U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to________
Commission file number: 1-14076
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3270045
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
111 North Market Street, San Jose, California 95113
(Address of principal executive offices)
(408) 537-3000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 9,011,400 shares of Common
Stock, as of November 13, 1997.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
<PAGE>
PART I. FINANCIAL INFORMATION
Item Page
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September
30, 1997 and December 31, 1996. . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1997 and 1996 . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 . . . . . . . . . . . . 5
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan of Operation. . . 8
<PAGE>
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Note)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . $1,186,648 $ 4,833,454
Restricted cash . . . . . . . . . . . . . . . . -- 1,650,000
Short-term investments. . . . . . . . . . . . . 1,302,760 6,328,180
Accounts receivable, net. . . . . . . . . . . . 2,060,582 1,991,790
Inventories (Note 4). . . . . . . . . . . . . . 588,748 713,586
Other current assets. . . . . . . . . . . . . . 308,355 235,849
---------- -----------
Total current assets . . . . . . . . . . . 5,447,093 15,752,859
Property and equipment, net. . . . . . . . . . . 703,656 450,867
Acquired software, net . . . . . . . . . . . . . 5,022,333 6,787,614
Goodwill and other assets, net . . . . . . . . . 3,746,934 4,262,033
---------- -----------
14,920,016 $27,253,373
---------- -----------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable. . . . . . . . . . . . . . . . $2,402,080 $ 3,509,060
Accrued liabilities . . . . . . . . . . . . . . 7,038,035 10,186,059
Notes payable . . . . . . . . . . . . . . . . . 139,346 1,882,548
---------- -----------
Total current liabilities . . . . . . . . . . 9,579,461 15,577,667
Long-term debt . . . . . . . . . . . . . . . . . 104,238 --
---------- -----------
Total liabilities . . . . . . . . . . . . . . 9,683,699 15,577,667
Stockholders' equity:
Serial Preferred Stock, authorized 1,939,480 shares:
none issued and outstanding. . . . . . . . . . . -- --
Class B Voting Preferred Stock, authorized 60,520 shares:
issued and outstanding 60,520 shares. . . . . . 61 61
Common stock, par value $.001 per share, authorized
30,000,000 shares; issued and outstanding 8,050,424
shares in 1997 and 7,860,243 shares in 1996 . . 8,050 7,860
Additional paid-in capital . . . . . . . . . . . 42,843,535 41,731,437
Accumulated deficit. . . . . . . . . . . . . . . (37,615,329) (30,063,652)
---------- -----------
Total stockholders' equity. . . . . . . . . . 5,236,317 11,675,706
---------- -----------
Total liabilities and stockholders' equity. . $14,920,016 $27,253,373
---------- -----------
<FN>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . $ 4,032,609 $ 1,687,889 $ 12,127,172 $ 2,554,937
Cost of goods sold . . . . . . . . 951,371 387,344 2,730,740 729,513
----------- ----------- ------------ -----------
Gross profit . . . . . . . . . . . 3,081,238 1,300,545 9,396,432 1,825,424
Selling, general and administrative
expenses 4,375,128 3,905,919 12,103,144 5,546,835
Amortization of acquired software and
goodwill and depreciation . . . . 847,847 62,461 2,537,384 76,996
Product development. . . . . . . . 794,071 158,172 2,440,809 597,738
In process research and development -- 3,886,000 -- 3,886,000
Other (income) expense - net . . . (24,971) (82,685) (133,228) (135,663)
----------- ----------- ------------ -----------
Net loss . . . . . . . . . . . . . $(2,910,837) $(6,629,322) $ (7,551,677) $(8,146,482)
----------- ----------- ------------ -----------
Net loss per share . . . . . . . . $ (.36) $ (1.80) $ (.94) $ (2.44)
----------- ----------- ------------ -----------
Weighted average number of common
shares outstanding. . . . . . . . 8,050,424 3,680,435 8,011,628 3,331,920
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1997 1996
Operating activities
<S> <C> <C>
Cash (used in) from operations . . . . . . . . . $(8,240,053) $(1,038,470)
Investment activities
Purchase of property and equipment . . . . . . . (581,139) (28,602)
Proceeds from sale of short term investments . . 5,025,420 --
Loans/note receivable. . . . . . . . . . . . . . 200,000 (200,000)
Cash used for business acquisition . . . . . . . -- (390,906)
------------ -------------
4,644,281 (619,508)
Financing activities
Proceeds from sale of common stock . . . . . . . -- 464,907
Proceeds from issuance of notes payable. . . . . 104,239 --
Deferred costs . . . . . . . . . . . . . . . . . -- (185,685)
Repayment of notes . . . . . . . . . . . . . . . (1,805,273) (559,000)
------------ -------------
(1,701,034) (279,778)
Net (decrease) in cash . . . . . . . . . . . . . (5,296,806) (1,937,756)
Cash at beginning of period. . . . . . . . . . . 6,483,454 2,928,272
------------ -------------
Cash at end of period. . . . . . . . . . . . . . $ 1,186,648 $ 990,516
------------ -------------
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and nine month periods
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
Certain prior year information has been reclassified to conform to the current
year's presentation.
2. Accounting Principles.
Evaluation of Long-Lived Assets
The Company assesses long-lived assets for impairment as prescribed by FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. Under those rules, goodwill associated with
assets acquired in a purchase business combination is included in impairment
evaluations when events or circumstances exist that indicate the carrying amount
of those assets may not be recoverable. The Company's evaluation at September
30, 1997 has been based on projected operating results of the businesses giving
rise to the goodwill. Management believes that these projections are reasonable;
however, actual future operating results may differ.
3. Loss Per Share.
Net loss per share is computed based upon the weighted average number of
shares of common stock outstanding during the periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted for the Company's
fiscal year ending December 31, 1997. At that time, the Company will be required
to change the method currently used to compute earnings per share and to restate
all prior periods. The impact of Statement No. 128 is not expected to be
material for any previously reported period.
4. Inventories.
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
<S> <C> <C>
Raw materials $ 88,239 $ 31,570
Finished goods 500,509 682,016
----------- ----------
Total $ 588,748 $ 713,586
----------- ----------
</TABLE>
5. Stockholders' Equity.
During the first nine months of 1997 the Company issued (a) 71,428 shares
of the common stock, par value $.001 per share (the "Common Stock"), of the
Company to M.S. Farrell & Co., Inc. ("MSF") and a designee thereof in connection
with the Company's exercise of its right to terminate its exclusive investment
<PAGE>
banking and other obligations to MSF and (b) an aggregate of 118,747 shares of
Common Stock to investment bankers, consultants and other individuals and upon
the exercise of certain outstanding stock options granted under the Company's
1994 Long-Term Incentive Plan.
Subsequent to September 30, 1997, the Company consummated the sale of an
aggregate 961,000 shares of Common Stock to five accredited investors for
aggregate gross proceeds of $1,021,543 and estimated net proceeds of $960,466 in
private transactions exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of
Regulation D promulgated thereunder. In connection with such sale, the Company
paid $51,277 and issued a five year option to purchase 96,100 shares of Common
Stock, at an exercise price of $1.2756 per share, to a financial consultant.
6. Business Combinations.
On July 31, 1996, the Company acquired all of the outstanding common stock
of Serif Inc. and all of the outstanding preference and ordinary shares of Serif
(Europe) Limited (collectively, "Serif"). The aggregate purchase price was
approximately $4,200,000 and was principally financed through the issuance of
1,000,000 shares of Common Stock. The acquisition has been accounted for as a
purchase and the results of operations of Serif are included in the Company's
consolidated financial statements beginning August 1, 1996.
On December 27, 1996, the Company acquired all of the outstanding common
stock of Software Publishing Corporation ("SPC"). The aggregate purchase price,
including all direct costs, was approximately $30,000,000 and was principally
financed through the issuance of 3,376,162 shares of Common Stock.
7. Subsequent Events.
See Note 5 above.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Statements contained in this Quarterly Report on Form 10-QSB that are not
based upon historical fact are "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements included
in this Form 10-QSB involve known and unknown risks, uncertainties and other
factors which could cause actual results, performance (financial or operating)
or achievements expressed or implied by such forward looking statements not to
occur or be realized. Such forward looking statements generally are based upon
the best estimates by the Company of future results, performance or achievement,
based upon current conditions and the most recent results of operations. Forward
looking statements may be identified by the use of forward looking terminology
such as "may," "will," "expect," "believe," "estimate," "anticipate,"
"continue," or similar terms, variations of those terms or the negative of those
terms.
The Company has recently acquired three operating 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 plan, there can be no
assurance that the expected long-term strategic benefits of the recent
acquisitions will be realized.
Additional potential risks and uncertainties include, among other things,
such factors as the overall level of business and consumer spending for computer
software, the amount of sales of the Company's products, the competitive
environment within the computer software industry, the level and costs incurred
in connection with the Company's product development efforts and the results of
such efforts, the financial strength of the retail industry, market acceptance
of the Company's products, certain technological considerations, competition,
dependence on key personnel and the other factors and information disclosed and
discussed in this "Item 2. Management's Discussion and Analysis or Plan of
Operation" and in other sections of this Form 10-QSB. Readers of this Form
10-QSB should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward looking statements.
General
The Company is an international developer, publisher and supplier of
proprietary computer software applications and companion utilities programs,
primarily targeted towards the corporate and small office/home office ("SOHO")
markets. The Company's products are designed to improve the graphical appeal and
overall effectiveness of documents produced by desktop publishing, presentation
graphics, web page, e-mail, word processing and similar applications, as well as
to produce documents through the Company's easy-to-use desktop publishing and
presentation graphics applications. The Company's product lines include several
products based upon its patent-pending Intelligent Formatting technology, such
as ActiveMail, MailPlus, ActiveOffice, ActivePresenter, ActivePresenter Plus,
ASAP WordPower, ASAP WebShow and ASAP; as well as its traditional products, such
as Serif PagePlus, Serif DrawPlus, Harvard Graphics, Harvard ChartXL, 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. In June 1997, the Company introduced ActivePresenter, an Internet and
World Wide Web presentation and publishing program, which publishes both its own
or Microsoft Power Point presentations for either real time or on demand
presentations. In September 1997, the Company released its latest PagePlus
edition/upgrade, PagePlus 5.0. In October 1997, the Company announced the
release of its ActiveMail and MailPlus products, which enable e-mail users to
produce electronic messages utilizing a rich graphical presentation rather than
ordinary text. The Company also continues to offer word processing and other
business productivity software products, but has de-emphasized its word
processing and other non-visual communications business productivity and
interactive multimedia products. The Company currently derives substantially all
of its net sales from products sold directly to end-users by its direct mail and
<PAGE>
telemarketing centers, and to retailers, distributors and corporate purchasers
by its internal corporate and retail sales force and independent sales
representatives. As the industry evolves mechanisms for efficiently and securely
charging customers directly for software over the Internet, the Company expects
that it may be able to supplement traditional forms of distribution with
distribution of the Company's software directly over the Internet medium.
North America and international net revenues for the Company's three month
and nine month periods ending September 30, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America $3,160,929 79 $ 821,839 49 $ 6,935,474 57 $1,678,887 66
International 871,680 21 866,050 51 5,191,698 43 866,050 34
---------- --- ---------- --- ----------- --- ---------- ---
Total net revenues $4,032,609 100 $1,687,889 100 $12,127,172 100 $2,554,937 100
</TABLE>
The Company believes that end users are continuing to migrate from the
Windows 3.1 to the Windows 95 platform and potentially may 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. The
Company believes that 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 three suites of products, ActivePresenter Plus, 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 continue to develop and introduce new
technologies and products through strategic alliances, acquisitions and/or
internal development. Any inability or delay in executing these strategies,
difficulties encountered in introducing new products or marketing programs, or
failures of the Company's current and future products to compete successfully
with products offered by other vendors, could adversely affect the Company's net
revenues and profitability. The Company's growth is expected to require
continued increases in the number of the Company's employees, expenditures for
new product development, the acquisition of product rights, sales and marketing
expenses, and general and administrative expenses.
Results of Operations
Three Month Period Ended September 30, 1997 Compared to the Three Month
Period Ended September 30, 1996
Net Sales. Net sales increased approximately 139% from $1,687,889 in the
three month period ended September 30, 1996 to $4,032,609 in the three month
period ended September 30, 1997 as a result of the inclusion of sales from Serif
and SPC in the 1997 three month period. The 1996 period included two months of
sales from Serif. There were no SPC results included in the 1996 period. The
Company provided in the three month period ended September 30, 1997 for returns
at approximately 11% of gross sales versus approximately 13% in the three month
period ended September 30, 1996 due to a shift from primarily retail sales to
more direct channels, which have historically exhibited fewer returns than the
retail sales channels.
Cost of Goods Sold. Cost of goods sold increased approximately 146% from
$387,344 in the three month period ended September 30, 1996 to $951,371 in the
three month period ended September 30, 1997, as a result of higher sales volume.
