any such threatened, pending or completed action, suit or proceeding to the
full extent authorized under Section 145 of the General Corporation Law of the
State of Delaware. The foregoing right of indemnification shall in no way be
exclusive of any other rights of indemnification to which such director,
officer, employee or agent may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors, or otherwise.
FOURTEENTH: Any and all right, title, interest and claim in
or to any dividends declared by the Corporation, whether in cash, stock, or
otherwise, which are unclaimed by the stockholder entitled thereto for a period
of six (6) years after the close of business on the payment date shall be and be
deemed to be extinguished and abandoned; such unclaimed dividends in the
possession of the Corporation, its transfer agents, or other agents or
depositaries, shall at such time become the absolute property of the
Corporation, free and clear of any and all claims for any person whatsoever.
FIFTEENTH: Any and all directors of the Corporation shall
not be liable to the Corporation or any stockholder thereof for monetary damages
for breach of fiduciary duty as director
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except as otherwise required by law. No amendment to or repeal of this Article
FIFTEENTH shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any act or
omission of such director occurring prior to such amendment or repeal.
SIXTEENTH: The Board of Directors of the Corporation shall
expressly have the power and authorization to make, alter and repeal the By-Laws
of the Corporation, subject to the reserved power of the stockholders to make,
alter and repeal any By-Laws adopted by the Board of Directors.
6
<PAGE> 1
Exhibit 10.1
ALLEGRO NEW MEDIA, INC.
1994 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the 1994 Long-Term Incentive Plan (the
"Plan") is to advance the interests of Allegro New Media, Inc., a Delaware
corporation (the "Company"), and its stockholders by providing incentives to
certain key employees of the Company and its affiliates and to certain other key
individuals who perform services for these entities, including those who
contribute significantly to the strategic and long-term performance objectives
and growth of the Company and its affiliates.
2. ADMINISTRATION.
(a) The Plan shall be determined solely by the Long-Term Incentive Plan
Administrative Committee (the "Committee") of the Board of Directors (the
"Board") of the Company, as such Committee is from time to time constituted, or
any successor committee the Board may designate to administer the Plan; provided
that if at any time Rule 16b-3 or any successor rule ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), so permits
without adversely affecting the ability of the Plan to comply with the
conditions for exemption from Section 16 of the Exchange Act (or any successor
provision) provided by Rule 16b-3, the Committee may delegate the administration
of the Plan in whole or in part, on such terms and conditions, and to such
person or persons as it may determine in its discretion, as it relates to
persons not subject to Section 16 of the Exchange Act (or any successor
provision). The membership of the Committee or such successor committee shall be
constituted so as to comply at all times with the applicable requirements of
Rule 16b-3. No member of the Committee shall be eligible or have been eligible
within one year prior to his appointment to receive awards under the Plan
("Awards") or to receive awards under any other plan, program or arrangement of
the Company or any of its affiliates if such eligibility would cause such member
to cease to qualify as a "Non-Employee Director" or any successor standard under
Rule 16b-3 as then in effect; provided that if at any time Rule 16b-3 so permits
without adversely affecting the ability of the Plan to comply with the
conditions for exemption from Section 16 of the Exchange Act (or any successor
provision) provided by Rule 16b-3, one or more members of the Committee may
cease to qualify as a "Non-Employee Director" or any successor standard.
(b) The Committee has all the powers vested in it by the terms of the
Plan set forth herein, such powers to include exclusive authority (except as may
be delegated as permitted herein) to select the key employees and other key
individuals to be granted Awards under the Plan, to determine the type, size and
terms of the Award to be made to each individual selected, to modify the terms
of any Award that has been granted, to determine the time when awards will be
granted, to establish performance objectives, to make any adjustments necessary
or desirable as a result of
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<PAGE> 2
the granting of Awards to eligible individuals located outside the United States
and to prescribe the form of the instruments embodying Awards made under the
Plan. The Committee is authorized to interpret the Plan and the Awards granted
under the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make any other determination, which it deems
necessary or desirable for the administration of the Plan. The Committee (or its
delegate as permitted herein) may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Award in the manner and to the
extent the Committee deems necessary or desirable to carry it into effect. any
decision of the Committee (or its delegate as permitted herein) in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. The Committee may act only by a majority of
its members in office, except that the members thereof may authorize any one or
more of their members or any officer of the Company to execute and deliver
documents or to take any other ministerial action on behalf of the Committee
with respect to Awards made or to be made to Plan participants. No member of the
Committee and no officer of the Company shall be liable for anything done or
omitted to be done by him, by any other member of the Committee or by any
officer of the Company in connection with the performance of duties under the
Plan, except for his own willful misconduct or as expressly provided by statute.
Determinations to be made by the Committee under the Plan may be made by its
delegates.
3. PARTICIPATION.
(a) Affiliates. If an Affiliate (as hereinafter defined) of the Company
wishes to participate in the Plan and its participation shall have been approved
by the Board upon the recommendation of the Committee, the board of directors or
other governing body of the Affiliate shall adopt a resolution in form and
substance satisfactory to the Committee authorizing participation by the
Affiliate in the Plan with respect to its key employees or other key individuals
performing services for it. As used herein, the term "Affiliate" means any
entity in which the Company has a substantial direct or indirect equity interest
or which has a substantial direct or indirect equity interest in the Company, as
determined by the Committee in its discretion.
An Affiliate participating in the Plan may cease to be a participating
company at any time by action of the Board or by action of the board of
directors or other governing body of such Affiliate, which latter action shall
be effective not earlier than the date of delivery to the Secretary of the
Company of a certified copy of a resolution of the Affiliate's board of
directors or other governing body taking such action. If the participation in
the Plan of an Affiliate shall terminate, such termination shall not relieve it
of any obligations theretofore incurred by it, except as may be approved by the
Committee in its discretion.
(b) Participants. Consistent with the purposes of the Plan, the
Committee shall have exclusive power (except as may be delegated as permitted
herein) to select the key employees and other key individuals performing
services for the Company, including consultants or independent contractors and
others who perform services for the Company and its Affiliates who may
participate
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<PAGE> 3
in the Plan and be granted Awards under the Plan. Eligible individuals may be
selected individually or by groups or categories, as determined by the Committee
in its discretion. No director of the Company, unless he is an employee of the
Company or is an officer or director of an Affiliate, shall be eligible to
receive an Award under the Plan. In no event may a corporation be eligible to
receive an Award under the Plan.
4. AWARDS UNDER THE PLAN.
(a) Types of Awards. Awards under the Plan may include, but need not be
limited to, one or more of the following types, either alone or in any
combination thereof: (i) "Stock Options," (ii) "Stock Appreciation Rights,"
(iii) "Restricted Stock," (iv) "Performance Grants" and (v) any other type of
Award deemed by the Committee in its discretion to be consistent with the
purposes of the Plan (including but not limited to, Awards of or options or
similar rights granted with respect to unbundled stock units or components
thereof, and Awards to be made to participants who are foreign nationals or are
employed or performing services outside the United States). Stock Options, which
include "Non-Qualified Stock Options" and "Incentive Stock Options" or
combinations thereof, are rights to purchase common shares of the Company and
stock of any other class into which such shares may thereafter be changed (the
"Common Shares"). Non-Qualified Stock Options and Incentive Stock Options are
subject to the terms, conditions and restrictions specified in Paragraph 5.
Stock Appreciation Rights are rights to receive (without payment to the Company)
cash, Common Shares, other Company securities (which may include, but need not
be limited to, unbundled stock units or components thereof, debentures,
preferred stock, warrants, securities convertible into Common Shares or other
property, and other types of securities including, but not limited to, those of
the Company or an Affiliate, or any combination thereof ("Other Company
Securities") or property, or other forms of payment, or any combination thereof,
as determined by the Committee, based on the increase in the value of the number
of Common Shares specified in the Stock Appreciation Right. Stock Appreciation
Rights are subject to the terms, conditions and restrictions specified in
Paragraph 6. Shares of Restricted Stock are Common Shares which are issued
subject to certain restrictions pursuant to Paragraph 7. Performance Grants are
contingent awards subject to the terms, conditions and restrictions described in
Paragraph 8, pursuant to which the participant may become entitled to receive
cash, Common Shares, Other Company Securities or property, or other forms of
payment, or any combination thereof, as determined by the Committee.
(b) Maximum Number of Shares that May Be Issued. There may be issued
under the Plan (as Restricted Stock, in payment of Performance Grants, pursuant
to the exercise of Stock Options or Stock Appreciation Rights, or in payment of
or pursuant to the exercise of such other Awards as the Committee, in its
discretion, may determine) an aggregate of not more than 3,000,000 Common
Shares, subject to adjustment as provided in Paragraph 15. Common Shares issued
pursuant to the Plan may be either authorized but unissued shares, treasury
shares, reacquired shares, or any combination thereof. If any Common Shares
issued as Restricted Stock or otherwise subject to repurchase or forfeiture
rights are reacquired by the Company pursuant to such rights, or if any
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<PAGE> 4
Award is cancelled, terminates or expires unexercised, any Common Shares that
would otherwise have been issuable pursuant thereto will be available for
issuance under new Awards.
(c) Rights with Respect to Common Shares and Other Securities.
(i) Unless otherwise determined by the Committee in its
discretion, a participant to whom an Award of Restricted Stock has been
made (and any person succeeding to such a participant's rights pursuant
to the Plan) shall have, after issuance of a certificate or copy
thereof for the number of Common Shares awarded and prior to the
expiration of the Restricted Period or the earlier repurchase of such
Common Shares as herein provided, ownership of such Common Shares,
including the right to vote the same and to receive dividends or other
distributions made or paid with respect to such Common Shares (provided
that such Common Shares, and any new, additional or different shares,
or Other Company Securities or property, or other forms of
consideration which the participant may be entitled to receive with
respect to such Common Shares as a result of a stock split, stock
dividend or any other change in the corporate or capital structure of
the Company, shall be subject to the restrictions hereinafter described
as determined by the Committee in its discretion), subject, however, to
the options, restrictions and limitations imposed thereon pursuant to
the Plan. Notwithstanding the foregoing, unless otherwise determined by
the Committee in its discretion, a participant with whom an Award
agreement is made to issue Common Shares in the future shall have no
rights as a shareholder with respect to Common Shares related to such
agreement until issuance of a certificate to him.
(ii) Unless otherwise determined by the Committee in its
discretion, a participant to whom a grant of Stock Options, Stock
Appreciation Rights, Performance Grants or any other Award is made (and
any person succeeding to such a participant's rights pursuant to the
Plan) shall have no rights as a stockholder with respect to any Common
Shares or as a holder with respect to other securities, if any,
issuable pursuant to any such Award until the date of the issuance of a
stock certificate to him for such Common Shares or other instrument of
ownership, if any. Except as provided in Paragraph 15, no adjustment
shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities, other
property or other forms of consideration, or any combination thereof)
for which the record date is prior to the date such stock certificate
or other instrument of ownership, if any, is issued.
5. STOCK OPTIONS. The Committee may grant Stock Options either alone,
or in conjunction with Stock Appreciation Rights, Performance Grants or other
Awards, either at the time of grant or by amendment thereafter, provided that an
Incentive Stock Option may be granted only to an eligible employee of the
Company or its parent or subsidiary corporation. Each Stock Option (referred to
herein as an "Option") granted under the Plan shall be evidenced by an
instrument in such form as the Committee shall prescribe from time to time in
accordance with the Plan and shall comply with the following terms and
conditions, and with such other terms and conditions,
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<PAGE> 5
including, but not limited to, restrictions upon the Option or the Common Shares
issuable upon exercise thereof, as the Committee, in its discretion, shall
establish:
(a) The option price may be less than, equal to, or greater than, the
fair market value of the Common Shares subject to such Option at the time the
Option is granted, as determined by the Committee, but in no event will such
option price be less than 85% of the fair market value of the underlying Common
Shares at the time the Option is granted; provided, however, that in the case of
an Incentive Stock Option granted to such an employee, the option price shall
not be less than the fair market value of the Common Shares subject to such
Option at the time the Option is granted, or if granted to such an employee who
owns stock representing more than ten percent of the voting power of all classes
of stock of the Company or of its parent or subsidiary (a "Ten Percent
Employee"), such option price shall be not less than 110% of such fair market
value at the time the Option is granted; provided, further that in no event will
such option price be less than the par value of such Common Shares.
(b) The Committee shall determine the number of Common Shares to be
subject to each option. The number of Common Shares subject to an outstanding
Option may be reduced on a share-for-share or other appropriate basis, as
determined by the Committee, to the extent that Common Shares under such Option
are used to calculate the cash, Common Shares, Other Company Securities or
property, or other forms of payment, or any combination thereof, received
pursuant to exercise of a Stock Appreciation Right attached to such Option, or
to the extent that any other Award granted in conjunction with such Option is
paid.
(c) The Option may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of descent and
distribution, and shall be exercisable during the grantee's lifetime only by
him. Unless the Committee determines otherwise, the Option shall not be
exercisable for at least six months after the date of grant, unless the grantee
ceases employment or performance of services before the expiration of such
six-month period by reason of his disability as defined in Paragraph 12 or his
death.
(d) The Option shall not be exercisable:
(i) in the case of any Incentive Stock Option granted to a Ten
Percent Employee, after the expiration of five years from the date it
is granted, and, in the case of any other Option, until after the
expiration of ten years from the date it is granted; provided that an
Option may be exercised during such period only at such time or times
and in such installments as the Committee may establish;
(ii) unless payment in full is made for the shares being
acquired thereunder at the time of exercise, such payment shall be made
in such form (including, but not limited to, cash, Common Shares, or
the surrender of another outstanding Award under the Plan, or any
combination thereof) as the Committee may determine in its discretion;
and
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<PAGE> 6
(iii) unless the person exercising the Option has been, at all
times during the period beginning with the date of the grant of the
Option and ending on the date of such exercise, employed by or
otherwise performing services for the Company or an Affiliate, or a
corporation, or a parent or subsidiary of a corporation, substituting
or assuming the Option in a transaction to which Section 425(a) of the
Internal Revenue Code of 1986, as amended, or any successor statutory
provisions thereto (the "Code"), is applicable, except that:
(A) in the case of any Non-Qualified Stock Option, if
such person shall cease to be employed by or otherwise
performing services for the Company or an Affiliate solely by
reason of a period of related Employment as defined in
Paragraph 14, he may, during such period of Related
Employment, exercise the Non-Qualified Stock Option as if he
continued such employment or performance of service; or
(B) if such person shall cease such employment or
performance of services by reason of his disability as defined
in Paragraph 12 or early, normal or deferred retirement under
an approved retirement program of the Company or an Affiliate
(or such other plan or arrangement as may be approved by the
Committee, in its discretion, for this purpose) while holding
an option which has not expired and has not been fully
exercised, such person, at any time within three years (or
such other period determined by the Committee) after the date
he ceased such employment or performance of services (but in
no event after the Option has expired), may exercise the
Option with respect to any shares as to which he could have
exercised the Option on the date he ceased such employment or
performance of services, or with respect to such greater
number of shares as determined by the Committee; or
(C) if such person shall cease such employment or
performance of services for reasons other than Related
Employment, disability, early, normal or deferred retirement
or death (as provided elsewhere) while holding an Option which
has not expired and has not been fully exercised, such person
may exercise the Option at any time during the period, if any,
which the Committee approves (but not beyond the expiration of
the Option) following the date he ceased such employment or
performance of services with respect to any shares as to which
he could have exercised the Option on the date he ceased such
employment or performance of services or, in the Committee's
discretion, any or all shares under the Option whether or not
he could have exercised the Option on the date he ceased such
employment or performance of services; or
(D) if any person to whom an Option has been granted
shall die holding an Option which has not expired and has not
been fully exercised, his executors, administrators, heirs or
distributees, as the case may be, may, at any time within one
year (or such other period determined by the Committee) after
the date of death (but in no event after the Option has
expired), exercise the Option with respect to any shares as to
which the decedent could have exercised the Option at the time
of his
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<PAGE> 7
death, or with respect to such greater number of shares as
determined by the Committee.
(e) In the case of an Incentive Stock Option, the amount of aggregate
fair market value of Common Shares (determined at the time of grant of the
Option pursuant to subparagraph 5(a) of the Plan) with respect to which
incentive stock options are exercisable for the first time by an employee during
any calendar year (under all such plans of his employer corporation and its
parent and its parent and subsidiary corporations) shall not exceed $100,000.
(f) It is the intent of the Company that Non-Qualified Stock Options
granted under the Plan not be classified as Incentive Stock Options, that the
Incentive Stock Options granted under the Plan be consistent with and contain or
be deemed to contain all provisions required under Section 422A and other
appropriate provisions of the Code and any implementing regulations (and any
successor provisions thereof), and that any ambiguities in construction shall be
interpreted in order to effectuate such intent. The Agreements providing
Non-Qualified Stock Options shall provide that such Options are not "incentive
stock options" for the purposes of Section 422A of the Code.
6. STOCK APPRECIATION RIGHTS. The Committee may grant Stock
Appreciation Rights either alone, or in conjunction with Stock Options,
Performance Grants or other Awards, either at the time of grant or by amendment
thereafter. Each Award of Stock Appreciation Rights granted under the Plan shall
be evidenced by an instrument in such form as the Committee shall prescribe from
time to time in accordance with the Plan and shall comply with the following
terms and conditions, and with such other terms and conditions, including, but
not limited to, restrictions upon the Award of Stock Appreciation Rights or the
Common Shares issuable upon exercise thereof, as the Committee in its discretion
shall establish:
(a) The Committee shall determine the number of Common Shares to be
subject to each Award of Stock Appreciation Rights. The number of Common Shares
subject to an outstanding Award of Stock Appreciation Rights may be reduced on a
share-for-share or other appropriate basis, as determined by the Committee, to
the extent that Common Shares under such Award of Stock Appreciation Rights are
used to calculate the cash, Common Shares, Other Company Securities or property,
or other forms of payment, or any combination thereof, received pursuant to
exercise of an Option attached to such Award of Stock Appreciation Rights, or to
the extent that any other Award granted in conjunction with such Award of Stock
Appreciation Rights is paid.
(b) The Award of Stock Appreciation Rights may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of the descent and distribution, and shall be exercisable during the
grantee's lifetime only by him. Unless the Committee determines otherwise, the
Award of Stock Appreciation Rights shall not be exercisable for at least six
months after the date of grant, unless the grantee ceases employment or
performance of services before the expiration of such six-month period by reason
of his disability as defined in Paragraph 12 or his death.
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<PAGE> 8
(c) The Award of Stock Appreciation Rights shall not be exercisable:
(i) in the case of any Award of Stock Appreciation Rights that
are attached to an Incentive Stock Option granted to a Ten Percent
Employee, after the expiration of five years from the date it is
granted, and, in the case of any other award of Stock Appreciation
Rights, after the expiration of ten years from the date it is granted.
Any Award of Stock Appreciation Rights may be exercised during such
period only at such time or times and in such installments as the
Committee may establish;
(ii) unless the Option or other Award to which the Award of
Stock Appreciation Rights is attached is at the time exercisable; and
(iii) unless the person exercising the Award of Stock
Appreciation Rights has been, at all times during the period beginning
with the date of the grant thereof and ending on the date of such
exercise, employed by or otherwise performing services for the Company
or an Affiliate, except that
(A) in the case of any Award of Stock Appreciation
Rights (other than those attached to an Incentive Stock
Option), if such person shall cease to be employed by or
otherwise performing services for the Company or an Affiliate
solely by reason of a period of Related Employment as defined
in Paragraph 14, he may, during such period of Related
Employment, exercise the Award of Stock Appreciation Rights as
if he continued such employment or performance of services; or
(B) if such person shall cease such employment or
performance of services by reason of his disability as defined
in Paragraph 12 or early, normal or deferred retirement under
an approved retirement program of the Company or an Affiliate
(or such other plan or arrangement as may be approved by the
Committee, in its discretion, for this purpose) while holding
an Award of Stock Appreciation Rights which has not expired
and has not been fully exercised, such person may, at any time
within three years (or such other period determined by the
Committee) after the date he ceased such employment or
performance of services (but in no event after the Award of
Stock Appreciation Rights has expired), exercise the Award of
Stock Appreciation Rights with respect to any shares as to
which he could have exercised the Award of Stock Appreciation
Rights on the date he ceased such employment or performance of
services, or with respect to such greater number of shares as
determined by the Committee; or
(C) if such person shall cease such employment or
performance of services for reasons other than Related
Employment, disability, early, normal or deferred retirement
or death (as provided elsewhere) while holding an Award of
Stock Appreciation Rights which has not expired and has not
been fully exercised,
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<PAGE> 9
such person may exercise the Award of Stock Appreciation
Rights at any time during the period, if any, which the
Committee approves (but in no event after the Award of Stock
Appreciation Rights expires) following the date he ceased such
employment or performance of services with respect to any
shares as to which he could have exercised the Award of Stock
Appreciation Rights on the date he ceased such employment or
performance of services or as otherwise permitted in the
Committee's discretion; or
(D) if any person to whom an Award of Stock Appreciation
Rights has been granted shall die holding an Award of Stock
Appreciation Rights which has not expired and has not been fully
exercised, his executors, administrators, heirs or distributees, as the
case may be, may, at any time within one year (or such other period
determined by the Committee) after the date of death (but in no event
after the Award of Stock Appreciation Rights has expired), exercise the
Award of Stock Appreciation Rights with respect to any shares as to
which the decedent could have exercised the Award of Stock Appreciation
Rights at the time of his death, or with respect to such greater number
of shares as determined by the Committee.
(d) An Award of Stock Appreciation Rights shall entitle the holder (or
any person entitled to act under the provisions of subparagraph 6(c)(iii)(D)
hereof) to exercise such Award or to surrender unexercised the option (or other
Award) to which the Stock Appreciation Rights is attached (or any portion of
such Option or other Award) to the Company and to receive from the Company in
exchange therefor, without payment to the Company, that number of Common Shares
having an aggregate value equal to the excess of the fair market value of one
share, at the time of such exercise, over the exercise price (or Option Price,
as the case may be) per share, times the number of shares subject to the Award
or the Option (or other Award), or portion thereof, which is so exercised or
surrendered, as the case may be. The Committee shall be entitled in its
discretion to elect to settle the obligation arising out of the exercise of a
Stock Appreciation Right by the payment of cash or Other Company Securities or
property, or other forms of payment, or any combination thereof, as determined
by the Committee, equal to the aggregate value of the Common Shares it would
otherwise be obligated to deliver. Any such election by the Committee shall be
made as soon as practicable after the receipt by the Committee of written notice
of the exercise of the Stock Appreciation Right. The value of a Common Share,
Other Company Securities or property, or other forms of payment determined by
the Committee for this purpose shall be the fair market value thereof on the
last business day next preceding the date of the election to exercise the Stock
Appreciation Right, unless the Committee, in its discretion, determines
otherwise.
(e) A Stock Appreciation Right may provide that it shall be deemed to
have been exercised at the close of business on the business day preceding the
expiration date of the Stock Appreciation Right or of the related Option (or
other Award), or such other date as specified by the Committee, if at such time
such Stock Appreciation Right has a positive value. Such deemed exercise shall
be settled or paid in the same manner as a regular exercise thereof as provided
in subparagraph 6(d) hereof.
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<PAGE> 10
(f) No fractional shares may be delivered under this Paragraph 6, but
in lieu thereof a cash or other adjustment shall be made as determined by the
Committee in its discretion.
7. RESTRICTED STOCK. Each Award of Restricted Stock under the Plan
shall be evidenced by an instrument in such form as the Committee shall
prescribe from time to time in accordance with the Plan and shall comply with
the following terms and conditions, and with such other terms and conditions as
the Committee, in its discretion, shall establish:
(a) The Committee shall determine the number of Common Shares to be
issued to a participant pursuant to the Award, and the extent, if any, to which
they shall be issued in exchange for cash, other consideration, or both.
(b) Common Shares issued to a participant in accordance with the Award
may not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and distribution, or as
otherwise determined by the Committee, for such period as the Committee shall
determine, from the date on which the Award is granted (the "Restricted
Period"). The Company will have the option, at the Committee's discretion, to
repurchase the shares subject to the Award at such price as the Committee shall
have fixed or to provide for forfeiture to the Company of the shares subject to
the Award, which option or forfeiture may be exercisable (i) if the
participant's continuous employment or performance of services for the Company
and its Affiliates shall terminate for any reason, except solely by reason of a
period of Related Employment as defined in Paragraph 14, or except as otherwise
provided in subparagraph 7(c), prior to the expiration of the Restricted Period,
(ii) if, on or prior to the expiration of the Restricted Period or the earlier
lapse of such forfeiture option, the participant has not paid to the Company an
amount equal to any federal, state, local or foreign income or other taxes which
the Company determines is required to be withheld in respect of such shares, or
(iii) under such other circumstances as determined by the Committee in its
discretion. Such repurchase option or forfeiture shall be exercisable on such
terms, in such manner and during such period as shall be determined by the
Committee when the Award is made or as amended thereafter, except as otherwise
determined in the Committee's discretion. Each certificate for Common Shares
issued pursuant to a Restricted Stock Award shall bear an appropriate legend
referring to the foregoing repurchase option or forfeiture and other
restrictions and to the fact that the shares are partly paid, shall be deposited
by the award holder with the Company, together with a stock power endorsed in
blank, or shall be evidenced in such other manner permitted by applicable law as
determined by the Committee in its discretion. Any attempt to dispose of any
such Common Shares in contravention of the foregoing repurchase and forfeiture
options and other restrictions shall be null and void and without effect. If
Common Shares issued pursuant to a Restricted Stock Award shall be repurchased
or forfeited pursuant to the repurchase option described above, the participant,
or in the event of his death, his personal representative, shall forthwith
deliver to the Secretary of the Company the certificates for the Common Shares
awarded to the participant, accompanied by such instrument of transfer, if any,
as may reasonably be required by the Secretary of the Company.
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<PAGE> 11
(c) If a participant who has been in continuous employment or
performance of services for the Company or an Affiliate since the date on which
a Restricted Stock Award was granted to him shall, while in such employment or
performance of services, die, or terminate such employment or performance of
services by reason of disability as defined in Paragraph 12 or by reason of
early normal or deferred retirement under an approved retirement program of the
Company or an Affiliate (or such other plan or arrangement as may be approved by
the Committee in its discretion, for this purpose) and any of such events shall
occur after the date on which the Award was granted to him and prior to the end
of the Restricted Period of such Award, the Committee may determine to cancel
the repurchase option or forfeiture (and any and all other restrictions) on any
or all of the Common Shares subject to such Award; and the repurchase option or
forfeiture shall become exercisable at such time as to the remaining shares, if
any.
8. PERFORMANCE GRANTS. The Award of a Performance Grant ("Performance
Grant") to a participant will entitle him to receive a specified amount
determined by the Committee (the "Actual Value"), if the terms and conditions
specified herein and in the Award are satisfied. Each Award of a Performance
Grant shall be subject to the following terms and conditions, and to such other
terms and conditions, including but not limited to, restrictions upon any cash,
Common Shares, Other Company Securities or property, or other forms of payment,
or any combination thereof, issued in respect of the Performance Grant, as the
Committee, in its discretion, shall establish, and shall be embodied in an
instrument in such form and substance as is determined by the Committee.
(a) The Committee shall determine the value or range of values of a
Performance Grant to be awarded to each participant selected for an award and
whether or not such a Performance Grant is granted in conjunction with an Award
of Options, Stock Appreciation Rights, Restricted Stock or other Award, or any
combination thereof, under the Plan (which may include, but need not be limited
to, deferred Awards) concurrently or subsequently granted to the participant
(the "Associated Award"). As determined by the Committee, the maximum value of
each Performance Grant (the "Maximum Value") shall be: (i) an amount fixed by
the Committee at the time the award is made or amended thereafter, (ii) an
amount which varies from time to time based in whole or in part on the then
current value of a Common Share, Other Company Securities or property, or other
securities or property, or any combination thereof, or (iii) an amount that is
determinable from criteria specified by the Committee. Performance Grants may be
issued in different classes or series having different names, terms and
conditions. In the case of a Performance Grant awarded in conjunction with an
Associated Award, the Performance Grant may be reduced on an appropriate basis
to the extent that the Associated Award has been exercised, paid to or otherwise
received by the participant, as determined by the Committee.
(b) The award period ("Award Period") in respect of any Performance
Grant shall be a period determined by the Committee. At the time each Award is
made, the Committee shall establish performance objectives to be attained within
the Award Period as the means of determining the Actual Value of such a
Performance Grant. The performance objectives shall be based on such
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<PAGE> 12
measure or measures of performance, which may include, but need not be limited
to, the performance of the participant, the Company, one or more of its
subsidiaries or one or more of their divisions or units, or any combination of
the foregoing, as the Committee shall determine, and may be applied on an
absolute basis or be relative to industry or other indices, or any combination
thereof. The Actual Value of a Performance Grant shall be equal to its Maximum
Value only if the performance objectives are attained in full, but the Committee
shall specify the manner in which the Actual Value of Performance Grants shall
be determined if the performance objectives are met in part. Such performance
measures, the Actual Value or the Maximum Value, or any combination thereof, may
be adjusted in any manner by the Committee in its discretion at any time and
from time to time during or as soon as practicable after the Award Period, if it
determines that such performance measures, the Actual Value or the Maximum
Value, or any combination thereof, are not appropriate under the circumstances.
(c) The rights of a participant in Performance Grants awarded to him
shall be provisional and may be cancelled or paid in whole or in part, all as
determined by the Committee, if the participant's continuous employment or
performance of services for the Company and its Affiliates shall terminate for
any reason prior to the end of the Award Period, except solely by reason of a
period of Related Employment as defined in Paragraph 14.
(d) The Committee shall determine whether the conditions of
subparagraph 8(b) or 8(c) hereof have been met and, if so, shall ascertain the
Actual Value of the Performance Grants. If the Performance Grants have no Actual
Value, the Award and such Performance Grants shall be deemed to have been
cancelled and the Associated Award, if any, may be cancelled or permitted to
continue in effect in accordance with its terms. If the Performance Grants have
any Actual Value and:
(i) were not awarded in conjunction with an Associated Award,
the Committee shall cause an amount equal to the actual Value of the
Performance Grants earned by the participant to be paid to him or his
beneficiary as provided below; or
(ii) were awarded in conjunction with an Associated Award, the
Committee shall determine, in accordance with criteria specified by the
Committee (A) to cancel the Performance Grants, in which event no
amount in respect thereof shall be paid to the participant or his
beneficiary, and the Associated Award may be permitted to continue in
effect in accordance with its terms, (B) to pay the Actual Value of the
Performance Grants to the participant or his beneficiary as provided
below, in which event the Associated Award may be cancelled or (C) to
pay to the participant or his beneficiary as provided below, the Actual
Value of only a portion of the Performance Grants, in which a
complimentary portion of the Associated Award may be permitted to
continue in effect in accordance with its terms or be cancelled, as
determined by the Committee.
Such determination by the Committee shall be made as promptly as
practicable following the end of the Award Period or upon the earlier
termination of employment or performance of
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<PAGE> 13
services, or at such other time or times as the Committee shall determine, and
shall be made pursuant to criteria specified by the Committee.
