1997 Annual Report Software Publishing Corporation Holdings, Inc.
<PAGE>
To Our Stockholders:
1997 was a year of great promise as well as great disappointment as a
result of the acquisitions made by the Company in the last five months of 1996.
The acquisition of the Serif companies has proved to be successful and exciting.
The Serif (Europe) Limited operations, based in Nottingham, England, were
profitable in 1997, and the Serif operation in Nashua, New Hampshire, has made
great strides towards profitability. We believe that both operations will
continue their progress in 1998. Unfortunately, the SPC acquisition fell far
short of expectations, as our efforts to arrest the downward sales trend that
had plagued SPC prior to our involvement were unsuccessful. The new products
launched in 1997 based on the Intelligent Formatting technology produced by SPC
did not win broad market acceptance despite media acclaim. In December, the
Company completely restructured its management and operations, eliminating most
of the expenses associated with the SPC operations. The Company appointed a new
Chairman, who is an industry veteran, a new President, as well as a new Chief
Financial Officer. The Company also promoted a highly experienced direct
marketing executive to the position of Vice President - Marketing and Sales.
With the restructuring behind us and a new management team in place, we
have begun to focus on and leverage our core competencies: two strong and well
known brand names, Serif PagePlus and Harvard Graphics, a development staff
maintaining the technological advantage of these branded products, and a
multi-channel distribution capability that many other software companies do not
have - direct mail, telemarketing, retail, corporate resellers, OEM and the
Internet. We have launched a campaign to revitalize Harvard Graphics, as well as
to capitalize on its brand name with other complimentary products, so as to
expand the Harvard presence. At the same time, we are also expanding our Serif
product lines and incorporating new technologies to remain technologically
competitive. We are also implementing plans to leverage our telemarketing
operations with significant third-party programs.
We believe that the Company has the high-quality products and technology,
well known brands, large user base, ongoing revenue stream, strong distribution
channels, realistic cost structure and employee talent to achieve our goal of
becoming a significantly profitable company. Your new management team is
committed to working hard to leverage these assets and core competencies to
continue the progress we have made in recent months. We intend to leverage these
assets to the fullest extent possible in the coming year, and not look back.
Please visit our web site (http://www.spco.com) to view the Company's
products at the Software Outlet Store and for continued updates as to our
progress towards profitability.
Sincerely,
/s/ Mark E. Leininger
Mark E. Leininger
President and Chief Operating Officer
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _________ to
__________
Commission file number: 1-14076
SOFTWARE PUBLISHING CORPORATION HOLDINGS, INC.
(Name of small business issuer in its charter)
Delaware 22-3270045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3A Oak Road, Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (973) 808-1992
Securities registered under Section 12(b) of the Exchange Act:
Common Stock, par value $.001
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's net revenues for its most recent fiscal year. $17,156,865.
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $5,398,650, at April 13, 1998, based on the last bid price of
the Common Stock on such date of $.69, as reported by the Nasdaq Stock Market.
As of April 13, 1998, there were a total of 9,042,958 shares of the Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
Introductory Comment - Forward Looking Statements.
Statements contained in this Annual Report on Form 10-KSB that are not
based upon historical fact are "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements included
in this Form 10-KSB involve known and unknown risks, uncertainties and other
factors which could cause actual results, performance (financial or operating)
or achievements expressed or implied by such forward looking statements not to
occur or be realized. Such forward looking statements generally are based upon
the best estimates by Software Publishing Corporation Holdings, Inc. (the
"Company") of future results, performance or achievement, based upon current
conditions and the most recent results of operations. Forward-looking statements
may be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "believe," "estimate," "anticipate," "continue," or similar
terms, variations of those terms or the negative of those terms.
As discussed in "Item 1. Description of Business," the Company acquired
three operating software companies in 1996 and conducted a major restructuring
of its management and operations in late 1997 and early 1998 with the
expectation that such transactions and restructuring will result in long-term
strategic benefits. The realization of these anticipated benefits will depend in
part on whether the cost savings intended to be realized from the restructuring
can be achieved. While the Company has substantially implemented its integration
and restructuring plans, there can be no assurance that the expected long-term
strategic benefits of the acquisitions and restructuring 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 market acceptance and amount of sales of the Company's products,
the extent that the Company's direct mail programs achieve satisfactory response
rates, the efficiency of the Company's telemarketing operations, the competitive
environment within the computer software and direct mail industries, the
Company's ability to raise additional capital, the ability of the Company to
continue to implement its reorganization plan efficiently and achieve the
anticipated results therefrom, the cost-effectiveness of the Company's product
development activities, the extent to which the Company is successful in
developing, acquiring or licensing successful products, and other factors and
information disclosed and discussed in "Item 1. Description of Business," "Item
6. Management's Discussion and Analysis or Plan of Operation" and in other
sections of this Form 10-KSB. Readers of this Form 10-KSB should carefully
consider such risks, uncertainties and other information, disclosures and
discussions which contain cautionary statements identifying important factors
that could cause actual results to differ materially from those provided in the
forward-looking statements.
Item 1. Description of Business.
General
The Company is an international developer, publisher and supplier of
proprietary computer software applications primarily targeted towards the visual
communications market segment through desktop publishing, presentation graphics
and business productivity software for the corporate and small office/home
office ("SOHO") markets. The Company's products produce documents through its
easy-to-use desktop publishing, drawing and presentation graphics applications,
and also improve the graphical appeal and overall effectiveness of documents
produced by either the Company's or third parties' desktop publishing,
presentation graphics, web page, e-mail, word processing and other similar
applications. The Company currently offers seventeen products, primarily Serif
PagePlus and Harvard Graphics , that operate on the Windows 95, Windows NT ,
Windows 3.1 and DOS operating systems for IBM personal computers and
compatibles. The Company has established a multi-channel distribution system
utilizing direct mail, telemarketing, retail, corporate and OEM sales channels
and also disseminates its software programs over the Internet.
<PAGE>
The Company was incorporated in Delaware on December 23, 1993, and
succeeded to the business of its predecessor New Jersey corporation, which was
formed on July 20, 1992. In July 1996, the Company acquired Serif Inc. and Serif
(Europe) Limited (collectively, "Serif"), which expanded its product line to
include the Serif PagePlus and DrawPlus desktop publishing titles. In December
1996, the Company acquired all of the outstanding capital stock of Software
Publishing Corporation ("SPC") pursuant to a merger (the "Merger") of a
wholly-owned subsidiary of the Company with and into SPC, which resulted in the
further expansion of the Company's product line to include SPC's presentation
graphics and other visual communications and business productivity software
products. The Company continues to operate the Serif companies and SPC as
wholly-owned subsidiaries. Since January 1998, the operations of SPC were
significantly reduced or eliminated. The Company's business strategy currently
includes the leveraging of the Serif and Harvard brand names and their user base
for Serif and SPC products in marketing the Company's present product lines,
products currently under development and additional products which may be
developed, licensed or acquired in the future. Unless the context otherwise
requires, all references herein to the Company include Software Publishing
Corporation Holdings, Inc. and its subsidiaries, including SPC and Serif, on a
consolidated basis.
The Company's principal executive offices are located at 3A Oak Road,
Fairfield, New Jersey 07004; telephone (973) 808-1992. The Company maintains
websites at www.spco.com, www.serif.com and www.harvardgraphics.com.
Business Strategy
The Company's strategic objective is to become a leading supplier of
easy-to-use software applications that improve the graphical appeal and overall
effectiveness of documents produced by desktop publishing, drawing and
presentation graphics applications, as well as to maximize the profitability and
productivity of the Company's direct mail and telemarketing operations in the
United States and Europe.
The Company believes that many current graphical presentation software
applications and first-generation Internet publishing tools were designed for
computer specialists, corporate MIS departments, computer consultants and other
technically knowledgeable users. The Company believes that there is a market
opportunity for software that makes it easy for the average computer user to
create high-quality, graphically rich documents, presentations, e-mail and web
pages.
With respect to sales and marketing, the Company intends to leverage its
multi-million user, multi-national installed base of Serif PagePlus and Harvard
Graphics through its multi-national direct mail and telemarketing operations, as
well as the corporate and retail sales channels. The Company believes that the
Internet may provide additional opportunities for further sales and marketing
success, and has established an on-line store at its website from which its
products may be purchased.
The Company's primary product families are the Serif line of desktop
publishing and drawing products, consisting primarily of Serif PagePlus,
SerifDraw Plus and Serif Publishing Power Suite, and the Harvard line of
graphical information presentation products, consisting primarily of Harvard
Graphics and Harvard ChartXL. The Company believes that Serif PagePlus is the
most popular desktop presentation software application in use in the United
Kingdom. The Company also markets the Active line of companion utility products
(currently consisting of ActiveOffice , Active Presenter , ActiveMail and Serif
MailPlus ), and the ASAP line of presentation graphics products. In 1996, the
Company introduced new products, including ASAP WordPower , ASAP WebShow , ASAP
WebShow Presentation Kit, Serif PagePlus 4, Serif DrawPlus 3, and a suite of
presentation products called the Harvard Graphics Presenter's Pack consisting of
Harvard Graphics, Harvard ChartXL , Harvard Spotlight , and Flamingo Plus
(distributed under license from a third party), and also created two Internet
plug-ins, ASAP WebShow for Netscape Navigator and an ActiveX version of ASAP
WebShow for Microsoft Internet Explorer 3.0. In January 1997, the Company
introduced ActiveOffice, which is a companion product to Microsoft Office that
is designed to give users of Microsoft 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, which is
designed to enable users to quickly and easily prepare and publish to the world
wide web real-time or self-running presentations. In September 1997, the Company
introduced Serif Page Plus 5, an upgrade of its popular Serif PagePlus product.
In November 1997, the Company introduced ActiveMail and Serif MailPlus, which
enable e-mail users to produce electronic messages utilizing a rich graphical
presentation rather than ordinary text.
<PAGE>
Products
The Company's primary product lines include desktop publishing,
presentation graphics and business productivity applications. Certain of the
Company's product lines are available in languages other than English, including
those product lines with significant foreign revenues. Both the Serif and
Harvard lines of products continue to derive substantial revenues from foreign
sales. See "Item 6. Management's Discussion and Analysis or Plan of Operations."
The Company's primary products, listed by product genre, are:
Desktop Publishing
Serif PagePlus 5 Professional Edition for Windows 95 is the
Company's premium desktop publishing application designed to permit
the average computer user to produce professional-quality
advertisements, flyers, reports, banners, brochures, newsletters,
greeting cards and other written documents.
Serif PagePlus Home/Office for Windows 95 is designed for
more price-sensitive SOHO and home computer desktop publishing users
who do not need all the content and advanced features included in
PagePlus 5.
Serif PagePlus 4 is designed to permit the average computer
user to produce professional-quality advertisements, flyers, reports,
banners, brochures, newsletters, greeting cards and other written
documents.