As a percentage of net sales, cost of goods sold increased from approximately
23% of net sales in the three month period ended September 30, 1996 to
approximately 24% of net sales in the three month period ended September 30,
1997 as a result of slightly higher unit costs and changes to the Company's
product mix. Cost of goods sold consists primarily of product costs, royalties
and inventory allowances for damaged and obsolete products. Product costs
<PAGE>
consist of the costs to purchase the underlying materials and print both boxes
and manuals, media costs (CD-ROMs and other media) and assembly.
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 upgrade
pricing, the OEM business and alternative licensing arrangements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $469,209 or approximately 12% from
$3,905,919 in the three month period ended September 30, 1996 to $4,375,128 in
the three month period September 30, 1997. Substantially all expenses have
increased from the 1996 period due to the inclusion of costs associated with the
operations of Serif and SPC. The 1996 period includes only two months of
operations of Serif, which was acquired as of July 31, 1996, and no SPC results.
Total selling expenses excluding salaries increased approximately 221% from
$670,994 in the three month period ended September 30, 1996 to $2,155,104 in the
three month period ended September 30, 1997, primarily as a result of an
increase in direct mail advertising and other costs associated with the
Company's Serif and SPC products and operations.
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 and the mix of
product sales or distribution channels.
Amortization of Acquired Software and Goodwill and Depreciation. In the
three month period ended September 30, 1997, the Company recorded $784,053 in
amortization of acquired software and goodwill associated with its acquisitions
of Serif and SPC, which was not included in the three month period ended
September 30, 1997, as compared to $47,451 in the three-month period ended
September 30, 1996, which related to the Serif acquisition. Depreciation and
amortization increased to $63,794 in the three month period ended September 30,
1997 from $15,010 for the three month period ended September 30, 1996 due to the
increased level of fixed assets resulting primarily from the Company's
acquisitions of Serif and SPC.
In-Process Research and Development. The Company expensed $3,886,000 of
in-process research and development costs associated with the acquisition of the
Serif companies in the three month period ended September 30, 1996. There was no
such expense in the 1997 period.
Product Development. Product development expenses increased approximately
402% from $158,172 in the three month period ended September 30, 1996 to
$794,071 in the three month period ended September 30, 1997 principally as a
result of an increase in product development costs associated with producing new
products and the inclusion of the product development costs associated with the
Serif and SPC subsidiaries. Two months of Serif product development costs were
included in the 1996 period and no SPC product development costs were included
in the 1996 period. As a percentage of net sales, the Company's product
development costs were approximately 20% in the three month period ended
September 30, 1997 versus approximately 9% in the three month period ended
September 30, 1996. The increase is due primarily to the longer development
cycle of products being produced by the Company's Serif and SPC subsidiaries, as
compared to the relatively short development cycle for products which were
produced prior to the acquisitions of Serif and SPC. The Company believes that
development expenses will increase in dollar amount in the future as the Company
expands its development activities, although the Company's long-term goal is to
reduce product development costs as a percentage of sales. All development costs
have been expensed in the period incurred.
Other Income. Other income decreased from a net of $82,685 in the three
month period ended September 30, 1996 to income of $24,971 in the three month
period ended September 30, 1996 primarily as a result of lower cash balances.
<PAGE>
Nine Month Period Ended September 30, 1997 Compared to the Nine Month
Period Ended September 30, 1996
Net Sales. Net sales increased approximately 375% from $2,554,937 in the
nine month period ended September 30, 1996 to $12,127,172 in the nine month
period ended September 30, 1997 largely as a result of inclusion of the sales
from the Company's Serif and SPC subsidiaries. The 1996 Period includes two
months of sales from Serif and no SPC sales. The Company provided in the nine
month period ended September 30, 1997 for returns at approximately 14% of gross
sales versus approximately 16% in the nine month period ended September 30, 1996
due to a shift from primarily retail sales to more direct channels, which have
historically exhibited fewer returns than the retail sales channels.
Cost of Goods Sold. Cost of goods sold increased approximately 274% or
$2,001,227 from $729,513 in the nine month period ended September 30, 1996 to
$2,730,740 in the nine month period ended September 30, 1997, largely due to
increased sales volumes. Cost of goods sold decreased as a percentage of net
sales from approximately 29% in the nine month period ended September 30, 1996
to approximately 23% in the nine month period ended September 30, 1997,
primarily as a result of increased sales revenue per unit produced, which more
than offset slightly higher unit costs and the effect of changes to the
Company's product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $6,556,309 or approximately 118% from
$5,546,835 in the nine month period ended September 30, 1996 to $12,103,144 in
the nine month period ended September 30, 1997. Expenses in the nine month
period ended September 30, 1996 include charges to compensation expense of
$2,773,180 due to the release of an aggregate of 531,000 shares of common stock
from escrow. No similar expense was incurred in the 1997 nine month period. In
addition to the escrow release, the 1996 expenses include expenses for two
months of operations of the Company's Serif subsidiaries and no expenses of SPC.
Total selling expenses increased $4,779,011 or approximately 484% from $987,437
in nine month period ended September 30, 1996 to $5,766,449 in the nine month
period ended September 30, 1997, primarily as a result of the Company's direct
mail operations and increased advertising.
Amortization of Acquired Software and Goodwill and Depreciation. In the
nine month period ended September 30, 1997, the Company recorded $2,352,159 in
amortization of acquired software and goodwill associated with its acquisitions
of Serif and SPC, which was not included in the nine month period ended
September 30, 1996, as compared to $47,451 in the nine-month period ended
September 30, 1997, which related to the Serif acquisition. Depreciation and
amortization increased to $185,225 in the nine month period ended September 30,
1997 from $29,545 for the nine month period ended September 30, 1996 due to the
increased level of fixed assets resulting primarily from the Company's
acquisitions of Serif and SPC.
In-Process Research and Development. In the nine month period ended
September 30, 1996 the Company expensed $3,886,000 of in-process research and
development costs associated with the acquisition of the Serif companies. There
was no such expense in the 1997 period.
Product Development. Product development expenses increased approximately
308% from $597,738 in the nine month period ended September 30, 1996 to
$2,440,809 in the nine month period ended September 30, 1997 principally as a
result of an increase in product development costs associated with producing new
products and the inclusion of the product development costs associated with the
Serif and SPC subsidiaries. Two months of Serif product development costs were
included in the 1996 period and no SPC product development costs were included
in the 1996 period. As a percentage of net sales, the Company's product
development costs were approximately 21% in the nine month period ended
September 30, 1997 versus approximately 23% in the nine month period ended
September 30, 1996. The Company believes that development expenses will increase
in dollar amount in the future as the Company expands its development
activities, although the Company's long-term goal is to continue to reduce
product development costs as a percentage of sales. All development costs have
been expensed in the period incurred.
Other Income. In the nine month period ended September 30, 1997 the Company
received other income of $133,228 versus other income of $135,663 in the nine
month period ended September 30, 1996, primarily as a result of similar cash
balances during the periods.
<PAGE>
Liquidity and Capital Resources
During the nine month period ended September 30, 1997, the Company's cash
and cash equivalents and short-term investments decreased by $8,636,623 from
$11,161,634 at December 31, 1996 to $2,525,011 at September 30, 1997, primarily
as a result of using $8,240,053 in operations, $1,805,273 to pay certain debt
and $581,139 to purchase property and equipment, which more than offset cash
generated by investment activities. Although the Company had a working capital
deficit of $4,132,368 at September 30, 1997, 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 several 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.
The Company has substantially implemented a cost reduction program relating
to personnel and operating expenses which is expected to sufficiently reduce
expenses to meet currently anticipated liquidity and capital expenditure
requirements for at least the next several months. In addition, the Company has
received approximately $1,021,543 of gross proceeds from the sales, on October
23, 1997, of an aggregate 961,000 shares of Common Stock in private transactions
to five accredited investors. In addition, the Company may seek additional
sources of financing. The Company has a letter of credit facility of $300,000
relating to certain lease obligations and a debt facility of approximately
$104,238 received from its primary bank in the United Kingdom; however, there
can be no assurances that the Company will be able to obtain additional
financing, if at all, or that such financing will be on terms acceptable to the
Company. The Company is pursuing a possible offering of its equity or debt
securities; however, there can be no assurance that the Company will be
successful in completing such an offering.
The Company's operating activities for the first nine months of 1997 used
cash of $8,240,053 primarily related to costs associated with development, sales
and marketing the Company's products, an increase in accounts receivable and
inventories associated with higher net revenues and a reduction of trade
accounts payable and accrued expenses. The Company intends to continue to
utilize its working capital in 1997 for product development, marketing and
advertising, to finance the higher level of inventory and accounts receivable
necessary to support an anticipated increase in sales, for capital expenditures,
including the purchase of computer equipment, and for internal and external
software development. However, the Company's cash requirements may change
depending upon numerous factors, including, without limitation, the need to
finance the licensing or acquisition of third party software as well as
increased inventory and accounts receivable arising from the sale and shipment
of new products.
In the nine month period ended September 30, 1997, approximately 43% of the
Company's total sales were generated outside the United States. The Company
expects this pattern to continue as it continues to expand its foreign sales
operations. The Company's exposure to foreign currency gains and losses is
partially mitigated as the Company incurs operating expenses in the principal
foreign currency in which it invoices foreign customers. As of September 30,
1997 the Company had no foreign exchange contracts outstanding. The Company's
foreign exchange gains and losses may be expected to fluctuate from period to
period depending upon the movement in exchange rates.
In June 1994, SPC sold its Superbase product line to Computer concepts
Corporation ("CCC") (NASDAQ: CCEE) for shares of CCC's restricted common stock.
As of September 30, 1997, SPC owned 736,148 shares of common stock of CCC which
has or expects to sell during the remainder of 1997, or as soon thereafter as
practicable. CCC has informed SPC that CCC believes that approximately 427,148
of these shares were issued in error by CCC in excess of agreed terms. SPC and
CCC have not as yet resolved this dispute; however, the Company believes that
any such resolution would not have a material effect on its financial condition.
As of October 31, 1997 the closing price of the CCC common stock on The NASDAQ
SmallCap Market was $.6875 per share.
Seasonality
The computer software market is characterized by significant seasonal
swings in demand, which typically peak in the fourth quarter of each year. The
seasonal pattern is due primarily to the increased demand for software during
the year-end holiday buying season. In addition, the typical European summer
<PAGE>
holiday schedule negatively affects the third quarter of each calendar year on
sales generated for the European markets. The Company expects its net sales and
operating results to continue to reflect this seasonality. The Company's
revenues may also experience substantial variations as a result of a number of
factors, such as consumer and business preferences and introduction of competing
titles by competitors, as well as limited time promotional pricing offers. There
can be no assurance that the Company will achieve consistent growth or
profitability on a quarterly or annual basis.
Inflation
The Company believes that inflation has generally not had a material impact
on its operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is hereby made to Item 3 of the Company's Annual Report on Form
10-KSB, for the fiscal year ended December 31, 1996, filed April 15, 1997, and
Item 1 of Part II of the Company's Quarterly Report on Form 10-QSB, for the
period ended June 30, 1997, filed August 19, 1997 (Commission File No.:
1-14076), and to the references therein, for a discussion of all material
pending legal proceedings to which the Company or any of its subsidiaries are
parties.
Item 2. Changes in Securities and Use of Proceeds.
On October 23, 1997, the Company consummated the sale of an aggregate
961,000 shares of Common Stock to five accredited investors for aggregate gross
proceeds of $1,021,543 and estimated net proceeds of $960,466 in private
transactions exempt from registration under Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated thereunder. In connection with such
sale, the Company paid $51,277 and issued a five year option to purchase 96,100
shares of Common Stock, at an exercise price of $1.2756 per share, to a
financial consultant.
All net proceeds received by the Company in connection with its initial
public offering, which commenced and the registration statement (Registration
No. 33-97184) for which was declared effective on December 6, 1995, have been
utilized in full.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On August 29,1997, the Board of Directors of the Company approved a
repricing program with respect to the outstanding options to purchase shares of
Common Stock held by the then current officers, directors and employees of the
Company. Pursuant to this program, each officer, director and employee of the
Company, as of such date, may elect to have the exercise price of any options
granted to such person reduced to $1.25 per share, the per share closing market
price of the Common Stock on August 29, 1997, upon surrender of the 25% of the
options issued pursuant to any particular grant which vest at the latest time.
Pursuant to a Settlement and General Release Agreement, dated as of
September 26, 1997 (the "Szczepaniak Settlement Agreement"), among Joseph V.