Payment of any amount in respect of the Performance Grants which the
Committee determines to pay as provided above shall be made by the Company as
promptly as practicable after the end of the Award Period or at such other time
or times as the Committee shall determine, and may be made in cash, Common
Shares, Other Company Securities or property, or other forms of payment, or any
combination thereof or in such other manner, as determined by the Committee in
its discretion. Notwithstanding anything in this Paragraph 8 to the contrary,
the Committee may, in its discretion, determine and pay out the Actual Value of
the Performance Grants at any time during the Award Period.
9. DEFERRAL OF COMPENSATION. The Committee shall determine whether or
not an Award shall be made in conjunction with deferral of the participant's
salary, bonus or other compensation, or any combination thereof, and whether or
not such deferred amounts may be
(i) forfeited to the Company or to other participants, or any
combination thereof, under certain circumstances (which may include,
but need not be limited to, certain types of termination of employment
or performance of services for the Company and its Affiliates),
(ii) subject to increase or decrease in value based upon the attainment
of or failure to attain, respectively, certain performance measures
and/or
(iii) credited with income equivalents (which may include, but need not
be limited to, interest, dividends or other rates of return) until the
date or dates of payment of the Award, if any.
10. DEFERRED PAYMENT OF AWARDS. The Committee may specify that the
payment of all or any portion of cash, Common Shares, Other Company Securities
or property, or any other form of payment, or any combination thereof, under an
Award shall be deferred until a later date. Deferrals shall be for such periods
or until the occurrence of such events, and upon such terms, as the Committee
shall determine in its discretion. Deferred payments of Awards may be made by
undertaking to make payment in the future based upon the performance of certain
investment equivalents (which may include, but need not be limited to,
government securities, Common Shares, other securities, property or
consideration, or any combination thereof), together with such additional
amounts of income equivalents (which may be compounded and may include, but need
not be limited to, interest, dividends or other rates of return, or any
combination thereof) as may accrue thereon until the date or dates of payment,
such investment equivalents and such additional amounts of income equivalents to
be determined by the Committee in its discretion.
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<PAGE> 14
11. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE PLAN. The terms of
any outstanding Award under the Plan may be amended from time to time by the
Committee in its discretion in any manner that it deems appropriate (including,
but not limited to, acceleration of the date of exercise of any Award and/or
payments thereunder, or reduction of the Option Price of an Option or exercise
price of an Award of Stock Appreciation Rights); provided, that no such
amendment shall adversely affect in a material manner any right of a participant
under the Award without his written consent, unless the Committee determines in
its discretion that there have occurred or are about to occur significant
changes in the participant's position, duties or responsibilities, or
significant changes in economic, legislative, regulatory, tax, accounting or
cost/benefit conditions which are determined by the Committee in its discretion
to have or to be expected to have a substantial effect on the performance of the
Company, or any subsidiary, affiliate, division or department thereof, on the
Plan or an any Award under the Plan. The Committee may, in its discretion,
permit holders of Awards to surrender outstanding Awards as a condition
precedent to the grant of new Awards under the Plan.
12. DISABILITY. For the purposes of this Plan, a participant shall be
deemed to have terminated his employment or performance of services for the
Company and its Affiliates by reason of disability if the Committee shall
determine that the physical or mental condition of the participant by reason of
which such employment or performance of services terminated was such at that
time as would entitle him to payment of monthly disability benefits under any
disability plan of the Company or an Affiliate in which he is a participant. If
the participant is not eligible for benefits under any disability plan of the
Company or an Affiliate, he shall be deemed to have terminated such employment
or performance of services by reason of disability if the Committee shall
determine that he is permanently and totally disabled within the meaning of
Section 22(e)(3) of the Code.
13. TERMINATION OF A PARTICIPANT. For all purposes under the Plan, the
Committee shall determine whether a participant has terminated employment by or
the performance of services for the Company or an Affiliate, provided that
transfers between the Company and an Affiliate or between Affiliates, and
approved leaves of absence shall not be deemed such a termination.
14. RELATED EMPLOYMENT. For the purposes of this Plan, Related
Employment shall mean the employment or performance of services by an individual
for an employer that is neither the Company nor an Affiliate, provided that (i)
such employment or performance of services is undertaken by the individual at
the request of the Company or an Affiliate, (ii) immediately prior to
undertaking such employment or performance of services, the individual was
employed by or performing services for the Company or an Affiliate or was
engaged in Related Employment as herein defined, and (iii) such employment or
performance of services is in the best interests of the Company and is
recognized by the Committee, in its discretion, as Related Employment for
purposes of this Paragraph 14. The death or disability of an individual during a
period of Related
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<PAGE> 15
Employment as herein defined shall be treated, for purposes of this Plan, as if
the death or onset of disability had occurred while the individual was employed
by or performing services for the Company or an Affiliate.
15. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Shares of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, share offering, reorganization, combination or
exchange of shares, a sale by the Company of all or part of its assets, any
distribution to stockholders other than a normal cash dividend, or other
extraordinary or unusual event, if the Committee shall determine, in its
discretion, that such change equitably requires an adjustment in the terms of
any Award or the number of Common Shares available for Awards, such adjustment
may be made by the Committee and shall be final, conclusive and binding for all
purposes of the Plan.
16. DESIGNATION OF BENEFICIARY BY PARTICIPANT. A participant may name a
beneficiary to receive any payment to which he may be entitled in respect of any
Award under the Plan in the event of his death, on a written form to be provided
by and filed with the Committee, and in a manner determined by the Committee in
its discretion. The Committee reserves the right to review and approve
beneficiary designations. A participant may change his beneficiary from time to
time in the same manner, unless such participant has made an irrevocable
designation. Any designation of beneficiary under the Plan (to the extent it is
valid and enforceable under applicable law) shall be controlling over any other
disposition, testamentary or otherwise, as determined by the Committee in its
discretion. If no designated beneficiary survives the participant and is living
on the date on which any amount becomes payable to such participant's
beneficiary, such payment will be made to the legal representatives of the
participant's estate, and the term "beneficiary" as used in the Plan shall be
deemed to include such person or persons. If there is any question as to the
legal right of any beneficiary to receive a distribution under the Plan, the
Committee in its discretion may determine that the amount in question be paid to
the legal representatives of the estate of the participant, in which event the
Company, the Board and the Committee and the members thereof will have no
further liability to anyone with respect to such amount.
17. CHANGE IN CONTROL.
(a) Upon any Change in Control:
(i) each Stock Option and Stock Appreciation Right that is
outstanding on the date of such Change in Control shall be exercisable
in full immediately;
(ii) all restrictions with respect to Restricted Stock shall
lapse immediately, and the Company's right to repurchase or forfeit any
Restricted Stock outstanding on the date of
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<PAGE> 16
such Change in Control shall thereupon terminate and the certificates
representing such Restricted Stock and the related stock powers shall
be promptly delivered to the participants entitled thereto; and
(iii) All Award Periods for the purposes of determining the
amounts of Awards of Performance Grants shall end as of the end of the
calendar quarter immediately preceding the date of such Change in
Control, and the amount of the Award payable shall be the portion of
the maximum possible Award allocable to the portion of the Award Period
that had elapsed and the results achieved during such portion of the
Award Period.
(b) For this purpose, a Change in Control shall be deemed to occur when
and only when any of the following events first occurs:
(i) any person who is not currently such becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding voting securities; or
(ii) three or more directors, whose election or nomination for
election is not approved by a majority of the Incumbent Board (as
hereinafter defined), are elected within any single 24-month period to
serve on the Board of Directors; or
(iii) members of the Incumbent Board cease to constitute a
majority of the Board of Directors without the approval of the
remaining members of the Incumbent Board; or
(iv) any merger (other than a merger where the Company is the
survivor and there is no accompanying Change in Control under
subparagraphs (i), (ii) or (iii) of this paragraph (b)), consolidation,
liquidation or dissolution of the Company, or the sale of all or
substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur pursuant to subparagraph (i) of this paragraph (b) solely because 25%
or more of the combined voting power of the Company's outstanding securities is
acquired by one or more employee benefit plans maintained by the Company or by
any other employer, the majority interest in which is held, directly or
indirectly, by the Company. For purposes of this Section 17, the terms "person"
and "beneficial owner" shall have the meaning set forth in Sections 3(a) and
13(d) of the Exchange Act, and in the regulations promulgated thereunder, as in
effect on December 15, 1993; and the term "Incumbent Board" shall mean (A) the
members of the Board of Directors of the Company on December 31, 1993, to the
extent that they continue to serve as members of the Board of Directors, and (B)
any individual who becomes a member of the Board of Directors after December 31,
1993, if his election or nomination for election as a director was approved by a
vote of at least three-quarters of the then Incumbent Board.
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<PAGE> 17
18. MISCELLANEOUS PROVISIONS.
(a) No employee or other person shall have any claim or right to be
granted an Award under the Plan. Determinations made by the Committee under the
Plan need not be uniform and may be made selectively among eligible individuals
under the Plan, whether or not such eligible individuals are similarly situated.
Neither the Plan nor any action taken hereunder shall be construed as giving any
employee or other person any right to continue to be employed by or perform
services for the Company or any Affiliate, and the right to terminate the
employment of or performance of services by any participant at any time and for
any reason is specifically reserved.
(b) No participant or other person shall have any right with respect to
the Plan, the Common Shares reserved for issuance under the Plan or in any
Award, contingent or otherwise, until written evidence of the Award shall have
been delivered to the recipient and all the terms, conditions and provisions of
the Plan and the Award applicable to such recipient (and each person claiming
under or through him) have been met.
(c) Except as may be approved by the Committee where such approval
shall not adversely affect compliance of the Plan with Rule 16b-3 under the
Exchange Act, a participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise (except in the event of a
participant's death) including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner; provided,
however, that any Option or similar right (including, but not limited to, a
Stock Appreciation Right) offered pursuant to the Plan shall not be transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the participant's lifetime only by him.
(d) No Common Shares, Other Company Securities or property, other
securities or property, or other forms of payment shall be issued hereunder with
respect to any Award unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal, state, local and foreign
legal, securities exchange and other applicable requirements.
(e) It is the intent of the Company that the Plan comply in all
respects with Rule 16b-3 under the Exchange Act, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Rule 16b-3, such provision shall be deemed null and void to the
extent required to permit the Plan to comply with Rule 16b-3.
(f) The Company and its Affiliates shall have the right to deduct from
any payment made under the Plan, any federal, state, local or foreign income or
other taxes required by law to be withheld with respect to such payment. It
shall be a condition to the obligation of the Company to issue Common Shares,
Other Company Securities or property, other securities or property, or other
forms of payment, or any combination thereof, upon exercise, settlement or
payment of any Award under the Plan, that the participant (or any beneficiary or
person entitled to act) pay to the Company,
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<PAGE> 18
upon its demand, such amount as may be requested by the Company for the purpose
of satisfying any liability to withhold federal, state, local or foreign income
or other taxes. If the amount requested is not paid, the Company may refuse to
issue Common Shares, Other Company Securities or property, other securities or
property, or other forms of payment, or any combination thereof. Notwithstanding
anything in the Plan to the contrary, the Committee may, in its discretion,
permit an eligible participant (or any beneficiary or person entitled to act) to
elect to pay a portion or all of the amount requested by the Company for such
taxes with respect to such Award, at such time and in such manner as the
Committee shall deem to be appropriate including, but not limited to, by
authorizing the Company to withhold, or agreeing to surrender to the Company on
or about the date such tax liability is determinable, Common Shares, Other
Company Securities or property, other securities or property, or other forms of
payment, or any combination thereof, owned by such person or a portion of such
forms of payment that would otherwise be distributed, or have been distributed,
as the case may be, pursuant to such Award to such person, having a fair market
value equal to the amount of such taxes.
(g) The expenses of the Plan shall be borne by the Company. However, if
an Award is made to an individual employed by or performing services for an
Affiliate:
(i) if such Award results in payment of cash to the
participant, such Affiliate shall pay to the Company an amount equal to
such cash payment unless the Committee shall otherwise determine in its
discretion;
(ii) if the Award results in the issuance by the Company to
the participant of Common Shares, Other Company Securities or property,
other securities or property, or other forms of payment, or any
combination thereof, such Affiliate shall, unless the Committee shall
otherwise determine in its discretion, pay to the Company an amount
equal to the fair market value thereof, as determined by the Committee,
on the date such Common Shares, other Company Securities or property,
other securities or property, or other forms of payment, or any
combination thereof, are issued (or in the case of the issuance of
Restricted Stock or of Common Shares, Other Company Securities or
property, or other securities or property, or other forms of payment
subject to transfer and forfeiture conditions, equal to the fair market
value thereof on the date on which they are no longer subject to
applicable restrictions), minus the amount, if any, received by the
Company in respect of the purchase of such Common Shares, Other Company
Securities or property, other securities or property or other forms of
payment, or any combination thereof, all as the Committee shall
determine in its discretion; and
(iii) the foregoing obligations of any such Affiliate entity
shall survive and remain in effect and binding on such entity even if
its status as an Affiliate of the Company should subsequently cease,
except as otherwise agreed by the Company and the entity.
(h) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any
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<PAGE> 19
Award under the Plan, and rights to the payment of Awards shall be no greater
than the rights of the Company's general creditors.
(i) By accepting any Award or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, any
action taken by the Company, the Board or the Committee or its delegates.
(j) Fair market value in relation to Common Shares, Other Company
Securities or property, other securities or property or other forms of payment
of Awards under the Plan or any combination thereof, as of any specific time
shall mean such value as determined by the Committee in accordance with
applicable law.
(k) The masculine pronoun includes the feminine and the singular
includes the plural wherever appropriate.
(l) The appropriate officers of the Company shall cause to be filed any
reports, returns or other information regarding Awards hereunder or any Common
Shares issued pursuant hereto as may be required by Section 13 or 15(d) of the
Exchange Act (or any successor provision) or any other applicable statute, rule
or regulation.
(m) The validity, construction, interpretation, administration and
effect of the Plan, and of its rules and regulations, and rights relating to the
Plan and to Awards granted under the Plan, shall be governed by the substantive
laws, but not the choice of law rules, of the State of Delaware.
19. PLAN AMENDMENT OR SUSPENSION. The Plan may be amended or suspended
in whole or in part at any time and from time to time by the Board, but no
amendment shall be effective unless and until the same is approved by
stockholders of the Company where the failure to obtain such approval would
adversely affect the compliance of the Plan with Rule 16b-3 under the Exchange
Act and with other applicable law. No amendment of the Plan shall adversely
affect in a material manner any right of any participant with respect to any
Award theretofore granted without such participant's written consent, except as
permitted under Paragraph 11.
20. PLAN TERMINATION. This Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating the
Plan; or
(b) ten years from the date the Plan is initially approved and adopted
by the stockholders of the Company in accordance with Paragraph 21 hereof;
provided, however, that the Board may, prior to the expiration of such ten-year
period, extend the term of the Plan for an additional period
- 19 -
<PAGE> 20
of up to five years for the grant of Awards other than Incentive Stock Options.
No termination of the Plan shall materially alter or impair any of the rights or
obligations of any person, without his consent, under any Award theretofore
granted under the Plan except that subsequent to termination of the Plan, the
Committee may make amendments permitted under Paragraph 11.
21. SHAREHOLDER ADOPTION. The Plan shall be submitted to the
stockholders of the Company for their approval and adoption at a meeting to be
held on or before December 31, 1993, or at any adjournment thereof. The Plan
shall not be effective and no Award shall be made hereunder unless and until the
Plan has been so approved and adopted. The stockholders shall be deemed to have
approved and adopted the Plan only if it is approved and adopted at a meeting of
the stockholders duly held by vote taken in the manner required by the laws of
the State of Delaware and the applicable Federal securities laws.
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<PAGE> 1
Exhibit 10.7
Amendment No. 7
to
Employment Agreement
This Amendment No. 7 dated as of December 20, 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 25 Old Chester Road, Essex Fells,
New Jersey 07021 (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 by deleting
therefrom Section 4(a) in its entirety and substituting, in lieu thereof, the
following:
"(a) From and after January 1, 1997, the Company
shall pay to Employee a salary at the rate of $150,000 per annum, payable in
equal bi-weekly installments, or in such other manner as shall be agreeable to
the Company and Employee. This salary provided for herein may be increased by
the Board of Directors of the Company as of January 1 of each year during the
term hereof by an amount not greater than fifteen percent (15%) of the then
current salary hereunder."
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, as amended, 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
<PAGE> 1
EXHIBIT 10.10
SOFTWARE PUBLISHING CORPORATION
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT"), dated as of April 7, 1995, is
made by and between SOFTWARE PUBLISHING CORPORATION, a Delaware corporation
("COMPANY") and Daniel J. Fraisl ("EMPLOYEE").
RECITALS
A. The Company is engaged in the design, development, production and
marketing of computer products, software and technology.
B. The Company has entered into a Stock Purchase Agreement ("STOCK
PURCHASE AGREEMENT"), dated as of March 31, 1995, with Digital Paper, Inc., a
California corporation ("DIGITAL"), pursuant to which the Company shall purchase
all of Digital's outstanding shares of capital stock.
C. The Company wishes to employ Employee, and Employee is willing to
render services to the Company upon the terms and conditions set forth herein.
D. The provisions of Section 5(b) of this Agreement relating to
noncompetition and nonsolicitation have been agreed to by the Company and
Employee in connection with the sale of a business, namely Digital, under the
Stock Purchase Agreement, and formed in part the basis for the consideration to
be paid by the Company in connection with the purchase of all of the outstanding
shares of Digital capital stocks contemplated by the Stock Purchase Agreement,
of which $17,000 is allocated to the non-competition covenant set forth in
Section 5(b) of this Agreement.
AGREEMENT
1. Employment by the Company: Duties
(a) Employment. Subject to the terms and conditions set forth
herein, the Company hereby agrees to employ Employee in the position of
Technology Director having all the duties and responsibilities customarily
associated with such position, and Employee hereby accepts such employment by
the Company. Such employment shall commence on the date hereof and shall
continue until terminated as provided in Section 4 hereof. During the term of
his employment with the Company, Employee shall devote his full working time,
attention and energies to the performance of the business of the Company; and
Employee shall not, without the prior written consent of the Company, directly
or indirectly, alone or as a member of any partnership, or as an officer,
director or employee of any other corporation, partnership or other organization
(other than charitable or other not-for-profit organizations), be actively
engaged in or concerned with any other duties or pursuits which interfere with
the performance of his duties to the Company or which, even
<PAGE> 2
if not interfering, may be contrary to the best interests of the Company.
(b) Duty. Employee shall perform such duties and functions as
the Company shall from time to time determine in connection with the employment
described in Section I (a) above. In the performance of his duties, Employee
shall comply with the policies of and be subject to the reasonable direction of
the Board of Directors of the Company. Employee's primary duties shall be
performed first for a limited time period at Cupertino, California, and
subsequently at the Company's headquarters currently in Santa Clara, California.
Employee shall not be required to relocate more than 100 miles to perform his
duties under this Agreement.
(c) Company Policies. The employment relationship between the
parties shall also be governed by the general employment policies and practices
of the Company now in effect or which may become effective in the future,
including those relating to the protection of confidential information and trade
secrets, except that when the terms of this Agreement are directly in conflict
with the Company's general employment policies or practices, this Agreement
shall control.
2. Compensation and Benefits
(a) Base Salary. As compensation for the services to be
rendered by Employee hereunder, the Company agrees to pay Employee, in
accordance with the Company's regular payroll practices, direct salary
compensation at the rate of $8,333.33 per month, commencing on the date hereof.
This salary rate of $8,333.33 per month will remain the salary rate for the
duration of this Agreement.
(b) Illness and Vacation Days and Holidays. During the term of
this Agreement, Employee shall be entitled to:
(i) illness days consistent with the Company's
standard practice for its employees generally;
(ii) vacation based upon Employee's original date of
employment at the Company (April 10, 1995), which shall accrue
consistent with, and otherwise be subject to the terms of, the
Company's standard practice for its employees generally; and
(iii) holiday leave consistent with the Company's
standard practice for its employees generally.
(c) Group Benefits. Employee shall be entitled to participate
in and enjoy the benefits of such life, 401(k), disability, accident, hospital
and medical insurance plans, and such other plan or plana which may be
instituted by the Company for the benefit of its employees generally, upon such
terms as may be therein provided as generally applicable to all employees of the
Company, and such other benefits as may be deemed by the Board of Directors to
be appropriate to the position held by Employee and to the discharge of
Employee's duties. To the extent
<PAGE> 3
permissible under the terms of such plans and applicable law, April 10, 1995
(original date of employment) will be deemed employee's date of hire in any
instance in which his date of hire is a factor in determining his eligibility
for or the extent of any benefit to which he is entitled under this Section
2(d).
3. Expenses. The Company shall reimburse Employee for those customary,
ordinary and necessary business expenses incurred by him at any location in the
performance of his duties and activities on behalf of the Company. Such expenses
will be reimbursed only upon presentation by Employee of appropriate
documentation to substantiate such expenses pursuant to the policies and
procedures of the Company governing reimbursement of business expenses to its
employees.
4. Term and Termination
(a) Term. This Agreement shall remain in full force and effect
until three (3) years from the date hereof, unless terminated by either party as
provided below.
(b) Termination. The Company and Employee acknowledge that
Employee's employment is "at will". The Company or Employee may terminate
Employee's employment hereunder at any time with or without cause and for any or
no reason; provided that in the event Employee is terminated without just cause
the Company shall continue to pay your salary as provided in Section 2(a) above
for a period of six (6) months following any such termination without just
cause, and shall maintain for your benefit, for a period of 60 days following
any such termination all benefits in effect at the time of such termination.
"Just cause" means a determination by the Company that the Employee's
termination is necessary because the Employee has engaged in unfair competition
with the Company, induced a customer of the Company to breach a contract with
the Company, made an unauthorized disclosure or otherwise misused any of the
Company's trade secrets or confidential information which has caused material
loss, damage or injury to the Company or otherwise materially endangered the
property, reputation or employees of the Company, committed an act of
embezzlement, fraud or theft with respect to Company property, violated any
Company policy or guideline which has caused material loss, damage or injury to
the Company or otherwise materially endangered the property, reputation or
employees of the Company or gross insubordination.
5. Proprietary Information, Noninterference
(a) Employee will execute concurrently with the execution of
this Agreement an Employee Proprietary Information Agreement in substantially
the form attached hereto as Exhibit A.
(b) Covenants Not to Compete and Not to Solicit.
(i) Non-Competition and Non-Solicitation
Period. The term "NONCOMPETITION AND NON-SOLICITATION PERIOD" as used herein
means a period of two (2) years immediately following the termination of
Employee's employment with the Company. All or any
<PAGE> 4
portion of the obligations of Employee under this Section 5(b) may be waived by
the Company by written notice to that effect given to Employee at any time
during or after the term of Employee's employment with the Company. In the event
of a partial waiver, any obligations of Employee that are not expressly waived
by the Company shall remain in full force and effect as if no waiver was given.
(ii) Covenants Not to Compete. In
consideration for value received by Employee in connection with the sale of the
outstanding shares of Digital as more fully set forth in the Stock Purchase
Agreement, Employee agrees that during the Non-Competition and Non Solicitation
Period, Employee shall not, directly or indirectly, own, manage, operate, join,
control or participate in or be connected with, as an officer, employee,
partner, stockholder, consultant or otherwise, any business, individual
partnership, firm, corporation, or other entity or arrangement (an "ENTITY"),
which is at the time engaged in a business which is, directly or indirectly, in
competition with the business of the Company, or any subsidiary or affiliate
thereof, as conducted as of the date of termination of such Employee. Nothing
herein, however, shall prohibit Employee from acquiring or holding any issue of
stock or securities of any Entity which has any securities listed on a national
securities exchange or quoted in the daily listings of over-the-counter market
securities, provided that at any one time he and members of his immediate family
do not own in the aggregate more than five percent (5%) of any voting securities
of any such Entity. Of the total consideration paid by the Company for all of
the outstanding shares of Digital capital stock, $17,000 is allocated in twelve
(12) equal monthly installments of $1,416.67 to this Covenant Not to Compete.
Notwithstanding any term or condition hereof, this Section 5(b)(ii) shall
terminate and cease to apply five (5) years following the date hereof (if not
sooner terminated by virtue of Section 5(b)(i) above.
(iii) Covenant Not to Solicit. During the
Non-Competition and Non Solicitation Period, Employee shall not: (a) solicit,
encourage, or take any other action which is intended to induce any employee or
consultant of the Company to terminate his or her employment with the Company;
(b) interfere in any manner with the contractual or employment relationship
between the Company and any employee or consultant of the Company; (c) solicit,
encourage, or take any other action which is intended to induce any customer of
the Company to cease purchasing the products or using the services of the
Company; (d) interfere in any manner with the contractual or business
relationship between the Company and any such customer, prospective customer,
vendor, or licensor of the Company; (e) solicit, encourage, or take any other
action which is intended to induce any vendor of the Company to cease doing
business with or end its relationship with the Company; or (f) solicit,
encourage, or take any other action which is intended to induce any licensor of
the Company to cease licensing to or doing business with the Company.
(iv) Geographical Scope. The geographical
scope of the provisions of this Section 5(j) is worldwide. The parties agree
that the worldwide scope of this Section 5(j) is reasonable in light of the
Company's extensive international operations and sales.
(v) Enforceability. Notwithstanding Section
6(c) below, if any of the obligations assumed by Employee under this Section
5(j) should be found unenforceable, whether due to the geographical reach or
temporal duration of those obligations, or due to the scope
<PAGE> 5
of activity restricted, or for any other reason whatsoever, those obligations
shall be reduced to the minimum extent necessary to render the remaining
obligations enforceable.
6. Arbitration.
(a) Any and all disputes, controversies or claims whether of
law or fact and of any nature whatsoever arising from or respecting this
Agreement that are not resolved by the parties hereto, shall be decided by
arbitration in accordance with this Section 8 or otherwise by the Arbitration
Rules then in effect of the American Arbitration Association (the "ARBITRATION
RULES"). Unless otherwise agreed to in writing, the arbitration shall be held in
Santa Clara County, California. Reasonable written notice of the time and place
of arbitration shall be given to all parties to such arbitration and their legal
counsel as shall be required by Law (the "Arbitration Notice"), in which case
such persons or their authorized representatives shall have the right to attend
and/or participate in all the arbitration hearings in such manner as the law
shall require.
(b) The arbitrator shall be selected as follows: in the event
the parties to a dispute to be decided by arbitration pursuant to this Section 8
agree on an arbitrator, the arbitration shall be conducted by such arbitrator.
In the event the parties to the arbitration are unable to select an arbitrator,
legal counsel to the parties to such arbitration shall select an arbitrator
within thirty (30) days following receipt of a notice from a party of such
party's election to submit an unresolved matter to arbitration. In the event
that neither the parties nor their legal counsel are able to select an
arbitrator, the arbitrator shall be appointed in accordance with the Arbitration
Rules. The arbitrator shall use his or her best efforts to render a decision on
the matter submitted to him or her pursuant hereto within sixty (60) days
following such person's appointment. The parties to the arbitration shall
equally bear the fees and expenses of the arbitrator.
(c) At the written request of either party to the arbitration,
the arbitration proceedings will be conducted in the utmost secrecy; in such
case all documents, testimony and records shall be received, heard and
maintained by the arbitrator(s) in secrecy under seal, available for the
inspection only of the parties to such arbitration and their respective approved
agents, who shall agree in advance and in writing to receive all such
information confidentially and to maintain such information in secrecy until
such information shall become generally known.
(d) The arbitrator shall be able to decree any and all relief
of an equitable nature, including but not limited to such relief as a temporary
restraining order, a temporary and/or a permanent injunction, and shall also be
able to award damages, with or without an accounting and costs. The final
decision of the arbitrator shall constitute a conclusive determination of the
matter in question, shall be binding upon the parties hereto and shall not be
contested by any of them. The decree or judgment of an award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
(e) Out-of-Pocket Expenses. After the Arbitrators have
rendered their decision and made their award, either party may, within seven (7)
business days from the date of the Arbitrators' decision, request the same
Arbitrators to assess against the other party any or all out-of-
<PAGE> 6
pocket expenses (including reasonable attorneys', accountants', and other
professionals' fees) incurred by it in connection with proving or disproving, as
the case may be, the validity of the controversy or claim. All claims for
out-of-pocket expenses shall be decided in accordance with the Arbitration Rules
then in effect.
(f) Pre-Hearing Discovery. The parties agree to permit
pre-hearing discovery as follows:
(1) Discovery, in the form of document production,
oral deposition and interrogatory concerning the amount and method of
calculation of Claims, pursuant to the California Code of Civil Procedure,
subject to such limitations and modifications as may be imposed by the
Arbitrators in their sole discretion, should commence promptly upon receipt of
the Arbitration Notice. The parties shall exchange written requests for
production of documents within fifteen (15) days after the Arbitration Notice
and requested documents shall be produced for inspection within fifteen (15)
days thereafter. All written documents exchanged in response to written requests
for production of documents shall be exchanged as close to simultaneously as is
possible and if a document is not being produced, such document shall be listed
on a non-produced document fist provided to the other party at the time of
document production. Each party shall have the right to object to document
requests in accordance with the California Code of Civil Procedure;
(2) The parties shall exchange lists of proposed oral
deposition witnesses on or before forty-five (45) days after receipt of the
Arbitration Notice. Counsel for the parties will meet promptly thereafter to
agree on a schedule of oral depositions to be taken as promptly as practicable.
All oral depositions shall be conducted in accordance with the California Code
of Civil Procedure. The testimony of oral deposition witnesses shall be given
under oath;
(3) The Parties will exchange copies of affidavits
that the Parties propose to use at the arbitration and the curriculum vitae of
any expect to testify at the arbitration hearing on or before fifteen (15) days
prior to the date scheduled for the arbitration hearing; and
(4) Each party shall have the right to petition the
Arbitrators for modification of the procedure set forth herein and, in such
event, the procedure shall be tolled pending the decision of the Arbitrators.
7. General Provisions
(a) Notices. All notices and other communications pursuant to
this Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the addresses set forth in the Stock Purchase Agreement or to such
other address as the party to whom notice is to be given may have furnished to
the other parties hereto in writing in accordance herewith. Any such notice or
communication shall be deemed to have been received (A) in the case of personal
delivery or delivery by telecopier, on the date of such delivery, (B) in the
case of nationally--
<PAGE> 7
recognized overnight courier, on the next business day after the date when sent
and (C) in the case of mailing, on the third business day following that on
which the piece of mail containing such communication is posted.
(b) Equitable Remedies. Employee agrees that it would be
impossible or inadequate to measure and calculate the damages to the Company
from any breach of the covenants set forth in Section 5 hereof. Accordingly,
Employee agrees that if Employee breaches any of such Section 5, the Company
will have, in addition to any other right or remedy available, the right to seek
an injunction from a court of competent jurisdiction restraining such breach or
threatened breach and to specific performance of any provision of such Section
5. Employee further agrees that, unless required by a court of competent
jurisdiction, no bond or other security will be required in obtaining such
equitable relief and Employee hereby consents to the issuance of such injunction
and to the ordering of such specific performance.