Serif DrawPlus 3 Home/Office Edition for Windows 95, is
designed for both the average and advanced computer user, with a range
of drawing and design tools that they can use to create logos,
posters, cartoons, certificates, report covers and greeting cards.
Serif Publishing Power Suite is a combination of products
consisting of Serif PagePlus 3, TypePlus, TablePlus, DrawPlus 3,
PhotoPlus, Arena 3D Design ED (licensed from a third party) and
PhotoMorph 2.0 (licensed from a third party), along with 7,000 clipart
images, 500 photos and 400 fonts.
Serif PagePlus Home/Office Designer Pack provides over 100
design wizards, 100 additional fonts, 50 photos and over 5,000 clipart
images.
Serif ClipArt Pack contains 75,000 clipart images licensed
from a third party.
Presentation Graphics
Harvard Graphics 4.0 for Windows 95 is a Windows
presentation graphics package offering a range of capabilities
enabling users to create and deliver more effective presentations.
Harvard Graphics 3.0 for Windows is a Windows 3.1
presentation graphics package offering the Advisor System and an
interactive design checker.
Harvard ChartXL 2.0 for Windows 95 is a charting application
program that provides users of spreadsheet software and other major
Windows-based applications a tool for analyzing, viewing and
presenting their data more effectively with more than 300 unique two-
and three-dimensional business, statistical, and technical chart
types, coupled with spreadsheet capabilities and "what if" analytical
tools.
<PAGE>
Harvard Spotlight 2.0 for Windows 95 helps assist users to
control the flow and delivery of their electronic presentations.
ActiveMail and Serif MailPlus, which were released in
November 1997, enable users to send graphical e-mail messages in
addition to or instead of plain text.
ActivePresenter, which was released in June 1997, is
designed to enable users to quickly and easily prepare and publish to
the world wide web real-time presentations, which can be moderated or
self-running, thereby enabling users to coordinate presentations to
any participants with access to the Internet or from any location.
Active Office, which was released in January 1997, is
designed as a companion to Microsoft Office that gives users of Word,
Excel, PowerPoint and Exchange Mail a quick and easy way to turn plain
text and numbers into high-impact visual elements which are embedded
in their text, thereby increasing the communication effectiveness of
their documents.
ASAP WordPower, v.1.95 is a presentation graphics
application that helps inexperienced users create a presentation
within a few minutes. ASAP WordPower allows the Windows 95 user to
convert text created in ASAP WordPower or MS Word into a professional,
well-designed presentation.
ASAP WebShow is a viewer for presentations that are created
with the Company's ASAP WordPower presentation software and posted to
the World Wide Web. The combination of ASAP WebShow and ASAP WordPower
provides a set of tools to enhance communications over the Internet.
Together, these two products offer users a solution for creating and
viewing presentations on the World Wide Web. An ASAP WebShow user can
view a presentation in interactive or auto-run mode, download the
materials for later viewing, or print hard copies for local use.
Business Productivity Applications
Word Processing and Other Products. The Company's word
processing and other business productivity products are older, legacy
products for mature market segments. These products include
Professional Write, Professional Write PLUS, OfficeWriter and
Professional File. The Company has de-emphasized this category.
Other Products. The Company markets an interactive
multimedia tutorial under the Company's Learn to Do brand, titled
Learn to Do Windows 95 with John C. Dvorak. The Company has
de-emphasized this product.
Intellectual Property and Other Proprietary Rights
The Company believes that its success depends significantly upon its
proprietary technology. The Company currently relies on a combination of
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions and other written materials under trade secret, patent
and copyright laws to protect its proprietary technology; however, these
generally afford only limited protection. The Company has registered and applied
for registration for certain service marks and trademarks, and intends to
continue to evaluate the registration of additional service marks and trademarks
as appropriate. Additionally, the Company generally copyrights its software and
related user documentation, but the copyright laws afford only limited practical
protection against duplication of the media embodying the programs and the
related user manuals. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or services or to obtain and use information that the Company regards
as proprietary. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
Monitoring and identifying unauthorized use of such broadly disseminated
products as personal computer software is difficult. The Company expects
software piracy to be a continuing problem for the software industry. The
Company relies upon software engineering and marketing skills to protect its
market position, in addition to the copyright and trademark or trade secret
<PAGE>
protection discussed above. Because the software development industry is
characterized by rapid technological change, the Company believes that factors
such as the technological and creative skills of its personnel, new product
developments, frequent product enhancements, brand name recognition and reliable
product maintenance are as important to establishing and maintaining a
technology leadership position as the various legal protections of its
technology.
The Company currently has patent applications pending related to the
technology contained in its Harvard Spotlight product. There can be no assurance
that any new patent applications will be submitted, that any pending
applications will be approved, that if issued, any such patent will not be
challenged, or that if challenged, any such patent will not be invalidated, any
of which may have a material adverse effect on the Company. The Company's patent
application relating to its Intelligent Formatting technology has been denied by
the U.S. Patent Office. There can be no assurance that any issued patent will
provide the Company with any competitive advantages. The Company believes that
it retains ownership rights to all software, both developed and commercially
distributed by the Company, except for those components of the software that the
Company licenses from third parties. Software offered by the Company is licensed
and generally provided in object code pursuant to shrink-wrap or on-screen
license agreements or executed license agreements which contain restrictions on
disclosure and transferability. In addition, the Company has from time to time
licensed to third parties the right to use, modify, reproduce, sublicense,
distribute and market certain of the Company's software products or portions of
its software products. Such licensed software is provided in object code and, in
certain limited circumstances, source code, pursuant to agreements which contain
restrictions on disclosure and transferability.
Certain technology used in the Company's products is licensed on a
perpetual, fully paid, non-royalty-bearing basis from third parties. If any
event occurred that rendered technology licensed from a third party and
incorporated in the Company's products unavailable to the Company, or if the
technology is not appropriately supported and enhanced by the licensor, the
Company could be forced to expend financial and development resources to replace
that technology. Such expenditures could materially adversely affect the
Company's business, financial condition and results of operations.
The Company is not aware that any of its products materially infringes the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim such infringement by the Company or its licensors
with respect to current or future products. The Company expects that software
product developers will increasingly be subject to such claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or might require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company.
Litigation may be necessary to protect the Company's proprietary
technology. Any such litigation may be time-consuming and costly. There can be
no assurance that the Company's means of protecting its proprietary rights will
be adequate or that the Company's competitors will not independently develop
similar technology or duplicate the Company's products or services or design
around patents or other intellectual property rights of the Company. There has
been a substantial amount of litigation in the software industry regarding
intellectual property rights and there can be no assurance that the patents or
other intellectual property rights of others will not have a material adverse
effect on the Company's ability to do business.
Competitors and potential competitors of the Company may resort to
litigation as a means of competition. Such litigation may be costly and expose
the Company to new claims that it may not have anticipated. Although patent and
intellectual property disputes in the software area have often been settled
through licensing, cross-licensing or similar arrangements, costs associated
with such arrangements may be substantial if they may be obtained at all. Any
litigation involving the Company, whether as plaintiff or defendant, regardless
of the outcome, including any litigation relating to claims which have been or
may in the future be asserted against the Company, may result in substantial
costs and expenses to the Company and significant diversion of effort by the
Company's technical and management personnel. In addition, there can be no
assurance that litigation, either instituted by or against the Company, will not
be necessary to resolve issues that may arise from time to time in the future
with other competitors. Any such litigation could have a material adverse effect
upon the Company's business, operating results and financial condition. In the
event of an adverse result in any such litigation, the Company could be required
to expend significant resources to develop non-infringing technology, obtain
<PAGE>
licenses to the technology which is the subject of the litigation on terms not
advantageous to the Company, pay damages, and/or cease the use of any infringing
technology. There can be no assurance that the Company would be successful in
such development, that any such licenses would be available and/or that the
Company would have available funds sufficient to satisfy any cash awards.
Product Development
The personal computer software industry is characterized by rapid
technological change, which requires a continuing high level of expenditures for
the enhancement of existing products as well as development, licensing or
acquisition of new software products. The Company's current product development
activities include enhancing and updating its present software packages and
designing certain new products. The Company intends to expand and update its
Serif software code to meet the demands of the current market.
The Company's Serif technology provides advanced desktop publishing and
drawing capabilities while also providing a code base to continue to expand the
products as user requirements evolve. In 1997, the Company introduced one new
product based on its updated Serif technology. The Company has focused research
and development resources to expand its Serif and Harvard Graphics technology,
as well as to integrate the Intelligent Formatting technology into its Serif
products.
The Company intends to acquire additional technology through a combination
of internal development, licensing, purchasing and strategic alliances. There
can be no assurance that the Company's product development efforts or product
introductions will result in commercially successful products. The Company's
revenues are based on a combination of products developed internally, acquired
products and licensed products. The Company intends to continue a flexible
approach to the development, acquisition and release of new products and
technologies, recognizing that the rapid changes in the software industry
require ever shorter development cycles and ever higher levels of product
quality and functionality. The Company plans to continue to develop and acquire
software technology and products, and to acquire licensing or distribution
rights to third-party products, to enhance and expand its product offerings.
In June 1996, SPC entered into a non-exclusive licensing and joint
development agreement with Oracle Corporation ("Oracle") to embed Intelligent
Formatting technology into the Oracle InterOffice Product Line. Under the
agreement, the Company's Intelligent Formatting engine is being ported to Java
for use in the Oracle InterOffice product line. Intelligent Formatting
technology is intended to enhance the Oracle InterOffice product offerings in
the area of visual communications. The collaborative services offered by Oracle
InterOffice -- messaging, directory services, calendar/scheduling, document
management and workflow -- are designed to enable users to productively share,
exchange and manage information within their group, across the enterprise and
beyond. Intelligent Formatting technology is expected to complement these
services by adding rich visual content to the range of the Oracle InterOffice
applications. Under the terms of this agreement, Oracle has paid to the Company
a development fee and a one-time license fee in installments. The Company
believes that the development fee and license fee have not resulted in a
material financial benefit to the Company. In addition, in June 1996, Oracle
Corporation purchased a worldwide end-user site license for the Company's ASAP
WordPower visual communications software. Under the terms of the agreement, the
Company granted Oracle and its subsidiaries a license for the desktop, network
and mobile use of ASAP WordPower.
The Company spent approximately $3,227,215 in 1997 and approximately
$1,077,615 in 1996 for product development and enhancement activities. These
expenditures represented approximately 18.8% and 22.9% of total net revenues for
such years, respectively.
Production
After approval by quality assurance personnel and management, the Company's
product development staff produces the master diskettes, CD-ROMs and user
manuals for its proprietary software as part of its product development
activities. Third party contractors generally print and assemble CD-ROM discs,
diskettes, manuals, catalog inserts and boxes in which the Company's products
are shipped. The Company has multiple sources for major components of its
products, does not rely on any one principal supplier and has not experienced
any material delays in production or assembly. To date, the Company has not
<PAGE>
experienced any material difficulties or delays in production of its software
products and related documentation.