Szczepaniak ("Szczepaniak"), the Company and SPC, Szczepaniak resigned as an
officer and employee of the Company and SPC and, in connection therewith,
received, among other things, a lump sum payment of $50,000, payment with
respect to accrued vacation time and the Company's agreement to make all
payments in respect of health insurance for Szczepaniak's benefit for a three
month period. The Company also agreed that all stock options previously granted
to Szczepaniak would remain exercisable through March 26, 1998, to the extent
exercisable on September 26, 1997.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Set forth below are all exhibits to this Quarterly Report on Form 10-QSB.
Exhibit
Number Description
10.50 Form of Subscription Agreements, each dated October 23, 1997, between
the Company and each of Ronald L. Altman (with respect to 24,000
shares of Common Stock), Gerold M. Fleischner (with respect to 24,000
shares of Common Stock), Howard Milstein (with respect to 865,000
shares of Common Stock), Patriot Group, LP (with respect to 24,000
shares of Common Stock) and Stephen P. Rosenblatt (with respect to
24,000 shares of Common Stock).
10.51 Registration Rights Agreement, dated October 23, 1997, among the
Company, Ronald L. Altman, Gerold M. Fleischner, Howard Milstein,
Patriot Group, LP and Stephen P. Rosenblatt.
10.52 Settlement and General Release Agreement, dated as of September 26,
1997, among Joseph Szczepaniak, the Company and Software Publishing
Corporation.
10.53 Option, dated October 23, 1997, issued to Ronald L. Altman.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the quarter
ended September 30, 1997.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOFTWARE PUBLISHING CORPORATION
HOLDINGS, INC.
Dated: November 13, 1997 By:/s/ Barry A. Cinnamon
Barry A. Cinnamon
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Dated: November 13, 1997 By:/s/ Mark E. Leininger
Mark E. Leininger
Chief Operating Officer, Vice President-
Finance, Treasurer and Chief Financial
Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.50 Form of Subscription Agreements, each dated October 23, 1997, between
the Company and each of Ronald L. Altman (with respect to 24,000
shares of Common Stock), Gerold M. Fleischner (with respect to 24,000
shares of Common Stock), Howard Milstein (with respect to 865,000
shares of Common Stock), Patriot Group, LP (with respect to 24,000
shares of Common Stock) and Stephen P. Rosenblatt (with respect to
24,000 shares of Common Stock).
10.51 Registration Rights Agreement, dated October 23, 1997, among the
Company, Ronald L. Altman, Gerold M. Fleischner, Howard Milstein,
Patriot Group, LP and Stephen P. Rosenblatt.
10.52 Settlement and General Release Agreement, dated as of September 26,
1997, among Joseph Szczepaniak, the Company and Software Publishing
Corporation.
10.53 Option, dated October 23, 1997, issued to Ronald L. Altman.
27 Financial Data Schedule.
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
COMMON STOCK
SUBSCRIPTION AGREEMENT
October 23, 1997
Software Publishing Corporation Holdings, Inc.
111 North Market Street
San Jose, California 95113
Dear Sirs/Madams:
Based upon the representations and warranties of Software Publishing
Corporation Holdings, Inc., a Delaware corporation (the "Company"), to the
extent and as set forth in Section 1 below, and subject to the other terms and
conditions hereinafter provided, the undersigned hereby irrevocably subscribes
(the "Subscription") to purchase _______ shares of common stock, par value $.001
per share (the "Common Stock") of the Company, at a price equal to $1.063 per
share of Common Stock, or $__________ in the aggregate (the "Subscription
Price"), and hereby tenders to the Company in full the Subscription Price in
immediately available funds. The date on which the Company accepts this
subscription is hereinafter referred to as the "Closing Date."
The Subscription of the undersigned being made hereby is subject to and is
made pursuant to the following terms and conditions:
1. Representations, Warranties and Covenants of the Company. By its
acceptance of this Subscription Agreement, the Company shall be deemed to
represent and warrant to and covenant with the undersigned as follows:
(a) Corporate Status. The Company (A) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
(B) has all necessary corporate power and authority to own, operate or lease the
properties and assets now owned, operated or leased by the Company and to carry
on the business of the Company, as it is now being conducted, and (C) is duly
licensed or qualified and in good standing as a foreign corporation authorized
to do business in each jurisdiction wherein the character of the properties
owned or leased by the Company and/or the nature of the activities conducted by
the Company makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified and in good standing would not prevent
the Company from performing any of its material obligations under this
Subscription Agreement and would not have a material adverse effect on the
business, operations or financial condition of the Company (a "Material Adverse
Effect");
<PAGE>
(b) Authority of Agreement. The Company has the power and authority to
accept, execute and deliver this Subscription Agreement and, upon acceptance by
the Company (in whole or part), to carry out its obligations hereunder; and the
execution, delivery and performance by the Company of this Subscription
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company and
this Subscription Agreement, upon acceptance by the Company (in whole or part),
constitutes the valid and legally binding obligations 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. The shares of Common Stock to be issued hereunder, upon
issuance thereof in accordance with the terms hereof, will be validly
authorized, fully paid and non-assessable;
(c) Consents and Approvals; No Conflict.
(i) The acceptance, execution and delivery of this Subscription
Agreement by the Company does not, and the performance by the Company of
its obligations hereunder, upon acceptance by the Company (in whole or
part), will not, require any consent, approval, authorization or other
action by, or filing with or notification to, any governmental or
regulatory authority, other than in connection with state securities or
"blue sky" laws, except where failure to obtain such consent, approval,
authorization or action, or to make such filing or notification, would not
prevent the Company from performing any of its material obligations under
this Subscription and would not have a Material Adverse Effect; and
(ii) The acceptance, execution, delivery and performance of this
Subscription Agreement by the Company and the other agreements and
documents to be executed, delivered and performed by the Company pursuant
hereto and the consummation of the transactions contemplated hereby and
thereby by the Company do not and will not conflict with, violate or result
in a breach or termination of any provision of, or constitute a default
under (or event which with the giving of notice or lapse of time, or both,
would become a default under) the Certificate of Incorporation or By-laws
of the Company or, except as would not prevent the Company from performing
any of its material obligations under this Subscription Agreement and would
not have a Material Adverse Effect, any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award applicable to the
Company or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any lien or
encumbrance on any of the assets or properties of the Company pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument relating to such assets or properties
to which the Company is a party or by which any of such assets or
properties is bound;
(d) Absence of Litigation. No claim, action, proceeding or investigation is
pending, or to the best knowledge of the Company, threatened, which seeks to
delay or prevent the consummation of the transactions contemplated hereby or
<PAGE>
which would be reasonably likely to adversely affect the Company's ability to
consummate the transactions contemplated hereby or which would have a Material
Adverse Effect;
(e) Extent of Offering. Subject in part to the truth and accuracy of the
undersigned's representations set forth in Section 2 of this Subscription
Agreement and the compliance by all agents of the Company with Rule 503(c) of
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), the offer, sale and issuance of the shares of
Common Stock as contemplated by this Subscription Agreement (the "Shares") are
exempt from the registration requirements of the Securities Act and are exempt
or the Company has complied with registration requirements of each state where
the Shares are offered or sold, and the Company will not take any action
hereafter that would cause the loss of such exemption or registration;
(f) Accuracy of Reports and Information. The Company is in full compliance,
to the extent applicable, with all reporting obligations under Section 12(b), 12
(g) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company has registered its Common Stock pursuant to
Section 12 of the Exchange Act and the Common Stock is listed and trades on the
Nasdaq SmallCap Market. The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the Shares.
(g) SEC Filings/Full Disclosure. None of the Company's filings with the
Securities and Exchange Commission since January 1, 1997 contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading. The Company has, since
January 1, 1997, timely filed all requisite forms, reports and exhibits thereto
with the Securities and Exchange Commission ("SEC"). The Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996 (the "1996 10-K"), its
Quarterly Reports for the periods ended March 31 and June 30, 1997 and all
Current Reports on form 8-K filed by the Company from January 1, 1997 to date
are referred to as the "SEC Reports."
There is no fact known to the Company (other than general economic
conditions known to the public generally) that has not been disclosed in writing
to the Purchaser which could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
(h) Absence of Undisclosed Liabilities. The Company has no material
liabilities or obligations, absolute or contingent (individually or in the
aggregate), except as set forth in the financial statements included in the SEC
Reports (collectively, the "Financial Statements") or as incurred in the
ordinary course of business after the date of the Financial Statements.
(i) Governmental Consent, etc. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of the Shares, or the
consummation of any other transaction contemplated hereby, except the filing
<PAGE>
with the SEC of a registration statement on Form S-3 for the purpose of
registering the Common Stock underlying the Shares and any state securities laws
filings or registrations.
(j) Intellectual Property Rights. Except as disclosed in the SEC Reports,
the Company has sufficient trademarks, trade names, patent rights, copyrights
and licenses to conduct its business as contemplated therein. To the Company's
knowledge, neither the Company nor its products is infringing or will infringe
any trademark, trade name, patent right, copyright, license, trade secret or
other similar right of others currently in existence; and there is no claim
being made against the Company regarding any trademark, trade name, patent,
copyright, license, trade secret or other intellectual property right which
could have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company.
(k) Material Contracts. Except as set forth in the SEC Reports or disclosed
to the Purchaser, the agreements to which the Company is a party described
therein are valid agreements, in full force and effect, the Company is not in
material breach or material default (with or without notice or lapse of time, or
both) under any of such agreements, and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default (with or without notice or lapse of time, or both) under any of such
agreements.
(l) Title to Assets. Except as set forth in SEC Reports, the Company has
good and marketable title to all properties and material assets described
therein as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than such as are not material to
the business of the Company.
(m) Subsidiaries. The Company does not presently own or control, directly
or indirectly, any interest in any other corporation, partnership, association
or other business entity, except as stated in the SEC Reports.
(n) Required Governmental Permits. The Company is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect.
(o) Listing. The Company will use its best efforts to maintain the listing
of its Common Stock on the Nasdaq SmallCap Market or other organized, comparable
United States market or quotation system.
(p) No Issuances Since June 30, 1997. Since June 30, 1997, the Company has
not issued any shares of Common Stock, other than pursuant to the exercise of
stock options under the Company's existing stock option or long-term incentive
plans.
(q) Legal Opinion. Purchaser shall, upon purchase of the Shares, receive an
opinion letter from counsel to the Company, and the Company represents that it
will obtain such an opinion from counsel to the satisfaction of the Purchaser,
to the effect that:
<PAGE>
(i) The Company is duly incorporated, validly existing and in good
standing in the jurisdiction of its incorporation.
(ii) There is no action, proceeding or investigation pending, or to
such counsel's knowledge, threatened against the Company, which could
reasonably be expected to materially adversely affect the Company's ability
to consummate the transactions contemplated hereby.
(iii) To such counsel's knowledge, the Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality which would
reasonably be expected to result in any material adverse change in the
business, financial condition or results of operations of the Company.
(iv) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
(v) This Subscription Agreement, the Registration Rights Agreement (as
defined herein) and the issuance of the Shares have been duly approved by
and required corporate action and that the Shares, upon delivery, shall be
validly issued and outstanding, fully paid and nonassessable.
(vi) The execution, delivery and performance of this Subscription
Agreement and the Registration Rights Agreement by the Company, and the
consummation of the transactions contemplated thereby, will not, with or
without the giving of notice or the passage of time or both:
(A) Violate the provisions of any law, rule or regulation
applicable to the Company,
(B) Violate the provisions of the certificate of incorporation
or bylaws of the Company; or
(C) To such counsel's knowledge, violate any judgment, decree,
order or award of any court, governmental body or
arbitrator.
(D) To such counsel's knowledge, conflict with, or result in
the breach or termination of any term or provision of, or
constitute a default under, or cause any acceleration under,
or cause the creation of any lien, charge or encumbrance
upon the properties or assets of the Company pursuant to,
any note, bond, indenture, mortgage, lease, deed of trust
or other instrument, obligation, or agreement to which the
Company is a party or by which the Company or any of its
properties is or may be bound.
<PAGE>
(r) This Subscription Agreement and the Registration Rights Agreement
constitute the valid and legally binding obligations of the Company and are
enforceable against the Company in accordance with their respective terms,
subject to laws of general application relating to bankruptcy, insolvency,
reorganization, arrangement, fraudulent conveyance or transfer, moratorium and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies and general principles of equity,
and, with respect to the Registration Rights Agreement, to limitations of public
policy as they may apply to the indemnification provisions set forth therein.
(s) Use of Proceeds. The Company represents that the net proceeds from this
offering will be used to fund the Company's working capital and general
corporate purposes.
(t) No Poison Pill. The Company represents that it does not have, and has
no current intention to adopt, a stockholder rights plan ("poison pill").