(c) Severability. Nothing in this Agreement shall be construed
so as to require the commission of any act contrary to law and wherever there is
any conflict between any provision of this Agreement and any law, statute,
ordinance, order or regulation, the latter shall prevail, but in such event any
provision of this Agreement shall be curtailed and limited only to the extent
necessary to bring it within applicable legal requirements. If one or more of
the provisions in this Agreement become or are found by any court to be void,
voidable, or unenforceable, then the remaining provisions will continue in full
force and effect. If any provision is so held void, voidable or unenforceable,
Employee agrees to replace such provision with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such provision.
(d) Complete Agreement. This Agreement, any form of
confidential information and invention assignment agreement by and between
Employee and Digital and the form of Employee Proprietary Information Agreement,
attached hereto as Exhibit A, generally used by the Company with respect to its
employees and entered into by and between the Company and Employee, together
contain the entire agreement and understanding between the parties relating to
the subject matter hereof, and supersede any prior understandings, agreements,
or representations by or between the parties, written or oral, relating to the
subject matter hereof.
(e) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company by way of reorganization, merger or
consolidation and any assignee of all or substantially all of its business and
assets or the acquisition of more than 50% of the outstanding shares of capital
stock, but except as to any such successor or assignee of the Company, neither
this Agreement nor any rights or benefits hereunder may be assigned by the
Company or Employee.
(f) Amendments. Notwithstanding anything to the contrary
contained in this Agreement, the parties to this Agreement may make any
modification or amendment to this Agreement only by a mutual agreement in
writing.
<PAGE> 8
(g) Governing Law: Consent to Personal Jurisdiction. This
Agreement shall be governed by and construed in accordance with the laws of the
State of California as such laws are applied to contracts entered into and to be
performed entirely within the State of California, without regard to conflict of
laws provisions. Employee hereby expressly consents to the personal jurisdiction
of the state and federal courts located in Santa Clara County, California for
any lawsuit filed there against Employee by the Company arising from or relating
to this Agreement.
(h) Survival. Notwithstanding any termination of this
Agreement under Section 4(a), 4(b) or otherwise, Sections 5, 6 and 7 shall
survive any such termination.
(i) Voluntary Execution of Agreement. This Agreement is
executed voluntarily and without any duress or undue influence on the part or
behalf of the parties hereto. Employee acknowledges that:
(i) He has read this Agreement;
(ii) He has been represented in the preparation,
negotiation, and execution of this Agreement by legal
counsel of his own choice;
(iii) He understands the terms and consequences of
this Agreement; and
(iv) He is fully aware of the legal and binding
effect of this Agreement.
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the day and year first written above.
SOFTWARE PUBLISHING CORPORATION, EMPLOYEE
a Delaware corporation
/s/ Irfan Salim /s/ Daniel J. Fraisl
- ------------------------------------------ -----------------------------
Irfan Salim Daniel J. Fraisl
President and Chief Executive Officer
/s/ Miriam K. Frazer
- ------------------------------------------
Miriam K. Frazer
Chief Financial Officer and Vice President
Finance
Address: Address:
Software Publishing Corporation 21697 Lomita Avenue
3165 Kifer Road Cupertino, CA 95014
P.O. Box 54983
Santa Clara, CA 95056-0983
<PAGE> 10
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 dated October 1, 1996 TO EMPLOYMENT AGREEMENT dated as
of April 7, 1995 (the "Employment Agreement") by and between SOFTWARE PUBLISHING
CORPORATION, a Delaware corporation (the "Company") and Daniel Fraisl, an
individual residing at 13500 Saraview Drive, Saratoga, California 95070
(hereinafter called the "Employee").
WITNESSETH:
WHEREAS, pursuant to an Agreement and Plan of Reorganization dated as
of October 1, 1996 (the "Reorganization Agreement"), SPC ACQUISITION
CORPORATION, a Delaware corporation and a wholly-owned subsidiary of Allegro New
Media, Inc., a Delaware corporation (together with its subsidiaries and
affiliates, "Allegro"), is acquiring all of the issued and outstanding capital
stock of the Company in a merger in which the Company will be the surviving
corporation; and
WHEREAS, the Company and the Employee are entering into this Amendment
to Employment Agreement as a condition precedent to Allegro's willingness to
consummate the transactions contemplated by the Reorganization Agreement; and
WHEREAS, this Amendment is intended as of immediately after the
effective time of the merger contemplated by the Reorganization Agreement (the
"Effective Time") to modify prior agreements, understandings and arrangements
relating to employment or employee benefits between or among the Company and the
Employee relating to the employment of the Employee.
NOW, THEREFORE, it is agreed as follows:
1. Section 2 of the Employment Agreement is deleted in its entirety and
replaced by the following:
"2. Remuneration and Employee Benefits. During the period of
employment, the Company shall pay to Employee the following compensation for the
Employee's services:
(a) The Company shall pay to Employee a salary at the rate of
$130,000 per annum, payable in equal bi-weekly installments, or in such other
manner as shall be agreeable to the Company and Employee.
(b) The Company shall pay to Employee bonuses of (i) $25,000
and (ii) $25,000, payable forty-five (45) days after the end of each fiscal
quarter or forty-five (45) days after the end
<PAGE> 11
of each fiscal year of the Company or as soon thereafter as the Company's
audited financial statements are available, if the performance targets to be
reasonably agreed to by the Company and the Employee and attached hereto as
Schedule A are attained.
(c) Subject to the approval of the Company's stockholders of
an increase in the number of shares available under Allegro's 1994 Long Term
Incentive Plan to not less than 2,500,000, not later than the Effective Time,
the Company shall grant to the Employee incentive stock options to purchase
110,000 shares of Common Stock of the Company (to the extent permitted by
applicable law) at an exercise price equal to the fair market value thereof on
the date of grant, exercisable in equal installments on the first, second, third
and fourth anniversaries of the date of grant, or in full in the event of a
Change in Control (as defined herein) of the Company. These options shall be
exercisable upon the termination of the Employee's employment by the Company for
3 months thereafter to the extent exercisable on the date of such termination.
(d) Subject to the approval of the Company's stockholders of
an increase in the number of shares available under Allegro's 1994 Long Term
Incentive Plan to not less than 2,500,000, the Company shall grant to the
Employee at the time of the attainment of the performance targets set forth
below incentive stock options to purchase 50,000 shares of Common Stock of the
Company (to the extent permitted by applicable law) at an exercise price equal
to the fair market value thereof on the date of grant, such performance targets
to be based upon each of (i) the release in 1997 of a major "electronic mail"
product based on the "Intelligent Formatting" technology, (ii) the release in
1998 of a second major product based on the "Intelligent Formatting" technology
and (iii) the release in 1999 of a third major product based on the "Intelligent
Formatting" technology.
(e) During the term of this Agreement, the Company shall
provide to the Employee the right to participate in the Company's then existing
health insurance and other employee benefit plans and policies on the same terms
as are then generally available to the Company's employees.
(f) Employee shall be entitled to paid vacation each year
during the term of this Agreement at the rate of three (3) weeks per annum.
Vacation shall be taken each year and, if not taken, up to five (5) weeks
thereof (including up to two (2) weeks carried over from prior to the Effective
Time) shall be carried over for one (1) year and, if not taken during such
carry-over period, shall be forfeited."
2. Section 4 of the Employment Agreement is deleted in its entirety and
replaced by the following:
"4. Termination.
(a) Term. This Agreement shall remain in full force and effect
until three (3) years from the date hereof, unless terminated by either party as
provided below.
<PAGE> 12
(b) Termination. The Company and Employee acknowledge that
Employee's employment is "at will". The Company or Employee may terminate
Employee's employment hereunder at any time with or without cause and for any or
no reason; provided that in the event Employee is terminated without just cause
the Company shall continue to pay your salary as provided in Section 2(a) above
for a period of twelve (12) months following any such termination without just
cause, and shall maintain for your benefit, for a period of 30 days following
any such termination all benefits in effect at the time of such termination.
"Just cause" means a determination by the Company that the Employee's
termination is necessary because the Employee has engaged in unfair competition
with the Company, induced a customer of the Company to breach a contract with
the Company, made an unauthorized disclosure or otherwise misused any of the
Company's trade secrets or confidential information which has caused material
loss, damage or injury to the Company or otherwise materially endangered the
property, reputation or employees of the Company, committed an act of
embezzlement, fraud or theft with respect to Company property, violated any
Company policy or guideline which has caused material loss, damage or injury to
the Company or otherwise materially endangered the property, reputation or
employees of the Company or gross insubordination.
(c) If the Company terminates Employee's employment hereunder
within 12 months after a Change in Control (as defined herein), the Company
shall pay to the Employee (A) compensation pursuant to Section 2(a) hereof for a
period equal to one year after the date of such termination, (B) any fully
accrued and unpaid amount payable under Section 2(b) hereof, and (C) the value
of any unforfeited accrued and untaken vacation as provided herein. This amount
shall be payable in a lump sum, less the Option Value (as defined below). No
other compensation payable hereunder shall be payable to the Employee except
that the Company shall pay the cost of the Employee's COBRA health insurance
coverage for the shorter of 30 days after such termination or until the Employee
begins other employment. If the Company terminates Employee's employment
hereunder "for cause" as set forth in Section 4(b) hereof or the Employee
resigns, Employee shall not be entitled to receive any further compensation
hereunder except with respect to unforfeited accrued and untaken vacation as
provided herein. Employee and the Company acknowledge that the foregoing
provisions of this paragraph 4(b) are reasonable and are based upon the facts
and circumstances of the parties at the time of entering into this Agreement,
and with due regard to future expectations.
(d) Option Value. "Option Value" shall mean the fair market
value of the shares of the Company common stock with respect to which vesting of
the Employee's option or options accelerates upon a Change of Control pursuant
to the terms of the Company's 1994 Long Term Incentive Plan or other applicable
Stock Option Plan, on the date of such acceleration, reduced by the option
exercise price applicable to such shares. For this purpose, fair market value
shall be determined by the Board as of the Change of Control date.
(e) Change of Control. For purposes of this Agreement, a
Change in Control of the Company, or in any person directly or indirectly
controlling the Company, shall mean:
<PAGE> 13
(i) a change in control as such term is presently defined in
Regulation 240.12b-2 under the Securities Exchange Act of 1934 ("Exchange Act");
or
(ii) if any "person" (as such term is used in Section 13(d)
and 14(d) of the Exchange Act) other than the Company or any "person" who on the
date of this Agreement is a director or officer of the Company, becomes the
"beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing twenty percent (20%) of
the voting power of the Company's then outstanding securities; or
(iii) if during any period of two (2) consecutive years during
the term of this Agreement, individuals who at the beginning of such period
constitute the Board of Directors cease for any reason to constitute at least a
majority thereof, unless the election of each director who is not a director at
the beginning of such period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors then in office who were
directors at the beginning of the period."
3. The Employee agrees that any changes in the compensation or equity
ownership (including derivative securities) or limitations or restrictions
thereon resulting from the business of financial needs or plans or a Change in
Control of Allegro shall be accepted by the Employee on the same basis as other
members of senior management of Allegro.
4. This Amendment shall be effective as of the Effective Time. Except
as modified hereby, the Employment Agreement shall remain in full force and
effect. Allegro shall be deemed to be a third party beneficiary of this
Amendment and the Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SOFTWARE PUBLISHING CORPORATION
By: /s/ Miriam Frazer
-----------------------------------------
Name: Miriam Frazer
Title: V.P. Finance and Chief Financial Officer
/s/ Daniel J. Fraisl
--------------------------------------------------
DANIEL J. FRAISL
<PAGE> 1
Exhibit 10.15
SETTLEMENT AND GENERAL RELEASE
THIS SETTLEMENT AND GENERAL RELEASE (the "Agreement") is made
and entered into as of the 30th day of January, 1997 by and between Miriam K.
Frazer ("Frazer" or the "Employee"), Allegro New Media, Inc., a Delaware
corporation ("Allegro" or the "Company"), and Software Publishing Corporation, a
Delaware corporation ("SPC") (collectively, the "Parties"). The Parties
acknowledge that the terms and conditions of this Agreement have been
voluntarily agreed to and that such terms are final and binding.
WHEREAS, Frazer has been employed by Allegro and SPC as Chief
Financial Officer and has been a member of Allegro's Board of Directors; and
WHEREAS, Allegro and SPC accept Frazer's resignation as an
employee and officer and Allegro accepts Frazer's resignation from Allegro's
Board of Directors; and
WHEREAS, the Parties now desire to settle fully and finally
all claims Frazer may have against Allegro and that Allegro may have against
Frazer and others released herein, including, but not limited to, any matters
arising out of Frazer's employment with Allegro and her separation therefrom;
NOW, THEREFORE, in consideration of the premises and mutual
promises herein contained, it is agreed as follows:
1. Non-Admission of Liability or Wrongdoing.
This Agreement shall not be construed in any way as an
admission by Allegro or Frazer that either has acted wrongfully with respect to
each other or any other person or that either has any rights whatsoever against
the other.
2. Resignation.
Frazer hereby resigns as a director, officer and employee of
Allegro and as an officer and employee of SPC. Frazer agrees to assist the
Company and SPC in such manner as the Company and SPC may reasonably request
with respect to matters in which she was involved during her employment by the
Company or SPC, during the period ending not earlier than June 1, 1997. Frazer
agrees to return to the Company or SPC all assets, equipment or other items
which are owned by the Company or SPC not later than February 10, 1997.
3. Consideration to Frazer.
(a) On the eighth day after the execution and delivery of this
Agreement: (i) Allegro shall pay to Frazer an amount equal to ONE HUNDRED FORTY
THOUSAND DOLLARS and 00/100 ($140,000);
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<PAGE> 2
(ii) Allegro shall pay to Frazer an amount equal to
$13,462 in respect of accrued vacation; and
(iii) Allegro shall pay to Frazer an amount equal to
$8,334 on each of February 6, March 1, April 1, and May 1, 1997.
(b) Subject to the terms of the Stock Option Plans pursuant to
which such stock options were granted, all incentive stock options granted to
Frazer by Allegro or SPC shall be exercisable for a period of three (3) months
from and after the date hereof to the extent otherwise exercisable, and
thereafter shall terminate. Subject to the terms of the Stock Option Plans
pursuant to which such stock options were granted and applicable law, the
Company and SPC and Frazer shall treat all incentive stock options granted to
Frazer by Allegro or SPC as non-qualified options, and any such non-qualified
options shall be exerciseable for the period set forth in clause (c) below.
(c) Subject to the terms of the Stock Option Plans pursuant to
which such stock options were granted, all non-qualified stock options granted
to Frazer by Allegro or SPC shall be exercisable for a period of six (6) months
from and after the date hereof to the extent otherwise exercisable, and
thereafter shall terminate.
4. Complete Release.
(a) As a material inducement to Allegro to enter into this
Agreement, Frazer hereby waives, releases and discharges Allegro and SPC, their
respective officers, directors, stockholders, employees, agents, attorneys,
subsidiaries, servants, successors, insurers, affiliates and their successors
and assigns, from any and all manner of action, claims, liens, demands,
liabilities, causes of action, charges, complaints, suits (judicial,
administrative, or otherwise), damages, debts, demands, obligations of any other
nature, past or present, known or unknown, whether in law or in equity, whether
founded upon contract (expressed or implied), tort (including, but not limited
to, defamation), statute or regulation (State, Federal or local), common law
and/or any other theory or basis, from the beginning of the world to the date
hereof, including, but not limited to, any claim that Frazer has asserted, now
asserts or could have asserted. This includes, but is not limited to, claims
arising under Federal, State or local laws prohibiting employment or other
discrimination or claims growing out of any legal restrictions on the Company's
rights to terminate its employees, including without limitation any claim
arising under Title VII of the United States Code. It is expressly understood by
Frazer that among the various rights and claims being waived by her in this
release are those arising under the Age Discrimination in Employment Act of 1967
(29 U.S.C. Section 621, et seq.) and any and all rights Frazer may have pursuant
to the Employment Agreement dated October 1, 1996 between Frazer and Allegro and
pursuant to the Management Continuity Agreement dated February 18, 1994 between
Frazer and SPC.
(b) As a material inducement to Frazer to enter into this
Agreement, each of Allegro and SPC hereby irrevocably and unconditionally waive,
release and discharge Frazer, her agents and attorneys, successors and assigns
from any and all manner of action, claims, liens, demands, liabilities, causes
of action, charges, complaints, suits (judicial, administrative or otherwise),
damages, debts, demands, obligations of any other nature, past or present, known
or unknown, whether in law or in
2
<PAGE> 3
equity, whether founded upon contract (expressed or implied, tort (including,
but not limited to, defamation), statute or regulation (State, Federal or
local), common law and/or any other theory or basis, from the beginning of the
world to the date hereof arising out of her employment and resignation therefrom
or the termination thereof, including, but not limited to, any claim that
Allegro or SPC has asserted, now asserts or could have asserted, so long as such
action, claims, liens, demands, liabilities, causes of action, charges,
complaints, suits (judicial, administrative or otherwise), damages, debts,
demands or obligations of any other nature do not arise out of or relate to any
willful misconduct, negligence or fraud committed by Frazer.
(c) It is understood and agreed by all parties hereto that the
facts and respective assumptions of law in contemplation of which this Agreement
is made may hereafter prove to be other than or different from those facts and
assumptions now known, made or believed by them to be true. Each of the parties
hereto expressly accepts and assumes the risk of the facts and assumptions to be
so different, and the parties hereto agree that all terms of this agreement
shall be in all respects effective and not subject to termination or reclusion
by any such difference in facts or assumptions of law.
5. Acknowledgments.
Frazer acknowledges that:
(a) She has had a full twenty-one (21) days within which to
consider this Agreement before executing it;
(b) She has carefully read and fully understands all of the
provisions of this Agreement;
(c) She is, through this Agreement, releasing the Company, SPC
and their affiliates from any and all claims she may have against any of them;
(d) She knowingly and voluntarily agrees to all of the terms
set forth in this Agreement;
(e) She knowingly and voluntarily intends to be legally bound
by the same;
(f) She was advised and hereby is advised in writing to
consider the terms of this Agreement and consult with an attorney of her choice
prior to executing this Agreement;
(g) She has a full seven (7) days following the execution of
this Agreement to revoke this Agreement and has been and hereby is advised in
writing that this Agreement shall not become effective or enforceable until the
revocation period has expired;
(h) She understands that rights or claims under the Age
Discrimination in Employment Act of 1967 (29 U.S.C. Section 621 et seq.) that
may arise after the date of this Agreement is executed are not waived.
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<PAGE> 4
6. Non-Disclosure.
Frazer shall not disclose or deliver to any other party
certain trade secrets or confidential or proprietary information gained through
employment with Allegro or SPC. This includes, but is not limited to,
proprietary technologies, software programs and tools, financial information,
business plans, systems files, algorithms, file structures, customer lists,
supplier lists, internal program structures, options, documentation and data
developed by Allegro or SPC or any subsidiary or division thereof. Frazer agrees
that any breach of this Section 6 will cause Allegro and SPC substantial and
irreparable damages that would not be quantifiable and therefore, in the event
of any such breach, in addition to other remedies that may be available, Allegro
and SPC and Frazer shall have the right to seek specific performance and other
injunctive and equitable relief.
7. Non-Disparagement.
Allegro and Frazer mutually agree not to publish, communicate
or disseminate any negative information as regards each other, or to make public
any information regarding this Agreement to the media, suppliers, vendors and
other industry participants, or in any way to any other person, except that they
may disclose its contents to their respective financial advisors, accountants
and attorneys and as required by law.
8. No Representations.
The Parties represent that in signing this Agreement, they do
not rely on nor have they relied on any representation or statement not
specifically set forth in this Agreement by any of the releasees or by any of
the releasees' agents, representatives or attorneys with regard to the subject
matter, basis or effect of this Agreement or otherwise.
9. Successors.
This Agreement shall be binding upon and inure to the benefit
of Allegro, SPC and Frazer and their respective administrators, representatives,
executors, successors and assigns.
10. Governing Law.
This agreement is made and entered into in this State of
California, and shall in all respects be interpreted, enforced and governed
under the laws of the State of California.
11. Arbitration.
(a) Any dispute arising between the Parties, including but not
limited to those pertaining to the formation, validity, interpretation, effect
or alleged breach of this Agreement ("Arbitrable Dispute") will be submitted to
arbitration in San Jose, California, before an experienced employment arbitrator
and selected in accordance with the rules of the American Arbitration
Association labor tribunal. Each party shall pay the fees of their respective
attorneys, the expenses of their witnesses
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<PAGE> 5
and any other expenses connected with presenting their claim. Other costs of the
arbitration, including the fees of the arbitrator, cost of any record or
transcript of the arbitration, administrative fees, and other fees and costs
shall be borne equally by the parties.
(b) Should either party to this Agreement hereafter institute
any legal action or administrative proceedings against the other with respect to
any claim waived by this Agreement or pursue any other Arbitrable Dispute by any
method other than said arbitration, the responding party shall be entitled to
recover from the initiating party all damages, costs, expenses and attorneys'
fees incurred as a result of such action.
12. Proper Construction.
(a) The language of all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning, and not strictly
for or against any of the parties;
(b) As used in this Agreement, the term "or" shall be deemed
to include the term "and/or" and the singular or plural number shall be deemed
to include the other whenever the context so indicates or requires;
(c) The paragraph headings used in this Agreement are intended
solely for convenience of reference and shall not in any manner amplify, limit,
modify or otherwise be used in the interpretation of any of the provisions
hereof.
13. Severability.
Should any of the provisions of this Agreement be declared or
be determined to be illegal or invalid, the validity of the remaining parts,
terms or provisions shall not be affected thereby and said illegal or invalid
part, term or provision shall be deemed not be a part of this Agreement.
14. Entire Agreement.
This Agreement sets forth the entire agreement between the
parties hereto, and fully supersedes any and all prior agreements or
understandings between the parties hereto pertaining to the subject matter
hereof. All other contracts, agreements or understandings between Frazer and
Allegro and SPC are null and void.
15. Counterparts.
This Agreement may be executed in counterparts. Each
counterpart shall be deemed an original, and when taken together with the other
signed counterpart, shall constitute one fully executed Agreement.
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<PAGE> 6
PLEASE READ CAREFULLY. THIS SETTLEMENT AND GENERAL RELEASE
INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
Dated: San Jose, California Dated: San Jose, California
January 30, 1997 January 30, 1997
ALLEGRO NEW MEDIA, INC.
By: /s/ Barry A. Cinnamon /s/ Miriam Frazer
-------------------------------- -------------------------------
Name: Barry A. Cinnamon Miriam Frazer
Title: Chief Executive Officer
SOFTWARE PUBLISHING CORPORATION
By: /s/ Barry A. Cinnamon
--------------------------------
Name: Barry A. Cinnamon
Title: Chief Executive Officer
6
<PAGE> 1
Exhibit 10.21
LOCK-UP AGREEMENT
This AGREEMENT (the "Agreement") is made as of the 31st day of July,
1996, between the undersigned former stockholder (the "Undersigned") of Serif,
Inc. , a Delaware corporation (the "Company") and Allegro New Media, Inc., a
Delaware corporation ("Allegro").
NOW, THEREFORE, for good and valuable consideration, including the
agreements by certain other former stockholders of the Company to be similarly
bound, the sufficiency and receipt of which consideration are hereby
acknowledged, the Undersigned agrees as follows:
1. BACKGROUND. The Undersigned acknowledges that Allegro has required,
and the Company has agreed to assist Allegro in obtaining, agreements from all
former stockholders of the Company, to refrain from selling certain quantities
of securities of Allegro for a period of up to 24 months following the
completion of Allegro's acquisition (the "Acquisition") of all of the capital
stock of the Company pursuant to the Stock Purchase Agreement dated the date
hereof among Allegro, the Company, Serif (Europe) Limited and the other
stockholders of the Company and Serif (Europe) Limited. To induce Allegro to
proceed with the Acquisition and other stockholders of the Company to make
similar agreements, the Undersigned has entered into this Agreement.
2. RESTRICTION. The Undersigned hereby agrees that from the closing of
the Acquisition to and including a date 24 months thereafter, the Undersigned
will not directly or indirectly, issue, offer to sell, grant an option for the
sale of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose
of any shares of common stock, par value $.001 per share (the "Common Stock") or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 under the Securities Act of 1933, as amended, or otherwise) or
dispose of any beneficial interest therein without the prior written consent of
the President of Allegro, except that the Undersigned may sell in brokerage
transactions in the aggregate (a) up to ten percent (10%) of the shares of
Common Stock owned beneficially or of record (the "Stock") during the period
from six (6) months after the date hereof (the "Closing Date") 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, and (c) an additional ten percent (10%) during the period from
eighteen (18) months after the Closing Date until twenty-four (24) months
thereafter. The Undersigned further agrees that Allegro is authorized to place
"stop orders" on its books to prevent any transfer of securities of Allegro by
the Undersigned in violation of this Agreement.
3. RELIANCE BY THE COMPANY, UNDERWRITERS AND OTHER STOCKHOLDERS. The
Undersigned acknowledges that Allegro is relying upon the agreements of the
Undersigned contained herein, and that the failure of the Undersigned to perform
the agreements contained herein could have a detrimental effect
<PAGE> 2
upon any proposed offering. Accordingly, the Undersigned understands and agrees
that the Undersigned's agreements herein are irrevocable.
4. MISCELLANEOUS.
(a) At any time, and from time to time, after the signing of
this Agreement, the Undersigned will execute such additional instruments and
take such action as may be reasonably requested by Allegro to carry out the
intent and purposes of this Agreement.
(b) This Agreement shall be governed, construed and enforced
in accordance with the laws of the State of New York, except to the extent that
the securities laws of the State in which the Undersigned resides and federal
securities laws may apply.
(c) This Agreement contains the entire agreement of the
Undersigned with respect to the subject matter hereof.
(d) This Agreement shall be binding upon the Undersigned, his
legal representatives, successors and assigns.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have executed this Agreement as of the day and year first above
written.
________________________________
Name:
ALLEGRO NEW MEDIA, INC.
By: ____________________________
Name:
Title:
<PAGE> 1
Exhibit 10.22
LOCK-UP AGREEMENT
This AGREEMENT (the "Agreement") is made as of the 31st day of July,
1996, between the undersigned former stockholder (the "Undersigned") of Serif
(Europe) Limited (the "Company") and Allegro New Media, Inc., a Delaware
corporation ("Allegro").
NOW, THEREFORE, for good and valuable consideration, including the
agreements by certain other former stockholders of the Company to be similarly
bound, the sufficiency and receipt of which consideration are hereby
acknowledged, the Undersigned agrees as follows:
1. BACKGROUND. The Undersigned acknowledges that Allegro has required,
and the Company has agreed to assist Allegro in obtaining, agreements from all
former stockholders of the Company, to refrain from selling certain quantities
of securities of Allegro for a period of up to 24 months following the
completion of Allegro's acquisition (the "Acquisition") of all of the capital
stock of the Company pursuant to the Stock Purchase Agreement dated the date
hereof among Allegro, the Company, Serif Inc. and the other stockholders of the
Company and Serif Inc. To induce Allegro to proceed with the Acquisition and
other stockholders of the Company to make similar agreements, the Undersigned
has entered into this Agreement.
2. RESTRICTION. The Undersigned hereby agrees that from the closing of
the Acquisition to and including a date 24 months thereafter, the Undersigned
will not directly or indirectly, issue, offer to sell, grant an option for the
sale of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose
of any shares of common stock, par value $.001 per share (the "Common Stock") or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 under the Securities Act of 1933, as amended, or otherwise) or
dispose of any beneficial interest therein without the prior written consent of
the President of Allegro, except that the Undersigned may sell in brokerage
transactions in the aggregate (a) up to ten percent (10%) of the shares of
Common Stock owned beneficially or of record (the "Stock") during the period
from six (6) months after the date hereof (the "Closing Date") 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, and (c) an additional ten percent (10%) during the period from
eighteen (18) months after the Closing Date until twenty-four (24) months
thereafter. The Undersigned further agrees that Allegro is authorized to place
"stop orders" on its books to prevent any transfer of securities of Allegro by
the Undersigned in violation of this Agreement.
3. RELIANCE BY THE COMPANY, UNDERWRITERS AND OTHER STOCKHOLDERS. The
Undersigned acknowledges that Allegro is relying upon the agreements of the
Undersigned contained herein, and that the failure of the Undersigned to perform
the agreements contained herein could have a detrimental effect
<PAGE> 2
upon any proposed offering. Accordingly, the Undersigned understands and agrees
that the Undersigned's agreements herein are irrevocable.
4. MISCELLANEOUS.
(a) At any time, and from time to time, after the signing of
this Agreement, the Undersigned will execute such additional instruments and
take such action as may be reasonably requested by Allegro to carry out the
intent and purposes of this Agreement.
(b) This Agreement shall be governed, construed and enforced
in accordance with the laws of the State of New York, except to the extent that
the securities laws of the State in which the Undersigned resides and federal
securities laws may apply.
(c) This Agreement contains the entire agreement of the
Undersigned with respect to the subject matter hereof.
(d) This Agreement shall be binding upon the Undersigned, his
legal representatives, successors and assigns.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have executed this Agreement as of the day and year first above
written.
_________________________________
Name:
ALLEGRO NEW MEDIA, INC.
By: _____________________________
Name:
Title:
<PAGE> 1
Exhibit 10.28
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of July 31, 1996 (the "Escrow
Agreement"), by and among ALLEGRO NEW MEDIA, INC., a Delaware corporation
("Allegro"), SERIF (EUROPE) LIMITED, an English Company with registered number
02117968 ("Serif"), THE PERSONS WHOSE SIGNATURES APPEAR ON THE SIGNATURE PAGE
HEREOF (individually, a "Stockholder" and collectively, the "Stockholders"),
being the owners of all the issued and outstanding capital stock of Serif, GWYN
JONES (the "Stockholders' Representative"), and BLAU, KRAMER, WACTLAR &
LIEBERMAN, P.C., as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Allegro, Serif and the Stockholders have entered
into an Agreement and Plan of Reorganization (the "Reorganization Agreement")
dated as of July 31, 1996, providing for, among other things, the exchange by
the Stockholders and Allegro of all the outstanding capital stock of Serif
(other than the shares held by Serif Inc.) for 754,597 shares of the common
stock, par value $.001 per share, of Allegro (the "Exchange Stock"); and
WHEREAS, Section 3.3 of the Reorganization Agreement
requires that Allegro, Serif and the Stockholders agree to enter into this
Escrow Agreement with the Escrow Agent for the purpose of securing the indemnity
obligations of the Stockholders under Section 11 of the Reorganization
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, Allegro, Serif, the Stockholders and the Escrow
Agent agree that all capitalized terms used herein without definition shall have
the meaning ascribed to them in the Reorganization Agreement and further agree
as follows:
ARTICLE I. ESCROWED PROPERTY
1.01 Each of the Stockholders has this day delivered to the Escrow
Agent that number of Exchange Shares set forth next to his signature on the
signature page hereof, which Exchange Shares aggregate 252,864 shares
(hereinafter referred to collectively as the "Escrowed Property").