Sales and Marketing
The Company's products are sold primarily through direct mail,
telemarketing, retail, corporate, and original equipment manufacturer ("OEM")
channels. The Company has also positioned itself to take advantage of the
Internet as an additional sales medium. Direct mail sales, which accounted for
approximately 72.4% and 75.5% of the Company's revenues in 1997 and 1996,
respectively, are generated by inbound and outbound telemarketing operations in
the U.S. and U.K. Corporate sales are comprised of both individual product sales
as well as volume sales. Most sales to the retail channel are made on a two-step
basis with the initial sales being made to distributors and then to retail
chains. The Company also distributes its products through OEMs on a bundled or
value-added basis. In addition, the popularity of the Internet and the World
Wide Web has made it feasible for the Company to sell its products over the
Internet. In this connection, the Company has established an on-line software
store from which the Company's products may be purchased. As the Internet
continues to evolve mechanisms for efficiently and securely charging customers
directly for software, the Company expects that it may continue to supplement
traditional forms of software distribution with distribution of its software
directly over the Internet medium.
The Company utilizes its telemarketing operations in conjunction with its
direct mail operations to maximize direct sales to existing and new end user
customers. These mailings and direct response advertisements originate from the
Company's offices in the United States and England and are handled by the
Company's inbound and outbound telemarketers in Nashua, New Hampshire and
Nottingham, England. These mailings and advertisements are varied and tested to
attempt to maximize response rates and profitability. The Company maintains a
list of its registered user customers and sends periodic mailings to sell
upgrade versions and new products.
The Company assists distributors and resellers in selling, promoting and
merchandising its products. Large corporate and government sales are fulfilled
principally through resellers and distributors while all other sales are
fulfilled directly. The Company also offers site licenses and volume purchase
discounts to its corporate customers. The OEM sales effort is responsible for
sales to hardware and software original equipment manufacturers, which include
the Company's products in bundles with their equipment.
The Company's advertising programs for its product lines are designed to
increase corporate and product brand awareness, as well as to sell directly to
customers. The Company's advertising targets new customers, its installed
customer base and, with competitive upgrade promotions, its competitors'
customers. The Company advertises primarily through promotions to support
distributors' and resellers' sales efforts, including distributor/reseller
advertising programs, rebates, training and price promotions, and engages in
joint promotional activities with personal computer, peripheral and other
manufacturers, direct mailings and participation at trade shows. The Company
also promotes its products through in-house training and direct mail as well as
offering volume purchase discounts and site licenses.
The Company's products continue to derive substantial revenues from foreign
sales. The Company translates certain of its products, including packaging,
documentation, software, and promotional materials, for international markets.
These translations are generally done by contractors hired by the Company, or by
the Company's local sales and marketing agents. Advertising and promotional
programs are customized for local markets where necessary. International sales
include localized versions of selected products, as well as the English language
versions of the Company's products throughout the United Kingdom, Europe, Latin
America, South America and the Asia/Pacific region. Localized versions include
German, French, Spanish, Italian, Portuguese and Dutch. Approximately 49% of the
worldwide sales in 1997 of the Company and its subsidiaries were made outside of
the U.S., and, for 1996, on a combined pro forma basis, foreign sales accounted
for approximately 44% of the Company's total net sales. The Company expects to
continue to sell internationally and invoice in foreign currencies. Accordingly,
the Company is subject to risks associated with exchange rate fluctuations.
The Company has a general return policy for its North American resellers
and distributors whereby they may return any products previously purchased from
the Company, provided that the aggregate purchase price for such returned
products does not exceed 10% of the reseller's or distributor's net purchases
<PAGE>
for the prior quarter. In addition to this return allowance, North American
distributors and resellers may generally exchange any discontinued products
within ninety days of notification of discontinuation for products of equal or
greater value. For international distributors and resellers, the general return
policy is the same as for North American resellers and distributors, except that
returns with respect to sales in a quarter must be completed within the first
month of the subsequent quarter. For international distributors and resellers,
the policy for the exchange of obsolete products generally allows returns within
thirty days after the announcement of a product's obsolescence, provided that
the product was shipped within thirty days prior to the announcement. However,
to maintain good customer relations, the Company may accept returns in excess of
those allowed under its general policy.
The Company typically ships products within several days after receipt of
orders, which is customary in the personal computer applications software
business. Accordingly, the Company does not believe that its order backlog is a
meaningful indicator of future business.
Customer Support
The Company provides free technical support directly in the United States
and the United Kingdom and through third-party contractors in Europe and other
international locations for a period of thirty days from either the first call
to its technical support centers from the customer or from receipt of the
customer's product registration card. The Company expenses the cost of this
support as incurred. After this initial period, technical support is available
for purchase under a variety of value-added support programs. However, to
maintain good customer relations, the Company may provide free technical support
in excess of the initial period.
Competition
The market for visual communications and business productivity software is
highly competitive and subject to rapid technological change. Many of the
Company's current and potential competitors possess significantly greater
financial, technical and marketing resources, greater name recognition and a
larger installed customer base than the Company. In addition, any of these
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, as well as to devote greater resources to
the development, promotion and sale of their products than the Company.
Furthermore, because there are relatively low barriers to entry in the software
industry, the Company expects additional competition from other established and
emerging companies, which may choose to enter the market by developing products
that compete with those offered by the Company or by acquiring companies,
businesses, products or product lines that compete with the Company. It is also
possible that the competitors may enter into alliances and rapidly acquire
significant market share. The Company also believes that competition will
increase as a result of software industry consolidation. There can be no
assurance that the Company's current or potential competitors will not develop
or acquire products comparable or superior to those developed by the Company,
combine or merge to form significant competitors, or adapt more quickly than the
Company to new technologies, evolving industry trends and changing customer
requirements. Increased competition could result in price reductions, reduced
margins or loss of market share, any of which could materially and adversely
affect the Company's business, operating results and financial condition. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on its business, operating
results and financial condition. If the Company is unable to compete
successfully against current and future competitors, the Company's business,
operating results and financial condition would be materially and adversely
affected.
Some of the competitors of the Company sell "bundles" or "suites" of
products which include products that directly compete with the Company's
products and which are bundled with other office software programs by the same
or multiple competitors. These suite products are sold at an all-inclusive
price. Additionally, application software is increasingly provided as part of
the operating system, or bundled and pre-loaded into new computers. The price
for a stand-alone or pre-loaded bundle or suite of software is typically
significantly less than separately purchased applications, and many end users
are likely to prefer the bundle or suite over a more expensive combination of
other individually purchased applications, even if the latter applications offer
superior performance or features. These factors have resulted in and are
expected to continue to cause significant downward pressures on average selling
<PAGE>
prices for the Company's products. There is no assurance that the Company will
be able to adopt strategies to compete successfully in this environment.
Based on product lines and price points, the Company regards Microsoft,
Symantec Corporation, Corel Corporation, Lotus Development Corporation, Adobe
Systems, Broderbund Software, The Learning Company, Micrografix, Fractile,
Visio, Meditools, Deltapoint, Macromedia, International Microcomputer Software,
Inc. and Design Intelligence as close competitors. The dominant position of
Microsoft in the personal computer operating system and application program
market place provides it with a range of competitive advantages, including the
ability to determine the direction of future operating systems and to leverage
its strength existing in one or more product areas to achieve a dominant
position in new markets. This position may enable Microsoft to increase its
market position even with respect to products having superior performance, price
and ease-of-use features. Microsoft's ability to offer corporate and SOHO
productivity software, to bundle software, to provide incentives to customers to
purchase certain products in order to obtain favorable sales terms or necessary
compatibility or information with respect to other products, and to pre-load
such bundled software on new computers, may significantly inhibit the Company's
ability to maintain or expand its business. In addition, as Microsoft or other
companies create new operating systems and applications, there can be no
assurance that the Company will be able to ensure that its products will be
compatible therewith. The introduction of upgrades to operating systems or the
introduction of new operating systems and standardized software by Microsoft and
others, over which the Company has no control, may adversely affect the
Company's ability to upgrade its own products, and may cause reduction in sales
of the Company's products.
The Company believes that the principal competitive factors in the
corporate and SOHO software market include pricing (which includes individual
product pricing, standard and competitive upgrade pricing, licensing and volume
discounting), product functionality, ease-of-use, bundling in suites of related
products, distribution through existing and new channels and brand name
recognition. The Company's ability to compete will be contingent on its
continued enhancement of its existing products, its ability to correctly
identify and enter new markets, effectively market and sell its current
products, develop, acquire or license new products and broaden its distribution
channels. The Company believes that competition will continue to intensify in
the future and that new product introductions, further price reductions,
strategic alliances and other actions by competitors could materially and
adversely affect the Company's competitive position.
Operations
The Company coordinates its accounting, product development, sales,
marketing, purchasing and scheduling primarily at its offices in Fairfield, New
Jersey and its telemarketing, sales and fulfillment operations at Nashua, New
Hampshire, Nottingham, England and Munich, Germany. The Company's inventory
control, order processing, warehousing and shipping activities related to such
operations are located primarily at its offices in Nashua and Nottingham. The
Company's computer systems handle order entry, order processing, picking,
billing, accounts receivable, accounts payable, general ledger, inventory
control, catalog management and analysis, and mailing list management.
Governmental Regulation
The Company believes that it does not need any government approval for
production and sale of its products. In addition, the Company knows of no
governmental regulations, either federal, state or local which materially affect
its operations or products. Furthermore, the Company knows of no environmental
laws, either federal, state or local, which would affect the Company or its
products. Consequently, the Company has not incurred any costs nor has it
experienced any effects from compliance with any governmental regulations or
environmental laws.
Employees
As of December 31, 1997, the Company had approximately 144 full-time
employees, of whom 21 were in product development, 87 were in marketing, sales
and customer support, eleven were in production and 25 were in general and
administrative functions. Of the total, 78 employees were located in North
America and 66 internationally. In addition, the Company utilized approximately
four independent contractors in connection with its product development,
<PAGE>
administration and marketing activities. The Company has never experienced a
work stoppage and believes that it has satisfactory relations with its employees
and contractors. In January 1998, the Company terminated the employment of
twelve employees, of which five were administrative, three were in marketing,
three in product development and one in production. Also, three contractors'
engagements were terminated.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish twenty-first century dates
from twentieth century dates. As a result, in less than two years, computer
systems and software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. The Company believes that its products and
internal systems are Year 2000 compliant. In addition, the Company believes that
the purchasing patterns of customers and potential customers may be affected by
Year 2000 issues as companies expend significant resources to correct or patch
their current software systems for Year 2000 compliance. These expenditures may
result in reduced funds available to purchase software products such as those
offered by the Company, which could result in a material adverse effect on the
Company's business, operating results and financial condition.