2. Representations, Warranties and Covenants of the Undersigned. The
undersigned hereby represents, warrants and acknowledges to and covenants and
agrees with the Company as follows:
(a) Status. If the undersigned is a corporation or other entity, the
undersigned is a corporation or other entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
full power and authority to execute, deliver and perform its obligations under
this Subscription Agreement; and, if the undersigned is an individual or are
individuals, the undersigned has legal capacity to execute, deliver and perform
his, her or their obligations under this Subscription Agreement;
(b) Authority for Agreements. The undersigned has the power and authority
to execute and deliver this Subscription Agreement and to carry out the
undersigned's obligations hereunder; and the execution, delivery and performance
by the undersigned of this Subscription Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the undersigned and this Subscription Agreement
constitutes the valid and legally binding obligation of the undersigned,
enforceable against the undersigned 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;
(c) Consents and Approvals, No Conflicts.
(i) The execution and delivery of this Subscription Agreement by the
undersigned do not, and the performance by the undersigned of undersigned's
obligations hereunder will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
governmental or regulatory authority, except where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not prevent the undersigned from performing any of
undersigned's material obligations under this Subscription Agreement; and
<PAGE>
(ii) The execution, delivery and performance of this Subscription
Agreement by the undersigned and the other agreements and agreements to be
executed, delivered and performed by the undersigned pursuant hereto and
the consummation of the transactions contemplated hereby and thereby by the
undersigned do not and will not conflict with, violate or result in a
breach or termination of any provision of, or constitute a default under
(or event which with the giving of notice or lapse of time, or both, would
become a default under) the Certificate of Incorporation or By-laws of the
undersigned (if the undersigned is a corporation), any other organizational
instrument (if the undersigned is a legal entity other than a corporation),
or, except as would not prevent the undersigned from performing any of
undersigned's material obligations under this Subscription Agreement and
would not have a Material Adverse Effect, any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to
the undersigned or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any lien or
encumbrance on any of the assets or properties of the undersigned pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument relating to such assets or
properties to which the undersigned is a party or by which any of such
assets or properties is bound;
(d) Investment Intent. The undersigned is acquiring the Shares for the
undersigned's own account, for investment only and not with a view to, or for
sale in connection with, a distribution thereof, within the meaning of the
Securities Act, and the rules and regulations promulgated thereunder, or any
applicable state securities or blue-sky laws;
(e) Investor Status. Either (i) the undersigned is an accredited investor
as such term is defined under Regulation D promulgated pursuant to the
Securities Act ("Regulation D") for the reason(s) as set forth in the Execution
Section of this Subscription Agreement or (ii) if not an accredited investor,
all the information which is set forth with respect to the undersigned in the
Qualified Purchaser Questionnaire executed by the undersigned and delivered to
the Company which is incorporated herein by this reference thereto, and, in
either event, all of the representations and warranties of the undersigned set
forth herein, are correct and complete as of the date of this Subscription
Agreement, shall be true and correct as of the Closing Date and shall survive
such closing; and if there should by any material change in such information
prior to the sale to the undersigned of the Shares, the undersigned will
immediately furnish such revised or corrected information to the Company;
(f) Intent to Transfer. The undersigned is not a party or subject to or
bound by any contract, undertaking, agreement or arrangement with any person to
sell, transfer or pledge the Shares or any part thereof to any person, and has
no present intention to enter into such a contract, undertaking, agreement or
arrangement;
(g) Receipt of Disclosures. The undersigned acknowledges receipt of copies
of the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996, the Company's Quarterly Report on Form 10-QSB/A for the fiscal quarter
ended March 31, 1997 and the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended June 30, 1997;
<PAGE>
(h) Offering Exempt from Registration; Company's Reliance.
(i) The Company has advised the undersigned that the Shares have not
been registered under the Securities Act or under the laws of any state on
the basis that the issuance thereof is exempt from such registration;
(ii) The Company's reliance on the availability of such exemption is,
in part, based upon the accuracy and truthfulness of the undersigned's
representations contained herein; and
(iii) As a result of such lack of registration, the Shares may not be
resold or otherwise transferred or disposed without registration pursuant
to or an exemption therefrom available under the Securities Act and such
state securities laws;
(iv) In furtherance of the provisions of this Paragraph 2(h), all of
the certificate(s) representing the Shares shall bear a restrictive legend
substantially in the following form:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SHARES TO THE EFFECT
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND SUCH STATE
SECURITIES LAWS."
(i) Sophistication of the Undersigned. The undersigned has evaluated the
merits and risks of purchasing the Shares and has such knowledge and experience
in financial and business matters that the undersigned is capable of evaluating
the merits and risks of such purchase, is aware of and has considered the
financial risks and financial hazards of purchasing the Shares, and is able to
bear the economic risk of purchasing the Shares, including the possibility of a
complete loss with respect thereto;
(j) Access to Information. The undersigned has had access to such
information regarding the business and finances of the Company, and the offering
of the Shares, the receipt and careful reading of which is hereby acknowledged
by the undersigned, and has been provided the opportunity to discuss with the
Company's management the business, affairs and financial condition of the
Company and such other matters with respect to the Company as would concern a
reasonable person considering the transactions contemplated by this Subscription
<PAGE>
Agreement and/or concerned with the operation of the Company including, without
limitation, pursuant to a meeting and/or discussions with management of the
Company;
(k) No Company Obligation to Register the Shares. Except as specifically
provided in the registration rights agreement dated the Closing Date among the
undersigned, the Company and certain other purchasers of shares of Common Stock
(the "Registration Rights Agreement"), the Company is under no obligation to
register the Shares under the Securities Act or to assist the undersigned in
complying with any exemption from registration or in registering the Shares
under the Securities Act;
(l) No Guarantees. That it never has been represented, guaranteed or
warranted to the undersigned by the Company, or any of its officers, directors,
agents, representatives or employees, or any other person, expressly or by
implication, that:
(i) Any gain will be realized by the undersigned from the
undersigned's investment in the Shares;
(ii) That there will be any approximate or exact length of time that
the undersigned will be required to remain as a holder of the
Shares; or
(iii)That the past performance or experience on the part of the
Company, its predecessors or of any other person, will in any
way indicate any future results of the Company;
(m) No Other Representations, Warranties, Covenants or Agreements of the
Company. Except as set forth in this Subscription Agreement or the documents
referred to herein, the Company has not made any representation, warranty,
covenant or agreement with respect to the matters contained herein;
(n) High Degree of Investment Risk. That the purchase of the Shares
involves a high degree of risk and may result in a loss of the entire amount
invested; that the Company has limited working capital and limited sources of
financing available; that there is no assurance that the Company's operations
will be profitable in the future; and that there is no assurance that a public
market for shares of Common Stock will continue to exist;
(o) State of Residence or Principal Place of Business. The address set
forth at the bottom of this Subscription is the undersigned's true and correct
residence (if an individual) or principal place of business (if a corporation or
other non-individual entity), and the undersigned has no present intention of
becoming a resident, or relocating its principal place of business to, of any
other state or jurisdiction;
(p) No Purchaser Representative. The undersigned has not authorized any
person or institution to act as the undersigned's "purchaser representative" (as
such term is defined in Rule 501 of Regulation D) in connection with the
<PAGE>
undersigned's subscription being made pursuant to this Subscription Agreement,
except as set forth in any Qualified Purchaser Questionnaire delivered by the
undersigned to the Company in connection herewith;
(q) No General Solicitation. The undersigned has not received any general
solicitation or general advertising regarding the purchase of any of the Shares;
and
(r) No Finder. There is no finder in connection with this transaction other
than Ronald Altman Associates.
(s) No Insider Trading. The undersigned will not engage in any transaction
with respect to securities of the Company at any time if at the time of such
transaction the undersigned is aware of any material non-public information
relating to the Company or its securities.
3. Acceptance or Rejection of Subscription; Company Withdrawal of Offer. It
is understood and agreed that this Subscription Agreement is made subject to the
following terms and conditions:
(a) The Company shall have the right to accept or reject the Subscription
of the undersigned and this Subscription Agreement, in whole or in part, for any
reason, including, but not limited to, ineligibility of the undersigned under
the applicable Federal, state or foreign securities laws, for any other reason,
or for no reason;
(b) If the subscription of the undersigned is rejected, in whole or part,
any funds representing the Subscription Price previously delivered to the
Company will be returned to the undersigned without interest or penalty;
(c) If the subscription of the undersigned is accepted in part and rejected
in part, the undersigned will be so notified, at which time the excess
Subscription Price previously delivered to the Company shall promptly be
returned to the undersigned without interest or penalty;
(d) If the Company's offer of the Shares is withdrawn for any reason
whatsoever, the undersigned will promptly receive a full refund of the
Subscription Price, without interest or penalty, and will have no further
liability to the Company in connection with the Company's offer of the Shares,
and the Company will have no further liability to the undersigned.
4. Further Assurances. At any time and from time to time after the date
hereof, the undersigned shall, without further consideration, execute and
deliver to the Company, or such other party as the Company may direct, such
other instruments or documents and shall take such other actions as the Company
may reasonably request to carry out the transactions contemplated by this
Subscription Agreement.
5. Indemnification. The undersigned acknowledges that the undersigned
understands the meaning and legal consequences of the representations,
warranties, covenants and agreements contained herein, and the undersigned
hereby agrees to indemnify and hold harmless the Company, and its directors,
officers, employees, agents and controlling persons, from and against any and
<PAGE>
all loss, damage or liability due to or arising out of a breach by the
undersigned of any such representations, warranties, covenants and agreements
contained herein.
6. Miscellaneous. The Company and undersigned may waive compliance by the
other with any of the provisions of this Subscription Agreement. No waiver of
any provision shall be construed as a waiver of any other provision. Any waiver
must be in writing. The headings contained in this Subscription Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Subscription Agreement. This Subscription Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by all
parties. This Subscription Agreement may not be modified or amended except in
writing signed by both parties hereto. This Subscription 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 Subscription
Agreement shall be governed in all respects, including validity, interpretation
and effect, by the laws of the State of New York, without regard to its
conflicts of laws principles. This Subscription Agreement shall be binding upon
and inure to the benefit of and be enforceable by the successors and assigns of
the parties hereto. This Subscription Agreement shall not be assignable by
either party without the prior written consent of the other. The rights and
obligations contained in this Subscription Agreement are solely for the benefit
of the parties hereto and are not intended to benefit or be enforceable by any
other party, under the third party beneficiary doctrine or otherwise.
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED OR APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
REGULATORY AUTHORITY OF ANY STATE, NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS SUBSCRIPTION AGREEMENT OR THE
AGREEMENTS AND DOCUMENTS REFERRED TO OR INCORPORATED BY REFERENCE HEREIN
(COLLECTIVELY, THE "OFFERING DOCUMENTS"). ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THE SHARES ARE BEING OFFERED BY THE COMPANY IN RELIANCE UPON AN EXCEPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WHICH EXEMPTION
DEPENDS UPON THE EXISTENCE OF CERTAIN FACTS INCLUDING, BUT NOT LIMITED TO, THE
REQUIREMENTS THAT THE SECURITIES ARE NOT BEING OFFERED THROUGH GENERAL
ADVERTISING OR GENERAL SOLICITATION, ADVERTISEMENTS OR COMMUNICATIONS IN
NEWSPAPERS, MAGAZINES OR OTHER MEDIA, OR BROADCASTS ON RADIO OR TELEVISION, AND
THAT THE OFFERING DOCUMENTS SHALL BE TREATED AS CONFIDENTIAL BY THE PERSONS TO
WHOM IT IS DELIVERED. ANY DISTRIBUTION OF THE OFFERING DOCUMENTS OR ANY PART
HEREOF OR DIVULGENCE OF ANY OF ITS CONTENTS SHALL BE UNAUTHORIZED.
<PAGE>
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE
OFFERING DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. IN ADDITION, THE SHARES WILL BEAR A LEGEND TO SUCH EFFECT
AS SET FORTH HEREIN. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
IN WITNESS WHEREOF, the undersigned has duly executed this Subscription
Agreement as of the date set forth below the undersigned's signature in the
Execution Section below.
<PAGE>
EXECUTION SECTION FOR SUBSCRIPTION BY INDIVIDUALS
I. SUBSCRIPTION AMOUNT:
The undersigned subscribes to purchase _______ Shares at a subscription
price of $1.063 per Share or $__________ in the aggregate.
II. SUBSCRIBER STATUS:
The undersigned is (check appropriate box and, if applicable, fill in state
with jurisdiction over custodial account):
___ INDIVIDUAL OWNER (One signature required below). Note: In community
property states, both spouses are required to sign below, whether or not
being listed as co-subscribers.
___ HUSBAND AND WIFE AS TENANTS BY THE ENTIRETY (Husband and wife are both
required to sign below).
___ TWO OR MORE INDIVIDUALS AS TENANTS IN COMMON (All tenants are required to
sign below).
___ TWO OR MORE INDIVIDUALS AS JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (All
tenants are required to sign below).