1.02 The Escrow Agent acknowledges receipt of negotiable certificates
for the Escrowed Property issued in the names of each of the Stockholders with
blank stock powers attached properly executed by the Stockholders, and the
Escrow Agent agrees to hold or dispose of the Escrowed Property and any other
collateral in accordance with the terms of this Escrow Agreement.
1.03 All dividends and other distributions (whether of cash, securities
or other property) upon or in respect of any of the Escrowed Property and all
property receivable in substitution or exchange therefor shall be included with
and constitute part of the Escrowed Property.
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ARTICLE II. APPLICATION OF ESCROWED PROPERTY
2.01 The Escrow Agent will hold the Escrowed Property in its possession
under the provisions of this Escrow Agreement until authorized hereunder to
deliver the Escrowed Property or any specified portion thereof as set forth in
Section 2.02 or Section 2.03.
2.02 The Escrow Agent shall distribute the amounts deposited as
Escrowed Property promptly upon delivery of and in accordance with (i) a joint
written notice of Allegro and the Stockholders' Representative providing
instructions therein or (ii) written notice of Allegro and the Stockholders'
Representative providing instructions therein and certifying that the dispute
with respect to any amount or amounts deposited in the escrow provided for
herein has been determined and resolved by entry of a final order, decree or
judgment by a court of competent jurisdiction in the State of New York (the time
for appeal therefrom having expired and no appeal having been perfected), or
consent to entry of any judgment concerning a claim, which notice shall be
accompanied by a copy of any such order, decree or judgment certified by the
clerk of such court.
2.03 In the event that prior to May 1, 1998 (the "Termination Date"),
the Escrow Agent has not received notice of a claim for indemnification under
Section 11 of the Reorganization Agreement which remains unresolved on the
Termination Date, the Escrow Agent shall distribute the Escrowed Property to the
Stockholders' Representative or as he otherwise directs. In the event that on
the Termination Date there exists an unresolved claim, then in such event the
Escrow Agent shall reserve from the Escrowed Property an amount equal to the
amount of the claim, as determined in accordance with the provisions of Article
IV hereof, and shall distribute any remaining balance.
ARTICLE III. RELATED PROVISIONS
3.01 Upon the release and delivery of any amount of the Escrowed
Property to any party pursuant to this Escrow Agreement, the Escrow Agent shall
also release and deliver to such party the pro rata portion of the interest,
other income or property so released, up to the date of such release and
delivery, attributable to such amount of the Escrowed Property being so released
and delivered.
3.02 In connection with the delivery of written notices to the Escrow
Agent by Allegro, the Stockholders' Representative, or both such parties, each
such written notice shall be signed by an officer of Allegro or the
Stockholders' Representative, or both, as appropriate, and shall accurately set
forth in each case:
(a) the total amount that the Escrow Agent is thereby directed
to distribute out of the Escrowed Property;
(b) the party to whom, or the fund to which, the Escrow Agent
is thereby directed to distribute such amount; and
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<PAGE> 3
(c) the date upon which the Escrow Agent is directed to
distribute such amount; and such officer of Allegro or the
Stockholders' Representative, or both, as the case may be, shall
certify as to the compliance with such notice and the contents thereof.
The Escrow Agent may rely fully on the provisions set forth in any such written
notice which on its face complies with the provisions of Article II and this
Section 3.02.
ARTICLE IV. SETTLEMENT OF DISPUTES
4.01 Any dispute which may arise between Allegro and the Stockholders'
Representative under this Escrow Agreement with respect to (a) the delivery,
ownership and/or right to possession of the Escrowed Property or any portion
thereof, (b) the facts upon which the Escrow Agent's determinations hereunder
are based, (c) the duties of the Escrow Agent hereunder and (d) any other
questions arising under this Escrow Agreement, shall be settled either by (i) a
joint written notice of Allegro and the Stockholders' Representative providing
instructions to the Escrow Agent therein or (ii) by entry of a final order,
decree or judgment by a court of competent jurisdiction in the State of New York
(the time for appeal therefrom having expired and no appeal having been
perfected).
4.02 The Escrow Agent shall be under no duty to institute or defend any
such proceedings and none of the costs and expenses of any such proceeding shall
be borne by the Escrow Agent. In the event the terms of a settlement of a
dispute hereunder increase the duties or liabilities of the Escrow Agent
hereunder and the Escrow Agent has not participated in such settlement so as to
be bound thereby, then such settlement shall be effective as to the Escrow Agent
in respect of such increase in its duties or liabilities only upon the Escrow
Agent's written assent thereto. Prior to the settlement of any disputes as
provided in this Article IV, the Escrow Agent is authorized and directed to
retain in its possession, without liability to anyone, such portion of the
Escrowed Property which is the subject of or involved in the dispute.
ARTICLE V. CONCERNING THE ESCROW AGENT.
5.01 The Escrow Agent shall be entitled to reasonable compensation for
its services hereunder and shall be reimbursed for all reasonable expenses,
disbursements and advances (including reasonable attorneys' fees and expenses)
incurred or made by it in performance of its duties hereunder. Such reasonable
compensation, disbursement, expenses and advances shall be borne equally by
Allegro and the Stockholders' Representative and shall be paid promptly upon
request by the Escrow Agent.
5.02 The Escrow Agent may resign and be discharged from its duties
hereunder at any time by giving notice of such resignation to Allegro and
Stockholders' Representative specifying a date (not less than 30 days after the
giving of such notice) when such resignation shall take effect. Promptly after
such notice, Allegro and the Stockholders' Representative shall appoint a
mutually agreeable successor Escrow Agent, such successor Escrow Agent to become
Escrow Agent hereunder upon the resignation date specified in such notice. If
Allegro and the Stockholders' Representative are unable to agree upon a
successor Escrow Agent with 30 days after such notice, the Escrow Agent shall
have the right to petition a court of competent jurisdiction to appoint a
successor, and the Escrow Agent shall continue to serve until its successor
accepts the escrow and receives the Escrowed Property.
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<PAGE> 4
5.03 The Escrow Agent undertakes to perform only such duties as are
specifically set forth herein. The Escrow Agent acting or refraining from acting
in good faith shall not be liable for any mistake of fact or error of judgment
by it or for any acts or omissions by it of any kind unless caused by gross
negligence or willful misconduct, and shall be entitled to rely, and shall be
protected in doing so, upon (a) any written notice, instrument or signature
believed by it to be genuine and to have been signed or presented by the proper
party or parties duly authorized to do so, and (b) the advice of counsel (which
may be of the Escrow Agent's own choosing, so long as such counsel is not
counsel to Allegro or the Stockholders' Representative). The Escrow Agent shall
have no responsibility for the contents of any writing submitted to it hereunder
and shall be entitled in good faith to rely without any liability upon the
contents thereof. The Escrow Agent has no responsibilities under, and shall be
deemed to have no knowledge of, the provisions of the Reorganization Agreement.
5.04 Allegro and the Stockholders agree to indemnify the Escrow Agent
and hold it harmless against any and all liabilities incurred by it hereunder as
a consequence of such indemnifying party's action and the Allegro and the
Stockholders further agree to indemnify the Escrow Agent and hold it harmless
against any and all losses, costs, fees and expenses incurred by the Escrow
Agent which are not a consequence of its actions or failure to act, except, in
either case for liabilities incurred by the Escrow Agent resulting from its own
gross negligence or willful misconduct. One-half of the amount of any such
payment or indemnification shall be paid to the Escrow Agent by Allegro and the
other half of the amount of any such payment or indemnification shall be paid by
the Stockholders. The indemnification provided pursuant to this section shall
survive the resignation of the Escrow Agent or the termination of this Escrow
Agreement.
5.05 In the event the Escrow Agent becomes involved in any litigation
or dispute by reason hereof, it is hereby authorized to deposit with the clerk
of a court of competent jurisdiction the Escrowed Property held by it pursuant
hereto and, thereupon, shall stand fully relieved and discharged of any further
duties hereunder. Also, in the event the Escrow Agent is threatened with
litigation by reason hereof, it is hereby authorized to interplead all
interested parties in any court of competent jurisdiction and to deposit with
the clerk of such court the Escrowed Property held by it pursuant hereto and,
thereupon, shall stand fully relieved and discharged of any further duties
hereunder.
5.06 In the event of any claim, dispute or litigation concerning the
Reorganization Agreement or this Escrow Agreement, Blau, Kramer, Wactlar &
Lieberman, P.C. shall nevertheless have the unqualified right to represent
Allegro, its officers and directors in respect of any such claim, dispute or
litigation, notwithstanding that it is acting as Escrow Agent hereunder.
ARTICLE VI. STOCKHOLDERS' REPRESENTATIVE
6.01 The Stockholders, and each of them, hereby appoint Gwyn Jones (the
"Stockholders' Representative") as their agent to (i) execute and deliver this
Escrow Agreement on behalf of the Stockholders and to represent, act for and on
behalf of, and bind each of the Stockholders in the performance of all of their
obligations arising from or relating to this Escrow Agreement, including,
without limitation (a) the execution and delivery of any document, certificate
or agreement required under this Escrow Agreement to be delivered by the
Stockholders; (b) the negotiation and settlement of claims of Allegro in respect
of the Escrowed Property and for indemnification pursuant to Section 11 of the
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Reorganization Agreement and the making of any objection to such claims; and (c)
the representation of the Stockholders at any arbitration or litigation in
respect of the foregoing; (ii) give and receive notices and receive service of
process under or pursuant to this Escrow Agreement; and (iii) to represent, act
for, and bind each of the Stockholders in the performance of all of their
obligations arising from or related to this Escrow Agreement and the
indemnification provisions of Section 11 of the Reorganization Agreement. The
Stockholders' Representative hereby accepts such appointment.
6.02 In the event that the Stockholders' Representative shall die,
become incapacitated, resign or otherwise by unable to fulfill his duties
hereunder, a successor Stockholders' Representative shall be selected by the
Stockholders receiving a majority of the Escrowed Property as soon as reasonably
practicable thereafter. If the Stockholders desire to remove or replace the
Stockholders' Representative for any reason, any such Stockholders'
Representative may be so removed or replaced by the Stockholders entitled to
receive a majority of the Escrowed Property. Any decision, act, consent or
instruction of the Stockholders' Representative shall constitute a decision of
the Stockholders and shall be conclusive and binding upon the Stockholders, and
Allegro and the Escrow Agent may rely upon any such decision, act, consent or
instruction of the Stockholders' Representative as being the decision, act,
consent or instruction of the Stockholders.
ARTICLE VII. MISCELLANEOUS
7.01 This Escrow Agreement will be binding upon, inure to the benefit
of, and be enforceable by the respective successors and assigns of the parties
hereto, but neither this Escrow Agreement, nor any of the rights, interest or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties, except with respect to the Escrow
Agent as provided in Article V hereof.
7.02 This Escrow Agreement contains the entire understanding of the
parties with respect to this subject matter, and may be amended only by a
written instrument duly executed by Allegro, Serif and the Stockholders'
Representative.
7.03 All notices, consents, requests, instructions, approvals and other
communications provided for herein and all legal process in regard hereto shall
be validly given, made or served, if in writing and delivered personally or sent
by registered or certified mail (return receipt requested), postage prepaid,
recognized national or international air courier or by facsimile transmission
electronically confirmed:
if to Allegro:
Allegro New Media, Inc.
16 Passaic Avenue
Fairfield, New Jersey 07006
Fax: (201) 808-2645
Attn.: Barry A. Cinnamon
Chairman of the Board
5
<PAGE> 6
with a copy to:
Neil M. Kaufman, Esq.
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, New York ll753
Fax: (516) 822-4824
if to Serif, the Stockholders, or the Stockholders'
Representative, to the Stockholder's Representative:
Gwyn Jones
Serif Inc.
One Chestnut Street
Suite 305
Nashu, New Hampshire 03060
with a copy to:
Austin J. Moore, Esq.
Eking Manning
44 The Ropewalk
Nottingham NG1 5EL
Fax: (011) 44-115-953-2533
if to the Escrow Agent:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, New York ll753
Fax: (516) 822-4824
Attn.: Neil M. Kaufman, Esq.
or, in each case, at such other address as may be specified in writing to the
other parties.
7.04 This Escrow Agreement shall be governed by, and construed and
enforced in accordance with the laws of the State of New York, without regard to
its conflicts of law rules.
7.05 This Escrow Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.06 This Escrow Agreement shall remain in full force and effect until
the later of May 1, 1998 or the date the Escrow Agent shall have delivered all
of the Escrowed Property in its possession in accordance with the terms hereof.
6
<PAGE> 7
7.07 Article headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Escrow
Agreement.
IN WITNESS WHEREOF, this Escrow Agreement has been duly executed and
delivered by Allegro, Serif, the Stockholders and the Escrow Agent on the date
first above written.
ALLEGRO NEW MEDIA, INC.
By: /s/ Barry A. Cinnamon
--------------------------------------
Barry A. Cinnamon
Chairman of the Board
SERIF INC.
By: /s/ Gwyn Jones
--------------------------------------
Gwyn Jones, President
STOCKHOLDERS'
REPRESENTATIVE:
/s/ Gwyn Jones
------------------------------------------
Gwyn Jones
ESCROW AGENT:
Blau, Kramer, Wactlar & Lieberman, P.C.
By: /s/ Neil M. Kaufman
--------------------------------------
<TABLE>
<CAPTION>
Number of
Exchanged Shares STOCKHOLDER
- ----------------
<S> <C>
89,223 /s/ Gwyn Jones
-------------------------------------------
Gwyn Jones
20,637 /s/ Norman Alexander-Attorney-in-Fact
-------------------------------------------
Norman Alexander
8,750 /s/ Jim Bryce-Attorney-in-Fact
-------------------------------------------
Jim Bryce
17,092 /s/ Peter Beedham
-------------------------------------------
Peter Beedham
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C>
11,647 /s/ Ralf Mellor-Attorney-in-Fact
-------------------------------------------
Ralf Mellor
8,750 /s/ Espirit Automations-Attorney-in-Fact
-------------------------------------------
Esprit Automations
4,128 /s/ Mark Gee-Attorney-in-Fact
-------------------------------------------
Mark Gee
3,440 /s/ Robert O'Mara-Attorney-in-Fact
-------------------------------------------
Robert O'Mara
1,376 /s/ Darren Darvill-Attorney-in-Fact
-------------------------------------------
Darren Darvill
1,376 /s/ Mark Ramsey-Attorney-in-Fact
-------------------------------------------
Mark Ramsey
1,376 /s/ Mark Daintree-Attorney-in-Fact
-------------------------------------------
Mark Daintree
894 /s/ David Brailsford-Attorney-in-Fact
-------------------------------------------
David Brailsford
5,847 /s/ David Harris-Attorney-in-Fact
-------------------------------------------
David Harris
7,712 /s/ Robin Bryce-Attorney-in-Fact
-------------------------------------------
Robin Bryce
7,712 /s/ Wallace Bryce-Attorney-in-Fact
-------------------------------------------
Wallace Bryce
61,570 /s/ Barry A. Cinnamon
-------------------------------------------
Barry A. Cinnamon
Co-Trustee of the Serif (Europe) Limited
Employee Share Option Scheme
</TABLE>
8
<PAGE> 1
Exhibit 10.31
Allegro New Media, Inc.
3 Oak Drive
Fairfield, New Jersey 07004
October 24, 1996
Mr. Gwyn Jones
207 Windmill Lane
Sneinton, Nottingham
England
Re: Lock-Up Agreement dated as of July 31, 1996 between us (the
"Lock-Up Agreement") and Certain Other Matters
Dear Mr. Jones:
This letter sets forth our agreement as follows:
1. In consideration of the terms and conditions set forth herein,
Allegro New Media, Inc., a Delaware corporation ("Allegro") shall pay to you:
(a) $113,916.67 upon the execution and delivery of this agreement;
(b) $70,416.66 upon the earlier of (i) consummation of the merger
contemplated by the Agreement and Plan of Reorganization dated
October 1, 1996 among Allegro, Software Publishing Corporation
and SPC Acquisition Corporation or (ii) February 28, 1997; and
(c) $70,416.66 on August 31, 1997.
2. The restrictions set forth in Section 2 of the Lock-Up Agreement
shall be terminated so long as and to the extent that you offer and sell your
shares of Common Stock, par value $.001 per share (the "Common Stock"), of
Allegro in the following manner: (a) in accordance with all applicable federal,
state and foreign (including U.K.) securities laws, (b) you shall not sell
during any one week in excess of an aggregate of more than 30% of the average
daily sales volume of the Common Stock on Nasdaq over the preceding two weeks,
without the consent of the Designated Broker described below which will purchase
or effectuate the purchase, (c) you agree that you will sell shares of Common
Stock only through a "Designated Broker", which for purposes of this Agreement
shall be any one of up to three securities brokers making a market for the
Common Stock that is recommended to you by Allegro at the time of such desired
sale, and (d) prior to selling any shares of Common Stock, you agree to first
contact Allegro's Chief Operating Officer, and to comply with Allegro's Insider
Trading Policy.
<PAGE> 2
3. You hereby appoint Norman Alexander as the Stockholder's
Representative pursuant to the Agreement and Plan of Reorganization dated as of
July 31, 1996 among Allegro, Serif Inc. and the former stockholders of Serif
Inc.(the "US Reorganization Agreement"), the Agreement and Plan of
Reorganization dated as of July 31, 1996 among Allegro, Serif (Europe) Limited
and the former stockholders of Serif (Europe) Limited (the "UK Reorganization
Agreement"; and collectively with the US Reorganization Agreement, the
"Reorganization Agreements"), and, to the extent that you are permitted to do
so, pursuant to Section 6.02 thereof, the Escrow Agreements entered into in
connection therewith, in substitution for yourself.
4. You hereby resign as an officer, director and employee of Allegro
New Media, Inc., Serif (Europe) Limited and Serif Inc. You hereby appoint Norman
Alexander as your designee as a director of Allegro New Media, Inc. for purposes
of the Reorganization Agreements and the Stockholder's Agreement dated as of
July 31, 1996 among Barry A. Cinnamon and the former stockholders of Serif Inc.
and Serif (Europe) Limited.
5. You acknowledge and agree that from and after the date of this
Letter Agreement, you shall have no authority, expressed or implied, to bind
Allegro, Serif (Europe) Limited or Serif Inc.
or any subsidiary or affiliate thereof.
6. You acknowledge and agree that you remain bound by the terms of the
Reorganization Agreements, and in particular the terms of Section 8 of each of
the Reorganization Agreements: provided, that we agree that the Restricted
Period, as defined in Section 8 of the Reorganization Agreements, shall continue
and expire on the date that is the first anniversary of this agreement.
7. You shall retain your rights under the Registration Rights Agreement
dated as of July 31, 1996 among Allegro and the former stockholders of Serif
Inc. and Serif (Europe) Limited, as set forth therein.
8. Neither of us shall make any public announcement of the terms of
this agreement or the transactions related thereto without the prior written
consent of the other, except as required by applicable law or regulation, stock
exchange or Nasdaq rules or upon request of a governmental authority.
9. Allegro hereby covenants that it will not sue you for any claims,
demands and causes of action arising from Section 12.1(a)(ii) of the UK
Reorganization Agreement or Section 11.1(a)(ii) of the US Reorganization
Agreement, other than a claim based on fraud.
10. 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.
11. This agreement shall be construed under the laws of the state of
New York, without regard to its conflicts of laws principles.
2
<PAGE> 3
12. Allegro agrees to use its commercially reasonable efforts to cause
Serif (Europe) Limited and Serif Inc. to obtain your release from any personal
guarantees or indemnities given for their benefit, including your obligations as
tenant for the Fairfeild, New Jersey apartment, and, pending such release, to
indemnify you for such matters.
If the foregoing accurately sets forth our Agreement, please sign where
indicated below.
Sincerely,
ALLEGRO NEW MEDIA, INC.
By: /s/ Barry A. Cinnamon
----------------------------------
Name: Barry A. Cinnamon
Title: President
Accepted and agreed as of the date first above written.
/s/ Gwyn Jones
- ------------------------
Gwyn Jones
3
<PAGE> 1
Exhibit 10.32
THIS AGREEMENT is made the day of 1996 BETWEEN:-
(1) SERIF (EUROPE) LIMITED whose registered office is situate at 1
Loughborough Road, West Bridgford, Nottingham, NG2 7LJ, whose
registered number is 02117968 ("the Company")
(2) GWYN JONES of 207 Windmill Lane, Sneinton, Nottingham ("the Employee:)
1. The Employee was employed by the Company pursuant to the terms of an
agreement dated the 31st day of July 1996 ("the Employment Agreement")
the terms of which provided that the Company would employ the Employee
as an executive vice president for an initial period of three years
from the date of the Employment Agreement and thereafter terminable by
either party serving 60 days notice on the other party.
2. The Company is a wholly owned subsidiary of Allegro New Media, Inc.
("Allegro").
3. The Company has terminated the Employee's employment with the Company.
4. In consideration of the terms of clause 8 of this Agreement and the sum
of (pound sterling)1 paid on the signature hereof by the Company to the
Employee the Employee agrees the terms of this Agreement for the
purpose of compromising by means of full and final settlement any of
the following claims which the Employee may have against the Company
arising out of his employment or the termination thereof:-
4.1 any claim for payment in lieu of notice or damages for
termination of employment without notice;
4.2 any claim for outstanding pay, holiday pay, or expenses;
4.3 any claim for loss of benefits in kind (including the medical
and dental insurance and benefit plans and policies) referred
to at clause 5 (a) of the Employment Agreement;
4.4 any claim for a redundancy payment;
4.5 any claim for unfair dismissal;
4.6 any claim under Part I of the Employment Rights Act 1996;
<PAGE> 2
4.7 any other complaint under the Employment Rights Act 1996.
5. The Employee will immediately return to the Company all of the
Company's property in the possession of the Employee or under the
control of the Employee in good condition and order.
6. The Employee undertakes that he will not at any time after the date of
this Agreement:-
(i) disclose or make use of for his own or any other person's
benefit any trade secrets or confidential information
belonging to the Company or any subsidiary or holding or
associated company of the Company; or
(ii) disclose to the employees of the Company or any subsidiary or
holding or associated company of the Company or to any other
person the terms of this Agreement.
7. The Employee undertakes that he will not at any time following the date
hereof without limitation in time make, publish or issue or cause to be
made, published or issued any disparaging or derogatory statements
whether in writing or otherwise concerning the Company or Allegro or
any of their respective officers or employees or any of their
respective subsidiary or holding or associated companies or their
officers or employees.
8. In consideration of the terms of this Agreement, the Company hereby
waives and releases the Employee from any claim or right of action
against the Employee (other than a claim based on fraud by the
Employee) and the Employee hereby waives and releases the Company from
any claim or right of action against the Company in either case arising
out of the Employment Agreement or otherwise in respect of the
employment of the Employee by the Company.
9. This Agreement satisfies the conditions regulating compromise agreement
sunder the Employment Rights Act 1996 as amended both generally and in
regard to the following:-
9.1 the Employee hereby confirms that he has received independent
legal advice from a qualified lawyer as to the terms and
effect of this Agreement and in particular its effect on its
ability to pursue his right before an industrial tribunal;
9.2 the said independent legal advice has been given to the
Employee by Austin Moore a partner in the firm of Eking
Manning, Solicitors, of 44 The Ropewalk, Nottingham, NG1 5EL,
a Solicitor of the Supreme Court whose firm holds a policy of
insurance covering the risk of a claim by the Employee in
respect of loss arising in consequence of the advice;
9.3 the conditions regulating compromise agreements under the
provisions of Section 203 of the Employment Rights Act 1996
are satisfied.
<PAGE> 3
10. This Agreement is made without admission of liability on the part of
the Company.
SIGNED for and on behalf of ) /s/ Barry A. Cinnamon
SERIF (EUROPE) LIMITED in )
the presence of:- ) /s/ Mark E. Leininger
SIGNED by the said )
GWYN JONES ) /s/ Gwyn Jones
in the presence of:- )
/s/ A.J. Moore
Solicitor
Nottingham
<PAGE> 1
EXHIBIT 10.39
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to the Stock Purchase Agreement (this "Amendment") is
made and entered into effective as of April 2, 1996, by and between Software
Publishing Corporation (the "Buyer") and Daniel J. Fraisl, Carl Meyer and
Anthony N. Hoeber (collectively referred to as the "Shareholders"), with
reference to the following facts:
A. WHEREAS, the parties have previously entered into that certain Stock
Purchase Agreement, effective as of March 31, 1995 (the "Stock Purchase
Agreement"), pursuant to which Buyer acquired all of the outstanding capital
stock of Digital Paper, Inc. from the Shareholders.
B. WHEREAS, pursuant to Sections 2.3 (a) and 2.3 (b) of the Stock
Purchase Agreement, the Shareholders were to receive certain conditional
payments upon the occurrence of certain events, such that an aggregate of
$1,500,000 would be paid to the Shareholders if all such events did occur.
C. WHEREAS, the parties now desire to amend the Stock Purchase
Agreement, in order to modify the events which shall trigger the payment of such
conditional payments.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Buyer and the Shareholders agree as follows:
1. Modification of Section 2.3(a)(iii) Event Which Triggers Conditional
Payments.
At the end of Section 2.3(a)(iii) of the Stock Purchase Agreement, the
following provision shall be added:
IN THE EVENT THAT COMPLETION OF DEVELOPMENT (ENGINEERING RELEASE) OF
THE PRODUCT CODE-NAMED "ASAP OFFICE" OCCURS PRIOR TO THE DATE THAT THE
ASAP PRODUCT'S CUMULATIVE SELL-THROUGH UNITS EXCEED 50,000 UNITS SOLD
OR LICENSED, PROVIDED THAT COMPLETION OF DEVELOPMENT OF SUCH PRODUCT
OCCURS NO LATER THAN EIGHTEEN MONTHS FOLLOWING THE FIRST CUSTOMER
SHIPMENT DATE OF THE FIRST ASAP PRODUCT, THEN BUYER WILL CAUSE THE
ESCROW AGENT TO PAY TO THE SHAREHOLDERS 70% OF THIS MILESTONE PAYMENT
($175,000) UPON SUCH COMPLETION OF DEVELOPMENT (ENGINEERING RELEASE) OF
THE PRODUCT CODE-NAMED "ASAP OFFICE," AND BUYER WILL CAUSE THE ESCROW
AGENT TO PAY TO THE SHAREHOLDERS THE REMAINDER OF THIS MILESTONE
PAYMENT ($75,000) UPON THE DATE THAT CUMULATIVE SELL-THROUGH UNITS OF
THE COMPANY'S ASAP PRODUCTS AND ANY OTHER PRODUCT DERIVATIVE THAT
INCORPORATES THE SMARTSLIDE TECHNOLOGY, TOGETHER EXCEED 50,000 UNITS
SOLD OR LICENSED.
<PAGE> 2
2. Modification of Section 2.3(a)(iv) Event Which Triggers Conditional
Payments.
Section 2.3(a)(iv) of the Stock Purchase Agreement shall be deleted in
full and replaced with the following:
THE DATE THAT CUMULATIVE SELL-THROUGH UNITS OF THE COMPANY'S ASAP
PRODUCT, THE SECOND PRODUCT AND ANY OTHER PRODUCT DERIVATIVE THAT
INCORPORATES THE SMARTSLIDE TECHNOLOGY, TOGETHER, BY BUYER AND ITS
AFFILIATES AND LICENSEES EXCEED 75,000 UNITS SOLD OR LICENSED, PROVIDED
THAT THIS MILESTONE IS ACHIEVED NO LATER THAN 36 MONTHS FOLLOWING THE
FIRST CUSTOMER SHIPMENT DATE OF THE COMPANY'S FIRST ASAP PRODUCT. IN
THE EVENT THAT COMPLETION OF DEVELOPMENT (ENGINEERING RELEASE) OF A
REVENUE-GENERATING "CONFERENCING" PRODUCT CODE- NAMED "JADE" OCCURS
PRIOR TO THE DATE THAT CUMULATIVE SELL-THROUGH UNITS OF THE COMPANY'S
ASAP PRODUCTS EXCEED 75,000 UNITS SOLD OR LICENSED, THEN BUYER SHALL
CAUSE THE ESCROW AGENT TO PAY TO THE SHAREHOLDERS 70% OF THIS MILESTONE
PAYMENT ($175,000) UPON SUCH COMPLETION OF DEVELOPMENT (ENGINEERING
RELEASE) OF A REVENUE-GENERATING "CONFERENCING" PRODUCT CODE-NAMED
"JADE", AND BUYER SHALL CAUSE THE ESCROW AGENT TO PAY TO THE
SHAREHOLDERS THE REMAINDER OF THIS MILESTONE PAYMENT ($75,000) ON THE
DATE THAT CUMULATIVE SELL- THROUGH UNITS OF THE COMPANY'S ASAP PRODUCTS
EXCEED 75,000 UNITS SOLD OR LICENSED.
3. Modification of Section 2.3(b) Event Which Triggers Conditional
Payments.
Section 2.3(b) of the Stock Purchase Agreement shall be deleted in full
and replaced with the following:
(i) BUYER SHALL PAY THE SHAREHOLDERS AN ADDITIONAL $175,000 UPON
COMPLETION OF DEVELOPMENT (ENGINEERING RELEASE) OF THE PRODUCT
CODE-NAMED "ASAP OFFICE", PROVIDED THAT COMPLETION OF DEVELOPMENT OF
THIS PRODUCT IS ACHIEVED BY NO LATER THAN SEPTEMBER 30, 1996.
(ii) BUYER SHALL PAY THE SHAREHOLDERS AN ADDITIONAL $175,000 UPON
COMPLETION OF DEVELOPMENT (ENGINEERING RELEASE) OF A REVENUE-GENERATING
"CONFERENCING" PRODUCT CODE-NAMED "JADE."