Item 2. Description of Properties.
The Company's principal executive offices are located at 3A Oak Road,
Fairfield, New Jersey, 07004. The Company's North American executive,
administrative, sales, marketing and support staff are primarily located at this
facility. The lease for this facility terminates in September 1999 and provides
for average annual rental costs of approximately $80,400, for approximately
13,400 square feet of space. Approximately 10,000 square feet of this facility
have been subleased for the duration of the lease, providing a net annual rental
cost of approximately $19,200. In addition, Serif Inc. leases approximately
18,000 square feet of office and warehouse space in Nashua, New Hampshire
pursuant to a lease ending in March 2002. This facility serves as the Company's
primary North American telemarketing, customer support, product development
warehouse and fulfillment center. Rental costs for the Nashua facility average
approximately $90,000 per year for the remaining term. Serif (Europe) Limited
leases approximately 25,000 square feet of office and warehouse space in
Nottingham, England for a five year period which commenced in May 1997. This
facility serves as the Company's United Kingdom telemarketing center and
European warehouse and fulfillment center. The rental cost for the Nottingham
facility is expected to average approximately $168,000 per year for the lease
term. The Company also leases 1,200 square feet of office space in Munich,
Germany pursuant to a lease which expires in November 1999 with a rental cost of
approximately $26,000 per year for the lease term. The facility serves as the
Company's European sales office. The Company believes that its existing space
provides it with adequate space for the foreseeable future. The Company does not
own nor does it contemplate owning any real property in the foreseeable future.
Item 3. Legal Proceedings.
On January 30, 1998, an action was commenced against the Company, Mark E.
Leininger and Barry A. Cinnamon in the United States District Court, Southern
District of New York, under the caption Howard Milstein and Ronald Altman v.
Software Publishing Corporation Holdings, Inc., Mark E. Leininger and Barry A.
Cinnamon. Mr. Leininger currently is President, Chief Operating Officer and a
director of the Company and Mr. Cinnamon formerly was Chairman of the Board,
President and Chief Executive Officer of the Company. In the action, plaintiffs
allege that, in October 1997, they purchased an aggregate 889,000 shares of
Common Stock for $919,495 based upon certain statements made to one of the
plaintiffs. Plaintiffs further allege that such statements were intentional
misrepresentations of material fact that were designed to deceive plaintiffs as
to the Company's true financial state and to induce the plaintiffs to invest in
the Company. Plaintiffs seek recision of their investment and a return of their
purchase price and certain other relief. The Company believes that these claims
are without merit and intends to vigorously defend itself in this action. The
Company has filed an answer in this action denying the plaintiffs' allegations
and asserting affirmative defenses, including that the plaintiffs' subscription
agreements bar plaintiffs' claims, and asserting counterclaims that, among other
<PAGE>
things, plaintiffs breached certain of the representations contained in their
subscription agreements, that plaintiff Altman breached his fiduciary duties to
the Company, and that plaintiffs' violated Section 13(d) of the Exchange Act by
filing a materially false and misleading Schedule 13D with respect to the Common
Stock.
On February 13, 1998, a summons and complaint was filed in the Superior
Court of New Jersey, Essex County under the caption Barry Cinnamon and Lori
Kramer Cinnamon, suing derivatively on behalf of Software Publishing Corporation
Holdings, Inc. and its shareholders, and Barry Cinnamon and Lori Kramer
Cinnamon, individually, v. Software Publishing Corporation Holdings, Inc., Neil
M. Kaufman, Mark Leininger and John Does 1-10. Mr. Leininger is President, Chief
Operating Officer and a director of the Company; Mr. Kaufman is a director of
the Company, the principal of Kaufman & Associates, LLC, counsel to the Company,
and was Secretary of the Company from December 1996 to December 1997; Mr.
Cinnamon was Chairman of the Board, President and Chief Executive Officer of the
Company until December 19, 1997; and Ms. Kramer Cinnamon was an officer and
director of the Company until December 19, 1997. To date, the summons and
complaint has been served on the Company and has not been served on either of
the named individual defendants or any of the other defendants. In this action,
plaintiffs seek (i) the recision of the Settlement and General Release
Agreement, dated as of December 19, 1998 (the "Cinnamon Settlement Agreement"),
between the Company and each plaintiff and the License Agreement, dated as of
December 19, 1998 (the "Cinnamon License Agreement," and, together with the
Cinnamon Settlement Agreement, the "Cinnamon Agreements"), between the Company
and Mr. Cinnamon, (ii) payment of the full amount of compensation due under
their former respective employment agreements with the Company, (iii) that Mr.
Kaufman be enjoined from continuing to act as a director and officer of, and
counsel to, the Company, (iv) that the Company be required to provide an
"'opinion letter' as required by the Securities Exchange Act of 1934, as
amended, to permit the sale of shares of stock held by the Cinnamons without
restriction," (v) that the Company be required to immediately register the stock
held by plaintiffs and (vi) compensatory and punitive damages, attorney's fees,
and other relief. Plaintiffs seek such relief based upon their allegations that
the defendants improperly caused the resignation of plaintiffs from their
positions as officers and directors of the Company, that Mr. Kaufman improperly
influenced the decision of the Board of Directors to adopt the Company's
December 1997 restructuring plan (thereby rejecting Mr. Cinnamon's plans for the
Company), and that the Cinnamon Agreements were entered into by each plaintiff
under duress and the coercion of defendants (despite plaintiffs having been
represented by counsel in connection with these matters). The Company believes
that the plaintiff's allegations are without merit, and intends to vigorously
defend itself in this action. The ultimate outcome of this action is unknown at
the present time.
In January 1998, SPC and Pyramid Data, Inc. ("Pyramid") settled the
remaining cause of action in the action brought by Pyramid in May 1994 against
SPC in the Santa Clara Superior Court. The settlement agreement resulted in a
payment by the Company to Pyramid of $9,500 and the dismissal of the action. The
Company has made an application to the court to determine that this settlement
also acts as a bar to the claims of indemnification and contribution under the
cross-complaints among SPC, Custom Paper Products ("CPP") and certain officers
and directors of CPP. No assurance can be given that the Company's application
to the court will be granted. However, the Company does not believe that an
adverse decision against the Company on these claims of indemnification and
contribution would have a material affect on the Company's business, operating
results or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market Information
The Company's Common Stock was traded on the Nasdaq SmallCap Market under
the symbol "ANMI" from December 6, 1995 through December 27, 1996, under the
symbol "SPCOD" from December 28, 1996 through January 27, 1997, and has been
traded under the symbol "SPCO" since January 28, 1997. The Common Stock was also
traded on the Boston Stock Exchange under the symbol "APO" from December 6, 1995
through January 20, 1997 and has been traded under the symbol "SPO" since
January 20, 1997. The following table sets forth the range of high and low
closing prices for the Company's Common Stock for the periods indicated as
derived from reports furnished by Nasdaq. The information reflects inter-dealer
prices, without retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
Fiscal 1996
<S> <C> <C>
First Quarter . . . . . . . . . . . . . $ 6-3/4 $ 3-1/2
Second Quarter. . . . . . . . . . . . . 6-5/8 2-5/8
Third Quarter . . . . . . . . . . . . . 9-3/8 4
Fourth Quarter. . . . . . . . . . . . . 7-13/16 3-1/2
Fiscal 1997
First Quarter . . . . . . . . . . . . . $ 4-3/4 $ 2-15/16
Second Quarter. . . . . . . . . . . . . 3-3/16 1-7/8
Third Quarter . . . . . . . . . . . . . 2-3/8 1
Fourth Quarter. . . . . . . . . . . . . 2-5/16 23/32
</TABLE>
As of April 13, 1998, the closing price for the Common Stock as reported on
Nasdaq was $11/16. At April 13, 1998, there were 657 stockholders of record of
the Company. The Company estimates, based upon surveys conducted by its transfer
agent in connection with the Company's 1998 Annual Meeting of Stockholders, that
there are approximately 10,000 beneficial stockholders.
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings for reinvestment in its
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and other
relevant factors.
The Company has been advised by Nasdaq that the Company may not be in
compliance with certain of Nasdaq's continued listing maintenance requirements:
(a) NASD Marketplace Rule 4310(c)(4), which requires that the Common Stock
maintain a $1.00 per share minimum bid price, and (b) NASD Marketplace Rule
4310(c)(2), which requires that the Company either maintain net tangible assets
of at least $2,000,000, maintain a market capitalization of at least $35,000,000
or have reported net income in two of the last three fiscal years of at least
$500,000. The Company believes it is in compliance with Rule 4310(c)(2) based
upon its audited financial statements for the year ended December 31, 1997,
which shows that the Company had net tangible assets of approximately $2,874,847
(for NASDAQ purposes) at December 31, 1997, and has provided Nasdaq with a copy
of such audited financial statements and other information which the Company
believes should overcome the determination of Nasdaq's staff that the Common
Stock be delisted from Nasdaq, which determination has been stayed pending a
hearing. However, in order to comply with Rule 4310(c)(4), the Common Stock must
have a bid price of at least $1.00 per share for at least ten consecutive
trading days. The Company intends to seek stockholder approval of a reverse
stock split (the "Reverse Stock Split"), which the Company believes will result
in the Common Stock having a bid price of at least $1.00 per share, at the 1998
Annual Meeting of Stockholders of the Company scheduled for May 26, 1998.
However, no assurance can be given that the Reverse Stock Split will result in
the Common Stock having
<PAGE>
a bid price of at least $1.00 per share for at least ten consecutive trading
days, that, in the future, the bid price for the Common Stock will not fall
below $1.00 per share causing a new violation of Rule 4310(c)(4), that the
Company will maintain net tangible assets of at least $2,000,000 or that the
Company will maintain compliance with all other NASD Marketplace Rules with
respect to Nasdaq continued listing maintenance requirements.
(b) Recent Sales of Unregistered Securities
The information set forth below is a list of all sales by the Company of
the Company's equity securities occurring during 1997.
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 $51,077 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. See "Item 3. Legal Proceedings."
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion should be read in conjunction with the historical
financial statements, including the notes thereto, of the Company included
elsewhere herein.
General
The Company is an international developer, publisher and supplier of
proprietary computer software applications primarily, targeted towards the
visual communications market segment through desktop publishing, presentation
graphics and business productivity software for the corporate and small
office/home office ("SOHO") markets. The Company's products produce documents
through its easy-to-use desktop publishing, drawing and presentation graphics
applications, and also improve the graphical appeal and overall effectiveness of
documents produced by either the Company's or third parties' desktop publishing,
presentation graphics, web page, e-mail, word processing and other similar
applications. The Company currently offers seventeen products, primarily Serif
PagePlus and Harvard Graphics , that operate on the Windows 95, Windows NT
Windows 3.1 and DOS operating systems for IBM personal computers and
compatibles. The Company has established a multi-channel distribution system
utilizing direct mail, telemarketing, retail, corporate and OEM sales channels
and also disseminates its software programs over the Internet. The Company
currently derives substantially all of its net sales from products sold directly
to end-users by its direct mail and telemarketing centers, and to retailers,
distributors and corporate purchasers by its internal corporate and retail sales
force and independent sales representatives.