___ CUSTODIAL ACCOUNT UNDER UNIFORM GIFTS TO MINORS ACT OF THE STATE OF
___________________________________________________ (Fill in state).
III. INFORMATION AS IT IS TO APPEAR ON THE COMPANY RECORDS:
Name of
Subscriber(s): (1) __________________________________________________________
(2) __________________________________________________________
Social Security Number (for use in all notifications
and reports to governmental taxing authorities): ____________________________
State(s) of Permanent Residence: (1) ______________________________________
(2) ______________________________________
<PAGE>
Mailing Address: __________________________________________________________
__________________________________________________________
__________________________________________________________
Telephone Number: __________________________________________________________
Facsimile Number: __________________________________________________________
IV. INVESTOR STATUS (check all appropriate boxes):
A. The undersigned is an accredited investor, as such term is defined under
Regulation D, by reason of the fact that the undersigned is:
An individual whose net worth (or joint net worth with my spouse, if
greater) exceeds $1,000,000.
___ An individual with income in excess of $200,000, or joint income
together with my spouse in excess of $300,000, in each of the two most
recent years and reasonably expects to reach the same income level in
the current year.
___ A director or executive officer of the Company.
___ An entity in which all of the equity owners are accredited investors,
as defined in Regulation D. (The Company has the right to request the
names of each such accredited investor equity owners and to require
such person(s) to complete a Qualified Purchaser Questionnaire prior
to the Company's acceptance of the undersigned's subscription.)
___ B. The undersigned is not an accredited investor, as such term is defined
under Regulation D, and agrees, that upon the request of the Company, to
complete a Qualified Purchaser Questionnaire and return an executed copy thereof
to the Company.
___________________
(1) For purposes hereof, net worth shall be deemed to include all of your
assets, liquid or illiquid (including such items as home, furnishings,
automobile and restricted securities), minus any liabilities (including such
items as home mortgages and other debts and liabilities).
(2) For purposes hereof, the term "income" is not limited to "adjusted
gross income" as that term is defined for Federal Income Tax purposes, but
rather includes certain items of income which are deducted in computing
"adjusted gross income." For investors who are salaried employees, the gross
salary of such investor, minus any significant expenses personally incurred by
such investor in connection with earning the salary, plus any income from any
other source, including unearned income is a fair measure of "income" for
purposes hereof. For investors who are self-employed, "income" is generally
construed to mean total revenues received during the calendar year minus
significant expenses incurred in connection with earning such revenues.
<PAGE>
V. SIGNATURE(S):
Signature(s) of Subscriber(s): (1) ______________________________________
(2) ______________________________________
Signature of Non-Subscribing Spouse (Community Property States Only):
(1) ______________________________________
(2) ______________________________________
Date: _______________________________________, 1997
<PAGE>
EXECUTION SECTION FOR SUBSCRIPTION BY NON-INDIVIDUALS
I. SUBSCRIPTION AMOUNT:
The undersigned subscribes to purchase _______ Shares at a subscription
price of $1.063 per Share or $_________ in the aggregate.
II. SUBSCRIBER STATUS:
The undersigned is (check appropriate box and, if applicable, fill in state
with jurisdiction over custodial account):
___ CORPORATION (Please include certified corporate resolution authorizing
signature).
___ PARTNERSHIP.
___ TRUST.
___ OTHER (Including Employment Benefit Plans and Trusts, Individual Retirement
Accounts, and KEOUGH Plans).
III. INFORMATION AS IT IS TO APPEAR ON THE COMPANY RECORDS:
Name of
Subscriber: _______________________________________________________________
Tax Identification Number: ________________________________________________
State of Incorporation or Organization: ______________________________________
State of Principal Place of Business: ______________________________________
Mailing Address: __________________________________________________________
__________________________________________________________
__________________________________________________________
Telephone Number: __________________________________________________________
Facsimile Number: __________________________________________________________
<PAGE>
IV. INVESTOR STATUS (check all appropriate boxes and, if applicable, provide
all information requested):
A. The undersigned is an accredited investor, as such term is defined under
Regulation D, by reason of the fact that the undersigned is:
___ A bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; a broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934 (the
"Exchange Act"); an insurance company as defined in Section 2(13) of
the Securities Act; an investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a
plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, and having
total assets in excess of $5,000,000; an employee benefit plan within
the meaning of the Employee Retirement Income Security Act of 1974
("ERISA") with investment decisions made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings
and loan association, insurance company or registered investment
adviser; an employee benefit plan within the meaning of ERISA and
having total assets in excess of $5,000,000.
___ An employee benefit plan within the meaning of ERISA which is a
self-directed plan, with investment decisions made solely by the
following persons who are accredited investors, as defined in
Regulation D:
_____________________________________________________________________
_____________________________________________________________________
___ A private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940.
___ An organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust or
partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000.
<PAGE>
___ A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring any Series A Debenture, whose purchase
is directed by the following sophisticated person meeting the
description set forth in Rule 506(b)(2)(ii) of Regulation D:
_____________________________________________________________________
___ An entity in which all of the equity owners are accredited investors,
as defined in Regulation D. (The Company has the right to request the
names of each such accredited investor equity owners and to require
such person(s) to complete a Qualified Purchaser Questionnaire prior
to the Company's acceptance of the undersigned's subscription.)
___ B. The undersigned is not an accredited investor, as such term is defined
under Regulation D, and agrees, that upon the request of the Company, to
complete a Qualified Purchaser Questionnaire and return an executed copy thereof
to the Company.
V. SIGNATURE(S)
The undersigned corporate officer, partner, trustee or fiduciary certifies
that the undersigned has full power and authority from all requisite
stockholders, partners, co-trustees, co-fiduciaries of the subscribing entity
named above to execute this Subscription Agreement on behalf of the subscribing
entity and to make the representations, warranties and agreements made herein on
its and their behalf and that investment in the Shares has been affirmatively
authorized by the governing board or body of such entity and is not prohibited
by law or the governing documents of the subscribing entity.
By:________________________________ By:___________________________________
(Signature of Authorized Signatory) (Signature of Authorized Co-Signatory)
___________________________________ ______________________________________
(Name of Authorized Signatory) (Name of Authorized Co-Signatory)
___________________________________ ______________________________________
(Title of Authorized Signatory) (Title of Authorized Co-Signatory)
Date: _______________________________________, 1997
<PAGE>
ACCEPTANCE PAGE
(To be completed by the Company)
SUBSCRIPTION AND SUBSCRIPTION AGREEMENT
ACCEPTED AND AGREED:
Number of Shares for which Subscription is Accepted: ______________________
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
By: _________________________________________
Name:
Title:
Date:_______________________________________, 1997
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of October 23, 1997, by and among Software Publishing Corporation
Holdings, Inc., a Delaware corporation (the "Company"), Howard Milstein, Ronald
Altman, Dr. Gerold M. Fleischner, Stephen P. Rosenblatt and Patriot Group, L.P.
(each of such persons hereinafter referred to as a "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to the Subscription Agreements (each a "Subscription
Agreement"), between the Company and the individual Purchasers, with respect to
the subscription and sale to the individual Purchasers of shares of common
stock, par value $.001 per share, of the Company (the "Common Stock") for a
purchase price of $1.063 per share, and the letter dated September 30, 1997 (the
"Altman Letter"), between the Company and Ronald Altman Associates (the
"Financial Advisor), the Company has agreed to grant to all of the Purchasers
certain registration rights and other rights, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants hereinafter set forth, and for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Definitions.
(a) Defined Terms. As used in this Agreement, terms defined in the preamble
and forepart hereof and elsewhere herein shall have their assigned meanings and
each of the following terms shall have the following meanings (such definitions
to be applicable to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable Securities" shall mean
the shares of Common Stock of the Company which (A) were acquired by the
Purchasers, pursuant to their respective Subscription Agreements and the Common
Stock issuable upon the exercise of the Common Stock Purchase Option (the
"Option") issued by the Company to Ronald Altman (the "Option Holder") pursuant
to the Altman Letter, including, in each case, any shares of Common Stock or
other securities received in connection with any stock split, stock divided,
merger, reorganization, recapitalization, reclassification or other distribution
payable or issuable upon shares of Common Stock. For the purposes of this
Agreement, securities will cease to be Registerable Securities when (A) a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering such Registerable Securities has been declared
effective and either such Registerable Securities have been disposed of pursuant
<PAGE>
to such effective registration statement or such registration statement has been
effective for not less than 24 months, (B) such Registerable Securities are
distributed to the public pursuant to the Securities Act or pursuant to an
exemption from the registration requirements of the Securities Act, including,
but not limited to, Rules 144 and 144A promulgated under the Securities Act, or
(C) such Registerable Securities have been otherwise transferred and the
Company, in accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which are not
subject to any stop transfer order or other restriction on transfer.
(ii) Rightsholders. The term "Rightsholders" shall include each of the
Purchasers, in their capacities as holders of Registerable Securities pursuant
to their respective Subscription Agreements, and all successors and assigns of
the Purchasers, and the Option Holder, and all transferees of the Registerable
Securities if such transfer affirmatively includes the transfer and assignment
of the rights of the transferor Rightsholder under this Agreement; provided,
however, the term "Rightsholders" shall not include any person or entity who has
sold, transferred or assigned all of such person's or entity's Registerable
Securities.
(b) Other Capitalized Terms. Capitalized terms not otherwise defined in
this Agreement shall have the meanings assigned to such terms in the
Subscription Agreements or the Option.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and article, section,
subsection, paragraph, clause, schedule and exhibit references are to this
Agreement unless otherwise specified.
2. Demand Registration.
(a) Right to Demand. Subject to Section 2(b) hereof, at any time after the
date hereof, the Initiating Holders (as defined in paragraph 2(f) below) may
make a written request to the Company for registration under the Securities Act
of all or part of their Registerable Securities (a "Demand Registration").
Within 15 days after receipt of a Demand Request, the Company shall deliver a
written notice (the "Notice") of such Demand Request to all other Rightsholders.
The Company will include in such Demand Registration all Registerable Securities
with respect to which the Company has been given written requests (each,
"Tag-Along Request") for inclusion therein within 10 days after the giving of
the Notice. Each and every Demand Request shall be required to specify the
aggregate amount of the Registerable Securities to be included in such Demand
Registration, the amount of Registerable Securities to be registered for each of
the Initiating Holders and the intended method(s) of disposition thereof,
including whether or not such Demand Registration or portion thereof is to
relate to an underwritten offering, the name of the managing underwriter(s), if
any, and the terms of any such underwriting. Each and every Tag-Along Request
shall be required to specify the amount of Registerable Securities to be
registered in the Demand Registration and the intended method(s) of disposition
thereof, including whether or not the Registerable Securities subject to such
Tag-Along Request or portion thereof is to relate to an underwritten offering,
the name of the managing underwriter(s), if any, and the terms of any such
<PAGE>
underwriting. Thereafter, the Company shall use commercially reasonable efforts
to file a registration statement under the Act covering the Registerable
Securities within 30 days after receipt of a Demand Request and to cause such
registration statement to become effective as promptly as reasonably
practicable. In the event that such registration statement is not declared
effective within 100 days after the receipt of a Demand Request, the Company
shall pay each Rightsholder, as liquidated damages for such failure and not as a
penalty, one (1%) percent of the number of Registerable Securities held by each
Rightsholder multiplied by $1.063 for each of the first two (2) months and two
(2%) percent of such amount per month thereafter until the Registration
Statement is effective. If the Company does not remit the damages to the
Rightsholders as set forth above, the Company will pay the Rightsholders
reasonable costs of collection, including reasonable attorneys fees, in addition
to the liquidated damages. Such payment shall be made to the Rightsholders
immediately if the registration of the Registerable Securities is not effected;
provided, however, that the payment of such liquidated damages shall not relieve
the Company from its obligations to register the Registerable Securities
pursuant to this Section 2.
(b) Number of Demand Registrations; Expenses. Subject to the provisions of
Paragraph 2(c) hereof, the Rightsholders shall be entitled, in the aggregate, to
one Demand Registration, the Registration Expenses (as defined in Section 5
hereof) of which, subject to the provisions of Section 5, shall be borne by the
Company. The Company shall not be deemed to have effected a Demand Registration
unless and until a registration statement effectuating such Demand Registration
is declared effective.
(c) Priority on Demand Registrations.