(iii) BUYER SHALL PAY THE SHAREHOLDERS UP TO AN ADDITIONAL $150,000 IF
CUMULATIVE REVENUES TO BUYER AND ITS AFFILIATES FROM THE SALE OF
SELL-THROUGH UNITS OF THE ASAP PRODUCT, THE SECOND PRODUCT AND ANY
OTHER PRODUCT DERIVATIVE THAT INCORPORATES THE SMARTSLIDE TECHNOLOGY,
TOGETHER, BY BUYER, ITS AFFILIATES AND LICENSEES EQUAL OR EXCEED AN
AGGREGATE OF $18,000,000 (THE "SALES MINIMUM") DURING THE THREE-YEAR
PERIOD FOLLOWING THE FIRST CUSTOMER SHIPMENT DATE OF THE COMPANY'S
FIRST ASAP PRODUCT, AS FOLLOWS: BUYER WILL HAVE THE OBLIGATION TO PAY
THE SHAREHOLDERS AS SET FORTH BELOW IN CASH OR BY
<PAGE> 3
CHECK OR BY WIRE TRANSFER (a) $21,429 FOLLOWING THE ACHIEVEMENT OF THE
SALES MINIMUM AND (b) AN ADDITIONAL $21,429 FOLLOWING THE ACHIEVEMENT
OF EACH ADDITIONAL $1,000,000 OF REVENUES FROM THE SALE OF SELL-THROUGH
UNITS, UP TO A MAXIMUM PAYMENT BY BUYER TO THE SHAREHOLDERS OF $150,000
UPON THE ACHIEVEMENT OF AT LEAST $25,000,000 OF REVENUES TO BUYER AND
ITS AFFILIATES FROM THE SALE OR LICENSE OF CUMULATIVE SELL-THROUGH
UNITS WITHIN SUCH THREE-YEAR PERIOD. SUCH ADDITIONAL PAYMENTS PURSUANT
TO THIS SECTION 2.3(b)(iii) SHALL: (a) BE MADE BY BUYER WITHIN
FORTY-FIVE (45) DAYS OF THE DATE FOLLOWING EACH OF THE THREE
ANNIVERSARIES OF THE FIRST CUSTOMER SHIPMENT DATE IN WHICH SUCH
ADDITIONAL PAYMENTS SHALL HAVE ACCRUED IN FAVOR OF THE SHAREHOLDERS;
AND (b) BE ACCOMPANIED BY A STATEMENT SETTING FORTH IN REASONABLE
DETAIL THE CUMULATIVE REVENUE TO THE COMPANY OF SELL-THROUGH UNITS OF
SUCH PRODUCTS. SHAREHOLDERS SHALL HAVE THE RIGHT, AT THEIR COST, TO
HAVE AN INDEPENDENT AUDITOR OF SHAREHOLDERS' CHOICE PERFORM AN AUDIT OF
THE BOOKS AND FINANCIAL RECORDS OF BUYER AND ITS AFFILIATES TO VERIFY
THE ACCURACY AND COMPLETENESS OF PAYMENTS PURSUANT TO THIS SECTION
2.3(b)(iii) ON REASONABLE NOTICE TO BUYER DURING BUYER'S BUSINESS
HOURS; PROVIDED THAT SUCH AUDITS SHALL OCCUR DURING THE THREE-MONTH
PERIOD FOLLOWING THE END OF EACH ANNIVERSARY OF THE FIRST CUSTOMER
SHIPMENT DATE.
4. Effect of Amendment.
Except as expressly provided herein, all other provisions, terms and
conditions of the Stock Purchase Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment effective as of the date first written above.
THE SHAREHOLDERS: BUYER:
SOFTWARE PUBLISHING CORPORATION
By: /s/ Daniel J. Fraisl By: /s/ Irfan Salim
--------------------------- ---------------------------
Daniel J. Fraisl Irfan Salim,
President and C.E.O.
By: /s/ Carl Meyer
---------------------------
Carl Meyer
By: /s/ Anthony N. Hoeber
---------------------------
Anthony N. Hoeber
<PAGE> 1
Exhibit 10.40
AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT
This Amendment No. 2 to the Stock Purchase Agreement ("Amendment No.
2") is made and entered into as of October 1, 1996, by and between Software
Publishing Corporation (the "Buyer") and Digital Paper, Inc., a California
corporation, and Daniel J. Fraisl, Carl Meyer and Anthony N. Hoeber
(collectively referred to as the "Shareholders"), with reference to the
following facts:
A. WHEREAS, the parties have previously entered into that certain Stock
Purchase Agreement, dated as of March 31, 1995, as amended (the "Stock Purchase
Agreement"), pursuant to which Buyer acquired all of the outstanding capital
stock of Digital Paper, Inc. from the Shareholders.
B. WHEREAS, pursuant to Section 2.2(b)(2) of the Stock Purchase
Agreement, the Shareholders were to receive a certain payment, partially in cash
and, at the option of the Buyer, partially in shares of Buyer Common Stock.
C. WHEREAS, the parties now desire to amend the Stock Purchase
Agreement to, among other things, allow the payment to be made pursuant to
Section 2.2(b)(2) of the Stock Purchase Agreement to be made in cash or in
Allegro Common Stock, at the option of each Shareholder individually.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter contained, and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Buyer, Digital Paper, Inc., Allegro New Media, Inc., a Delaware corporation
("Allegro") and the Shareholders agree to amend the Stock Purchase Agreement as
follows:
1. Section 2.2(b)(2) is hereby modified to provide that the $1,650,000
payment called for therein shall be made in cash or in shares of Common Stock of
Allegro at the option of each Shareholder with respect to the consideration to
be paid to him.
2. The Shareholders acknowledge that the transactions contemplated by
the Agreement and Plan of Reorganization dated as of October 1, 1996 among
Buyer, Allegro, and SPC Acquisition Corp. (the "Reorganization Agreement") does
not give rise to an "Acceleration Event" under the Stock Purchase Agreement.
This clause is only relevant as it pertains to the Reorganization Agreement.
3. This Amendment is effective as of the effective date (the "Effective
Date") of the merger contemplated by the Reorganization Agreement and shall have
no binding effect should the transactions contemplated pursuant to the
Reorganization Agreement not be consummated.
<PAGE> 2
4. Except as expressly provided herein, all other provisions, terms and
conditions of the Stock Purchase Agreement shall remain in full force and effect
and all defined terms used herein and not otherwise defined herein shall have
the meanings ascribed to them in the Stock Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 2 effective as of the date first written above.
THE SHAREHOLDERS: BUYER:
SOFTWARE PUBLISHING CORPORATION
/s/ Daniel J. Fraisl
- --------------------------------
Daniel J. Fraisl
By: /s/ Miriam K. Frazer
-------------------------------
Name: Miriam K. Frazer
/s/ Carl Meyer Title: Vice President - Finance
- --------------------------------
Carl Meyer
DIGITAL PAPER, INC.
/s/ Anthony N. Hoeber
- --------------------------------
Anthony N. Hoeber By: /s/ Daniel J. Fraisl
-------------------------------
Name: Daniel J. Fraisl
Title: President
Accepted and Agreed as of
the date first above written:
ALLEGRO NEW MEDIA, INC.
By: /s/ Barry A. Cinnamon
- --------------------------------
Name: Barry A. Cinnamon
Title: President
<PAGE> 1
EXHIBIT 10.41
ASSET PURCHASE AGREEMENT
dated as of
May 1, 1996
among
BizEd, Inc.,
and
Allegro New Media, Inc.
<PAGE> 2
ASSET PURCHASE AGREEMENT
Asset Purchase Agreement, dated as of May 1, 1996, among BizEd, Inc., a
Connecticut corporation (the "Company"), and Allegro New Media, Inc., a Delaware
corporation (the "Purchaser").
WHEREAS, the Company has developed a business evaluation and analysis
computer software application in the visual basic computer language as a
template for use with Microsoft(R) Excel, with accompanying printed
documentation, such application being entitled "Grow" ("Grow"); and
WHEREAS, the Purchaser is a publisher of computer software products
(the "Products") and the parties have agreed upon the sale to the Purchaser of
all of the assets of the Company relating to Grow, on the terms set forth below,
NOW, THEREFORE, in consideration of the foregoing and of the mutual
premises, covenants, representations and warranties herein contained, it is
hereby agreed as follows:
1. Sale and Transfer of Assets
1. 1. Assets to be Sold
In reliance on the representations and warranties contained herein and
subject to the terms and conditions hereof, the Company will sell, assign and
deliver, free and clear of all Claims and Encumbrances, to Purchaser, and
Purchaser will purchase from the Company at the Closing (as such term and
certain other capitalized terms are defined in Section 10 hereof), subject to
Section 1.2 hereof, all of the tangible and intangible assets of the Company as
the same may exist on the Closing Date relating to Grow (collectively the
"Assets"), including without limitation the following:
(a) all of the Company's rights to sell and distribute Grow and the
good will associated therewith;
(b) all of the Company's rights in any and all patents, trademarks,
trade names and logos (including registrations and applications for registration
of any of them) now or previously used by the Company in connection with Grow,
including without limitation the registered patents and/or trademarks listed on
Schedule 4.14 to this Agreement, together with the good will of the business
associated with such trademarks, trade names and logos;
(c) all copyrights (including any registrations and applications for
registration of those copyrights) relating to Grow, including but not limited to
the copyrights listed on Schedule 4.14 hereto;
(d) all past and current mailing lists and customer lists relating to
Grow and all materials used for the development thereof;
(e) all books, records, files and data and proprietary information
relating to Grow;
<PAGE> 3
(f) all intermediate and final software content and programs and source
disks, master diskettes, program documentation tapes, manuals, forms, guides and
other documentation and materials with respect thereto owned by the Company and
copies of the foregoing which the Company has a right to copy but does not own,
including without limitation the items described on Schedule 4.8 hereto,
(g) all inventories of Grow, raw materials, work in process, finished
products and supplies (collectively. the "Inventory") including any Inventory
held at any location controlled by the Company and Inventory previously
purchased and in transit to the Company at such locations;
(h) all Grow-related goods or other products under research or
development prior to or on the Closing Date (all of which shall be deemed to be
included in Grow);
(i) subject to the terms of Section 6.4 hereof, all of the rights of
the Company under all licenses, orders, commitments, contracts, arrangements and
other agreements relating to Grow, including without limitation (A) all purchase
orders and (B) those items listed on Schedule 4.7 hereto (other than those
agreements listed in Schedule 4.7 under the Section titled "Agreements Not
Assumed") and the Company's right to receive payment for Grow or services
rendered pursuant to or in connection therewith, to receive goods and services
pursuant to, and to assert claims and take other rightful actions in respect of
breaches, defaults and other violations of, such contracts;
(j) to the extent the same are transferable, all federal, state or
local governmental or regulatory permits, licenses, approvals and franchises
which are owned or have been received by the Company in connection with Grow
(collectively, "Permits"), including without limitation Permits which are listed
on Schedule 4.7 hereto;
(k) all Grow-related goodwill of the Company and all other rights,
properties and assets not otherwise described in this Agreement of any character
whatsoever, wherever located, and not expressly excluded from the Assets by
terms of this Agreement.
1.2. Assets Retained by the Company.
The following assets of the Company (the "Excluded Assets") are being
retained by the Company (and excluded from Section 1. 1.):
(a) all rights of insurance coverage relating to the liabilities being
retained by the Company after the Closing Date;
(b) income tax records of the Company; provided, that Purchaser shall
have reasonable access to such records for periods prior to the Closing Date to
the extent Purchaser shall reasonably require such access;
(c) minute and stock books of the Company; provided, that Purchaser
shall have reasonable access to such records for periods prior to the Closing
Date to the extent Purchaser shall reasonably
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<PAGE> 4
require such access;
(d) the agreements listed on Schedule 4.13 hereto and identified as
"Agreements Not Assumed";
(e) subject to Purchaser's rights hereunder, the rights of the Company
under this Agreement and the proceeds payable to the Company hereunder;
(f) all other assets of the Company not related to Grow; and
(g) all other assets of the Company not described in Section 1.1 above.
2. Payment of Purchase Price.
2.1. Purchase Price
In full consideration for the Assets to be transferred to Purchaser,
subject to the terms and conditions of this Agreement, Purchaser shall pay to
the Company or the Stockholder, as set forth below, the amounts as set forth
below (the "Purchase Price"):
(a) $81,250 in cash, payable to the Company at the Closing (as defined
below);
(b) $81,250 of shares of Common Stock, par value $.001 per share (the
"Common Stock") of the Purchaser, valued based on the closing price per share of
Common Stock on NASDAQ on the trading day prior to the date hereof, issuable at
the Closing;
(c) 2,500 shares of Common Stock, issuable at the Closing;
(d) 2,500 shares of Common Stock, issuable upon the shipment of any
version of Grow that is not a template for Microsoft(R) Excel;
(e) $31,250 in cash, payable on December 31, 1997;
(f) $31,250 of shares of Common Stock, valued based on the average
closing price per share of Common Stock on NASDAQ for the ten (10) consecutive
trading day period ending three (3) trading days prior to December 31, 1997,
issuable on December 31,1997; and
(g) ten percent (10%) of the net cash receipts of the Purchaser, after
discounts, returns and allowances, of Grow in visual basic computer language as
a template for use with Microsoft(R) Excel and Microsoft(R) Access, with
accompanying printed documentation, payable by the Purchaser to the Company
quarterly with respect to each calendar quarter ending after the date of the
Agreement within forty-five days (45) after the end of each calendar quarter.
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<PAGE> 5
2.2 Allocation of Purchase Price.
The Purchase Price shall be allocated as set forth on Schedule 2.2
hereto and all tax returns filed by the parties shall be consistent with such
allocation. The Company and the Purchaser shall each file IRS Form 8594 in
accordance with such allocation and consistent with one another and in
accordance with applicable law and regulations.
2.3. No Assumption of Liabilities.
The Purchaser shall not assume or have any liability for any
liabilities or obligations of the Company, and the Company shall pay, perform
and discharge all its liabilities and obligations which are not so assumed by
Purchaser.
2.4. Reports and Audit.
(c) Purchaser shall render to the Company within forth-five (45) days
after the end of each March, June, September and December (each such period
being hereinafter referred to as a "calendar quarter") during the term for which
payments under Section 2. 1 (g) hereof are payable, a written account of all
products subject thereto sold by Purchaser during the previous calendar quarter,
and a calculation of the amounts due pursuant thereto, including sufficient data
for the Company to verify the calculation. If no products subject to such
payments have been sold by Purchaser during such calendar quarter, Purchaser
shall been so report in writing to the Company within forty-five (45) days after
the end of such calendar quarter.
(d) Purchaser shall keep full, true and accurate books of accounts
containing all particulars relating to sales, licenses, sublicenses and other
activities of Purchaser which may be necessary for the purpose of ascertaining
and verifying the amounts payable to the Company by Purchaser under Section
2.1(g) hereof. Said books and accounts shall be kept at Purchaser's principal
place of business. At the Company's request, Purchaser shall permit an
independent certified public accountant selected by the Company (except for one
for whom Purchaser has a reasonable objection) to have access once each year
during the regular business hours of Purchaser to such records to determine, for
any calendar quarter prior to the date of such request, the correct report
and/or payment made. Said certified public accountant shall be required to
execute a reasonable confidentiality and non-disclosure agreement if requested
by Purchaser.
3. The Closing.
3.1. Place and Date.
The closing of the transactions provided for in Section I shall take
place at the offices of Blau, Kramer, Wactlar & Lieberman, P.C., 100 Jericho
Quadrangle, Jericho, New York 11753 (or at such other place as the parties may
agree upon in writing), on May 1, 1996, or, if the conditions to close have not
been fully met on such date, on the date which is two business days after the
last of the conditions has
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<PAGE> 6
been fulfilled (or waived by the party entitled to waive that condition). The
closing is referred to in this agreement as the "Closing" and Date of the
Closing as the "Closing Date".
3.2. Documents to be Delivered by the Company.
At the Closing, the Company shall deliver to Purchaser the following:
(a) such bills of sale, assignments or other instruments of transfer
and assignment as shall be necessary to convey and vest in Purchaser title to
all right, title and interest in and to all of the Assets free and clear of all
Claims and Encumbrances. Simultaneously with such delivery the Company shall
take such action as may be necessary or reasonably requested by Purchaser to
place Purchaser in possession and control of the Assets;
(b) a copy of resolutions of the board of directors and shareholders of
the Company authorizing the execution, delivery and performance of this
agreement by the Company, and a certificate of its secretary or assistant
secretary, dated the Closing Date, that such resolutions were duly adopted and
are in full force and effect;
(c) if the Closing date is not the date hereof, the certificate
referred to in Section 7.1(a);
(d) the documents referred to in Section 7.1(f); and
(e) the License Agreement between the Purchaser and the Company,
substantially in the form attached hereto as Exhibit A (the "License
Agreement").
3.3. Documents to be Delivered by Purchaser.
At the Closing, Purchaser shall deliver to the Company (or, in the case
of subsection 3.4(d), to Clifford J. Schorer, Jr. (the "Stockholder")), the
following:
(a) a copy of resolutions of the board of directors of Purchaser
authorizing the execution, delivery and performance of this Agreement by
Purchaser, and a certificate of its secretary or assistant secretary, dated the
Closing Date, that such resolutions were duly adopted and are in full force and
effect;
(b) the certificate referred to in Section 7.2(a);
(c) the documents referred to in Section 7.2(b);
(d) the Consulting Agreement between the Purchaser and Stockholder,
substantially in the form attached hereto as Exhibit B (the "Consulting
Agreement"); and
(e) the License Agreement.
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<PAGE> 7
3.4. Documents to be Delivered by Stockholder.
At the Closing, Stockholder shall deliver to the Purchaser the
Consulting Agreement.
3.6. Form of Documents.
Unless specifically otherwise provided herein, all documents to be
delivered pursuant to Section 3 by one party to the other party to this
Agreement or any Affiliate thereof shall be in form and substance reasonably
satisfactory to the other parties and their counsel.
4. Representations and Warranties of the Company.
The Company hereby represents and warrants (and the Stockholder hereby
represents and warrants with respect to the second sentence of Section 4.2
below) to the Purchaser as follows:
4.1. Organization and Authority.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Connecticut and has all requisite
power and authority to own, operate and lease its properties and to carry on its
business as now being conducted.
4.2. Authorization of Agreement.
The Company has the power and authority to execute, deliver and perform
its obligations under this Agreement. The Stockholder has the legal capacity to
execute, deliver and perform his obligations under this Agreement. The
execution, delivery and performance of this Agreement by the Company has been
duly authorized by all necessary corporate action on the part of the Company.
This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally now or hereafter in effect and
subject to the application of equitable principles and the availability of
equitable remedies.
4.3. No Conflicts.
The execution, delivery and performance of this Agreement and the
consummation of all of the transactions contemplated hereby: (i) do not and will
not require the consent, waiver, approval, license, designation or authorization
of, or declaration with, any person or public authority; (ii) do not and will
not with or without the giving of notice or the passage of time or both, violate
or conflict with or result in a breach or termination of any provision of, or
constitute a default under, or accelerate or permit the acceleration of the
performance required by the terms of, or result in the creation of any mortgage,
security interest, claim, lien, charge or other encumbrance upon any of the
Assets pursuant to, or otherwise give rise to any liability or obligation under,
any agreement, mortgage, deed of trust, indenture,
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<PAGE> 8
license, permit or any other agreement or instrument or any order, judgment,
decree, statute, regulation or any other restriction of any kind or description
to which the Company is a party or by which the Company or any of the Assets may
be bound; and (iii) will not terminate or result in the termination of any such
agreement or instrument, or in any way affect or violate the terms and
conditions of, or result in he cancellation, modification, revocation or
suspension of, any rights included in the Assets.
4.4. Conduct of Business.
Except as disclosed on Schedule 4.4 hereto, since February 1, 1996, the
Company has not (i) mortgaged, pledged or subjected to any lien or otherwise
encumbered any of the Assets; (ii) waived, released or compromised any claims or
rights of substantial value which otherwise would have been part of the Assets,
(iii) entered into any settlement, compromise or consent with respect to any
claim, proceeding or investigation which otherwise would have been part of the
Assets; (iv) sold, assigned, transferred, leased or otherwise disposed of any
assets, tangible or intangible, or canceled any debts or claims which otherwise
would have been part of the Assets; (v) made or announced any change in the
terms, including but not limited to price, of the sale of any Grow-related goods
or made or announced any change in the form or manner of distribution of Grow;
or (vi) entered into any contract or commitment to do any of the foregoing.
4.5. Title to Purchased Assets.
The Company has and on the Closing Date will convey to Purchaser good
and marketable title to all of its real and valid title to all of the Assets
free and clear of all Claims and Encumbrances. No instrument, easement, license
or grant of record, applicable zoning or building law, ordinance or
administrative regulation or other impediment of any kind prohibits or
interferes with, limits or impairs, or would, if not permitted by any prior
nonconforming use, prohibit or interfere with or limit or impair, the use,
operation, maintenance of, or access to, or the value of, any of the Assets. The
Assets taken as a whole constitute all of the properties and assets used or held
in conjunction with Grow and are sufficient and adequate to market and sell Grow
in accordance with the most current standards established by customers,
suppliers and any governmental entities. All of the Assets are located in the
State of Connecticut.
4.6. Personal Property.
Schedule 4.6 hereto sets forth true and complete list of all items of
personal property owned by the Company included in the Assets. Such items are in
a state of good working condition and repair, normal wear and tear excepted, and
are adequate and appropriate for the selling and marketing of Grow.
4.7. Contracts.
(a) Except as disclosed in Schedule 4.7 hereto, the Company is not a
party to or bound by any oral or written contracts, obligations, commitments or
understandings relating to Grow, including without limitation any:
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<PAGE> 9
(i) contract, commitment or arrangement involving, in any one case,
$1,000 or more,
(ii) contract, commitment or arrangement relating to production,
manufacturing, sale, licensing or distribution.
(iii) contract, commitment or arrangement relating to research or
development;
(iv) contract with a term of, or requiring performance, more than six
months from its date;
(v) commitment, contract or arrangement which is not terminable upon
notice of 30 days or less without penalty, cost or liability to the Company or,
after the Closing Date, to the Purchaser;
(vi) lease or lease purchase agreement, mortgage, conditional sale or
title retention agreement, indenture, security agreement, credit agreement,
pledge or option with respect to any property, real or personal (tangible or
intangible), in any capacity;
(vii) commitment, contract or arrangement for the purchase or use of
services, materials, supplies, inventory, machinery or equipment;
(viii) commitment, contract or arrangements for the sale or use of
Grow;
(ix) employment, consulting or independent contractor agreement,
contract, commitment or arrangement;
(x) contract, agreement, commitment or arrangement with any labor union
or other collective bargaining group;
(xi) bonus, pension, savings, welfare, profit sharing, stock option,
retirement, severance, commission, executive compensation, hospitalization
insurance or similar plan providing for employee benefits or any other
arrangement providing for benefits for any former or current employees or for
the remuneration, direct or indirect, of the Company's directors, officers or
employees;
(xii) note, loan, credit or financing agreement or other contract for
money borrowed, and all related security agreements and collateral documents,
including any agreement for any commitment for future loans, credit or
financing;
(xiii) guarantee;
(xiv) contract, commitment or arrangement regarding any capital
expenditures;
(xv) agency (sales or otherwise), distribution or brokerage (including,
without limitation, any brokerage or finder's agreement or arrangement with
respect to any of the transactions contemplated by this Agreement) contract,
commitment or arrangement;
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<PAGE> 10
(xvi) contract with investment bankers, accountants, attorneys,
consultants or other independent contractors;
(xvii) contract with any director or officer of the Company or any
Affiliate of such person;
(xviii) contract, commitment or arrangement which would restrain the
Purchaser or any Affiliate of the Purchaser from engaging or competing in any
business or to maintain the confidentiality of any matter,
(xix) contract, commitment or arrangement not made in the ordinary
course of business of the Business: or
(xx) license, permit, franchise or royalty agreement.
(b) The Company has delivered to the Purchaser correct and complete
copies of all of the contracts, agreements and other documents required to be
listed in Schedule 4.7 hereto and all amendments thereto and waivers granted
thereunder (all such contracts, agreements and other documents, except any of
such listed under "Agreements not Assumed" on Schedule 4.7 hereto are sometimes
hereinafter referred to as the "Assigned Contracts"). The rights and interests
of the Company in all Assigned Contracts may be assigned to the Purchaser
without the consent of any other person, except as specifically disclosed on
Schedule 4.7 hereto, and at the Closing the Purchaser will acquire all such
rights and interests. The Company enjoys good working relationships under all
Assigned Contracts, and no unresolved disputes are pending or, to the best of
the Company's knowledge, threatened, under or in respect of any such Assigned
Contracts. The prices to be received or paid by the Company under all Assigned
Contracts with its customers and others have been determined in accordance with
the Company's established pricing policies. The Company has no contracts
relating to Grow with the United States Government.
(c) Except as set forth on Schedule 4.7 hereto, all Assigned Contracts
described in Schedule 4.7 hereto are valid and effective in accordance with
their respective terms, and there is not, under any of such contracts,
agreements or other documents, any existing default by the Company or, to the
Company's knowledge, by any other party, or any event which with notice, lapse
of time, or both, would constitute a default thereunder.
4.8. Intellectual Property.
Schedule 4.8 hereto sets forth a true and complete list of all of the
Company's trademarks, trade names, copyrights, patents and similar rights, and
any applications with respect thereto used by the Company in whole or in part
for the conduct of its Grow-related business as now conducted (the "Intellectual
Property"). All the Intellectual Property is owned by the Company free and clear
of any and all licenses, liens, claims security interests, charges or other
encumbrances or restrictions of any kind, no licenses for the use of any of such
Intellectual Property have been granted by the Company to any third parties and,
except as set forth on Schedule 4.8 thereto, the Company does not license any
such
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<PAGE> 11
Intellectual Property from others. All of such rights are valid, are adequate
and appropriate for Grow-related business as now conducted. All of such rights
will be acquired by Purchaser at the Closing, and the transfer of such rights
to, and use by Purchaser will not require the consent of any other person. Grow
does not infringe in any way on or conflict with any registered or unregistered
patent, trademark, trade name, copyright, license or other right, of any Person.
No claim is pending or threatened or has been made within the past five (5)
years, to the effect that any such infringement or conflict has occurred.
4.9. Customer and Supplier Relations.
Attached as Exhibit 4.9 hereto is a complete and correct list of all
current customers for Grow showing the sales to each for the fiscal year ended
December 31, 1995 and the period ended March 1, 1996 and of all suppliers whose
Grow-related sales to the Company amounted to more than $10,000 during either
such period, showing the sales of each to the Company. Neither the Company nor
the Stockholder has any knowledge that any customer or supplier or group of
related customers or suppliers have terminated or expects to terminate a
material portion of its normal business with the Company. Except as disclosed in
Schedule 4.9 hereto, no director, officer or Affiliate of the Company has any
direct or indirect interest, either by way of stock ownership or otherwise, in
any firm, corporation, association or business enterprise, which competes with,
is a supplier or customer of, or is a distributor or sales agent for, or is a
party to any contract with the Company.
4.10. Litigation; Compliance.
(a) Except as disclosed in Schedule 4.10 hereto, there are no actions,
suits, proceedings, arbitrations or governmental investigations pending or
threatened against, by or affecting the Company (or, to the best of the
Company's knowledge, any basis therefore) in which, individually or in the
aggregate, an unfavorable determination could materially affect the Grow-related
business or its prospects, earnings or condition (financial or otherwise) or any
of the Assets or result in any material liability on the part of the Purchaser
or prevent or impair the execution, delivery or performance of this Agreement or
any of the transactions or events contemplated hereby or could declare this
Agreement unlawful or cause the rescission of any of the transactions hereunder
or require Purchaser to divest itself of any part of the Assets to be acquired
pursuant hereto, nor has any such action, suit, proceeding, arbitration or
governmental investigation been pending within the two years prior to the date
hereof. The Company has not been charged with or received notice of any
violation of any applicable federal, state, local or foreign law, rule,
regulation, ordinance, order or decree relating to the Assets, or the operation
of the Grow-related business, and the Company is not aware of any threatened
claim of such violation (including any investigation) or any basis therefor. The
Company has made available to Purchaser its files containing all customers
complaints received during the five year period prior to the date of this
Agreement and all insurance claims made by the Company within the last two
years.
(b) To the best knowledge of the Company and the Stockholder, the
Company has complied and is in compliance in all material respects with all
laws, rules, regulations, ordinances, orders, decrees, writs, injunctions, or
other governmental restrictions applicable to the Assets. The Company has
furnished to Purchaser copies of all correspondence between it and any
governmental agencies during
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<PAGE> 12
the previous three years.
(c) To the best knowledge of the Company and the Stockholder, the
Company has all governmental licenses, permits, approvals or other
authorizations required for the conduct of the Grow-related business as now
conducted, all of which are in full force and effect and all of which are listed
on Schedule 4.10 hereto; there is no action or proceeding pending or, to the
knowledge of the Company, threatened, to terminate rights under any such
governmental licenses, permits or authorizations, and except as disclosed on
Schedule 4.10 hereto, at the Closing the Purchaser will acquire all of the
rights of Seller under such licenses, permits, approvals and authorizations.
4.11. Brokers, Finders, etc.
The Company has employed no finder, broker, agent or other intermediary
in connection with the negotiation or consummation of this Agreement or any of
the transactions contemplated hereby.
4.12. Disclosure.
(a) No representation or warranty by the Company and no statement or
certificate furnished or to be furnished by or on behalf of the Company to
Purchaser or its agents pursuant to this Agreement or in connection with the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading or
necessary to provide a prospective purchaser of the Assets with proper
information as to the Company and its affairs. There is to the best of the
Company's knowledge no fact which materially adversely affects or in the future
may (so far as the Company can now reasonably foresee) materially adversely
affect the business, prospects, condition (financial or otherwise), affairs or
operations of the Grow-related business which has not been set forth herein.
(b) As used in this Section 4 and elsewhere in this Agreement the term
"to the best of the Company's knowledge" means the actual knowledge of any
officer of the Company.
4.13. Assets of Stockholder.
The total assets or sales of the Stockholder and all other persons or
entities aggregated with him for purposes of determining total assets under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act") do not
equal or exceed $100 million.
5. Representations and Warranties of Purchaser.
The Purchaser represents and warrants to the Company as follows:
5.1. Corporate Status.
The Purchaser is a corporation duly organized, validly existing and in
good standing under the
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<PAGE> 13
laws of the State of Delaware with full corporate power and authority to carry
on its business as now conducted.
5.2 Authority for Agreements.
The Purchaser has the power and authority to execute and deliver this
Agreement and to carry out its obligations hereunder. The execution, delivery
and performance by the Purchaser of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Purchaser and this Agreement constitutes the
valid and legally binding obligation of the Purchaser enforceable against the
Purchaser in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization and similar laws of
general application relating to or affecting the rights and remedies of
creditors.
5.3. No Conflicts.
The execution, delivery and performance of this Agreement and the
consummation of all of the transactions contemplated hereby by the Purchaser:
(i) do not and will not require the consent, waiver, approval, license,
designation or authorization of, or declaration with, any person or public
authority; and (ii) do not and will not with or without the giving, of notice or
the passage of time or both, violate or conflict with or result in a breach or
termination of any provision of, or constitute a default under, or accelerate or
permit the acceleration of the performance required by the terms of, or result
in the creation of any mortgage, security interest, claim, lien, charge or other
encumbrance upon any of the Assets pursuant to, or otherwise give rise to any
liability or obligation under, any agreement, mortgage, deed of trust,
indenture, license, permit or any other agreement or instrument or any order,
judgment, decree, statute, regulation or any other restriction of any kind or
description to which the Purchaser is a party or by which the Purchaser may be
bound.
5.4. Assets of the Purchaser.
The total assets or sales of the Purchaser and all other persons or
entities aggregated with it for purposes of determining total asset under the
HSR Act do not equal or exceed $100 million.