In July 1996, the Company acquired Serif Inc. and Serif (Europe) Limited in
the Serif Acquisition, which significantly expanded the Company's product line
to include desktop publishing titles Serif PagePlus and Serif DrawPlus, among
others. In December 1996, the Company acquired all of the outstanding capital
stock of SPC upon consummation of the Merger, as a result of which the Company's
product line expanded further to include SPC's presentation graphics and other
visual communications and business productivity software products. The Company
continues to operate the Serif companies and SPC as wholly-owned subsidiaries.
Since January 1998, the operations of SPC were significantly reduced or
eliminated.
In 1997, the Company incurred approximately $376,000 of certain
non-recurring expenses or charges, relating primarily to the restructuring of
its California operations including n expense related to a settlement agreement
with its former President approved in December 1997. In 1996, the Company
incurred approximately $23,199,533 of certain non-recurring expenses or charges,
relating primarily to the acquisition of Serif and SPC. The 1996 expenses or
charges included $2,773,180 relating to the release from escrow of 531,000
shares of Common Stock to two former management stockholders, $1,026,000
relating to the issuance of certain warrants to MS Farrell, $1,104,353 in
charges relating to the restructuring of the Company's operations subsequent to
the acquisitions of Serif and SPC, an aggregate of $17,514,000 of in-process
research and
<PAGE>
development costs associated with the acquisitions of Serif and SPC and
approximately $782,000 associated with settlement of outstanding claims and
employee severance not related to the Company's 1996 restructuring. These
expenses and charges accounted for approximately 85.8% of the Company's net loss
for 1996.
North America and international net revenues for the Company's fiscal years
ended December 31, 1997, 1996 and 1995 and the percentage change of such net
revenues compared to the prior fiscal year, were as follows:
<TABLE>
<CAPTION>
Percentage Percentage
1997 Change 1996 Change 1995
<S> <C> <C> <C> <C> <C>
North America...... $ 8,770,684 296.0% $ 2,214,587 57.0% $ 1,410,962
International..... 8,386,181 237.3% 2,486,368 --
___________ ______ ___________ ___________
Total net revenues $17,156,865 265.0% $ 4,700,955 233.2% $ 1,410,962
</TABLE>
The Company believes that end users are continuing to migrate from the
Windows 3.1 to the Windows 95 and Windows NT platforms and potentially may
migrate to Internet computing. The Company expects increased competition,
including price competition, in the Windows 95, Windows NT and Windows 3.1
markets in the future. Several of the Company's competitors have introduced
suites of products which include products that directly compete with the
Company's products. These suites of products may be bundled with other office
software programs by the same or other competitors, or are distributed at no
charge or are included as part of the operating system. The Company believes
these offerings of product suites have adversely affected 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
one suite of products, Serif Publishing Power Suite, as well as products that
complement competitive suite products. The Company believes that in order to
increase its net revenues, it must continue to expand its direct marketing and
telemarketing operations, introduce new marketing strategies and continue to
introduce new technologies and products through strategic alliances,
acquisitions, licensing or distribution arrangements 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
competitors, could adversely affect the Company's net revenues and
profitability.
Results of Operations
1997 Compared to 1996
Net Sales. Net sales increased by $12,455,910 or approximately 265% to
$17,156,865 in 1997 from $4,700,955 in 1996 as a result of inclusion of the
sales from the Company's Serif and SPC subsidiaries for the entire 1997 period,
as compared to the inclusion of the Serif subsidiaries for five months in 1996.
As a result of a transition to selling products primarily through direct
channels instead of at retail, the Company provided in 1997 for returns at
approximately 5% of gross sales versus approximately 28% in 1996.
Cost of Goods Sold. In 1997, cost of goods sold increased by $2,338,061, or
approximately 129% from $1,817,688 in 1996 to $4,155,749 in 1996, primarily as a
result of inclusion of costs of goods sold by the Company's Serif and SPC
subsidiaries for the entire 1997 period, as compared to the inclusion of the
Serif subsidiaries for five months in 1996. Cost of goods sold decreased as a
percentage of net sales from approximately 38.7% in 1996 to approximately 24.2%
in 1997, as a result of the effect of increased sales volumes providing lower
per unit production costs and an effort to reduce product costs during 1997.
The Company's gross margins and operating income may be affected in
particular periods by the timing of product introductions and 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
<PAGE>
affected by competitive pricing strategies in the industry as a whole, including
competitive upgrade pricing, the OEM business and alternative licensing
arrangements.
Costs of goods sold consists primarily of product costs, freight charges,
royalties and an inventory allowance for damaged and obsolete products. Product
costs consist of the costs to purchase the underlying materials and print both
boxes and manuals, media costs (CD-ROMs and other media) and assembly.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased by $11,817,720 or approximately
157.6% from $7,496,665 in 1996 to $19,314,385 in 1997. SG&A expenses for 1997
include $8,432,837 of marketing and administrative expenses relating to the
operations of the Company's Serif and SPC subsidiaries, compared to $2,209,973
of marketing and administrative expenses for the Serif subsidiaries in 1996;
$5,820,341 of salary and wage expense compared to $1,746,568 in 1996; and
$5,862,855 of general and administrative expense in 1997 compared to $4,608,305
in similar expenses in 1996.
The Company establishes several of its marketing expenditure levels based
on expected net revenues. If orders and shipments do not occur when expected,
expenditure levels could be disproportionately high compared to recognized
revenues for the reported period, and the Company's operating results could be
adversely affected. The Company periodically reviews and adjusts its variable
expenditure levels based on actual sales volumes. In the future, the Company's
net revenues and operating results could be adversely affected by these and
other factors, such as delays in new product introductions, the mix of product
sales or distribution channels and customer choices regarding operating systems.
Costs Associated with Release of Escrow Shares. 1996 expenses include
non-cash charges to compensation of $2,773,180 relating to the release from
escrow of 531,000 shares of Common Stock in April and September 1996 to the
Company's former President and another former management stockholder. See
"Escrow Shares." There were no similar expenses in 1997.
Product Development. Product development expenses increased $2,149,600 or
199.4% from $1,077,615 in 1996 to $3,227,215 in 1997. The Company's long-term
goal is to continue to reduce product development costs as a percentage of net
sales. The Company's product development costs were 18.8% of net sales in 1997
as compared to 22.9% in 1996. All internally generated development costs have
been expensed in the period incurred. The Company intends to continue to acquire
externally developed technology, explore strategic alliances and other methods
of acquiring or licensing technology, and invest in internal development
projects. Because of the inherent uncertainties associated with software
development projects, there can be no assurance that the Company's research and
development efforts will result in successful product introductions or increased
revenues or profitability.
Restructuring Expenses. In 1997, the Company expensed $375,902 in charges
related to the restructuring of its operations. The expenses associated with
this restructuring program, which was substantially completed by February 1998,
included employee severance arrangements, the settlement and general release
agreement with the Company's former President and Chief Executive Officer, and
costs relating to the elimination of lease facilities in California. See "Item
3. Legal Proceedings." In 1996 the Company incurred restructuring costs of
$1,104,353 which consisted of severance payments, expenses relating to the
elimination of duplicative facilities and other restructuring related costs.
In-Process Research and Development. In 1996, based on an allocation of the
Serif purchase price, the Company expensed $3,514,000 of in-process research and
development costs associated with its acquisition of the Serif companies, and
based on an allocation of the SPC purchase price, the Company expensed
$14,000,000 of in-process research and development costs associated with its
acquisition of SPC. There were no such charges in 1997.
Other Income. In 1997, the Company received interest income of $195,655 as
compared to $121,380 in 1996, primarily as a result of higher cash balances.
<PAGE>
Liquidity and Capital Resources
During 1997, the Company's cash, cash equivalents and short-term
investments decreased by $8,404,481 to $2,760,353, primarily as a result of the
Company's loss from operations during the year ended December 31, 1997. In light
of the stabilization of the Company's cash flow resulting primarily from its
1997 restructuring, 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 received approximately $960,466 of net proceeds from the sales, on
October 23, 1997, of an aggregate 961,000 shares of Common Stock in private
transactions to five accredited investors. The Company has a letter of credit
facility of $300,000 relating to certain lease obligations and a debt facility
of approximately $200,000, of which $58,000 was outstanding as of December 31,
1997, 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 1997 used cash of $2,776,974,
primarily related to costs associated with its operations. The Company intends
to continue to utilize its working capital in 1998 for software development,
marketing and advertising, to finance the higher level of inventory necessary to
support the anticipated continued increase in sales and for capital
expenditures, including the purchase of computer equipment and software.
However, the Company's working capital requirements may change depending upon
numerous factors, including, without limitation, the need to finance the
licensing or acquisition of third party software as well as increased inventory
arising from the sale and shipment of new products.
In 1997, approximately 48.9% of the Company's total sales were generated
outside the U.S. The Company expects this practice to continue. The Company's
exposure for foreign currency exchange gains and losses is partially mitigated,
as the Company incurs operating expenses in most of the currencies in which it
invoices customers. As of December 31, 1997, the Company had no foreign exchange
contracts outstanding. The Company's foreign exchange gains and losses may be
expected to fluctuate from period to period depending on the movement in
exchange rates.
In June 1994, SPC sold its Superbase product line to Computer Concepts
Corporation ("CCC") (Nasdaq National Market: CCEE) for shares of CCC's
restricted common stock. As of December 31, 1997, SPC owned the equivalent of
43,400 shares of common stock of CCC, which were sold in 1998. As of April 14,
1998 the closing price of the CCC common stock on The Nasdaq National Market was
$3.91.
Escrow Shares
From December 1993 through May 1995, Barry A. Cinnamon and Richard Bergman,
the Company's former Vice President of Product Development, placed an aggregate
of 542,500 shares of Common Stock in escrow pending the Company's attainment of
certain minimum net revenue or Common Stock price per share thresholds. Five
hundred and thirty-one thousand (531,000) of these shares were released from
escrow (500,000 shares to Barry A. Cinnamon and 31,000 to Richard Bergman) by
the Board, although these thresholds were not reached. In connection therewith,
the Company recognized compensation expense of approximately $2,773,180 in 1996.
Net Operating Loss Carryforwards
The Company estimates its consolidated tax net operating loss carryforwards
to be approximately $84 million at December 31, 1997. Under Section 382 of the
Code, certain changes in the ownership or the business of a corporation that has
net operating loss carryforwards result in the inability to use or the
imposition of significant restrictions on the use of such net operating loss
carryforwards to offset future income and tax liability of such corporation.