(i) Whenever the Company shall effect a Demand Registration in connection
with an underwritten offering by one or more Initiating Holders, no other
securities, including other Registerable Securities, shall be included in such
Demand Registration, unless (A) the managing underwriter(s) with respect to such
Demand Registration shall have advised the Company and each Initiating Holder
whose Registerable Securities were included in the Demand Request, in writing,
that the inclusion of such other securities would not adversely affect such
underwritten offering or (B) each of the Initiating Holders shall each have
consented in writing to the inclusion of such other securities. In the event of
such written advice of the managing underwriter(s) or unanimous consent of such
Initiating Holders, the Company will include in such Demand Registration
securities in the following order of priority until the maximum number of
securities included in the written advice of the managing underwriter(s) or
unanimous consent of such Initiating Holders shall be reached: (A) first, pro
rata (based upon the amount of Registerable Securities) among the Registerable
Securities included in the Demand Request which are subject to the underwritten
offering, (B) second, pro rata (based upon the amount of Registerable
Securities) among the Registerable Securities of the Rightsholders who have
given a Tag-Along Request with respect to such Demand Registration where the
method of distribution shall be pursuant to an underwritten offering, (C) third,
pro rata (based upon the amount of Registerable Securities) among all other
Registerable Securities included in the Demand Request and Tag-Along Request(s)
and (D) fourth, pro rata (based upon the amount of securities owned which carry
registration rights) among all other securities to which the Company has granted
<PAGE>
registration rights and for which a request for inclusion in the Demand
Registration shall have been made.
(ii) Whenever the Company shall effect a Demand Registration in connection
with an offering of Registerable Securities of Initiating Holders for which the
intended method(s) of distribution shall not include an underwritten offering,
and the holders of a majority of the Registerable Securities which were subject
to the Demand Request shall advise the Company in writing that in the opinion of
such Initiating Holders the number of securities proposed to be sold in such
Demand Registration would adversely affect such offering, the Company will
include in such Demand Registration securities in the following order of
priority until the maximum number of securities included in the written advice
of such Initiating Holders shall be reached:(A) first, pro rata (based upon the
amount of Registerable Securities) among the Registerable Securities included in
the Demand Request, (B) second, pro rata (based upon the amount of Registerable
Securities) among the Registerable Securities of the Rightsholders who have
given a Tag-Along Request with respect to such Demand Registration where the
method of distribution shall be pursuant to an underwritten offering, (C) third,
pro rata (based upon the amount of Registerable Securities) among all other
Registerable Securities included in the Demand Request and Tag-Along Request(s)
and (D) fourth, pro rata (based upon the amount of securities owned which carry
registration rights) among all other securities to which the Company has granted
registration rights and for which a request for inclusion in the Demand
Registration shall have been made.
(iii) In the event that Initiating Holders and other Holders who have given
a Tag-Along Request are unable to have registered the full amount of
Registerable Securities which they requested to be registered pursuant to a
Demand Request or Tag-Along Request, pursuant to the provisions of this Section
2, such Initiating Holders and other Rightsholders shall retain the right to one
Demand Registration with respect to such unregistered Registerable Securities
subject to such Demand Request and Tag-Along Request.
(d) INTENTIONALLY OMITTED
(e) Selection of Underwriters. If any Demand Registration is an
underwritten offering, the holders of a majority of the Registerable Securities
to be included in such Demand Registration will select a managing underwriter or
underwriters to administer the offering, which managing underwriter or
underwriters shall be reasonably satisfactory to the Company.
(f) "Initiating Holders" Defined. For purposes of this Agreement, the term
"Initiating Holders" shall mean, on any given date, those Rightsholders holding
Registerable Securities. The Option Holder shall not be deemed to be an
Initiating Holder and may not make a Demand Request pursuant to subparagraph
2(a) until the earlier of: (A) the second anniversary of the date of this
Agreement or (B) the occurrence of a Change of Control of the Company. 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>
(i) a change in control as such term is presently defined in
Regulation 240.12b-2 under the Securities Exchange Act of 1934, as amended
(the "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. Piggy-Back Registration.
(a) If, at any time on or after the date hereof and on or prior to October
22, 2002, the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company or any other party 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 offering of securities solely to the
existing stockholders or employees of the Company), then the Company, on each
such occasion, shall give written notice (each, a "Company Piggy-Back Notice")
of such proposed filing to all of the Holders owning Registerable Securities at
least 20 days before the anticipated filing date of such registration statement,
and such Company Piggy-Back Notice also shall be required to offer to such
holders the opportunity to register such aggregate number of Registerable
Securities as each such holder may request. Each such holder shall have the
right, exercisable for the 10 days immediately following the giving of the
Company Piggy-Back Notice, to request, by written notice (each, a "Holder
Notice") to the Company, the inclusion of all or any portion of the Registerable
Securities of such holders in such registration statement. The Company shall use
reasonable efforts to cause the managing underwriter(s) of a proposed
underwritten offering to permit the inclusion of the Registerable Securities
which were the subject of all Holder Notices in such underwritten offering on
the same terms and conditions as any similar securities of the Company included
therein. Notwithstanding anything to the contrary contained in this Paragraph
3(a), if the managing underwriter(s) of such underwritten offering delivers a
written opinion to the holders of Registerable Securities which were the subject
of all Holder Notices 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 such holders and persons other
than the Company shall be eliminated or reduced pro rata (based on the amount of
<PAGE>
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(s) in its written opinion.
(b) Number of Piggy-Back Registrations; Expenses. The obligations of the
Company under this Section 3 shall be unlimited with respect to each holder of
Registerable Securities. Subject to the provisions of Section 5 hereof, the
Company will pay all Registration Expenses in connection with any registration
of Registerable Securities effected pursuant to this Section 3.
(c) Withdrawal or Suspension of Registration Statement. Notwithstanding
anything contained to the contrary in this Section 3, the Company shall have the
absolute right, whether before or after the giving of a Company Piggy-Back
Notice or Holder Notice, to determine not to file a registration statement to
which the holders shall have the right to include their Registerable Securities
therein pursuant to this Section 3, to withdraw such registration statement or
to delay or suspend pursuing the effectiveness of such registration statement.
In the event of such a determination after the giving of a Company Piggy-Back
Notice, the Company shall give notice of such determination to all holders of
Registerable Securities and, thereupon, (i) in the case of a determination not
to register or to withdraw such registration statement, the Company shall be
relieved of its obligation under this Section 3 to register any of the
Registerable Securities in connection with such registration, and (ii) in the
case of a determination to delay the registration, the Company shall be
permitted to delay or suspend the registration of Registerable Securities
pursuant to this Section 3 for the same period as the delay in the registration
of such other securities. No registration effected under this Section 3 shall
relieve the Company of its obligation to effect any registration upon demand
otherwise granted to a holder under Section 2 hereof or any other agreement with
the Company.
4. Registration Procedures.
(a) Obligations of the Company. The Company will, in connection with any
registration pursuant to Section 2 or 3 hereof, as promptly as reasonably
practicable:
(i) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act on any
appropriate form chosen by the Company, in its sole discretion, which shall be
available for the sale of all Registerable Securities in accordance with the
intended method(s) of distribution thereof set forth in all applicable Demand
Requests, Tag-Along Requests and Holder Notices, and use its commercially
reasonable efforts to cause such registration statement to become effective as
soon thereafter as reasonably practicable; provided, that, at least five
business days before filing with the Commission of such registration statement,
the Company shall furnish to each Rightsholder whose Registerable Securities are
included therein draft copies of such registration statement, including all
exhibits thereto and documents incorporated by reference therein, and, upon the
reasonable request of any such Holder, shall continue to provide drafts of such
registration statement until filed, and, after such filing, the Company shall,
as diligently as practicable, provide to each such Rightsholders such number of
<PAGE>
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), all exhibits thereto and documents incorporated by
reference therein and such other documents as such Rightsholder may reasonably
request in order to facilitate the disposition of the Registerable Securities
owned by such Rightsholder and included in such registration statement;
provided, further, the Company shall modify or amend the registration statement
as it relates to such Rightsholder as reasonably requested by such holder on a
timely basis, and shall reasonably consider other changes to the registration
statement (but not including any exhibit or document incorporated therein by
reference) reasonably requested by such Rightsholder on a timely basis, in light
of the requirements of the Securities Act and any other applicable laws and
regulations; and provided, further, that the obligation of the Company to effect
such registration and/or cause such registration statement to become effective,
may be postponed for (A) such period of time when the financial statements of
the Company required to be included in such registration statement are not
available (due solely to the fact that such financial statements have not been
prepared in the regular course of business of the Company) or (B) any other bona
fide corporate purpose, but then only for a period not to exceed 90 days.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to a registration statement as may be necessary to
keep such registration statement effective for up to 24 months; and cause the
related prospectus to be supplemented by any required prospectus supplement, and
as so supplemented to be filed to the extent required pursuant to Rule 424
promulgated under the Securities Act, during such 24 month period; and otherwise
comply with the provisions of the Securities Act with respect to the disposition
of all Registerable Securities covered by such registration statement during the
applicable period in accordance with the intended method(s) of disposition of
such Registerable Securities set forth in such registration statement,
prospectus or supplement to such prospectus;
(iii) notify the Rightsholders whose Registerable Securities are included
in such registration statement and the managing underwriter(s), if any, of an
underwritten offering of any of the Registerable Securities included in such
registration statement, and confirm such advice in writing, (A) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and, with respect to a registration statement or any post-effective
amendment, when the same has become effective, (B) of any request by the
Commission for amendments or supplements to a registration statement or related
prospectus or for additional information, (C) of the issuance by the Commission
of any stop order suspending the effectiveness of a registration statement or
the initiation of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Company contemplated by clause (A) of
Paragraph 4(a)(x) hereof cease to be true and correct, (E) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any of the Registerable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose and (F) of the
happening of any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein by reference
untrue or which requires the making of any changes in the registration statement
or prospectus so that such registration statement, prospectus or document
<PAGE>
incorporated by reference will not contain any untrue statement of material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(iv) make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement at the earliest
possible moment and to prevent the entry of such an order;
(v) use reasonable efforts to register or qualify the Registerable
Securities included in such registration statement under such other securities
or blue sky laws of such jurisdictions as any Rightsholder whose Registrable
Securities are included in such registration statement reasonably requests in
writing and do any and all other acts and things which may be necessary or
advisable to enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that the Company will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Paragraph
4(a)(v), (B) subject itself to taxation in any such jurisdiction or (C) take any
action which would subject it to general service of process in any such
jurisdiction;
(vi) make available for inspection by each Rightsholder whose Registerable
Securities are included in such registration, any underwriter(s) participating
in any disposition pursuant to such registration statement, and any
representative, agent or employee of or attorney or accountant retained by any
such Rightsholder or underwriter(s) (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility (or establish a due
diligence defense), and cause the officers, directors and employees of the
Company to supply all information reasonably requested by any such Inspector in
connection with such registration statement; provided, that records which the
Company determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors, unless (A)
the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction or (B) the disclosure of such Records is
required by any applicable law or regulation or any governmental regulatory body
with jurisdiction over such Rightsholder or underwriter; provided, further, that
such Rightsholder or underwriter(s) agree that such holder or underwriter(s)
will, upon learning the disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
(vii) cooperate with the Rightsholder whose Registerable Securities are
included in such registration statement and the managing underwriter(s), if any,
to facilitate the timely preparation and delivery of certificates representing
Registerable Securities to be sold thereunder, not bearing any restrictive
legends, and enable such Registerable Securities to be in such denominations and
registered in such names as such holder or any managing underwriter(s) may
reasonably request at least two business days prior to any sale of Registerable
Securities;
<PAGE>
(viii) comply with all applicable rules and regulations of the Commission
and promptly make generally available to its security holders an earnings
statement covering a period of twelve months commencing, (A) in an underwritten
offering, at the end of any fiscal quarter in which Registerable Securities are
sold to underwriter(s), or (B) in a non-underwritten offering, with the first
month of the Company's first fiscal quarter beginning after the effective date
of such registration statement, which earnings statement in each case shall
satisfy the provisions of Section 11(a) of the Securities Act;
(ix) provide a CUSIP number for all Registerable Securities not later than
the effective date of the registration statement relating to the first public
offering of Registerable Securities of the Company pursuant hereto;
(x) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions reasonably
requested by the Rightsholders holding a majority of the Registerable Securities
included in such registration statement or the managing underwriter(s) in order
to expedite and facilitate the disposition of such Registerable Securities and
in such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration, (A) make such
representations and warranties, if any, to the holders of such Registerable
Securities and any underwriter(s) with respect to the registration statement,
prospectus and documents incorporated by reference, if any, in form, substance
and scope as are customarily made by issuers to underwriter(s) in underwritten
offerings and confirm the same if and when requested, (B) obtain opinions of
counsel to the Company and updates thereof addressed to each such Rightsholder
and the underwriter(s), if any, with respect to the registration statement,
prospectus and documents incorporated by reference, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Rightsholders and
underwriter(s), (C) obtain a "cold comfort" letter and updates thereof from the
Company's independent certified public accountants addressed to such
Rightsholders and to the underwriter(s), if any, which letters shall be in
customary form and cover matters of the type customarily covered in "cold
comfort" letters by accountants in connection with underwritten offerings, and
(D) deliver such documents and certificates as may be reasonably requested by
the Rightsholders holding a majority of such Registerable Securities and
managing underwriter(s), if any, to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; each such action required by this Paragraph 4(a)(x) shall
be done at each closing under such underwriting or similar agreement or as and
to the extent required thereunder; and
(xi) if requested by the holders of a majority of the Registerable
Securities included in such registration statement, use its commercially
reasonable efforts to cause all Registerable Securities which are included in
such registration statement to be listed, subject to notice of issuance, by the
date of the first sale of such Registerable Securities pursuant to such
registration statement, on each securities exchange, if any, on which securities
similar to the Registered Securities are listed.