6. Covenants.
6.1. Operation of Business; Conduct Pending Closing.
(a) From the date hereof until the Closing Date the Company shall
operate the Grow-related business in the ordinary course and in a manner
consistent with past practice. The Company shall use all reasonable efforts to
maintain and preserve the Grow-related business' present business organization,
keep available to the Company the services of its employees and preserve its
relationship with customers, suppliers and others having, business dealings with
it and the Company will:
(i) maintain the Assets in good operating condition and repair, except
for ordinary wear and
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tear and damage by unavoidable casualty;
(ii) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it,
(iii) perform in all material respects all of its obligations under
agreements, contracts, licenses and instruments relating to or affecting its
properties, assets and business;
(iv) maintain its books of account and records in the usual, regular
and ordinary manner;
(v) promptly notify Purchaser in writing of, and furnish any
information that Purchaser reasonably may request with respect to the occurrence
of any event or the existence of any state of facts (whether or not permitted by
the provisions of this Agreement) that would result in any of the Company's
representations and warranties not being true as of the Closing Date;
(vi) not (i) incur any extraordinary expense or become a party to or
become obligated by any contract, commitment or agreement for the sale, lease or
other disposition of a material part of its assets or which would be required to
be listed on Schedule 4.7. hereto; or
(vii) not enter into any compromise or settlement of any litigation,
proceeding or governmental investigation relating to the Assets, except
settlements made by insurers.
(b) Company and Purchaser shall each use its best efforts to cause the
fulfillment at the earliest practicable date of all of the conditions to their
respective obligations to consummate the transaction contemplated by this
Agreement.
6.2. Access to Information; Confidentiality.
Prior to the Closing, Purchaser may make such investigation of the
Grow-related business as Purchaser may desire and the Company shall give to
Purchaser and its counsel, accountants and other representatives reasonable
access during normal business hours throughout the period prior to the Closing
access to the assets, books, commitments, agreements, records and files of the
Company and the Company shall furnish to Purchaser during that period all
documents and copies of documents (certified as true and complete if requested)
and information concerning the business and affairs of the Company relating to
the Grow-related business as the Purchaser may reasonably request. The Purchaser
shall hold, and cause its representatives to hold, all such information and
documents confidential pending the Closing and, if the purchase and sale
contemplated by this Agreement is not consummated for any reason, shall return
to the Company all such information and documents and any copies as soon as
practicable. The Company and Stockholder shall keep confidential and will not
use or disclose to others any secret processes, inventions, formulae, methods,
plans, drawings, proprietary information or knowhow used or usable in connection
with the Grow-related business.
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6.3. Notice of Impairment.
Each party hereto shall promptly advise the other parties hereto of any
event (other than one generally known to the public) that is likely to
materially impair the such party's ability to perform its obligations under this
Agreement.
6.4. Consents.
This Agreement shall not constitute an agreement to assign any interest
in any instrument, contract, lease, permit or other agreement or arrangement of
the Company or any claim, right or benefit arising thereunder or resulting,
therefrom, if an assignment without the consent of a third party would
constitute a breach or violation thereof or adversely affect the rights of the
Purchaser or the Company thereunder. If a consent of a third party which is
required in order to assign any instrument, contract, lease, permit or other
agreement or arrangement or any claim, right or benefit arising thereunder or
resulting therefrom, which consent the Company shall use its best efforts to
obtain prior to the Closing, is not obtained prior to the Closing, or if an
attempted assignment would be ineffective or would adversely affect the ability
of the Company to convey its interest to the Purchaser, the Company will
cooperate with the Purchaser to provide that the Purchaser shall receive the
Company's interest in the benefits under any such instrument, contract, lease,
permit or other agreement or arrangement; and any transfer or assignment to the
Purchaser by the Company of any interest under any such instrument, contract,
lease, permit or other agreement or arrangement that requires the consent of a
third party shall be made subject to such consent or approval being obtained.
6.5. Expenses.
Purchaser, the Company and the Stockholder shall bear their own
respective expenses incurred in connection with this Agreement and in connection
with all obligations required to be performed by each of them under this
Agreement.
6.6. Sales Taxes.
The Company shall pay all state or local sales or use taxes payable in
connection with the sale of the Assets pursuant to this Agreement.
6.7. Employees.
The Purchaser shall not be responsible for the payment of any
obligations whatsoever of the Company to any of the Company's employees or
former employees.
6.8. Further Assurances.
At any time and from time to time after the Closing, each party shall,
without further consideration, execute and deliver to the other such other
instruments of transfer and assumption and
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shall take such other action as the other may reasonably request to carry out
the transfer of assets and assumption of liabilities contemplated by this
Agreement.
6.9. Disclosure of Information
(a) The Company and the Stockholder shall keep confidential and not
divulge to any Person any of the Purchaser's confidential information and
business secrets including, but not limited to, confidential information and
business secrets relating to such matters as the Purchaser's finances and
operations, the materials, processes, plans, designs, models, apparatus,
equipment and formulae used in the Purchaser's operations, the names of the
Purchaser's customers and their requirements and the names of the Purchaser's
suppliers, illustrators, photographers and authors. All of the Purchaser's
confidential information and business secrets as well as any inventions,
improvements or techniques which the Shareholder discovers, invents or perfects
and which may be used in the production or distribution of any Grow-related
product of a type sold or distributed by the Purchaser shall be sole and
exclusive property of the Purchaser.
(b) The Company and the Stockholder shall not either for any of their
own account or for any Person solicit, interfere with, or endeavor to cause any
employee of the Purchaser to leave his employment or induce or attempt to induce
any such employee to breach his employment agreement with the Purchaser.
(c) The Company and the Stockholder agree that in the event one or more
of them violate the provisions of subsections (a) and (b) of this Section 6.9,
the running of the time period for the provisions so violated shall be
automatically, extended for a period of one year from the date he or it, as the
case may be, permanently ceases such violation or for a period of one year from
the date of the entry by a court of competent jurisdiction of a final order or
judgment enforcing such provisions, or for the full time period specified in
such provisions, whichever time period is later.
In the event of a breach or threatened breach by the Company or the
Stockholder of the provisions of this subsection 6.9., the Purchaser shall be
entitled to an injunction restraining the Company and the Stockholder from
disclosing, in whole or in part, confidential information described herein, or
from rendering any services to any Person to whom such confidential information
has been disclosed, or is threatened to be disclosed. Nothing herein contained
shall be construed as prohibiting the Purchaser from pursuing any other remedies
available to it for such breach or threatened breach including the recovery of
damages from the Company or the Stockholder. The covenants in this subsection
6.9. shall run in favor of the Purchaser and its successors and assigns and
shall survive the termination of this Agreement.
6.10. Piggyback Registration Rights.
(a) At any time, if the Company proposes to file a registration
statement under the Securities Act with respect to an offering by the Company of
any class of equity security similar to any Registerable Securities (other than
a registration statement on Form S-4 or S-8 or any successor form or a
registration statement filed solely in connection with an exchange offer, a
business combination transaction or an
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offering of securities solely to the existing stockholders or employees of the
Company), then the Company shall give written notice of such proposed filing to
the holders of Registerable Securities at least 30 days before the anticipated
filing date, and such notice shall offer such holders the opportunity to
register such aggregate number of Registerable Securities as each such holder
may request. The Company shall use reasonable efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit,
within 25 days of the giving of the written notice provided for in the
immediately preceding sentence, the holders of Registerable Securities requested
to be included in the registration to include such securities in such
underwritten offering on the same terms and conditions as any similar securities
of the Company included therein. Notwithstanding anything to the contrary in the
foregoing, if the managing underwriter or underwriters of such offering (or, in
the case of an offering not being underwritten, the Company) delivers a written
opinion (or, in the case of the Company, a resolution of its Board of Directors
certified by the President of the Company) to the holders of Registerable
Securities that the total amount and kind of securities which they, the Company
and any other person intend to include in such offering is such as to materially
and adversely affect the success of such offering, then the amount of securities
to be offered for the accounts of holders of Registerable Securities and persons
other than the Company shall be eliminated or reduced pro rata (based on the
amount of securities owned which carry registration rights) to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or underwriters
in its written opinion (or the Board of Directors in its resolution). For
purposes of this Section 6.10. the term "Registerable Securities" shall mean the
Company's common stock, par value $.001 per share (the "Common Stock"), which is
(i) acquired by Seller pursuant to this Agreement, including in each case any
shares received in connection with any stock split, stock divided,
recapitalization, reclassification or other distribution payable or issuable in
shares of Common Stock.
(b) The Company may require each seller of Registerable Securities as
to which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing. Seller agrees, and each other
holder of Registerable Securities will be required, in its request to register
securities pursuant to this Agreement, to agree, that, upon receipt of any
notice from the Company of the happening of any event material to the Company,
such holder will forthwith discontinue disposition of Registerable Securities
pursuant to the registration statement covering such Registerable Securities
until such holder's receipt of the copies of the supplemented or amended
prospectus, or until it is advised in writing (the "Advice") by the Company that
the use of the applicable prospectus may be resumed, and until it has received
copies of any additional or supplemental filings which are incorporated by
reference in such prospectus, and, if so directed by the Company, such holder
will deliver to the Company (at the expense of the Company) all copies, other
than permanent file copies then in such holder's possession, of the prospectus
covering such Registerable Securities current at the time of receipt of such
notice.
(c) All expenses incident to the performance of or compliance with this
Agreement by the Company, including, without limitation, all registration and
filing fees of the Commission, the National Association of Securities Dealers
Inc. and other agencies, fees and expenses of compliance with securities or blue
sky laws (including reasonable fees and disbursements of counsel in connection
with blue sky qualifications of the Registerable Securities), rating agency
fees, printing expenses, messenger and
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delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the securities to be registered on any securities exchange
and fees and disbursements of counsel for the Company and the Company's
independent certified public accountants (including the expenses of any special
audit or "cold comfort" letters required by or incident to such performance),
securities acts liability insurance (if the Company elects to obtain such
insurance), the fees and expenses of any special experts retained by the company
in connection with such registration. and the fees and expenses of any other
person retained by the company (but not including any underwriting discounts or
commissions attributable to the sale of Registerable Securities or other
out-of-pocket expenses of the holders of Registerable Securities (or the agents
who act on their behalf) unless reimbursement is specifically approved by the
Company) will be borne by the Company. All such expenses are herein called
"Registration Expenses".
(d) The Company agrees to indemnify and hold harmless, to the full
extent permitted by law, each holder of Registerable Securities, its officers
and directors and each person who controls such holder (within the meaning of
the Securities Act), and any agent thereof against all losses, claims, damages,
liabilities and expenses incurred by such party pursuant to any actual or
threatened suit, action, proceeding or investigation (including reasonable
expenses of investigation) arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, except insofar as the
same arise out of or are based upon, any such untrue statement or omission based
upon information with respect to such holder furnished in writing to the Company
by such holder expressly for use therein.
(e) In connection with any registration statement in which a holder of
Registerable Securities is participating, each such holder will be required to
furnish to the Company in writing such information with respect to such holder
as the Company reasonably requests for use in connection with any such
registration statement or prospectus, and each Purchaser agrees to the extent it
is such a holder, and each other such holder will be required to agree, to
indemnify, to the full extent permitted by law, the Company, the directors and
officers of the Company and each person who controls the Company (within the
meaning of the Securities Act) and any agent thereof, against any losses,
claims, damages, liabilities and expenses (including reasonable attorney's fees
and expenses of investigation) incurred by such party pursuant to any actual or
threatened suit, action, proceeding or investigation arising out of or based
upon any untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact necessary to make the statements therein
(in the case of a prospectus, in the light of the circumstances under which they
are made) not misleading, to the extent, but only to the extent, that such
untrue statement or omission is based upon information relating to such holder
furnished in writing to the Company expressly for use therein.
(f) Promptly after receipt by an indemnified party under this Section
6.10 of written notice of the commencement of any action, proceeding, suit or
investigation or threat thereof made in writing for which such indemnified party
may claim indemnification or contribution pursuant to this Agreement,
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such indemnified party shall notify in writing the indemnifying party of such
commencement or threat; but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified
party (x) hereunder, unless the indemnifying party is actually prejudiced
thereby or (y) otherwise than under this Section 6.10. In case any such action,
suit or proceeding shall be brought against any indemnified party, and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and the indemnifying party shall
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified party and the payment of all expenses. The indemnified party shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party shall have failed to assume the defense of such action, suit
or proceeding or to employ counsel reasonably satisfactory to the indemnified
party therein or to pay all expenses or (iii) the named parties to any such
action or proceeding (including any impleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to the indemnified party which are different from or additional to
those available to the indemnifying party and which may result in a conflict
between the indemnifying party and such indemnified party (in which case, if the
indemnified party notifies the indemnifying party in writing that the
indemnified party elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action or proceeding on behalf of the indemnified party, it
being understood, however, that the indemnifying party shall not, in connection
with any one such action, suit or proceeding or separate but substantially
similar or related actions, suits or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time for
the indemnified party, which firm shall be designated in writing by the
indemnified party).
6.11. Right of First Refusal.
From and after the date of this Agreement, the Company shall not
market, sell, or in any other way commercially exploit any computer software
products relating to small office or home office businesses unless and until the
Company shall first offer to the Purchaser the right to so market, sell or
otherwise commercially exploit such computer software. In this connection, the
Company shall furnish to the Purchaser in writing the terms and conditions of
any bona fide proposed transaction involving any such marketing, sale or other
commercial exploitation (the "Terms Notice"). The Purchaser shall have the
right, exercisable within thirty (30) days of the date of its receipt of the
Terms Notice, to exercise this right of first refusal by delivering written
notice of such exercise to the Company. The consummation of any such transaction
shall take place within one hundred twenty (120) days thereafter. In the event
that the Purchaser does not exercise this right of first refusal by delivering
such written notice to the Company within such thirty (30) day period, then the
Company shall be free to engage in such proposed transaction on the terms and
conditions set forth in the Terms Notice. Any subsequent transaction, or any
transaction which is not entirely consistent with the terms and conditions set
forth in the Terms Notice, shall again be subject to the right of first refusal
hereinabove set forth.
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7. Conditions Precedent.
7.1. Conditions to Obligations of the Purchaser.
The obligation of the Purchaser to pay the Purchase Price to the
Company and to satisfy its other obligations hereunder shall be subject to the
fulfillment (or waiver by the Purchaser) at or prior to the Closing, of the
following additional conditions, which the Company agrees to use its best
efforts to cause to be fulfilled:
(a) Representations, Performance. If the Closing Date is not the date
hereof, the representations and warranties contained in Section 4 hereof shall
be true at and as of the date hereof and shall be repeated and shall be true at
and as of the Closing Date with the same effect as though made at and as of the
Closing Date, except as affected by the transactions contemplated hereby; the
Company shall have duly performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date; and the Company shall have delivered to
Purchaser a certificate dated the Closing Date, and signed by its Chairman or
President and by its chief financial officer, to the effect set forth above in
this section 7.1.(a).
(b) Consents. Any required consent to the sale or transfer of the
Assets under any agreement or contract shall have been obtained.
(c) Litigation. No suit, action, arbitration or other proceeding or
investigation shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit or to obtain material
damages or other material relief in connection with this Agreement or the
consummation of the transactions contemplated hereby or which is likely to
affect materially the value of the Assets.
(d) Payments of Transfer and Recording Taxes. The Company shall have
paid all transfer and recording taxes (including without limitation any
applicable real estate recording taxes) in connection with the sale of the
Assets from the Company to the Purchaser.
(e) U.C.C. and Lien Search. The Purchaser shall have received (at its
expense) copies of a report of a Uniform Commercial Code search and tax and
judgment lien search in the State of Connecticut, searching the relevant names
of or used by the Company reasonably satisfactory in form and substance to the
Purchaser.
(f) Proceedings and Documentation. All corporate and other proceedings
of the Company in connection with the transactions contemplated by this
Agreement, and all documents and instruments incident to such corporate
proceedings, shall be satisfactory in form and substance to the Purchaser and
the Purchaser's counsel, and the Purchaser and the Purchaser's counsel shall
have receive all such receipts, documents and instruments, or copies thereof,
certified if requested, to which the Company is entitled and as may be
reasonably requested.
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(g) Property Loss. No portion of the Assets shall, after the date
hereof and before the Closing Date, have been destroyed or damaged or taken by
condemnation under circumstances where the loss thereof will not be
substantially reimbursed to the Purchaser through the proceeds of applicable
insurance or condemnation award.
(h) Consents and Approvals. All material licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental or
regulatory bodies which are (i) necessary to enable the Purchaser to fully
utilize the Assets as contemplated from and after the Closing shall have been
obtained and be in full force and effect, including licenses, permits consents,
approvals, authorizations, qualifications and orders of governmental or
regulatory bodies held in the name or on behalf of the Company but under which
the Purchaser may legally continue to conduct such business or (ii) necessary
for the consummation of the transactions contemplated hereby, shall have been
obtained. Consents by the other parties to each contract constituting part of
the Assets to the assignment to and assumption thereof by the Purchaser shall
have been obtained.
7.2. Conditions to Obligations of the Company.
The obligation of the Company to deliver the bills of sale,
assignments, endorsements and other instruments of transfer relating to the
Assets and to satisfy the Company's other obligations hereunder shall be subject
to the fulfillment, on or prior to the Closing Date (or waiver by the Company),
of the following conditions, which Purchaser agrees to use its best efforts to
cause to be fulfilled.
(a) Representations, Performance, etc. If the Closing Date is not the
date hereof, the representations and warranties of the Purchaser contained in
Section 5 hereof shall be true at and as of the date hereof and shall be
repeated and shall be true at and as of the Closing Date with the same effect as
though made at and as of such time; the Purchaser shall have duly performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or on the Closing Date; and the
Purchaser shall have delivered to the Company a certificate dated the Closing
Date, and signed by its President or any Vice President and by its chief
financial officer to the effect set forth above in this Section 7.2.(a)
(b) Proceedings and Documentation. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement, and all
documents and instruments incident thereto, shall be satisfactory in form and
substance to the Company and Company's counsel, and the Company and Company's
counsel shall have received all such receipts, documents and instruments, or
copies thereof, certified if requested, to which the Company is entitled and as
may be reasonably requested.
8. Termination.
(a) This Agreement may be terminated at any time prior to the Closing
Date:
(i) by mutual consent of the parties hereto.
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(ii) by the Purchaser by notice to the Company (A) if any of the
conditions set forth in Section 7.1 hereof shall not, or it becomes apparent
that any of such conditions will not, have been fulfilled by May 15, 1996, or
(B) if any material default under or material breach of any agreement or
condition of this Agreement, or any material misrepresentation or material
breach of any warranty contained herein, on the part of the Company shall have
occurred and shall not have been cured; or
(iii) by the Company by notice to the Purchaser, (A) if any of the
conditions set forth in Section 7.2 hereof shall not, or it becomes apparent
that any of such conditions will not, have been fulfilled by May 15, 1996, or
(B) if any material default under or material breach of any agreement or
condition of this Agreement, or any material misrepresentation or material
breach of any warranty contained herein, on the part of the Purchaser shall have
occurred and shall not have been cured.
(b) In the event of the termination of this Agreement pursuant to the
provisions of Section 9(a) hereof, this Agreement shall become void and have no
effect, without any liability on the part of any party hereto or its directors,
officers or stockholders in respect of this Agreement, except as specified in
Section 11.1 hereof and except that nothing herein shall limit the right of
either party to seek damages from the other for willful breach of this
Agreement.
10. Definition of Certain Terms.
(a) Except as otherwise herein specifically provided, each accounting
term used herein shall have the meaning given to it under generally accepted
accounting principles, consistently applied.
(b) In addition to terms defined elsewhere in this Agreement, as used
herein, the following terms shall have the following meanings (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
Affiliate: with respect to any Person, any Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
Agreement: this Asset Purchase Agreement
Assets: as defined in Section 1.1.
Assigned Contracts: as defined in Section 4.13.
Claims and Encumbrances: liens, mortgages, security interests, pledges,
charges, agreements, restrictions, easements, claims, defects in title and
encumbrances of any kind or description.
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Closing: as defined in Section 3.1.
Closing Date: as defined in Section 3.1.
Company: as defined in the Preamble to this Agreement.
Code: the Internal Revenue Code of 1986, as amended.
Consulting Agreement: as defined in Section 3.3.
Excluded Assets: as defined in Section 1.2.
Indemnified Party: as defined in Section 11.1.
Indemnifying Party: as defined in Section 11.1.
Intellectual Property: as defined in Section 4.8.
Inventory: as defined in Section 1.1.
Permits: as defined in Section 1.1.
Person: any natural person, firm, partnership, association,
corporation, trust, public body or governmental entity.
Purchaser: as defined in the Preamble to this Agreement.
Stockholder: as defined in Section 3.3.
11. Indemnification, Survival.
11.1 Indemnification.
(a) From and after the Closing, the Company will indemnify the
Purchaser, its officers, directors and stockholders, against, and hold the
Purchaser, its officers, directors and stockholders, harmless from, any and all
liability, damage, deficiency, loss, cost or expense (including reasonable
attorneys' fees and expenses) that are based upon or that arise out of, subject
to Sections 11.2 and 11.3 hereof, (i) any misrepresentation or breach of any
warranty or agreement made by the Company herein, (ii) any obligation, debt or
liability of the Company to the extent that the same is not expressly assumed
herein by Purchaser, (iii) the ownership of the Assets and operation of the
Company's business on or prior to the Closing Date, or (iv) failure to comply
with any applicable bulk transfer laws.
(b) The Purchaser will indemnify the Company, its officers, directors
and stockholders,
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against, and hold the Company, its officers, directors and stockholders,
harmless from, any and all liability, damage, deficiency, loss, cost or expense
(including reasonable attorneys' fees and expenses) that are based upon or that
arise out of, subject to Sections 11.2 and 11.3 hereof, (i) the material breach
or default of any representation, warranty or agreement made by the Purchaser
herein, or (ii) without limiting the provisions of Section 2.3 (including the
limitations and exclusions contained therein), the ownership of the Assets and
operation of the Business from and after the Closing Date.
(c) Each party entitled to indemnification under this Agreement (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
becomes aware of any claim by a third party for which indemnification is
available hereunder, the delivery of which notice shall require the Indemnifying
Party (at its expense) to assume the defense of any claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be reasonably
satisfactory to the Indemnified Party, and the Indemnified Party may participate
in such defense, but only at such Indemnified Party's expense, and provided
further, that the omission by any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its indemnification
obligations under this Agreement except to the extent that the omission results
in a failure of actual notice to the Indemnifying Party and such Indemnifying
Party is irreparably damaged as a result of the failure to give notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to the entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation.
Notwithstanding the foregoing, the Indemnified Party shall have the right at all
times to take over and assume control of the defense, settlement, negotiations
or lawsuit relating to any claim or demand, provided, however, that if the
Indemnified Party does so take over and assume control, the amount of the
indemnity by the Indemnifying Party shall be limited to the amount which the
Indemnifying Party has immediately prior to such time indicated it would be
willing to pay to adjust and settle such claim or demand. In the event that the
Indemnifying Party does not accept the defense of any matter as above provided,
the Indemnified Party shall have the full right to defend against any such claim
or demand, and shall be entitled to settle or agree to pay in full such claim or
demand, in its sole discretion, and all costs and expenses relating thereto
(including without limitation legal fees and expenses) shall be borne by the
Indemnifying Party. In any event, the Company, the Stockholder and the Purchaser
shall cooperate in the defense of such action and the records of each shall be
available to the other with respect to such defense.
11.2. Time and Manner of Claims.
The Purchaser, on one hand, the Company and the Stockholder, on the
other hand, shall be liable for damages arising from its or his material
misrepresentations or material breaches of its or his representations and
warranties only to the extent that notice of a claim therefor is asserted by the
other in writing and delivered. Any notice of a claim by reason of any of the
representations and warranties contained in this Agreement shall state the
representation or warranty with respect to which the claim is asserted. The
representations, warranties, agreements and indemnities contained in this
Agreement shall survive the execution and delivery of this Agreement, any
examination by or on behalf of such parties,
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and the completion of the transactions contemplated herein.
11.3 Offset Procedures.
In the event that the Purchaser has a claim against the Company
arising under Section 11.1 of this Agreement, regardless of whether such claim
or any portion thereof is a Matured Claim or a Contingent Claim (as hereinafter
defined), the Purchaser shall be entitled to offset the entire amount of such
claim against any amounts due to the Company hereunder or under the License
Agreement to the Stockholder pursuant to the Consulting Agreement. Such right of
offset shall be exercised in the following manner:
(a) The Purchaser shall first send to the Company or the Stockholder a
notice (the "Offset Notice") specifying the amount of the Purchaser's claim,
specifying whether or the extent to which such claim is mature, non-contingent
and fixed in amount (a "Matured Claim") or not yet matured, contingent or not
fixed in amount (a "Contingent Claim"; Matured or Contingent Claims being herein
generally called "Claims"), indemnifying, to the extent applicable, the
provisions hereof asserted to give rise to the Claim and briefly identifying the
facts which constitute the basis of such obligation or Claim.
(b) Within thirty (30) days after the Purchaser delivers the Offset
Notice to the Company or the Stockholder, the Company or the Stockholder shall
deliver to the Purchaser a written notice (the "Dispute Notice") identifying in
reasonable detail which Claims, or parts thereof, the Company or the Stockholder
questions in good faith or does not question in good faith, as the case may be,
and the reasons therefor. If within thirty (30) days after giving the Offset
Notice, the Purchaser does not receive a dispute Notice from the Company or the
Stockholder, the Purchaser shall be entitled to offset the amount of any such
Claim against payments due from the Purchaser to the Company hereunder or under
the License Agreement or to the Stockholder pursuant to the Consulting
Agreement, in any order that the Purchaser may determine in its sole discretion,
provided, that if such Claim is later defeated, defensed, settled or otherwise
resolved for a cost to the Purchaser (the "Claim Resolution Amount") which is
less than the amount offset with respect to such Claim. then the Purchaser shall
promptly remit to the Company or the Stockholder, as the case may be, the amount
of the difference between the aggregate amount of such offset and the Claim
Resolution Amount.
(c) If within thirty (30) days after giving the Offset Notice, the
Purchaser receives a Dispute Notice from the Stockholder, then (i) with respect
to any portion of a Claim not questioned, the provisions of subsection (b) above
shall apply, and (ii) with respect to any portion of a Claim questioned, the
Purchaser shall be entitled to provisionally offset the amount thereof against
payments due from the Purchaser to the Company hereunder or under the License
Agreement or to the Stockholder pursuant to the Consulting Agreement, in any
order that the Purchaser may determine in its sole discretion, by holding any
such amount separate from its other assets in any interest-bearing escrow
account.
(d) Any amounts questioned and held separate from its other assets by
the Purchaser pursuant to subsection (c)(ii) shall be so separated from such
other assets at the time such amount is otherwise due to the Company under this
Agreement or under the License Agreement or to the Stockholder pursuant to the
Consulting Agreement, and so held until the Claim in respect thereof is
24
<PAGE> 26
resolved by agreement of the parties or an order of a court of competent
jurisdiction directs payment of the disputed amount.
(e) Upon resolution of a Claim in accordance with the provisions of
subsection (d), any cash amount which has been retained and held separate
pursuant to subsection (c)(ii) shall thereupon be promptly delivered by the
Purchaser to the Company or the Stockholder, as the case may be, to the extent
required in accordance with the terms of the resolution of such Claim, and to
the extent not so required to be so paid over to the Company or the Stockholder
shall be retained by the Purchaser in settlement of its Claim, and all interest
or other income, if any, which has been earned with respect to any such cash
amount shall be allocated between the Company or the Stockholder, on one hand,
the Purchaser, on the other hand, in proportion to their respective entitlements
to such sum. The Purchaser, on one hand, and the Company and the Stockholder, on
the other hand, shall have no other responsibility or liability to account for
any interest with respect to any amount so withheld or otherwise with respect to
any claim.
12. General.
12.1 Consent to Jurisdiction and Waivers.
The Company and the Stockholder irrevocably consent that any legal
action or proceeding against it or him under, arising out of or in any manner
relating to, this Agreement, the License Agreement or the Consulting Agreement,
of or any other document delivered in connection herewith, may be brought in any
court of the State of New York located within the Southern of or Eastern
District of New York of or in the United States District Court for the Southern
of or Eastern District of New York. The Company and the Stockholder by the
execution and delivery of this Agreement, expressly and irrevocably consent and
submit to the personal jurisdiction of any of such courts in any such action of
or proceeding. The Company and the Stockholder further irrevocably consent to
the service of any complaint, summons, notice of or other process relating to
any such action of or proceeding by delivery thereof to it by hand of or by any
other manner provided for in Section 12.4. The Company and the Stockholder
hereby expressly and irrevocable waive any claim of or defense in any such
action of or proceeding based on any alleged lack of personal jurisdiction,
improper venue of or forum non conveniens of or any similar basis. Nothing in
this Section 12.1 shall affect of or impair in any manner of or to any extent
the right of the Purchaser to commence legal proceedings of or otherwise proceed
against the Company and/of or the Stockholder in any jurisdiction of or to serve
process in any manner permitted by law. The Company and the Stockholder hereby
waive their rights, if any, to trial by jury.
12.2 Expenses.
Subject to the terms of Section 11 hereof, each of the parties hereto
shall bear its own expenses, costs and fees (including attorneys' and auditors'
fees and expenses) in connection with the transactions contemplated hereby,
including the preparation and execution of this Agreement and compliance
herewith, whether of or not the transactions contemplated hereby shall be
consummated. All such expenses, costs and fees to be borne by the Company shall
be the obligation of the Company and shall not be assumed by Purchaser nor
reduce the Assets being transferred hereunder.
25
<PAGE> 27
12.3 Severability.
If any provision of this Agreement, and, in particular, if any
provision of the covenant not to compete, shall be held of or deemed to be of or
shall, in fact, be inoperative of or unenforceable as applied in any particular
case because it conflicts with any other provision of or provisions hereof of or
any constitution of or statute of or rule of public policy, of or for any other
reason, such circumstances shall not have the effect of rendering the provision
in question inoperative of or unenforceable in any other case of or
circumstance, of or of rendering any other provision of or provisions herein
contained invalid, inoperative, of or unenforceable to any extent whatever. The
invalidity of any one of or more phrases, sentences, clauses, sections, of or
subsections of this Agreement shall not affect the remaining portions of this
Agreement.
12.4. Notices.
All notices, consents, requests, instructions, approvals and other
communications provided for herein and all legal process in regard hereto shall
be validly given, made or served, if in writing and delivered personally of or
sent by registered of or certified mail (return receipt requested), postage
prepaid, or by nationally recognized overnight courier service or by facsimile
transmission electronically confirmed during normal business hours, (i) if to
Purchaser at 16 Passaic Avenue, #6, Fairfield, New Jersey 07004, Fax No.: (201)
808-2645. Attn..: Barry A. Cinnamon. with a copy to Blau, Kramer, Wactlar &
Lieberman, P.C., at 100 Jericho Quadrangle, Suite 225, Jericho, New York 11753
Attn.: Neil M. Kaufman, Esq., Fax No.: (516) 822-4824; and (ii) if to the
Company or the Stockholder at 7 Riverville Road, Greenwich, Connecticut 06831,
Fax No.: (203) 531-8298, of or, in each case, at such other address as may be
specified in writing to the other parties.