After giving effect to the Merger, an "ownership change" was deemed to have
occurred under Section 382 of the Code and the regulations thereunder with
respect to both the Company and SPC, and, as a result thereof, the use by the
<PAGE>
Company of these net operating loss carryforwards will be limited.
Utilization of the net operating loss carryforwards of SPC may be further
limited by reason of the consolidated return separate return limitation year
rules, and the SPC net operating loss carryforwards are also subject to the
additional limitation that such losses can only be utilized to offset the
separate company taxable income of SPC. The Company estimates that the maximum
utilization of such net operating loss carry forwards to be approximately
$1,200,000 per year through 2012. There can be no assurance that the Company
will be able to utilize all or any of its net operating loss carryforwards. The
Company has fully reserved the tax benefit of its net operating loss
carryforward and other deferred tax assets because of uncertainty of
realization. In addition, the foreign losses incurred by SPC may decrease or
otherwise restrict the ability of the Company to claim U.S. tax credits for
foreign income taxes. The Company has applied for a closing agreement with the
Internal Revenue Service pursuant to which the Company will become jointly and
severally liable for SPC's tax obligations upon occurrence of a "triggering
event" requiring recapture of dual consolidated losses previously utilized by
SPC. Such closing agreement will avoid SPC being required to recognize a tax of
approximately $8 million on approximately $24.5 million of SPC's previous dual
consolidated losses upon the Merger. While the Company believes that it will
obtain this agreement, failure to do so could result in the recognition of this
tax liability. Any future acquiror of the Company may also be required to agree
to a similar closing agreement, to the extent it is able to do so. Non-U.S.
persons generally would be ineligible to do so. This could have a material
adverse effect on the future ability of the Company to sell SPC to such an
ineligible person.
Seasonality
The computer software market is characterized by significant seasonal
swings in demand, which typically peak in the fourth quarter of each calendar
year. The seasonal pattern is due primarily to the increased demand for software
during the year-end holiday buying season and reduced retail and corporate
demand for business software during the European summer vacation period. The
Company expects its net sales and operating results to continue to reflect this
seasonality. The Company's revenues may also experience substantial variations
as a result of a number of factors, such as consumer and business preferences
and introduction of competing titles by competitors, as well as limited time
promotional pricing offers. There can be no assurance that the Company will
achieve consistent growth or profitability on a quarterly or annual basis.
Inflation
The Company believes that inflation has generally not had a material impact
on its operations.
Item 7. Financial Statements.
Set forth below is a list of the financial statements of the Company
included in this Annual Report on Form 10- KSB.
Item Page*
Independent Auditors' Reports...............................................F-2
Balance Sheet as of December 31, 1997.......................................F-5
Statements of Operations for the years ended December 31, 1997 and 1996.....F-6
Statements of Stockholders' Equity for the years ended December 31, 1997
and 1996...............................................................F-7
Statements of Cash Flows for the years ended December 31, 1997 and 1996.....F-8
Notes to Financial Statements...............................................F-9
- ----------
* Page F-1 follows page 39 to this Annual Report on Form 10-KSB.
<PAGE>
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
On February 11, 1998, the Board of Directors (the "Board") of the Company,
acting upon the recommendation of the Audit Committee of the Board, determined
to replace Ernst & Young LLP ("Ernst & Young") as the independent auditors of
the Company's financial statements and appointed Richard A. Eisner & Company,
LLP ("Eisner") as the Company's new independent auditors engaged as the
principal accountant to audit the Company's financial statements, commencing
with the Company's fiscal year ended December 31, 1997. The reports of Ernst &
Young for either of the past two years did not contain an adverse opinion or a
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. There were no disagreements with Ernst &
Young requiring disclosure pursuant to Item 304(a)(1)(iv) of Regulation S-K, nor
were there any reportable events requiring disclosure pursuant to Item
304(a)(1)(v) of Regulation S-K. In addition, during the Company's two most
recent fiscal years and through the date hereof, neither the Company nor anyone
acting on the Company's behalf consulted with Eisner on matters which would
require disclosure pursuant to Item 304(a)(2) of Regulation S-K. The Company
requested Ernst & Young to furnish it a letter addressed to the Commission
stating whether it agrees with the above statements and Ernst & Young has done
so.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange
Act.
Officers and Directors
The current executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Director
Name Age Positions and Offices with the Company Since
<S> <C> <C>
Mark E. Leininger 47 President, Chief Operating Officer and Director 1996
Kevin D. Sullivan 47 Chief Financial Officer and Treasurer N/A
Marc E. Jaffe, Esq. 46 Chairman of the Board of Directors and Secretary 1995
Robert Gordon 57 Vice President - Marketing and Sales N/A
Norman W. Alexander 68 Director 1996
Neil R. Austrian, Jr. 33 Director 1996
Neil M. Kaufman, Esq. 37 Director 1996
Martin F. Schacker 40 Director 1997
</TABLE>
Set forth below is a brief description of the background of the officers
and directors of the Company based on information provided by them to the
Company.
Mark E. Leininger was Chief Financial Officer of the Company from July 1995
through December 1997, and has been the Chief Operating Officer and a director
of the Company since September 1996 and President of the Company since January
1998. From February 1994 through April 1995, Mr. Leininger was the President of
Phoenix Leasing Corporation, a passenger and cargo air carrier and aircraft
leasing company, which filed for bankruptcy protection in 1996. From February
1986 through February 1994, Mr. Leininger held various positions, including
Chief Financial Officer and Chief Operating Officer, with Mid Pacific Air
Corporation, a transportation and service company whose stock was traded on
NASDAQ. Mr. Leininger received an MBA from National University, San Diego,
California in 1979 and a BA from Miami University, Oxford, Ohio in 1972.
Kevin D. Sullivan has served as the Company's Chief Financial Officer, Vice
President - Finance and Treasurer of the Company since December 1997. From
November 1995 to December 1997, Mr. Sullivan was Chief Financial Officer of
Prizm Environmental and Occupational Health, Inc., a multi-clinic health care
company. From December 1993 to September 1994, he was Chief Financial Officer of
Scientific Packaging Corp., a manufacturer of packaging for household laundry
products. Mr. Sullivan served as Controller (from 1987 to 1988), Treasurer (from
1989 to 1990) and Manager of Bankruptcy Claims Resolutions (from 1990 to 1993)
of Prime Hospitality Corp., a New York Stock Exchange company, when it was known
as Prime Motor Inns, Inc. Mr. Sullivan received a BS degree from Pennsylvania
State University in 1976.
Marc E. Jaffe, Esq., has been a director of the Company since May 1995. In
January 1998, Mr. Jaffe was elected Chairman of the Board of Directors of the
Company, in which capacity he does not serve as the Company's chief executive
officer. From 1992 until the present time, Mr. Jaffe has been President of
Electronic Licensing Organization, Inc., which has acted as the Company's agent
in the acquisition of certain electronic publishing rights. From 1988 to 1991,
Mr. Jaffe was Executive Vice President of database management for Franklin
Electronic Publishers, a New York Stock Exchange company engaged in the business
of publishing electronic books on hand held media. From 1985 through 1987, Mr.
Jaffe was President of the software and video division of Simon & Schuster, a
publishing company. Mr. Jaffe received a JD degree from Columbia University
School of Law in 1976 and a BA from Columbia College in 1973.
<PAGE>
Robert Gordon has served as the Company's Vice President - Marketing and
Sales or Vice President Marketing since June 1996. From January 1995 to June
1996, Mr. Gordon was Chairman of the Board of a family-owned chain of four
health and fitness clubs. From 1984 through December 1994, he was President of
Leber Katz Partners Direct Marketing, a New York City-based advertising agency.
From 1980 to 1984, Mr. Gordon was President of RCA Record and Tape Club.
Norman W. Alexander has been a director of the Company since October 1996.
Mr. Alexander is a retired former director of Imperial Foods Ltd., a food
products company, and formerly was the chairman of several subsidiaries thereof.
Neil R. Austrian, Jr., has been a director of the Company since April 1996.
Since March 1998, Mr. Austrian has been a partner with the Rust Group, a private
venture capital and investment marketing services partnership. From July 1997 to
February 1998, Mr. Austrian was the Chief Financial Officer of Tescorp., Inc., a
cable television company, and was Vice President of Operations of Tescorp., Inc.
from October 1994 through February 1998. Prior to joining Tescorp., Inc., Mr.
Austrian was an associate at Rust Capital, Ltd., a venture capital firm, from
1988 to October 1994. Mr. Austrian holds a BA Degree from Swarthmore College.
Neil M. Kaufman, Esq., has been a director of the Company since December
1996 and served as the Company's Secretary from December 1996 to December 1997.
Mr. Kaufman is currently the principal of Kaufman & Associates, LLC, counsel to
the Company. From January 1997 to December 1997, Mr. Kaufman was a partner in
Moritt, Hock & Hamroff, LLP ("Moritt Hock"). For four years prior thereto, he
was a member of Blau, Kramer, Wactlar & Lieberman, P.C. ("Blau Kramer"). Prior
to his affiliation with Blau Kramer, Mr. Kaufman was associated with Lord Day &
Lord, Barrett Smith ("Lord Day"). Moritt Hock, Blau Kramer and Lord Day served
as counsel to the Company during the periods in which Mr. Kaufman was affiliated
or associated with such firms. Mr. Kaufman received a JD degree from New York
University School of Law in 1984 and a BA degree from SUNY Binghamton in 1981.
Martin F. Schacker has been a director of the Company since December 1997.
Mr. Schacker also served as a director of the Company from August 1994 to
December 1995. From 1991 until the current time, Mr. Schacker has been Chairman
of M.S. Farrell & Co., Inc., a Wall Street investment banking and brokerage firm
which serves as the Company's investment banker and acted as the representative
of the underwriters of the Company's initial public offering. From 1987 through
1991, Mr. Schacker served as Senior Vice President of investments and corporate
finance of D.H. Blair & Company, Inc., an investment banking and brokerage firm.
Prior to that, Mr. Schacker served as Senior Vice President of Shearson Lehman
Brothers, a Wall Street investment banking and brokerage firm. Mr. Schacker
received a BA in Business from Hofstra University in 1982. Mr. Schacker is a
director of Innapharma, Inc., a Suffern, New York-based biotechnology and
contract research company.
The Company's Board of Directors is classified into three classes. The
directors in each class serve for three-year terms. Neil R. Austrian, Jr. and
Marc E. Jaffe are members of Class I which serves until the Company's 2000
Annual Meeting of Stockholders. Norman W. Alexander and Neil M. Kaufman are
members of Class II which serves until the Company's 1998 Annual Meeting of
Stockholders. Mark E. Leininger and Martin F. Schacker are members of Class III
which serves until the Company's 1999 Annual Meeting of Stockholders. Directors
receive no cash compensation for their services to the Company as directors, but
are reimbursed for expenses actually incurred in connection with attending
meetings of the Board of Directors. Members of the Board of Directors who are
not employees of the Company, of which there currently are four, are eligible to
participate in the Company's Outside Director and Advisor Stock Option Plan.