<PAGE>
(b) Obligations of Rightsholders. In connection with any registration of
Registerable Securities of a Rightsholder pursuant to Section 2 or 3 hereof:
(i) The Company may require that each Rightsholder whose Registerable
Securities are included in such registration statement furnish to the Company
such information regarding the distribution of such Registerable Securities and
such Rightsholder as the Company may from time to time reasonably request in
writing; and
(ii) Each Rightsholder, upon receipt of any notice from the Company of the
happening of any event of the kind described in clauses (B), (C), (E) and (F) of
Paragraph 4(a)(iii) hereof, shall forthwith discontinue disposition of
Registerable Securities pursuant to the registration statement covering such
Registerable Securities until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (A) of Paragraph
4(a)(iii) hereof, or until such Rightsholder is advised in writing (the
"Advice") by the Company that the use of the applicable prospectus may be
resumed, and until such Rightsholder has received copies of any additional or
supplemental filings which are incorporated by reference in or to be attached to
or included with such prospectus, and, if so directed by the Company, such
Rightsholder will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in the possession of such
Rightsholder, of the current prospectus covering such Registerable Securities at
the time of receipt of such notice; the Company shall have the right to demand
that such Rightsholder or other holder verify its agreement to the provisions of
this Paragraph 4(b)(ii) in any Demand Request, Tag-Along Request or Holder
Notice of the Rightsholder or in a separate document executed by the
Rightsholder.
5. Registration Expenses. All expenses incident to the performance of or
compliance with this Agreement by the Company, including without imitation, all
registration and filing fees of the Commission, The NASDAQ Stock Market, Inc.,
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 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 Registerable Securities 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 incidental to such performance),
Securities Act or other 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 Rightsholders, 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 referred to as
"Registration Expenses." Notwithstanding the foregoing, the Company shall not be
<PAGE>
required to pay for any Registration Expenses of any Demand Registration if such
Demand Request is subsequently withdrawn at the request of the holders of a
majority of the Registerable Securities included in such Demand Registration (in
which case all Rightsholders which requested the withdrawal of the Demand
Registration shall bear such expenses pro rata); provided that, if, at the time
of such withdrawal, such Rightsholders have learned of a material adverse change
in the condition, business or prospects of the Company from that known to such
Rightsholders at the time of their Demand Request, such Rightsholders shall not
be required to pay any of such expenses. In either event, if such Rightsholders
pay in full the expenses of such withdrawn Demand Registration, such
Rightsholders shall retain the right to one Demand Registration.
6. INTENTIONALLY OMITTED
7. Indemnification: Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless, to the full extent permitted by law, each Purchaser, its officers
and directors and each person who controls such Purchaser (within the meaning of
the Securities Act), if any, 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
attorney's fees and 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 Purchaser furnished in
writing to the Company by such Purchaser expressly for use therein.
(b) Indemnification by Rightsholder. In connection with any registration
statement in which a Rightsholder is participating, each such Rightsholder will
be required to furnish to the Company in writing such information with respect
to such Rightsholder as the Company reasonably requests for use in connection
with any such registration statement or prospectus, and each Rightsholder agrees
to the extent it is such a Rightsholder of Registerable Securities included in
such registration statement, and each other such holder of Registerable
Securities included in such Registration Statement 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
<PAGE>
untrue statement or omission is based upon information relating to such
Rightsholder or other holder furnished in writing to the Company expressly for
use therein.
(c) Conduct of Indemnification Proceedings. Promptly after receipt by an
indemnified party under this Section 7 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, 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 the indemnifying party from any
liability which the indemnifying party may have to any indemnified party (i)
hereunder, unless the indemnifying party is actually prejudiced thereby, or (ii)
otherwise than under this Section 7. In case any such action, suit or proceeding
shall be brought against any indemnified party, and the indemnified party 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 obligation to pay all expenses relating thereto. 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 relating thereto 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, subject to the reasonable approval of the indemnifying
party).
(d) Contribution. If the indemnification provided for in this Section 7
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other or
(ii) if the allocation provided by clause (i) above is not permitted by
<PAGE>
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other but also the relative fault of the indemnifying
party and indemnified party, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and the
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitation set forth in Section 7(e), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Paragraph 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in clauses (i) and (ii) of the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) Limitation. Anything to the contrary contained in this Section 7 or in
Section 8 notwithstanding, no Rightsholder of Registerable Securities shall be
liable for indemnification and contribution payments aggregating an amount in
excess of the maximum amount received by such Rightsholder in connection with
any sale of Registerable Securities as contemplated herein.
8. Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(a) agrees to sell such Rightsholder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (b) completes and
executes all questionnaires, appropriate and limited powers of attorney, escrow
agreements, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangement; provided, that all
such documents shall be consistent with the provisions of Section 4 hereof.
9. Rule 144 and Rule 144A. For a five year period following the date of
this Agreement, the Company covenants that it will timely file the reports
required to be filed by the Company under the Securities Act and the Exchange
Act and the rules and regulations adopted by the Commission thereunder. In the
event the Company is not required to file such reports, then in such case, upon
the request of any Rightsholder of Registerable Securities, make publicly
available other information to the extent, and so long as, necessary to permit
sales pursuant to Rule 144 or Rule 144A promulgated under the Securities Act,
and it will take such further action as any Rightsholder may reasonably request,
all to the extent required from time to time to enable such Rightsholder to sell
<PAGE>
the Registerable Securities of such Rightsholder without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144 and
Rule 144A under the Securities Act, as such Rules may be amended from time to
time, or any similar rule or regulation hereafter adopted by the Commission, in
each case to the extent such rules may otherwise be available to such
Rightsholder. Upon the reasonable request of any Rightsholder, the Company will
deliver to such Rightsholder a written statement as to whether it has complied
with such requirements.
10. Additional Provisions.
(a) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
without the written consent of the Company and all of the Rightsholders.
(b) Notices. All requests, demands, notices and other communications
required or otherwise given under this Agreement shall be sufficiently given if
delivered by hand against written receipt therefor, or forwarded by overnight
courier or mailed by registered or certified mail, postage prepaid, addressed as
follows:
If to the Company, to: Software Publishing Corporation Holdings, Inc.
11 North Market Street
San Jose, California 95113
Attention: Mr. Barry Cinnamon, Chairman
with a copy to: Moritt, Hock & Hamroff, LLP
400 Garden City Plaza - Suite 202
Garden City, New York 11530
Attention: Neil M. Kaufman, Esq.
If to Howard Milstein, to: c/o Douglas Elliman
575 Madison Avenue
3rd Floor
New York, New York 10022
with a copy to: Adam Eilenberg, Esq.
Eilenberg & Zivian
666 Third Avenue
30th Floor
New York, New York 10017
<PAGE>
If to Altman, Fleischner,
Rosenblatt or Patriot Group, L.P. c/o Ronald L. Altman
15 Powder Hill Road
Waccabuc, New York 10597
or, in the case of any of the parties hereto, at such other address as such
party shall have furnished in writing, in accordance with this Paragraph 10(b),
to each of the other parties hereto. Each such request, demand, notice or other
communication shall be deemed given (i) on the date of delivery by hand, (ii) on
the first business day following the date of delivery to an overnight courier or
(iii) three business days following mailing by registered or certified mail.
(c) Successors and Assigns: Rightsholders as Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the parties who or which
execute the signature page hereto and their respective successors and assigns.
Nothing in this Agreement shall be deemed to impose on any of the Rightsholders
any obligations to or in respect of any other Rightsholder.
(d) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of laws principles thereof.
(g) Severability: Specific Enforcement. In the event that any one or more
of the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal, or unenforceable in any respect of any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions contained herein shall not be in
any way impaired thereby, it being intended that all of the rights and
privileges of the Rightsholders and the Company shall be enforceable to the
fullest extent permitted by law. Each of the Rightsholders and the Company
acknowledges that the other parties hereto would not have an adequate remedy at
law for money damages in the event that any of the covenants or agreements of
any other party in this Agreement were not performed in accordance with its
terms and therefore agrees that the other parties shall be entitled to specific
enforcement of such covenants or agreements and to injunctive and other
equitable relief in addition to any other remedy to which it may be entitled, at
law or in equity.
(h) Entire Agreement; Survival; Termination. This Agreement is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, with respect to
<PAGE>
the subject matter hereof, other than those set forth or referred to herein and
therein. This Agreement, the Option and Subscription Agreements supersede all
prior agreements and understandings between the parties with respect to such
subject matters.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
By: /s/Barry A. Cinnamon
Barry A. Cinnamon, President
/s/Howard Milstein
Howard Milstein
/s/Ronald Altman
Ronald Altman
/s/Gerold M. Fleischner
Dr. Gerold M. Fleischner
/s/Stephen Rosenblatt
Stephen P. Rosenblatt
PATRIOT GROUP, L.P.
By:/s/Peter J. Wasserman
Peter J. Wasserman, General Partner
SETTLEMENT AND GENERAL RELEASE AGREEMENT
THIS SETTLEMENT AND GENERAL RELEASE AGREEMENT (the "Agreement") is made and
entered into as of the 26th day of September, 1997 by and between Joseph V.
Szczepaniak ("Szczepaniak" or the "Employee"), Software Publishing Corporation
Holdings, Inc.(formerly known as Allegro New Media, Inc.), a Delaware
corporation ("SPCH"), 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, Szczepaniak has been employed by SPCH and SPC as Vice President
Sales & Marketing; and
WHEREAS, SPCH and SPC accept Szczepaniak's resignation as an employee and
officer; and
WHEREAS, the Parties now desire to settle fully and finally all claims
Szczepaniak may have against SPCH or SPC and that SPCH or SPC may have against
Szczepaniak and others released herein, including, but not limited to, any
matters arising out of Szczepaniak's employment with SPCH and SPC and his
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 the
Parties that any of them have acted wrongfully with respect to each other or any
other person or that any one of them has any rights whatsoever against the
other.
2. Resignation.
Szczepaniak hereby resigns as an officer and employee of SPCH and SPC.
Szczepaniak agrees to return to SPCH or SPC all assets, equipment or other items
which are owned by SPCH or SPC not later than one (1) month after the date of
this Agreement.
3. Consideration to Szczepaniak.
(a) On the eighth day after the execution and delivery of this Agreement:
<PAGE>
(i) SPCH shall pay to Szczepaniak a net amount equal to FIFTY
THOUSAND DOLLARS $50,000.
(ii) SPCH shall pay to Szczepaniak an amount equal to $7,377.32
in respect of accrued vacation.
(iii) SPCH shall continue to make all payments in respect of
health insurance for Szczepaniak's benefit consistent
with past practice for a period of 3 months after the
date of this Agreement.
(iv) SPCH shall pay to Szczepaniak an amount equal to FORTY
THOUSAND DOLLARS $40,000 upon the completion of a contract
between SPCH or SPC with Microsoft Corporation pursuant to
which Microsoft Corporation purchases either Harvard
Graphics or any portion of the Intelligent Formatting
technology, if that agreement is made within 12 months of
this agreement.
(v) Szczepaniak shall return to the Company all Company property
that is in his possession.
(b) SPCH will extend the stock option rights granted to him on his
currently vested options (67,012 options) to be exercisable at the strike price
of $1.25 for a period of six (6) months from the date of this agreement.
Thereafter, such options shall terminate.
4. Complete Release.
(a) As a material inducement to SPCH and SPC to enter into this Agreement,
Szczepaniak hereby waives, releases and discharges SPCH 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 Szczepaniak 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
<PAGE>
arising under Title VII of the United States Code. It is expressly understood by
Szczepaniak that among the various rights and claims being waived by him in this
release are those arising under the Age Discrimination in Employment Act of 1967
(29 U.S.C. 621, et seq.) and any and all rights Szczepaniak may have pursuant to
the Employment Agreement dated May 20, 1996 between Szczepaniak and SPCH, as
amended, and pursuant to the Management Continuity Agreement dated October 1,
1996 between Szczepaniak and SPC, as amended. Notwithstanding anything else
contained in this agreement, this agreement is not intended to release any
rights Szczepaniak has with respect to his participation in company sponsored
stock option plans, the SPC sponsored 401K plan or any rights Szczepaniak has to
seek and obtain indemnification and/or defense in the event that any claim is
asserted against Szczepaniak by a third party. Szczepaniak represents and
warrants that he is not aware of any pending or threatened claims by a third
party which might give rise to such a claim for indemnification of defense.