12.5. Waiver.
All the parties hereto may waive compliance by any party with any of
the provisions of this Agreement. No waiver of any provisions shall be construed
as a waiver of any other provision. Any waiver must be in writing.
12.6. Amendment.
This Agreement may not be amended except by an instrument in writing
duly executed and delivered on behalf of each of the parties hereto.
12.7. Publicity.
Neither the Purchaser, the Company nor the Stockholder shall issue any
press release of or public announcement of any kind concerning the transactions
contemplated by this Agreement without consulting with the other parties hereto;
provided, however, that the Purchaser shall be permitted without prior
consultation with the Company of or the Stockholder to issue such announcements
in each case as may be required by applicable law of or stock exchange of or
securities self-regulatory organization rules
26
<PAGE> 28
of or regulations applicable to the Purchaser, and the Company and the
Stockholder will cooperate with the Purchaser in furnishing any documents of or
information necessary in connection therewith.
12.8. Joint and Several Obligations.
All representations, warranties, covenants and agreements of the
Company and/of or the Stockholder contained herein shall be the joint and
several representations, warranties, covenants and agreements of the Company and
the Stockholder.
12.9. Miscellaneous.
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning of or interpretation of this
Agreement. This Agreement, the License Agreement and the Consulting Agreement
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of which shall constitute one
and the same instrument. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of New
York, applicable to contracts made and to be performed in New York. This
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the parties hereto. The rights and obligations contained in this
Agreement are solely for the benefit of the parties hereto and are not intended
to benefit of or be enforceable by any other party, under the third party
beneficiary doctrine of or otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
ALLEGRO NEW MEDIA, INC.
By: /s/Mark E. Leininger
-------------------------------------------
Mark E. Leininger
Vice President & Chief Executive Officer
BIZED, INC.
By: /s/Clifford L. Schorer, Jr.
-------------------------------------------
Clifford L. Schorer, Jr.
President
27
<PAGE> 29
Exhibits and Schedules
Exhibits
A - License Agreement
B - Consulting Agreement
Schedules
2.2 - Allocation of Purchase Price
4.4 - Conduct of Business
4.6 - Personal Property
4.7 - Contracts
4.8 - Intellectual Property
4.9 - Customer and Supplier Relations
4.10 - Litigation, Compliance
28
<PAGE> 1
Exhibit 10.42
CONSULTING AGREEMENT
AGREEMENT, dated May 1, 1996, by and between ALLEGRO NEW MEDIA, INC.,
a Delaware corporation (the "Company") and Clifford J. Schorer, Jr., an
individual with a place of business at c/o BizEd Inc., 7 Riverside Road, 3rd
Floor, Greenwich, CT 06831 (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Consultant because of his
extensive knowledge, experience and abilities with respect to the business being
conducted by the Company, and the Company considers that the advice of the
Consultant will be important to the continued success of the Company, and the
Consultant is willing to accept a retainer with the Company as a consultant and
to provide to the Company his services, upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the Company and the Consultant hereby agree as
follows:
Section 1. Consulting Period.
(a) The Company hereby engages the Consultant to furnish the advisory
and consulting services specified herein, and the Consultant hereby accepts such
engagement and agrees to provide such services, on the terms and conditions
herein set forth, for the period commencing on May 1, 1996 and ending on
September 30, 1996 (the "Consulting Period").
(b) Notwithstanding the foregoing, the Consulting Period may be
terminated by the Company:
(i) Upon the date of death of the Consultant;
(ii) Upon the Company's sending to the Consultant written
notice terminating the same for Just Cause. For purposes of this Agreement,
"Just Cause" shall include, but not be limited to, (A) action by the Consultant
involving dishonesty or fraud detrimental to the Company; (B) the Consultant's
conviction of a felony; (C) the Consultant's substance abuse, including without
limitation, alcoholism or drug addiction, as determined by the judgment of a
physician selected in good faith by the Board of Directors of the Company; (D)
any violation in a material respect of any of the provisions of Sections 4 or 5
hereof; or (E) any material failure by the Consultant to perform his duties in
accordance with this Agreement (other than by reason of physical or mental
disability of the Consultant), provided the Consultant shall first have been
given written notice of such failure and the Consultant shall not have corrected
or caused to be corrected such failure within 30 days from such notice.
(c) In the event the Company terminates the services of the Consultant
pursuant to Section 1(b) hereof, no further compensation will be payable
hereunder. If the Company terminates the services of the Consultant for any
reason other than pursuant to Section 1(b) hereof, the Company shall pay to the
<PAGE> 2
Consultant the balance of the compensation that would otherwise be payable
hereunder for the remainder of the Consulting Period at the times and in the
manner set forth herein.
Section 2. Consulting Services.
(a) During the Consulting Period, the Consultant shall furnish the
Company with advisory and consulting services to be determined by the Board of
Directors or the President of the Company respecting the development in the JAVA
or other computer languages, completion, sales and marketing of the "Grow"
product acquired by the Company from BizEd Inc. and related matters of the
Company and/or any current or future parent of the Company ("parent") or of any
current or future subsidiary of ("subsidiary"), or corporation affiliated with
("affiliate"), the Company as well as such other advisory and consulting
services within the areas of the Consultant's expertise as may be reasonably
determined from time to time by the Board of Directors or the President of the
Company. For the purpose of this Agreement, the term "Company" shall include
also any corporation which is a successor in interest to the Company, whether by
reason of merger, consolidation, and/or purchase or acquisition of substantially
all of the Company's assets or otherwise.
(b) During the Consulting Period, the Consultant shall be available to
furnish advisory and consulting services hereunder, at the request of the
Company, during normal business hours. The Consultant and the Company agree that
he will not be required to perform such duties at the Company's facilities or
any other mutually agreed location for more than 40 hours per month; provided,
that the Company shall pay to the Consultant $125 per hour for any services
rendered by the Consultant in excess of 40 hours in any calender month. In
performing such duties, the Company agrees that if necessary and to the extent
practicable, upon reasonable request of the Consultant, that the Consultant
shall be permitted to furnish consulting and advisory services to the Company by
telephone at mutually agreeable times.
Section 3. Compensation and Expenses.
(a) Subject to the provisions of this Agreement, as compensation for
the services and covenants hereunder, the Company shall pay to the Consultant
during the Consulting Period, the following fees:
(i) $2,500 per month, payable in cash on the last day of each
calender month during the term hereof or in such other manner as may be
determined pursuant to the Company's usual policies and procedures; and
(ii) $2,500 per month, payable on October 31, 1996 in shares
of Common Stock of the Company, valued based on average of the last reported
sales price of such Common Stock on the NASDAQ Small Cap Market on the ten (10)
trading days ending three (3) business days prior to the date of payment (the
foregoing fees being herein referred to as the "Consulting Fee").
(b) Notwithstanding anything contained herein to the contrary, the
Consultant shall be an independent contractor and shall not be considered an
employee of the Company for any purpose
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<PAGE> 3
whatsoever, including, but not limited to, medical, health or accident insurance
or plans, retirement or pension plans or benefits; incentive, bonus or similar
plans; sick, disability or vacation pay or allowances; withholding, social
security or other employer contributions; and the use of credit cards.
Section 4. Confidentiality, Non-Interference and Proprietary Information
(a) The Consultant shall hold and keep confidential any trade secrets
and/or other proprietary processes, methods, formulae, program codes, source
codes, business plans or proposals, marketing or sales plans or proposals or
information, including but not limited to, the identity and any lists of
licensors, licensees, customers and suppliers of the Company or of the customers
and suppliers of the parent, the subsidiaries or affiliates as such lists may
exist from time to time (all of the foregoing being hereinafter collectively
referred to as "Trade Secrets") and all other data and information used by the
Company or by the parent, subsidiaries or affiliates in connection with their
respective businesses (as hereinafter defined), which are not in the public
domain, which he may now know or which hereafter may become known to the
Consultant as a result of his engagement or previous employment by the Company,
and shall not, at any time during his engagement or thereafter, directly or
indirectly disclose any such information to any person, firm or corporation, or
use the same in any way other than in connection with the business and affairs
of the Company or of the business and affairs of the parent, the subsidiaries or
affiliates.
(b) The Consultant will not at any time after any termination of his
retention by the Company hereunder, for the Consultant's own account or for the
account of any other person or entity, interfere with the Company's relationship
with any of its suppliers, customers, licensees, licensors, employees,
representatives, contractors or agents.
(c) The Consultant agrees that he will at all times promptly disclose
to the Company in such form and manner as the Company may reasonably require,
any inventions, improvements or procedural or methodological innovations,
programs, methods, forms, systems, services, designs, marketing ideas, products
or processes (whether or not capable of being trademarked, copyrighted or
patented) conceived or developed or created by the Consultant in connection with
the Consultant's retention hereunder and the performance of his obligations
pursuant to Section 2 above and which relate to the business of the Company
("Intellectual Property"). The Consultant agrees that all such Intellectual
Property, shall be the sole property of the Company, and hereby assigns, conveys
and transfers to the Company all of the Consultant's right, title and interest
therein to the Company. The Consultant further agrees that the Consultant will
execute such instruments and perform such acts as may reasonably be requested by
the Company to transfer to and perfect in the Company all legally protectable
rights in such Intellectual Property.
(d) All written materials, records and documents made by the Consultant
or coming into the Consultant's possession during his retention by the Company
concerning any products, processes or equipment manufactured, used, developed,
investigated, purchased, sold or considered by the Company or otherwise
concerning the core business or affairs of the Company shall be the sole
property of the Company, and upon termination of retention by the Company, or
upon request of the Company during the Consultant's retention by the Company,
the Consultant shall promptly deliver the same to the
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<PAGE> 4
Company. In addition, upon termination of retention by the Company, the
Consultant will deliver to the Company all other Company property in his
possession or under his control, including, but not limited to, tangible
property, financial statements, marketing and sales data, customer and supplier
lists, database information and other documents, and any Company credit cards.
(e) In the event of a breach or threatened breach by the Consultant of
the provisions of this Section 4, the Company shall be entitled to an injunction
restraining the Consultant from disclosing, in whole or in part, the Trade
Secrets or other data and information described in subsections (a), (b), (c),
and (d) above, or from rendering any services to any person, firm, corporation,
association or other entity to whom such Trade Secrets or such other data and
information has been disclosed, or is threatened to be disclosed. Nothing herein
contained shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including without
limitation the recovery of damages from the Consultant, all of which remedies
shall be cumulative and non-mutually exclusive. The provisions of this Section 4
shall survive any termination of this Agreement.
Section 5. Competition.
(a) The Consultant undertakes and agrees that during the Consulting
Period and for a period of one year thereafter, he will not (i) compete,
directly or indirectly, or participate as a director, officer, employee, agent,
representative or in any other capacity in any business engaged in providing
computer software for small business or home-based business in any geographic
area where the Company, the Company's parent, subsidiaries or affiliates are now
conducting or during the term of the Consulting Period conduct, business; (ii)
solicit, raid, entice or induce any customer, licensor, licensee or supplier of
the Company and/or the Company's parent, subsidiaries or affiliates to cease
purchasing or furnishing or selling goods or services to or from, or to become a
customer, licensor, licensee or supplier of any competitor of, the Company,
and/or the Company's parent, subsidiaries or affiliates, and the Consultant will
not approach any customer, licensor, licensee or supplier for any such purpose
or authorize the taking of any such action by any other individual or entity; or
(iii) solicit, raid, entice, or induce any employee, contractor, representative
or agent of the Company, or of the Company's parent, subsidiaries or affiliates,
to become employed or retained by any competitor of the Company, the Company's
parent, subsidiaries or affiliates, and the Consultant will not approach any
such employee, contractor, representative or agent for any such purpose or
authorize the taking of any such action by any other individual or entity. The
Consultant is permitted to participate in businesses that are not competitive
with the business of the Company.
(b) If any provision of this Section 5 shall, for any reason, be
adjudged by any court of competent jurisdiction to be invalid or unenforceable,
such judgment shall not affect, impair or invalidate the remainder of this
Section 5 but shall be confined in its operation to the provision of this
Section 5 directly involved in the controversy in which such judgment shall have
been rendered. In the event of a breach or a threatened breach by the Consultant
of this Section 5, the Company, in addition to any other rights and remedies it
may have, all of which shall be cumulative and non-mutually exclusive, shall be
entitled to an injunction restraining the Consultant from doing or continuing to
do any such act in violation of this Section 5. The provisions of this Section 5
shall survive any termination of this Agreement.
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<PAGE> 5
Section 6. Right of First Refusal.
From and after the date of this Agreement, the Consultant shall not
market, sell, or in any other way commercially exploit any computer software
products relating to small office or home office businesses unless and until
the Consultant shall first offer to the Company the right to so market, sell or
otherwise commercially exploit such computer software. In this connection, the
Consultant shall furnish to the Company in writing the terms and conditions of
any bona fide proposed transaction involving any such marketing, sale or other
commercial exploitation (the "Terms Notice"). The Company shall have the right,
exercisable within thirty (30) days of the date of its receipt of the Terms
Notice to exercise this right of first refusal by delivering written notice of
such exercise to the Consultant. The consummation of any such transaction shall
take place within one hundred twenty (120) days thereafter. In the event that
the Company does not exercise this right of first refusal by delivering such
written notice to the Consultant within such thrity (30) day period, then the
Consultant shall be free to engage in such proposed transaction on the terms
and conditions set forth in the Terms Notice. Any subsequent transaction, or
any transaction which is not entirely consistent with the terms and conditions
set forth in the Terms Notice, shall again be subject to the right of first
refusal hereinabove set forth.
Section 7. Assignment.
This Consulting Agreement shall not be assigned by either party hereto
except that the Company may assign its rights hereunder to any parent,
subsidiary or affiliate or to any successor in interest of the Company whether
by merger, consolidation, purchase or acquisition of substantially all of the
Company's assets or otherwise.
Section 8. Notices.
All notices, requests, demands and other communications hereunder must
be in writing and shall be deemed to have been duly given if mailed, by prepaid,
first-class, registered or certified mail, return receipt requested, delivered
by a nationally recognized overnight courier service or sent by facsimile
transmission electronically confirmed during normal business hours, and
addressed as follows:
(a) If to the Company:
Allegro New Media, Inc.
16 Passaic Avenue
Fairfield, New Jersey 07004
Fax No: (201) 808-2645
with copy to:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, New York 11753
Attn: Neil M. Kaufman, Esq.
Fax No.: (516) 822-4824
(b) If to the Consultant:
Mr. Clifford J. Schorer, Jr.
c/o BizEd Inc.
7 Riverside Road, 3rd Floor
Greenwich, CT 06831
Fax No: (203) 531-8298
Section 9. Miscellaneous.
This Agreement represents the entire understanding of the parties
hereto relating to the retention of the Consultant as a consultant to the
Company, and supersede all other agreements between the parties hereto relating
to the retention of the Consultant by the Company. The terms and provisions of
this Agreement may not be modified or amended, except pursuant to a writing
executed by the parties hereto. Any failure or delay on the part of either party
in exercising any power or right hereunder shall not operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power
preclude
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<PAGE> 6
any other or further exercise thereof or the exercise of any other right or
power hereunder. The headings in this Agreement are for convenience of reference
only and shall not be considered as part of this Agreement nor limit or
otherwise affect the meaning thereof. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State of New York,
without regard to its conflicts of laws or rules. Any disputes or litigation
arising out of this Agreement shall be litigated in the Supreme Court of the
State of New York, Nassau County and it shall be the understanding of the
parties that by entering this agreement, they consent to the jurisdiction of the
Supreme Court of the State of New York, Nassau County.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Consulting Agreement on the day and year first above written.
ALLEGRO NEW MEDIA, INC.
By: /s/ Barry A. Cinnamon
----------------------------------
Barry A. Cinnamon
President
/s/ Clifford J. Schorer, Jr.
----------------------------------
Clifford J. Schorer, Jr.
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<PAGE> 1
Exhibit 10.43
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS
AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION
OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH EXHIBIT I REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, AUGUST 20, 2002
No. _______ 440,000 Warrants
WARRANT TO PURCHASE 440,000
SHARES OF ALLEGRO NEW MEDIA, INC.
COMMON STOCK
WARRANT CERTIFICATE
THIS WARRANT CERTIFICATE certifies that M.S. Farrell & Co.,
Inc., a New York corporation, with its principle place of business located at 67
Wall Street, New York, New York 10005, or its registered assigns, is the
registered holder of Warrants (the "Warrants") to purchase initially, at any
time from the date hereof until 5:00 p.m., New York time, on August 20, 2002
("Expiration Date"), up to 440,000 fully paid and nonassessable shares of common
stock, $.001 par value ("Common Stock") of Allegro New Media, Inc., a Delaware
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $6.875 per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at the office of the Company located at 16 Passaic Avenue, Unit
#6, Fairfield, New Jersey 07004, or any successor office, but subject to the
conditions set forth herein and in Exhibit I hereto. Payment of the Exercise
Price shall be made by certified or official bank check payable to the order of
the Company or may be made by tendering an amount of Warrants for cancellation
with a value as determined by the difference between the then current market
price of the underlying shares of Common Stock as of the date of exercise less
the Exercise Price of each Warrant.
<PAGE> 2
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void. If the Expiration Date shall in the
State of New York be a holiday or a day on which banks are authorized to close,
then the Expiration Date shall mean 5:00 P.M., New York Time, the next following
day which, in the State of New York is not a holiday or a day on which banks are
authorized to close.
The Warrants evidenced by this Warrant Certificate are subject to
the provisions of Exhibit I hereto, which Exhibit I is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
Exhibit I hereto provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair the rights of the holder
as set forth in Exhibit I.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Company located at 16 Passaic Avenue, Unit #6,
Fairfield, New Jersey 07004, or any successor office, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in Exhibit
I, without any charge except for any tax or other governmental charge imposed in
connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
Exhibit I hereto shall have the meanings assigned to them in Exhibit I hereto.
2
<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated as of August 20, 1996
ALLEGRO NEW MEDIA, INC.
By: /s/Barry A. Cinnamon
-----------------------------
Barry A. Cinnamon
Chairman of the Board
Attest:
/s/Lori Kramer Cinnamon
- ----------------------------
Lori Kramer Cinnamon
Secretary
3
<PAGE> 4
FORM OF ELECTION TO PURCHASE
THE UNDERSIGNED hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ___________ shares of
Common Stock and herewith tenders in payment for such securities a certified or
official bank check payable to the order of Allegro New Media, Inc. in the
amount of $___________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such securities be registered in the name of
______________________ whose address is ______________________________ and that
such Certificate be delivered to ________________________ whose address is
______________________________________________.
Dated: __________________
Signature: ____________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of the Warrant Certificate.)
_______________________________________
(Insert Social Security or Other
Identifying Number of Holder)
_______________________________________
Signature Guarantee
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<PAGE> 5
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
_________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Warrant Certificate on the books of the within
named Company, with full power of substitution.
Dated: ________________ Signature:____________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of the Warrant Certificate.)
_______________________________________
(Insert Social Security or Other
Identifying Number of Holder)
_______________________________________
Signature Guarantee
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<PAGE> 6
EXHIBIT I
Section 1. Exercise of Warrant. The Warrants initially are
exercisable at an aggregate initial exercise price per share of common stock,
$.001 par value per share (the "Common Stock") of Allegro New Media, Inc. (the
"Company") set forth in Section 3 hereof (subject to adjustment as provided in
Section 5 hereof) payable by certified or official bank check. Upon surrender of
a Warrant Certificate with the annexed Form of Election to Purchase duly
executed, together with payment of the Exercise Price (as hereinafter defined)
for the shares of Common Stock purchased at the Company's principal offices in
New Jersey (presently located at 16 Passaic Avenue, Unit #6, Fairfield, New
Jersey 07004), the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
the Warrants). In the case of the purchase of less than all the shares (the
"Warrant Shares") of Common Stock purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock purchasable thereunder.
Section 2. Issuance of Certificates. Upon the exercise of
the Warrants, the issuance of certificates for shares of Common Stock shall be
made forthwith (and in any event within ten (10) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the persons or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing
the Warrant Shares shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors and also by the Secretary or by any two Directors or by any one
Director and the Secretary of the Company under its corporate seal reproduced
thereon.
Section 3. Exercise Price.
3.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 5 hereof, the exercise price of each Warrant shall be $6.875
per share of Common Stock. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 5 hereof.
3.2 Exercise Price. The term "Exercise Price" as used herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
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Section 4. Restrictions on Transfer; Registration Rights.
4.1 Representations. The Holders of the Warrants agree to
the following:
(a) Each Holder understands that the Warrants, or
the Warrant Shares, have not been registered under applicable state and federal
securities laws, and that such Warrants or Warrant Shares cannot be resold or
transferred unless they are so registered, or unless such transfer qualifies for
an exemption from such registration;
(b) Each Holder is acquiring the Warrants for
investment purposes only, and not with a view towards resale or distribution;
(c) Each Holder understands that all certificates
which represent the Warrants issued to him or her will bear a legend which
incorporates these restrictions; and
(d) Each Holder is familiar with the business and
financial condition of the Company, has been provided access and an opportunity
to review all material agreements, books and records of the Company and has been
afforded an opportunity to question the executive officers of the Company with
respect to the foregoing.
4.2 Restrictions on Transfer. Notwithstanding any provisions
contained in the Warrant Certificate to the contrary, these Warrants shall not
be transferable and the related Warrant Shares shall not be transferable except
upon the conditions specified in this Section 4, which conditions are intended,
among other things, to ensure compliance with the provisions of the 1933 Act in
respect of the transfer of the Warrants or the Warrant Shares. The Holders of
the Warrants further agree that they will not (a) transfer the Warrants prior to
delivery to the Company of an opinion of the Holder's counsel as provided for in
Section 4.3), which opinion shall be acceptable to counsel for the Company, or
(b) until registration of the Warrant Shares under the Securities Act has become
effective.
4.3 Opinion of Counsel. In connection with any transfer of
the Warrants or of the related Warrant Shares, the following provisions shall
apply:
(a) If in the opinion of counsel, which counsel and
opinion shall be acceptable to the Company, the proposed transfer of the
Warrants or the Warrant Shares may be effected without registration of the
Warrants of the Warrant Shares under the 1933 Act, the Holders shall be entitled
to transfer the Warrants or the Warrant Shares in accordance with the proposed
method of disposition.
(b) If in the opinion of counsel, which counsel and
opinion shall be acceptable to the Company, the proposed transfer of the
Warrants or the Warrant Shares may not be effected without registration of the
Warrants or such Warrant Shares under the Securities Act, the holder of the
Warrants shall not be entitled to transfer the Warrants or the Warrant Shares
until registration is effective.
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<PAGE> 8
4.4 Subsequent Holders. Anything contained herein to the
contrary notwithstanding, the provisions of this Section 4 shall be binding upon
all subsequent holders of the Warrants and the Warrant Shares, and the Company
shall not be required to issue all or any portion of the Warrants or the Warrant
Shares to such Holder unless such Holder agrees in writing in advance of such
issuance to be so bound. The provisions of this Section 4 shall survive the
Expiration Date.
4.5 Securities Act of 1933 Legend. The Warrant and the
Warrant Shares have not been registered under the Securities Act. Upon exercise
of the Warrants, in part or in whole, the certificates representing the Warrant
Shares shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION
OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
4.6 Required Registration.
(a) Piggyback Registration. If the Company shall determine
to register any of its securities (including any initial public offering of its
securities) either for its own account or the account of a security holder or
holders exercising their respective demand registration rights other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Rule 145 transaction (including securities registered on
form S-8 or form S-4), or a registration on any registration form that does not
permit secondary sales, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) use its best efforts to include in any such
registration and any related qualification under blue sky
laws or other compliance), and in any underwriting involved
therein, all the Warrant Shares specified in a written
request or requests, made by any Holder and received by the
Company within twenty (20) days after the written notice
from the Company described in clause (i) above is mailed or
delivered by the Company. Such written request may specify
all or a part of a Holder's Warrant Shares.
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<PAGE> 9
The Holders agree to sell their Warrant Shares on the same
terms as the sale of other shares of Common Stock in the offering and agree to
execute such documents as shall be reasonably requested by the Company or its
counsel in connection with such offering.
If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to this
Section . In such event, the right of any Holder to registration pursuant to
this Section shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Warrant hares in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders of securities of the Company with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company.
(b) Expenses of Registration. All registration expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Section including filing fees, printing expenses, blue sky
fees, and fees and expenses of the Company's counsel and accountants) shall be
borne by the Company. All expenses incurred by the Holders for their own counsel
or accountants and all selling expenses relating to securities so registered
(including underwriter discounts and commissions) shall be borne by the holders
of securities so registered on the basis of the number of shares of securities
so registered on their behalf.
(c) Indemnification
(i) The Company will indemnify each Holder, each of
its officers, directors and partners, legal counsel, and accountants and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification, or compliance
has been effected pursuant to this Section , and each underwriter, if any,and
each person who controls within the meaning of Section 15 of the Securities Act
any underwriter, against all expenses, claims, losses, damages, and liabilities
(or actions, proceedings, or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like), incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense arises out of or is based on
any untrue statement or omission based
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<PAGE> 10
upon written information furnished to the Company by such Holder or underwriter
and stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
(ii) Each Holder will, if Warrant Shares held by
him are included in the securities as to which such registration, qualification,
or compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and other Shareholder,
and each of their officers, directors, and partners, and each person controlling
such Holder or other Shareholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders, other Shareholders,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular, or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and stated to be
specifically for use therein, provided, however, that the obligations of such
Holder hereunder shall not apply to amounts paid in settlement of any such
claims, losses, damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld), and provided that in no event shall any indemnity
under this Section exceed the gross proceeds from the offering received by such
Holder.
Section 5. Adjustments to Exercise Price and Number of
Shares.
5.1 Subdivision and Combination. In case the Company shall
at any time: (i) subdivide the outstanding shares of Common Stock into a larger
number of shares, (ii) combine the outstanding shares of Common Stock into a
smaller number of shares, (iii) declare a dividend on the outstanding shares of
Common Stock payable in shares of Common Stock, or (iv) issue by
reclassification of its Common Stock any shares of its capital stock, the
Exercise Price in effect immediately after the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such dividend, distribution, subdivision,
combination or reclassification, and of which the denominator shall
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<PAGE> 11
be the number of shares of Common Stock outstanding immediately after such
dividend, distribution, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event specified above shall
occur.
5.2 Adjustment in Number of Warrant Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 5,
the number of Warrant Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full share obtained by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
5.3 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean: (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value or from no par value
to par value.
5.4 Merger or Consolidation. (a) In case the Company after
the date hereof: (i) shall consolidate with or merge into any other person and
shall not be the continuing or surviving corporation of such consolidation or
merger, or (ii) shall permit any other person to consolidate with or merge into
the Company and the Company shall be the continuing or surviving person but, in
connection with such consolidation or merger, the Common Stock shall be changed
into or exchanged for stock or other securities of any other person or cash or
any other property, or (iii) shall transfer all or substantially all of its
properties or assets to any other person, or (iv) shall effect a capital
reorganization or reclassification of the Common Stock (other than a capital
reorganization or reclassification resulting in the issue of additional shares
of Common Stock for which adjustment in the Exercise Price is provided in this
Section 5), then, and in the case of each such transaction, proper provision
shall be made so that, upon the basis and the terms and in the manner provided
in this Agreement and the Warrants, the Holders of the Warrants, upon the
exercise thereof at any time after the consummation of such transaction, shall
be entitled to receive (at the aggregate Exercise Price in effect at the time of
such consummation for all Common Stock issuable upon such exercise immediately
prior to such consummation), in lieu of the Common Stock, the highest amount of
securities, cash or other property to which such Holders would actually have
been entitled as shareholders upon such consummation if such Holders had
exercised the rights represented by the Warrants immediately prior thereto,
subject to adjustments (subsequent to such consummation) as nearly equivalent as
possible to the adjustments provided for in this Section 5.
5.5 Assumption of Obligations. Notwithstanding anything
contained in the Warrants to the contrary, the Company will not effect any of
the transactions described in clauses (i) through (iv) of Section 5.4 unless,
prior to the consummation thereof, each person (other than the Company) which
may be required to deliver any stock, securities, cash or property upon the
exercise of the Warrants as provided herein shall assume, by written instrument
delivered to the Holders of the Warrants, the obligations of the Company under
the Warrants (including this Exhibit I) (and if the
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<PAGE> 12
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Exhibit I and the Warrants) and such
person shall have similarly delivered to such Holders an opinion of counsel for
such person stating that the Warrants including this Exhibit I) shall thereafter
continue in full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 5) shall be applicable to the
stock, securities, cash or property which such person may be required to deliver
upon any exercise of the Warrants or the exercise of any rights pursuant hereto.
5.6 Dividends and Other Distributions. If, at any time or
from time to time after the date of this Warrant, the Company shall issue or
distribute to the holders of shares of Common Stock, evidences of its
indebtedness, any other securities of the Company or any cash, property or other
assets (excluding a subdivision, combination or reclassification, or dividend or
distribution payable in shares of Common Stock, referred to in Section 5.1, and
also excluding cash dividends or cash distributions paid out of net profits
legally available therefor if the full amount thereof, together with the value
of other dividends and distributions made substantially concurrently therewith
or pursuant to a plan which includes payment thereof, is equivalent to not more
than 5% of the Company's net worth) (any such non-excluded event being herein
called a "Special Dividend"), the Exercise Price shall be adjusted by
multiplying the Exercise Price then in effect by a fraction, the numerator of
which shall be the then current market price of the Common Stock (defined as the
average for the thirty consecutive business days immediately prior to the record
date of the daily closing price of the Common Stock as reported by the national
securities exchange upon which the Common Stock is then listed or if not listed
on any such exchange, the average of the closing prices as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") Stock Market's National Market, or if not then listed on the NASDAQ
National Market, the average of the highest reported bid and lowest reported
asked prices as reported by the NASDAQ, or if not then publicly traded, as the
fair market price as determined by the Company's Board of Directors) less the
fair market value (as determined by the Company's Board of Directors) of the
evidences of indebtedness, cash, securities or property, or other assets issued
or distributed in such Special Dividend applicable to one share of Common Stock
and the denominator of which shall be the then current market price per share of
Common Stock. An adjustment made pursuant to this Section 5.6 shall become
effective immediately after the record date of any such Special Dividend.
5.7 Other Dilutive Events. In case any event shall occur as
to which the other provisions of this Section 5 are similar to, but not strictly
applicable but as to which the failure to make any adjustment would not fairly
protect the purchase rights represented by the Warrants (including this Exhibit
1) in accordance with the essential intent and principles hereof then, in each
such case, the Holders collectively may appoint a firm of independent public
accountants of recognized national standing reasonably acceptable to the
Company, which shall give their opinion as to the adjustment, if any, on a basis
consistent with the essential intent and principles established herein,
necessary to preserve the purchase rights represented by the Warrants including
this Exhibit I). Upon receipt of such opinion the Company will promptly mail a
copy thereof to the Holders and shall make the adjustments described therein.