During 1997, the Board of Directors met eleven times and acted by unanimous
written consent on two occasions. All current directors of the Company attended
not less than 75% of such meetings of the Board and committees thereof on which
they serve.
The Audit Committee, which currently consists of Norman W. Alexander, Neil
R. Austrian, Jr. and Marc E. Jaffe, met once during 1997. The Audit Committee
recommends engagement of the Company's independent certified public accountants,
and is primarily responsible for reviewing and approving the scope of the audit
and other services performed by the Company's independent certified public
accountants and for reviewing and evaluating the Company's accounting principles
and practices, systems of internal controls, quality of financial reporting and
accounting and financial staff, as well as any reports or recommendations issued
by the independent accountants.
<PAGE>
The Compensation Committee, which currently consists of Norman W. Alexander
and Neil R. Austrian, Jr., held meetings or acted by unanimous written consent
thirty times during 1997. The Compensation Committee generally reviews and
approves of the Company's executive compensation and currently administers all
of the Company Stock Plans.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company, together with written representations received by the
Company from applicable parties that no Form 5 was required to be filed by such
parties, all parties subject to the reporting requirements of Section 16(a) of
the Exchange Act filed all such required reports, except that Daniel J. Fraisl
failed to timely file two Statements of Changes in Beneficial Ownership of
Securities on Form 4 or an Annual Statement of Beneficial Ownership of
Securities on Form 5 relating to five grants of stock options by the Company;
Lori Kramer Cinnamon failed to timely file a Form 4 relating to two grants of
stock options by the Company and two stock purchase transactions by Barry A.
Cinnamon, the husband of Ms. Kramer Cinnamon; Joseph V. Szczepaniak failed to
timely file two Forms 4 or a Form 5 relating to three grants of stock options by
the Company; George Lauro (who resigned as a director on December 20, 1996)
failed to timely file a Form 4 or Form 5 relating to one grant of stock options
by the Company; Marc E. Jaffe failed to timely file two Forms 4 or a Form 5
relating to two grants of stock options by the Company; and each of Norman
Alexander and Neil R. Austrian, Jr. failed to timely file a Form 4 or Form 5
relating to a grant of stock options by the Company. Additionally, pursuant to
the Company's stock option repricing program (the "Repricing Program"), pursuant
to which certain option holders are permitted to exchange their stock options
for 25% fewer options with otherwise identical terms, except that the exercise
price thereof is reduced to $1.25 per share, each of Messrs. Alexander,
Austrian, Cinnamon, Jaffe and Kaufman, Ms. Kramer Cinnamon, Mark E. Leininger
and Eng Chye Low (since resigned as a director) failed to timely file a Form 4
or Form 5 relating to the deemed cancellations and grants of repriced stock
options. See "Item 10. Executive Compensation - Repricing of Options."
Item 10. Executive Compensation.
The following table sets forth, for the three years ended December 31,
1997, the cash and other compensation paid to all individuals serving as the
Company's Chief Executive Officer (or acting in a similar capacity) during 1997
and the two other individuals serving as executive officers of the Company on
December 31, 1997 whose total salary and bonus, for services rendered to the
Company during 1997, was $100,000 or more (each, a "Named Executive Officer").
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Securities All
Other Annual Underlying Other
Name and Principal Position Year Salary Bonus Compensation(1) Option Compensation
<S> <C> <C> <C> <C> <C>
Barry A. Cinnamon 1997 $145,481 $111,617 -- 305,000(3) --
Chairman of Board 1996 95,000 39,892 -- 60,500 --
Chief Executive Officer 1995 46,822 26,922 -- -0- --
and President(2)
Mark E. Leininger, 1997 $145,000 $ 39,737 -- 300,000(5) --
President, Chief Operating 1996 81,000 35,000 -- 225,000 --
Officer, Chief Financial 1995 29,442 -- -- 20,000 --
Officer, Treasurer and Vice
President - Finance(4)
Robert Gordon(6) 1997 $ 75,100 $ 28,521 -- 147,291(7) --
Vice President - Marketing 1996 26,809 35,085 -- 75,810 --
and Sales 1995 -- -- -- -- --
<FN>
- ----------
(1) The value of all perquisites provided did not exceed the lesser of
$50,000 or 10% of the officer's salary and bonus.
(2) Mr. Cinnamon resigned as an officer, director and employee of the Company
on December 19, 1997. See "Item 3. Legal Proceedings."
(3) Includes options to purchase 5,000 shares of Common Stock granted to Lori
Kramer Cinnamon, Mr. Cinnamon's wife.
(4) Mr. Leininger was appointed President of the Company on January 28, 1998.
Upon the appointment of Kevin D. Sullivan as Chief Financial Officer,
Treasurer and Vice President - Finance on December 19, 1997, Mr. Leininger
no longer served in such positions.
(5) Does not include options to purchase 545,000 shares of Common Stock
repriced and reduced to options to purchase 408,750 shares of Common Stock
under the Repricing Program. See "Repricing of Options" below and "Item
12. Certain Relationships and Related Transactions."
(6) Mr. Gordon was hired by the Company on August 2, 1996. Mr. Gordon receives
a quarterly bonus based on 2% of the net contribution of the direct mail
sales of the Company. One-third of this bonus is paid to Mr. Gordon in
cash and the remainder is paid in options to purchase Common Stock at an
exercise price equal to the closing price of the Common Stock on the last
day of the quarter in which earned.
(7) Does not include options to purchase 214,873 shares of Common Stock
repriced and reduced to options to purchase 161,154 shares of Common Stock
under the Repricing Program. See "Repricing of Options" below and
"Item 12. Certain Relationships and Related Transactions."
</FN>
</TABLE>
Stock Option Grants in 1997
The following table sets forth (a) the number of shares underlying options
granted to each Named Executive Officer during 1997, (b) the percentage the
grant represents of the total number of options granted to all Company employees
during the 1997, (c) the per share exercise price of each option, (d) the
expiration date of each option.
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percentage of Total
Underlying Options Options Granted to Exercise Expiration
Name Granted During 1997 Employees in 1997 Price Date
<S> <C> <C> <C> <C>
Barry A. Cinnamon....... 300,000 6.7% $3.43 2/4/07
Barry A. Cinnamon....... 4,000 (1) * 3.875 1/14/07
Barry A. Cinnamon....... 1,000 (1) * 3.43 2/4/07
Robert Gordon........... 1,735 * 3.875 12/31/06
Robert Gordon........... 1,000 * 3.43 2/4/07
Robert Gordon........... 1,328 * 2.9375 3/31/07
Robert Gordon........... 135,000 3.0 2.25 5/13/07
Robert Gordon........... 5,512 .1 2.0625 6/29/07
Robert Gordon........... 2,716 * 1.1875 10/8/07
Robert Gordon........... 56,250 (2) 1.3 1.25 7/31/06
Robert Gordon........... 607 (2) * 1.25 10/14/06
Robert Gordon........... 1,301 (2) * 1.25 12/31/06
Robert Gordon........... 750 (2) * 1.25 2/4/07
Robert Gordon........... 996 (2) * 1.25 3/31/07
Robert Gordon........... 101,250 (2) 2.3 1.25 5/13/07
Mark E. Leininger....... 300,000 6.7 3.43 2/4/07
Mark E. Leininger....... 15,000 (2) .3 1.25 7/20/05
Mark E. Leininger....... 7,500 (2) .2 1.25 2/19/06
Mark E. Leininger....... 52,500 (2) .2 1.25 4/24/06
Mark E. Leininger....... 108,750 (2) 2.4 1.25 9/28/06
Mark E. Leininger....... 225,000 (2) 5.0 1.25 2/4/07
<FN>
- ----------
* Less than .1%.
(1) Represents options granted to Lori Kramer Cinnamon, the wife of Mr.
Cinnamon.
(2) Represents repriced options.
</FN>
</TABLE>
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/
SAR Values
Set forth in the table below is information, with respect to each of the
Named Executive Officers, as to the (a) number of shares acquired during 1997
upon each exercise of options granted to such individuals, (b) the aggregate
value realized upon each such exercise (i.e., the difference between the market
value of the shares at exercise and their exercise price), (iii) the total
number of unexercised options held on December 31, 1997, separately identified
between those exercisable and those not exercisable, and (iv) the aggregate
value of in-the-money, unexercised options held on December 31, 1997, separately
identified between those exercisable and those not exercisable.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money Options at
at December 31, 1997 December 31, 1997
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C> <C>
Barry A. Cinnamon(1).. -0- -0- 40,080 102,998 -0- -0-
Mark E. Leininger(2).. -0- -0- 147,916 260,834 -0- -0-
Robert Gordon(2)...... -0- -0- -0- 169,382 -0- -0-
<FN>
- ---------
(1) Includes options to purchase 19,914 (exercisable) and 7,831
(unexercisable) shares of Common Stock granted to Lori Kramer Cinnamon, the
wife of Mr. Cinnamon.
(2) Gives effect to Repricing Program. See "Repricing of Options" below.
</FN>
</TABLE>
<PAGE>
Employment Agreements
The Company entered into employment agreements with each of Barry A.
Cinnamon and Lori Kramer Cinnamon, both of which were terminated in connection
with their resignations as directors, officers and employees of the Company. See
"Item 12. Certain Relationships and Related Transactions."
The employment agreement with Barry A. Cinnamon provided for him to serve
as the President and Chief Executive Officer of the Company for a term expiring
in December 1999, with an annual base salary of $150,000, bonuses of 5% of the
Company's consolidated net income before taxes and extraordinary items, .15% of
the Company's consolidated net sales and .75% of the Company's consolidated
gross profits. In October 1996, the Board of Directors determined to pay to Mr.
Cinnamon a bonus of $25,000 following the first profitable fiscal quarter of the
Company after the Merger.
The employment agreement with Lori Kramer Cinnamon provided for her to
serve as a Vice President of Marketing of the Company for a term expiring in
December 1999, with an annual base salary of not more than $40,000, a bonus of
1% of the Company's net income before taxes and extraordinary items and .75% of
the Company's gross profit. Under the terms of Ms. Cinnamon's agreement, the
Board of Directors may increase Ms. Cinnamon's base salary by not more than 15%
per year.
The Company also has entered into an agreement with Mark E. Leininger (the
"Leininger Agreement"), which contains restrictions on the employee engaging in
competition with the Company for the term thereof and for up to one year
thereafter and provisions protecting the Company's proprietary rights and
information. The Leininger Agreement provides for the payment of three times the
average annual cash compensation paid by the Company to Mr. Leininger over the
previous five years, less $1.00, and the accelerated vesting of all outstanding
stock options granted to Mr. Leininger, upon the termination of his employment
within six months after a change in control or within six months prior thereto
if such termination was without cause. In October 1996, the Board of Directors
determined to pay to Mr. Leininger a bonus of $25,000 following the first
profitable fiscal quarter of the Company after the Merger.