(b) As a material inducement to Szczepaniak to enter into this Agreement,
each of SPCH and SPC hereby irrevocably and unconditionally waive, release and
discharge Szczepaniak, his 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, presently
known to SPCH or SPC, 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 arising out of his
employment and resignation therefrom or the termination thereof, including, but
not limited to, any claim that SPCH 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 Szczepaniak, any violation by Szczepaniak of Section 16 of the Securities
Exchange Act of 1934, as amended or the agreements of Szczepaniak contained
herein.
(c) It is understood and agreed by the Parties 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. The Parties
expressly accept and assume the risk of the facts and assumptions to be so
different, and 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.
Szczepaniak acknowledges that:
<PAGE>
(a) He has had a full twenty-one (21) days within which to consider this
Agreement before executing it;
(b) He has carefully read and fully understands all of the provisions of
this Agreement;
(c) He is, through this Agreement, releasing SPCH, SPC and their affiliates
from any and all claims he may have against any of them;
(d) He knowingly and voluntarily agrees to all of the terms set forth in
this Agreement;
(e) He knowingly and voluntarily intends to be legally bound by the same;
(f) He was advised and hereby is advised in writing to consider the terms
of this Agreement and consult with an attorney of his choice prior to executing
this Agreement;
(g) He 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) He understands that rights or claims under the Age Discrimination in
Employment Act of 1967 (29 U.S.C. 621 et seq.) that may arise after the date of
this Agreement is executed are not waived.
6. Non-Disclosure.
Szczepaniak shall not disclose or deliver to any other party any trade
secrets or confidential or proprietary information gained through employment
with SPCH 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
SPCH or SPC or any subsidiary or division thereof Szczepaniak agrees that any
breach of this Section 6 will cause SPCH 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, SPCH and SPC shall
have the right to seek specific performance and other injunctive and equitable
relief.
7. Non-Disparagement.
The Parties 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
<PAGE>
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 the
Parties 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 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 any party to this Agreement hereafter institute any legal action
or administrative proceedings against another party 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.
<PAGE>
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 to be a part of this Agreement.
14. Entire Agreement.
This Agreement sets forth the entire agreement between the Parties, and
fully supersedes any and all prior agreements or understandings between the
Parties pertaining to the subject matter hereof. All other contracts, agreements
or understandings between the Parties, other than the Consulting Agreement, 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.
PLEASE READ CAREFULLY. THIS SETTLEMENT AND GENERAL RELEASE AGREEMENT
INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
<PAGE>
In witness whereof, this agreement has been duly executed and delivered by
the parties hereto on the date first above written.
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
By: /s/Barry Cinnamon
Barry Cinnamon, Chairman
SOFTWARE PUBLISHING CORPORATION, INC.
By: /s/Barry Cinnamon
------------------------
Barry Cinnamon, Chairman
/s/Joseph V. Szczepaniak
------------------------
Joseph V. Szczepaniak
Void after 5:00 p.m. New York Time, on October 22, 2002 Option to Purchase
96,100 Shares of Common Stock.
OPTION TO PURCHASE COMMON STOCK
OF
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
This is to certify that, FOR VALUE RECEIVED, RONALD L. ALTMAN, or assigns
("Holder"), is entitled to purchase, subject to the provisions of this Option,
from Software Publishing Corporation Holdings, Inc., a Delaware corporation
("Company"), NINETY-SIX THOUSAND ONE HUNDRED (96,100) fully paid, validly issued
and nonassessable shares of Common Stock, $.001 par value, of the Company (the
"Common Stock") at a price of $1.2756 per share (the "Exercise Price") at any
time or from time to time during the period commencing on the earlier of (a) the
second anniversary of the date hereof or (b) the occurrence of a Change in
Control (as defined below) of the Company and ending on October 22, 2002, but
not later than 5:00 p.m. New York City Time, on October 22, 2002 (subject to the
provisions of Sections (a) and (j) below). The number of shares of Common Stock
to be received upon the exercise of the Options and the price to be paid for
each share of Common Stock may be adjusted from time to time as hereinafter set
forth. The rights granted by this Option to purchase shares of Common Stock are
hereinafter sometimes referred to as the "Options"; the shares of Common Stock
deliverable upon exercise of the Options, and as adjusted from time to time, are
hereinafter sometimes referred to as "Option Shares"; and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price".
For purposes of this Agreement, a "Change in Control" of the Company, or in
any person directly or indirectly controlling the Company, shall mean:
(i) a change in control as such term is presently defined in
Regulation 240.12b-2 under the Securities Exchange Act of 1934, as amended
(the "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
<PAGE>
directors representing at least two-thirds (2/3) of the directors then in
office who were directors at the beginning of the period.
(a) EXERCISE OF OPTION. This Option may be exercised in whole or in part at
any time or from time to time on or after the date hereof and through October
22, 2002, subject to the provisions of this Section (a) and Section (j)(2)
hereof; provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's shareholders, the
Holder shall have the right to exercise this Option through October 22, 2002
into the kind and amount of shares of stock and other securities and property
(including cash) receivable by a holder of the number of shares of Common Stock
into which this Option might have been exercisable immediately prior thereto.
This Option may be exercised by presentation and surrender hereof to the Company
at its principal office, or, at the Company's option, at the office its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Option Shares
specified in such Purchase Form. As soon as practicable after each such exercise
of this Option, but not later than seven (7) days from the date of such
exercise, the Company shall issue and deliver to the Holder a certificate or
certificates for the Option Shares issuable upon such exercise, registered in
the name of the Holder or its designee. If this Option should be exercised in
part only, the Company shall, upon surrender of this Option for cancellation,
execute and deliver a new Option evidencing the rights of the Holder thereof to
purchase the balance of the Option Shares purchasable thereunder. Upon receipt
by the Company of this Option at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Option such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
this Option.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Option. With respect
to any fraction of a share of Common Stock called for upon any exercise hereof,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share of Common Stock, determined as
follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or
listed for trading on The NASDAQ Stock Market, Inc., the current market
value shall be the last reported sale price of the Common Stock on such
exchange or system on the last business day prior to the date of exercise
<PAGE>
of this Option or if no such sale is made on such day, the average closing
bid and asked prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted to the
unlisted trading privileges, the current market value shall be the mean of
the last reported bid and asked prices reported on the OTC Electronic
Bulletin Board, or if not reported on the OTC Electronic Bulletin Board, by
the National Quotation Bureau, Inc., on the last business day prior to the
date of the exercise of this Option; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value thereof
as at the end of the most recent fiscal year of the Company ending prior to
the date of the exercise of the Option, determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF OPTION. This Option is
exchangeable and transferable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company, or at the Company's
option, at the office of its stock transfer agent, if any, for other Options of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder. Upon
surrender of this Option to the Company at its principal office or at the office
of its stock transfer agent, if any, with the Assignment Form annexed hereto
duly executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Option in the name of the assignee
named in such instrument of assignment and this Option shall promptly be
canceled. This Option may be divided or combined with other options which carry
the same rights upon presentation hereof at the principal office of the Company
or at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new options are to be
issued and signed by the Holder hereof. The term "Option" as used herein
includes any options into which this Option may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Option, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Option, if mutilated, the Company will execute and deliver
a new Option of like tenor and date. Any such new Option executed and delivered
shall constitute an additional contractual obligation on the part of the
Company, whether or not this Option so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Option and
are not enforceable against the Company except to the extent set forth herein.
<PAGE>
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Options shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision, combination
or reclassification, shall be proportionately adjusted so that the Holder
of this Option exercised after such date shall be entitled to receive the
aggregate number and kind of shares which, if this Option had been
exercised by such Holder immediately prior to such date, the Holder would
have owned upon such exercise and been entitled to receive upon such
dividend, subdivision, combination or reclassification. For example, if the
Company declares a 2 for 1 stock distribution and the Exercise Price
immediately prior to such event was $1.2756 per share, the adjusted
Exercise Price immediately after such event would be $.6378 per share. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(2) In case the Company shall hereafter distribute to the holders
of its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (1) above), then, in each such case, the Exercise Price in
effect thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as defined in
Subsection (4) below), less the fair market value (as determined by the
Company's Board of Directors) of said assets or evidences of indebtedness
so distributed or of such rights or options, and the denominator of which
shall be the total number of shares of Common Stock outstanding multiplied
by such current market price per share of Common Stock. Such adjustment
shall be made successively whenever such a record date is fixed. Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(3) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Subsections (1) or (2) above, the number of
Option Shares purchasable upon exercise of this Option shall simultaneously
be adjusted by multiplying the number of Option Shares initially issuable
upon exercise of this Option by the Exercise Price in effect on the date
hereof and dividing the product so obtained by the adjusted Exercise Price.
(4) For the purpose of any computation under Subsection (2)
above, the current market price per share of Common Stock at any date shall
be deemed to be the average of the daily closing prices for 30 consecutive
business days before such date. The closing price for each day shall be the
<PAGE>
last sale price regular way or, in case no such reported sale takes place
on such day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange on which
the Common Stock is admitted to trading or listed or The NASDAQ Stock
Market, Inc., or if not listed or admitted to trading on such exchange or
The NASDAQ Stock Market, Inc., the average of the highest reported bid and
lowest reported asked prices as reported by another similar organization
such as the OTC Electronic Bulletin Board if NASDAQ is no longer reporting
such information, or, if not so available, the fair market price as
determined by the Board of Directors.
(5) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which
by reason of this Subsection (5) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this Section (f)
shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Anything in this Section (f) to the contrary
notwithstanding, the Company shall be entitled, but shall not be required,
to make such changes in the Exercise Price, in addition to those required
by this Section (f), as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common
Stock, or any subdivision, reclassification or combination of Common Stock,
hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into
Common Stock (including Options).
(6) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted
Exercise Price and adjusted number of shares issuable upon exercise of each
Option to be mailed to the Holders, at their last addresses appearing in
the Option Register, and shall cause a certified copy thereof to be mailed
to its transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors (who may be
the regular accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment.
(7) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (1) above, the Holder of this Option thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Option shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in Subsections (1) to (5),
inclusive, above.
<PAGE>
(8) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Option, Options
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Options initially
issuable pursuant to this Option.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section (f), the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with the stock transfer agent responsible for this Option,
if any, an Officer's Certificate showing the adjusted Exercise Price determined
as herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such Officer's Certificate
shall be made available at all reasonable times for inspection by the Holder or
any holder of a Option executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO OPTION HOLDERS. So long as this Option shall be outstanding,
if (i) the Company shall pay any dividend or make any distribution upon the
Common Stock, (ii) the Company shall offer to the holders of Common Stock for
subscription or purchase by them any share of any class or any other rights, or
(iii) any capital reorganization of the Company, reclassification of the capital
stock of the Company, consolidation or merger of the Company with or into
another corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least fifteen days prior the date specified in
(x) or (y) below, as the case may be, a notice containing a brief description of
the proposed action and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Option) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entity, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Option at any time
<PAGE>
prior to the expiration of this Option, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Option immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Option.
The foregoing provisions of this Section (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that, in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Subsection (1) of Section (f) hereof.
Dated: As of October 23, 1997
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
By:/s/Barry A. Cinnamon
----------------------------
Barry A. Cinnamon, President
[SEAL]
ATTEST:
/s/Neil M. Kaufman
- --------------------------
Neil M. Kaufman, Secretary
<PAGE>
PURCHASE FORM
Dated , 19
The undersigned hereby irrevocably elects to exercise the within Option to
the extent of purchasing ________ shares of Common Stock and hereby makes
payment of _______ in payment of the actual Exercise Price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name__________________________________
(Please typewrite or print in block letters)
Address_______________________________
Social Security or Employer Identification No.______________
Signature_____________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED,____________________________________ hereby sells,
assigns and transfer unto
Name:_________________________________
(Please typewrite or print in block letters)
Address_______________________________
Social Security or Employer Identification No.______________
the right to purchase Common Stock represented by this Option to the extent of
__________ shares as to which such right is exercisable and does hereby
<PAGE>
irrevocably constitute and appoint _____________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Signature:____________________________
Date:_________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 1,186,648
<SECURITIES> 1,302,760
<RECEIVABLES> 2,060,582
<ALLOWANCES> 0
<INVENTORY> 588,748
<CURRENT-ASSETS> 5,447,093
<PP&E> 703,656
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,920,016
<CURRENT-LIABILITIES> 9,579,461
<BONDS> 0
0
61
<COMMON> 8,050
<OTHER-SE> 5,228,206
<TOTAL-LIABILITY-AND-EQUITY> 14,920,016
<SALES> 12,127,172
<TOTAL-REVENUES> 12,127,172
<CGS> 2,730,740
<TOTAL-COSTS> 2,730,740
<OTHER-EXPENSES> 4,978,193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (133,228)
<INCOME-PRETAX> (7,551,677)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,551,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,551,677)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> (.94)
</TABLE>