The fees and expenses of such independent public accountants shall be borne by
the Company. The issuance by the Company of shares of capital stock, including,
without limitation,
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<PAGE> 13
shares of Common Stock, for consideration less than the Exercise Price, or the
issuance of convertible securities or derivative securities, convertible into
shares of capital stock at a conversion price or exercise price less than the
Exercise Price shall be deemed an event that requires an adjustment under this
Section 5.7.
5.8 Notice of Adjustment Events. Whenever the Company
contemplates the occurrence of an event which would give rise to adjustments
under this Section 5, the Company shall mail to each Holder, at least thirty
(30) days prior to the record date with resect to such event or, if no record
date shall be established, at least thirty (30) days prior to such event, a
notice specifying: (i) the nature of the contemplated event, (ii) the date of
which any such record is to be taken for the purpose of such event, (iii) the
date on which such event is expected to become effective and (iv) the time, if
any is to be fixed, when the holders of record of Common Stock shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable in connection with such event.
5.9 Notice of Adjustments. Whenever the Exercise Price or
the kind of securities or property issuable upon exercise of the Warrants, or
both, shall be adjusted pursuant to this Section 5, the Company shall make a
certificate signed by its President or a Vice President and by its Chief
Financial Officer, Secretary or Assistant Secretary, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method of which such adjustment was calculated (including a
description of the basis on which the Company made any determination hereunder),
and the Exercise Price and the kind of securities or property issuable upon
exercise of the Warrants after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail postage prepaid) to
each Holder promptly after each adjustment.
5.10 Preservation of Rights. The Company will not, by
amendment of its Certificate of Incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Warrants (including this Exhibit 1) or
the rights represented thereby, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holders of the
Warrants against dilution or other impairment.
5.11 When No Adjustment Required. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least $0.05 per share of Common Stock; provided,
however, that any adjustments which by reason of this Section 5.11 are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment; provided further, however, that adjustments shall be
required and made in accordance with the provisions of this Section 5 (other
than this Section 5.11) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the Holders of the Warrants.
All calculations under this Section 5 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be. Anything in this Section 5
to the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Exercise Price, in addition to those required by this Section
5, as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares or
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<PAGE> 14
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its shareholders shall
not be taxable.
Section 6. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal executive of office of the
Company, for a new Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of Warrant Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
Section 7. Elimination of Fractional Interests. The Company
shall not be required to issue certificates representing fractions of shares of
Common Stock upon the exercise of the Warrants, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock.
Section 8. Reservation of Securities. The Company shall at
all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common Stock shall be
duly and validly issued, fully paid, nonassessable and not subject to the
preemptive rights of any shareholder.
Section 9. Notices to Warrant Holders. Nothing contained in
this Exhibit I shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a shareholder in respect of any
meetings of shareholders for the election of directors or any other matter, or
as having any rights whatsoever as a shareholder of the Company. If, however, at
any time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders
of its shares of Common Stock for the purpose of determining
the holders thereof who are entitled to receive any dividend
or other distribution payable; or
(b) the Company shall offer to all the holders of
its Common Stock any additional shares of capital stock of
the Company or securities convertible into or exchangeable
for shares of capital
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<PAGE> 15
stock of the Company, or any option, right or warrant to
subscribe therefor; or
(c) a voluntary or involuntary dissolution,
liquidation or winding-up of the Company (other than in
connection with a consolidation or merger) or any capital
reorganization, recapitalization or reclassification or a
sale of all or substantially all of its property, assets and
business as an entirety shall be proposed;
then, in any one or more of said events, the Company will mail to each Holder of
a Warrant a notice specifying (i) the date or expected date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the a amount and character of such dividend, distribution or right, and (ii)
the date or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock shall be entitled to exchange their
shares of Common Stock for the securities or other property deliverable upon
such reorganization, reclassification, recapitalization, consolidation, merger,
sale, dissolution, liquidation or winding-up. Such notice shall be mailed at
least thirty (30) days prior to the date therein specified.
Section 10. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made at the time delivered by hand if personally delivered; five calendar days
after mailing if sent by registered or certified mail; when receipt is
confirmed, if telecopied; and the next business day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee):
(a) If to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 1 hereof or to such other address as the Company may
designate by notice to the Holders.
Section 11. Successors. All the covenants and provisions of
this Exhibit I shall be binding upon and inure to the benefit of the Company,
the Holders and their respective successors and assigns hereunder.
Section 12. Governing Law. This Exhibit I and each Warrant
shall be governed and construed in accordance with the laws of the State of New
York applicable to contracts made and performed in the State of New York without
giving effect to the principles of conflicts of law thereof.
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<PAGE> 16
Section 13. Entire Agreement; Modification. This Exhibit I
(including the Warrant Certificate and the agreements with respect to
registration rights) contains the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
Section 14. Severability. If any provision of this Exhibit I
shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Exhibit I.
Section 15. Captions. The caption headings of the Sections
of this Exhibit I are for convenience of reference only and are not intended to
be, nor should they be construed as, part of this Exhibit I and shall be given
no substantive effect.
Section 16. Benefits of This Exhibit I. Nothing in this
Exhibit I shall be construed to give any person or corporation other than the
Company and the registered Holder(s) of the Warrant Certificates or Warrant
Shares any legal or equitable right, remedy or claim under this Exhibit I; and
this Exhibit I shall be for the sole and exclusive benefit of the Company and
any registered Holder(s) of the Warrant Certificates or Warrant Shares.
11
<PAGE> 1
Exhibit 10.44
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS
AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION
OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH EXHIBIT I REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, AUGUST 20, 2002
No. _______ 60,000 Warrants
WARRANT TO PURCHASE 60,000
SHARES OF ALLEGRO NEW MEDIA, INC.
COMMON STOCK
WARRANT CERTIFICATE
THIS WARRANT CERTIFICATE certifies that Richard L. Klass, or
his registered assigns, is the registered holder of Warrants (the "Warrants") to
purchase initially, at any time from the date hereof until 5:00 p.m., New York
time, on August 20, 2002 ("Expiration Date"), up to 60,000 fully paid and
nonassessable shares of common stock, $.001 par value ("Common Stock") of
Allegro New Media, Inc., a Delaware corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $6.875 per share of Common Stock upon surrender of this Warrant Certificate
and payment of the Exercise Price at the office of the Company located at 16
Passaic Avenue, Unit #6, Fairfield, New Jersey 07004, or any successor office,
but subject to the conditions set forth herein and in Exhibit I hereto. Payment
of the Exercise Price shall be made by certified or official bank check payable
to the order of the Company or may be made by tendering an amount of Warrants
for cancellation with a value as determined by the difference between the then
current market price of the underlying shares of Common Stock as of the date of
exercise less the Exercise Price of each Warrant.
<PAGE> 2
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void. If the Expiration Date shall in the
State of New York be a holiday or a day on which banks are authorized to close,
then the Expiration Date shall mean 5:00 P.M., New York Time, the next following
day which, in the State of New York is not a holiday or a day on which banks are
authorized to close.
The Warrants evidenced by this Warrant Certificate are subject to
the provisions of Exhibit I hereto, which Exhibit I is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
Exhibit I hereto provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair the rights of the holder
as set forth in Exhibit I.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Company located at 16 Passaic Avenue, Unit #6,
Fairfield, New Jersey 07004, or any successor office, a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided herein and in Exhibit
I, without any charge except for any tax or other governmental charge imposed in
connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
Exhibit I hereto shall have the meanings assigned to them in Exhibit I hereto.
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<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated as of August 20, 1996
ALLEGRO NEW MEDIA, INC.
By: /s/Barry A. Cinnamon
----------------------------
Barry A. Cinnamon
Chairman of the Board
Attest:
/s/Lori Kramer Cinnamon
- -------------------------------
Lori Kramer Cinnamon
Secretary
3
<PAGE> 4
FORM OF ELECTION TO PURCHASE
THE UNDERSIGNED hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ___________ shares of
Common Stock and herewith tenders in payment for such securities a certified or
official bank check payable to the order of Allegro New Media, Inc. in the
amount of $___________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such securities be registered in the name of
_____________________________ whose address is _________________________________
and that such Certificate be delivered to _________________________________
whose address is _____________________________________ .
Dated: __________________
Signature: ____________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of the Warrant Certificate.)
_______________________________________
(Insert Social Security or Other
Identifying Number of Holder)
_______________________________________
Signature Guarantee
4
<PAGE> 5
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
_________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Warrant Certificate on the books of the within
named Company, with full power of substitution.
Dated: ________________
Signature: ____________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of the Warrant Certificate.)
_______________________________________
(Insert Social Security or Other
Identifying Number of Holder)
_______________________________________
Signature Guarantee
5
<PAGE> 6
EXHIBIT I
Section 1. Exercise of Warrant. The Warrants initially are
exercisable at an aggregate initial exercise price per share of common stock,
$.001 par value per share (the "Common Stock") of Allegro New Media, Inc. (the
"Company") set forth in Section 3 hereof (subject to adjustment as provided in
Section 5 hereof) payable by certified or official bank check. Upon surrender of
a Warrant Certificate with the annexed Form of Election to Purchase duly
executed, together with payment of the Exercise Price (as hereinafter defined)
for the shares of Common Stock purchased at the Company's principal offices in
New Jersey (presently located at16 Passaic Avenue, Unit #6, Fairfield, New
Jersey 07004), the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
the Warrants). In the case of the purchase of less than all the shares (the
"Warrant Shares") of Common Stock purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock purchasable thereunder.
Section 2. Issuance of Certificates. Upon the exercise of
the Warrants, the issuance of certificates for shares of Common Stock shall be
made forthwith (and in any event within ten (10) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the persons or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing
the Warrant Shares shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors and also by the Secretary or by any two Directors or by any one
Director and the Secretary of the Company under its corporate seal reproduced
thereon.
Section 3. Exercise Price.
3.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 5 hereof, the exercise price of each Warrant shall be $6.875
per share of Common Stock. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 5 hereof.
3.2 Exercise Price. The term "Exercise Price" as used herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
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<PAGE> 7
Section 4. Restrictions on Transfer; Registration Rights.
4.1 Representations. The Holders of the Warrants agree to
the following:
(a) Each Holder understands that the Warrants, or
the Warrant Shares, have not been registered under applicable state and federal
securities laws, and that such Warrants or Warrant Shares cannot be resold or
transferred unless they are so registered, or unless such transfer qualifies for
an exemption from such registration;
(b) Each Holder is acquiring the Warrants for
investment purposes only, and not with a view towards resale or distribution;
(c) Each Holder understands that all certificates
which represent the Warrants issued to him or her will bear a legend which
incorporates these restrictions; and
(d) Each Holder is familiar with the business and
financial condition of the Company, has been provided access and an opportunity
to review all material agreements, books and records of the Company and has been
afforded an opportunity to question the executive officers of the Company with
respect to the foregoing.
4.2 Restrictions on Transfer. Notwithstanding any provisions
contained in the Warrant Certificate to the contrary, these Warrants shall not
be transferable and the related Warrant Shares shall not be transferable except
upon the conditions specified in this Section 4, which conditions are intended,
among other things, to ensure compliance with the provisions of the 1933 Act in
respect of the transfer of the Warrants or the Warrant Shares. The Holders of
the Warrants further agree that they will not (a) transfer the Warrants prior to
delivery to the Company of an opinion of the Holder's counsel as provided for in
Section 4.3), which opinion shall be acceptable to counsel for the Company, or
(b) until registration of the Warrant Shares under the Securities Act has become
effective.
4.3 Opinion of Counsel. In connection with any transfer of
the Warrants or of the related Warrant Shares, the following provisions shall
apply:
(a) If in the opinion of counsel, which counsel and
opinion shall be acceptable to the Company, the proposed transfer of the
Warrants or the Warrant Shares may be effected without registration of the
Warrants of the Warrant Shares under the 1933 Act, the Holders shall be entitled
to transfer the Warrants or the Warrant Shares in accordance with the proposed
method of disposition.
(b) If in the opinion of counsel, which counsel and
opinion shall be acceptable to the Company, the proposed transfer of the
Warrants or the Warrant Shares may not be effected without registration of the
Warrants or such Warrant Shares under the Securities Act, the holder of the
Warrants shall not be entitled to transfer the Warrants or the Warrant Shares
until registration is effective.
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<PAGE> 8
4.4 Subsequent Holders. Anything contained herein to the
contrary notwithstanding, the provisions of this Section 4 shall be binding upon
all subsequent holders of the Warrants and the Warrant Shares, and the Company
shall not be required to issue all or any portion of the Warrants or the Warrant
Shares to such Holder unless such Holder agrees in writing in advance of such
issuance to be so bound. The provisions of this Section 4 shall survive the
Expiration Date.
4.5 Securities Act of 1933 Legend. The Warrant and the
Warrant Shares have not been registered under the Securities Act. Upon exercise
of the Warrants, in part or in whole, the certificates representing the Warrant
Shares shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION
OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
4.6 Required Registration.
(a) Piggyback Registration. If the Company shall determine
to register any of its securities (including any initial public offering of its
securities) either for its own account or the account of a security holder or
holders exercising their respective demand registration rights other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Rule 145 transaction (including securities registered on
form S-8 or form S-4), or a registration on any registration form that does not
permit secondary sales, the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) use its best efforts to include in any such
registration and any related qualification under blue sky
laws or other compliance), and in any underwriting involved
therein, all the Warrant Shares specified in a written
request or requests, made by any Holder and received by the
Company within twenty (20) days after the written notice
from the Company described in clause (i) above is mailed or
delivered by the Company. Such written request may specify
all or a part of a Holder's Warrant Shares.
3
<PAGE> 9
The Holders agree to sell their Warrant Shares on the same
terms as the sale of other shares of Common Stock in the offering and agree to
execute such documents as shall be reasonably requested by the Company or its
counsel in connection with such offering.
If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to this
Section . In such event, the right of any Holder to registration pursuant to
this Section shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Warrant hares in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders of securities of the Company with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company.
(b) Expenses of Registration. All registration expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Section including filing fees, printing expenses, blue sky
fees, and fees and expenses of the Company's counsel and accountants) shall be
borne by the Company. All expenses incurred by the Holders for their own counsel
or accountants and all selling expenses relating to securities so registered
(including underwriter discounts and commissions) shall be borne by the holders
of securities so registered on the basis of the number of shares of securities
so registered on their behalf.
(c) Indemnification
(i) The Company will indemnify each Holder, each of
its officers, directors and partners, legal counsel, and accountants and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification, or compliance
has been effected pursuant to this Section , and each underwriter, if any,and
each person who controls within the meaning of Section 15 of the Securities Act
any underwriter, against all expenses, claims, losses, damages, and liabilities
(or actions, proceedings, or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like), incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense arises out of or is based on
any untrue statement or omission based
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<PAGE> 10
upon written information furnished to the Company by such Holder or underwriter
and stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
(ii) Each Holder will, if Warrant Shares held by
him are included in the securities as to which such registration, qualification,
or compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and other Shareholder,
and each of their officers, directors, and partners, and each person controlling
such Holder or other Shareholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders, other Shareholders,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular, or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and stated to be
specifically for use therein, provided, however, that the obligations of such
Holder hereunder shall not apply to amounts paid in settlement of any such
claims, losses, damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld), and provided that in no event shall any indemnity
under this Section exceed the gross proceeds from the offering received by such
Holder.
Section 5. Adjustments to Exercise Price and Number of
Shares.
5.1 Subdivision and Combination. In case the Company shall
at any time: (i) subdivide the outstanding shares of Common Stock into a larger
number of shares, (ii) combine the outstanding shares of Common Stock into a
smaller number of shares, (iii) declare a dividend on the outstanding shares of
Common Stock payable in shares of Common Stock, or (iv) issue by
reclassification of its Common Stock any shares of its capital stock, the
Exercise Price in effect immediately after the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such dividend, distribution, subdivision,
combination or reclassification, and of which the denominator shall
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<PAGE> 11
be the number of shares of Common Stock outstanding immediately after such
dividend, distribution, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event specified above shall
occur.
5.2 Adjustment in Number of Warrant Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 5,
the number of Warrant Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full share obtained by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
5.3 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean: (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value or from no par value
to par value.
5.4 Merger or Consolidation. (a) In case the Company after
the date hereof: (i) shall consolidate with or merge into any other person and
shall not be the continuing or surviving corporation of such consolidation or
merger, or (ii) shall permit any other person to consolidate with or merge into
the Company and the Company shall be the continuing or surviving person but, in
connection with such consolidation or merger, the Common Stock shall be changed
into or exchanged for stock or other securities of any other person or cash or
any other property, or (iii) shall transfer all or substantially all of its
properties or assets to any other person, or (iv) shall effect a capital
reorganization or reclassification of the Common Stock (other than a capital
reorganization or reclassification resulting in the issue of additional shares
of Common Stock for which adjustment in the Exercise Price is provided in this
Section 5), then, and in the case of each such transaction, proper provision
shall be made so that, upon the basis and the terms and in the manner provided
in this Agreement and the Warrants, the Holders of the Warrants, upon the
exercise thereof at any time after the consummation of such transaction, shall
be entitled to receive (at the aggregate Exercise Price in effect at the time of
such consummation for all Common Stock issuable upon such exercise immediately
prior to such consummation), in lieu of the Common Stock, the highest amount of
securities, cash or other property to which such Holders would actually have
been entitled as shareholders upon such consummation if such Holders had
exercised the rights represented by the Warrants immediately prior thereto,
subject to adjustments (subsequent to such consummation) as nearly equivalent as
possible to the adjustments provided for in this Section 5.
5.5 Assumption of Obligations. Notwithstanding anything
contained in the Warrants to the contrary, the Company will not effect any of
the transactions described in clauses (i) through (iv) of Section 5.4 unless,
prior to the consummation thereof, each person (other than the Company) which
may be required to deliver any stock, securities, cash or property upon the
exercise of the Warrants as provided herein shall assume, by written instrument
delivered to the Holders of the Warrants, the obligations of the Company under
the Warrants (including this Exhibit I) (and if the
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<PAGE> 12
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Exhibit I and the Warrants) and such
person shall have similarly delivered to such Holders an opinion of counsel for
such person stating that the Warrants including this Exhibit I) shall thereafter
continue in full force and effect and the terms hereof (including, without
limitation, all of the provisions of this Section 5) shall be applicable to the
stock, securities, cash or property which such person may be required to deliver
upon any exercise of the Warrants or the exercise of any rights pursuant hereto.
5.6 Dividends and Other Distributions. If, at any time or
from time to time after the date of this Warrant, the Company shall issue or
distribute to the holders of shares of Common Stock, evidences of its
indebtedness, any other securities of the Company or any cash, property or other
assets (excluding a subdivision, combination or reclassification, or dividend or
distribution payable in shares of Common Stock, referred to in Section 5.1, and
also excluding cash dividends or cash distributions paid out of net profits
legally available therefor if the full amount thereof, together with the value
of other dividends and distributions made substantially concurrently therewith
or pursuant to a plan which includes payment thereof, is equivalent to not more
than 5% of the Company's net worth) (any such non-excluded event being herein
called a "Special Dividend"), the Exercise Price shall be adjusted by
multiplying the Exercise Price then in effect by a fraction, the numerator of
which shall be the then current market price of the Common Stock (defined as the
average for the thirty consecutive business days immediately prior to the record
date of the daily closing price of the Common Stock as reported by the national
securities exchange upon which the Common Stock is then listed or if not listed
on any such exchange, the average of the closing prices as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") Stock Market's National Market, or if not then listed on the NASDAQ
National Market, the average of the highest reported bid and lowest reported
asked prices as reported by the NASDAQ, or if not then publicly traded, as the
fair market price as determined by the Company's Board of Directors) less the
fair market value (as determined by the Company's Board of Directors) of the
evidences of indebtedness, cash, securities or property, or other assets issued
or distributed in such Special Dividend applicable to one share of Common Stock
and the denominator of which shall be the then current market price per share of
Common Stock. An adjustment made pursuant to this Section 5.6 shall become
effective immediately after the record date of any such Special Dividend.
5.7 Other Dilutive Events. In case any event shall occur as
to which the other provisions of this Section 5 are similar to, but not strictly
applicable but as to which the failure to make any adjustment would not fairly
protect the purchase rights represented by the Warrants including this Exhibit
1) in accordance with the essential intent and principles hereof then, in each
such case, the Holders collectively may appoint a firm of independent public
accountants of recognized national standing reasonably acceptable to the
Company, which shall give their opinion as to the adjustment, if any, on a basis
consistent with the essential intent and principles established herein,
necessary to preserve the purchase rights represented by the Warrants including
this Exhibit I). Upon receipt of such opinion the Company will promptly mail a
copy thereof to the Holders and shall make the adjustments described therein.
The fees and expenses of such independent public accountants shall be borne by
the Company. The issuance by the Company of shares of capital stock, including,
without limitation,
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<PAGE> 13
shares of Common Stock, for consideration less than the Exercise Price, or the
issuance of convertible securities or derivative securities, convertible into
shares of capital stock at a conversion price or exercise price less than the
Exercise Price shall be deemed an event that requires an adjustment under this
Section 5.7.
5.8 Notice of Adjustment Events. Whenever the Company
contemplates the occurrence of an event which would give rise to adjustments
under this Section 5, the Company shall mail to each Holder, at least thirty
(30) days prior to the record date with resect to such event or, if no record
date shall be established, at least thirty (30) days prior to such event, a
notice specifying: (i) the nature of the contemplated event, (ii) the date of
which any such record is to be taken for the purpose of such event, (iii) the
date on which such event is expected to become effective and (iv) the time, if
any is to be fixed, when the holders of record of Common Stock shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable in connection with such event.
5.9 Notice of Adjustments. Whenever the Exercise Price or
the kind of securities or property issuable upon exercise of the Warrants, or
both, shall be adjusted pursuant to this Section 5, the Company shall make a
certificate signed by its President or a Vice President and by its Chief
Financial Officer, Secretary or Assistant Secretary, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method of which such adjustment was calculated (including a
description of the basis on which the Company made any determination hereunder),
and the Exercise Price and the kind of securities or property issuable upon
exercise of the Warrants after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail postage prepaid) to
each Holder promptly after each adjustment.
5.10 Preservation of Rights. The Company will not, by
amendment of its Certificate of Incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of the Warrants (including this Exhibit 1) or
the rights represented thereby, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holders of the
Warrants against dilution or other impairment.
5.11 When No Adjustment Required. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least $0.05 per share of Common Stock; provided,
however, that any adjustments which by reason of this Section 5.11 are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment; provided further, however, that adjustments shall be
required and made in accordance with the provisions of this Section 5 (other
than this Section 5.11) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the Holders of the Warrants.
All calculations under this Section 5 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be. Anything in this Section 5
to the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Exercise Price, in addition to those required by this Section
5, as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares or
8
<PAGE> 14
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its shareholders shall
not be taxable.
Section 6. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal executive of office of the
Company, for a new Warrant Certificate of like tenor and date representing in
the aggregate the right to purchase the same number of Warrant Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
Section 7. Elimination of Fractional Interests. The Company
shall not be required to issue certificates representing fractions of shares of
Common Stock upon the exercise of the Warrants, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock.
Section 8. Reservation of Securities. The Company shall at
all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common Stock shall be
duly and validly issued, fully paid, nonassessable and not subject to the
preemptive rights of any shareholder.
Section 9. Notices to Warrant Holders. Nothing contained in
this Exhibit I shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a shareholder in respect of any
meetings of shareholders for the election of directors or any other matter, or
as having any rights whatsoever as a shareholder of the Company. If, however, at
any time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders
of its shares of Common Stock for the purpose of determining
the holders thereof who are entitled to receive any dividend
or other distribution payable; or
(b) the Company shall offer to all the holders of
its Common Stock any additional shares of capital stock of
the Company or securities convertible into or exchangeable
for shares of capital
9
<PAGE> 15
stock of the Company, or any option, right or warrant to
subscribe therefor; or
(c) a voluntary or involuntary dissolution,
liquidation or winding-up of the Company (other than in
connection with a consolidation or merger) or any capital
reorganization, recapitalization or reclassification or a
sale of all or substantially all of its property, assets and
business as an entirety shall be proposed;
then, in any one or more of said events, the Company will mail to each Holder of
a Warrant a notice specifying (i) the date or expected date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the a amount and character of such dividend, distribution or right, and (ii)
the date or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock shall be entitled to exchange their
shares of Common Stock for the securities or other property deliverable upon
such reorganization, reclassification, recapitalization, consolidation, merger,
sale, dissolution, liquidation or winding-up. Such notice shall be mailed at
least thirty (30) days prior to the date therein specified.
Section 10. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made at the time delivered by hand if personally delivered; five calendar days
after mailing if sent by registered or certified mail; when receipt is
confirmed, if telecopied; and the next business day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee):
(a) If to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 1 hereof or to such other address as the Company may
designate by notice to the Holders.
Section 11. Successors. All the covenants and provisions of
this Exhibit I shall be binding upon and inure to the benefit of the Company,
the Holders and their respective successors and assigns hereunder.
Section 12. Governing Law. This Exhibit I and each Warrant
shall be governed and construed in accordance with the laws of the State of New
York applicable to contracts made and performed in the State of New York without
giving effect to the principles of conflicts of law thereof.
10
<PAGE> 16
Section 13. Entire Agreement; Modification. This Exhibit I
(including the Warrant Certificate and the agreements with respect to
registration rights) contains the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
Section 14. Severability. If any provision of this Exhibit I
shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision of this Exhibit I.
Section 15. Captions. The caption headings of the Sections
of this Exhibit I are for convenience of reference only and are not intended to
be, nor should they be construed as, part of this Exhibit I and shall be given
no substantive effect.
Section 16. Benefits of This Exhibit I. Nothing in this
Exhibit I shall be construed to give any person or corporation other than the
Company and the registered Holder(s) of the Warrant Certificates or Warrant
Shares any legal or equitable right, remedy or claim under this Exhibit I; and
this Exhibit I shall be for the sole and exclusive benefit of the Company and
any registered Holder(s) of the Warrant Certificates or Warrant Shares.
11
<PAGE> 1
ALLEGRO NEW MEDIA, INC.
111 North Market Street
San Jose, California 95113
(408) 537-3000
March 27, 1997 Exhibit 10.45
M.S. Farrell & Co., Inc.
67 Wall Street
New York, New York 10005
Re: Letter Agreement dated August 20, 1996 Between Us (the "Letter
Agreement"), Engagement Agreement dated December 27, 1993
between us, as amended (the "Engagement Agreement") and Right
of First Refusal Agreement Dated December 12, 1995 between us
(the "Right of First Refusal Agreement")
Gentlemen:
Pursuant to the Engagement Agreement, the Right of First Refusal
Agreement and the Letter Agreement, Allegro New Media, Inc. (the "Company")
hereby exercises its rights set forth in Section 17 of the Engagement Agreement,
as amended by the Letter Agreement, to terminate M.S. Farrell & Co., Inc.'s
right to be the Company's exclusive investment banker, its right of first
refusal with respect to financing transactions, its mergers and acquisitions
agreement (with respect to any companies introduced after the date hereof), the
consulting agreement between the Company and M.S. Farrell & Co., Inc. and all
other investment banking obligations of the Company to M.S. Farrell & Co., Inc.
In consideration for such termination, the Company hereby agrees to deliver to
M.S. Farrell Holdings, Inc., your designee, stock certificates representing
62,428 shares, and to Richard L. Klass, stock certificates representing 9,000
shares of Common Stock, par value $.001 per share, of the Company. This
agreement does not have any affect on any registration rights which M.S. Farrell
& Co., Inc. has with respect to any shares of capital stock, warrants or options
of the Company, including piggyback registration rights with repect to its
warrant dated August 20, 1996 to purchase 440,000 shares of Common Stock.
If the foregoing accurately sets forth our understanding, please sign
where indicated below.
Sincerely,
ALLEGRO NEW MEDIA, INC.
By: /s/Mark E. Leininger
------------------------------------------
Mark E. Leininger
Vice President, Treasurer, Chief Operating
Officer and Chief Financial Officer
Accepted and agreed:
M.S. FARRELL & CO., INC.
By: /s/ Martin F. Schacker
--------------------------
Martin F. Schacker
Chairman
<PAGE> 1
Exhibit 21
ALLEGRO NEW MEDIA, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
State or Other Jurisdiction of
Name Incorporation or Organization
- ---- -------------------------------
<S> <C>
Software Publishing Corporation................................................. Delaware
Serif Inc....................................................................... Delaware
Serif (Europe) Limited.......................................................... England
Software Publishing Corporation Europe.......................................... California
Software Publishing Corporation SPC (Italia) s.r.l.............................. Italy
Software Publishing International Corporation (FSC)............................. Barbados
Software Publishing Asia Pacific Corporation.................................... California
Software Publishing Corporation Netherlands..................................... California
Software Publishing Corporation Belgium......................................... California
Software Publishing Deutschland GmbH............................................ Germany
Software Publishing France, SARL................................................ France
Software Publishing Corporation (Scandinavia) AB................................ Sweden
Software Publishing Limited..................................................... United Kingdom
Grafox Limited.................................................................. United Kingdom
PSL Gmbh........................................................................ Germany
Digital Paper, Inc.............................................................. California
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Post Effective Amendment No.
1 of the Registration Statement (Form S-8 No. 333-13059) pertaining to the
Allegro New Media, Inc. 1994 Long Term Incentive Plan, and in the Registration
Statement (Form S-8 No. 333-19169) pertaining to Allegro New Media, Inc. Outside
Director and Advisor Stock Option Plan and in the Registration Statement (Form
S-8 No. 333-19059) pertaining to the Software Publishing Corporation 1987 Stock
Option Plan, the Software Publishing Corporation 1989 Stock Option Plan and the
Software Publishing Corporation 1991 Stock Option Plan of Allegro New Media,
Inc., of our report dated April 14, 1997, with respect to the financial
statements of Allegro New Media, Inc. included in its Annual Report (Form
10-KSB) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
/s/Ernst & Young LLP
--------------------
Ernst & Young LLP
Hackensack, New York
April 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THE
ANNUAL REPORT ON 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS CONTAINED THERIN.
</LEGEND>
<CIK> 0000926331
<NAME> ALLEGRO NEW MEDIA
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,483,454
<SECURITIES> 6,328,180
<RECEIVABLES> 2,443,790
<ALLOWANCES> 452,000
<INVENTORY> 713,856
<CURRENT-ASSETS> 15,752,859
<PP&E> 628,763
<DEPRECIATION> 177,896
<TOTAL-ASSETS> 27,253,373
<CURRENT-LIABILITIES> 15,577,667
<BONDS> 0
0
61
<COMMON> 7,860
<OTHER-SE> 11,667,785
<TOTAL-LIABILITY-AND-EQUITY> 27,253,373
<SALES> 4,700,955
<TOTAL-REVENUES> 4,700,955
<CGS> 1,817,688
<TOTAL-COSTS> 1,817,688
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 501,000
<INTEREST-EXPENSE> 121,380
<INCOME-PRETAX> (26,961,166)
<INCOME-TAX> 78,201
<INCOME-CONTINUING> (27,039,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,039,367)
<EPS-PRIMARY> (7.48)
<EPS-DILUTED> 0
</TABLE>