Company Stock Plans
1994 Long Term Incentive Plan
The Company has adopted the Company's 1994 Long Term Incentive Plan (the
"1994 Incentive Plan") in order to motivate qualified employees of the Company,
to assist the Company in attracting employees and to align the interests of such
persons with those of the Company's stockholders. The 1994 Incentive Plan
provides for the grant of "incentive stock options" within the meaning of the
Section 422 of the Internal Revenue Code of 1986, as amended, "non-qualified
stock options," stock appreciation rights, restricted stock, performance grants
and other types of awards to officers, key employees, consultants and
independent contractors of the Company and its affiliates.
The 1994 Incentive Plan, which is administered by the Compensation
Committee of the Board of Directors (currently comprised of Norman W. Alexander
and Neil R. Austrian, Jr.), currently authorizes the issuance of a maximum of
4,000,000 shares of Common Stock, which may be either newly issued shares,
treasury shares, re-acquired shares, shares purchased in the open market or any
combination thereof. Incentive stock options generally may be granted at an
exercise price of not less than the fair market value of shares of Common Stock
on the date of grant, and non-qualified stock options may be granted at an
exercise price of not less than 85% of such fair market value. If any award
under the 1994 Incentive Plan terminates, expires unexercised, or is canceled,
the shares of Common Stock that would otherwise have been issuable pursuant
thereto will be available for issuance pursuant to the grant of new awards. The
Company has issued an aggregate 5,000 shares of Common Stock upon exercise of
options granted under the 1994 Incentive Plan and options to purchase an
aggregate 3,247,439 shares of Common Stock are outstanding under the 1994
Incentive Plan and options to purchase 752,561 shares remain available for grant
under the 1994 Incentive Plan as of March 31, 1998.
<PAGE>
Outside Director and Advisor Stock Option Plan
The Company adopted the Outside Director and Advisor Stock Option Plan (the
"Director and Advisor Plan") for the purpose of attracting and retaining
well-qualified persons for service as directors of and advisors to the Company
and to provide such persons with the opportunity to increase their personal
interest in the Company's continued success and further align their interests
with the interests of the stockholders of the Company through the grant of
options to purchase shares of Common Stock. All directors of the Company who are
not employees of the Company (each, a "Non-Employee Director"), of which there
are presently five, are eligible to participate in the Director and Advisor
Plan. Currently, up to 500,000 shares of Common Stock may be issued under the
Director and Advisor Plan.
Under the Director and Advisor Plan, each Non-Employee Director of the
Company and each member of the Advisory Committee of the Company (each, an
"Outside Director or Advisor"), upon first becoming an Outside Director or
Advisor, receives options to purchase 25,000 shares of Common Stock at a price
equal to the fair market value of the Common Stock on the date of grant and
thereafter receives options to purchase 10,000 shares of Common Stock at a price
equal to the per share fair market value of the Common Stock on August 1st of
each subsequent year. In March 1997, the Advisory Committee was eliminated.
Options awarded to each Outside Director or Advisor become exercisable over a
period of two years, and are subject to forfeiture under certain conditions. The
Company has issued an aggregate 19,666 shares of Common Stock upon exercise of
options granted under the Director and Advisor Plan, options to purchase an
aggregate 355,334 shares of Common Stock are outstanding under the Director and
Advisor Plan and options to purchase 125,000 shares remain available for grant
under the Director and Advisor Plan as of March 31, 1998.
SPC 1989 Stock Plan
In connection with the Merger, pursuant to the Assumption, the Company
assumed all of SPC's obligations under SPC's 1989 Stock Plan (the "SPC 1989
Plan"). The SPC 1989 Plan remains effective and the Company may, until the SPC
1989 Plan terminates in accordance with its terms, at its discretion, grant
additional options under the SPC 1989 Plan.
The SPC 1989 Plan provides for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights, stock purchase rights,
incentive stock rights, performance grants and other types of awards to
officers, key employees, consultants and independent contractors of SPC and the
Company. The SPC 1989 Plan, which is administered by the Compensation Committee
of the Board of Directors, currently authorizes the issuance of a maximum of
268,050 shares of Common Stock, which may be either newly issued shares,
treasury shares, re-acquired shares, shares purchased in the open market or any
combination thereof. Incentive stock options generally may be granted at an
exercise price of not less than the fair market value of shares of Common Stock
on the date of grant; non-qualified stock options may be granted at an exercise
price of not less than 50% of such fair market value; incentive stock rights
permit the rightsholder to receive cash or shares of Common Stock based upon the
Company or the rightsholder obtaining results specified at the time of the
granting of such rights; stock appreciation rights (which may be granted in
connection with an option grant or as a separate grant) entitles the grantee to
receive a cash payment based upon the yield of the Common Stock between grant
and exercise; stock purchase rights entitle the rightsholder to purchase shares
of Common Stock at a price of not less than 50% of the fair market price of such
shares with the Company retaining a diminishing right to repurchase such shares
over a specified period should the rightsholder's relationship with the Company
terminate; and long term performance awards allow the Company to customize
incentive award programs to permit the awarding of cash or Common Stock upon the
Company or grantee researching specified levels of performance. If any award
under the SPC 1989 Plan terminates, expires unexercised, or is canceled, the
shares of Common Stock that would otherwise have been issuable pursuant thereto
will be available for issuance pursuant to the grant of new awards. The
equivalent of 13,849 shares of Common Stock have been issued upon exercise of
options granted under the SPC 1989 Plan, the Company has options to purchase an
aggregate 32,916 shares of Common Stock outstanding under the SPC 1989 Plan and
options to purchase 221,285 shares remain available for grant under the SPC 1989
Plan as of March 31, 1998. The SPC 1989 Plan will terminate in October 1999.
<PAGE>
SPC 1991 Stock Option Plan
In connection with the Merger, pursuant to the Assumption, the Company
assumed all of SPC's obligations under SPC's 1991 Stock Option Plan (the "SPC
1991 Plan"). The SPC 1991 Plan remains effective and the Company may, until the
SPC 1991 Plan terminates in accordance with its terms, at its discretion, grant
additional options under the SPC 1991 Plan.
The SPC 1991 Plan provides for the grant of incentive stock options,
non-qualified stock options and stock purchase rights to officers, key
employees, consultants and independent contractors of SPC and the Company. The
SPC 1991 Plan, which is administered by the Compensation Committee of the Board
of Directors, currently authorizes the issuance of a maximum of 428,880 shares
of Common Stock, which may be either newly issued shares, treasury shares,
re-acquired shares, shares purchased in the open market or any combination
thereof. Incentive stock options generally may be granted at an exercise price
of not less than the fair market value of shares of Common Stock on the date of
grant; non-qualified stock options may be granted at an exercise price of not
less than 85% of such fair market value; and stock purchase rights entitle the
rightsholder to purchase shares of Common Stock at a price of not less than 85%
of the fair market price of such shares with the Company retaining a diminishing
right to repurchase such shares over a specified period should the
rightsholder's relationship with the Company terminate. If any award under the
SPC 1991 Plan terminates, expires unexercised, or is canceled, the shares of
Common Stock that would otherwise have been issuable pursuant thereto will be
available for issuance pursuant to the grant of new awards. The equivalent of
1,065 shares of Common Stock have been issued upon exercise of options granted
under the SPC 1991 Plan, the Company has options to purchase an aggregate 49,244
shares of Common Stock outstanding under the SPC 1989 Plan and options to
purchase 378,571 shares remain available for grant under the SPC 1991 Plan as of
March 31, 1998. The SPC 1991 Plan will terminate in October 2001.
Repricing of Options
On August 29, 1997, the Board of Directors approved the Repricing Program
pursuant to which the Company has offered to all then-current officers,
directors and employees of the Company the opportunity to reduce the exercise
price of their respective options granted under the Company Stock Plans to $1.25
per share of Common Stock (the fair market value of the Common Stock as of the
close of business on such date); provided, that, as a condition to such
repricing, the optionee is required to surrender for cancellation 25% of the
options so repriced, which would in all cases be the latest options to become
exercisable under each repriced option. Except for such cancellation provision,
each repriced option would be identical to the optionee's prior option, except
that, during the six-month period commencing from the date of the acceptance of
the repricing offer, the options would not be exercisable. The creation of the
Repricing Program was approved primarily because of the importance to the
Company of having equity incentives in the hands of key officers, directors and
employees. The Board believed that stock options which are "out of the money"
provide less compensatory incentive to an officer, director and employee who may
be considering alternative opportunities. The six month period during which the
repriced options may not be exercised was viewed as a means of retaining the
services of valued employees for a longer period of time. The Committee decided
to include directors and officers in the Repricing Program because of the
importance of their leadership, administrative and technical skills to the
success of the Company's business. See "Item 12. Certain Relationships and
Related Transactions."
Indemnification
Section 145 of the Delaware General Corporation Law provides that
indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, may be provided by such
corporation.
The Company's Certificate of Incorporation includes provisions eliminating
the personal liability of its directors for monetary damages resulting from
breaches of their fiduciary duty except, pursuant to the limitations of the
Delaware General Corporation Law, (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or any
amendatory or successor provisions thereto, or (iv) with respect to any
transaction from which the director derived an improper personal benefit. The
<PAGE>
Company's By-laws provide indemnification to directors, officers, employees
and agents, including against claims brought under state or Federal securities
laws, to the full extent allowable under Delaware law. The Company also has
entered into indemnification agreements with its directors and executive
officers providing, among other things, that the Company will provide defense
costs against any such claim, subject to reimbursement in certain events. The
Company also maintains a directors and officers liability insurance policy in a
coverage amount of $3,000,000, subject to a $200,000 deductible.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the beneficial ownership of shares of voting
stock of the Company, as of March 31, 1998, of (i) each person known by the
Company to beneficially own 5% or more of the shares of outstanding Common Stock
based on filings with the SEC and certain other information, (ii) each of the
Company's executive officers and directors, and (iii) all of the Company's
executive officers and directors as a group. Except as otherwise indicated, all
shares are beneficially owned, and investment and voting power is held by, the
persons named as owners.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Common Stock Percentage Ownership
Beneficial Owner (1) Beneficial Owned (2) of Common Stock (3)
<S> <C> <C> <C>
Mark E. Leininger........ 1,182,817 (4) 12.8
Barry A. Cinnamon (5).... 1,036,817 (6) 11.2
Lori Kramer Cinnamon (5). 1,036,817 (7) 11.2
Howard Milstein.......... 889,000 (8) 9.8
Gwyn Jones............... 469,804 (9) 5.2
M.S. Farrell & Co., Inc.. 343,305 (10) 3.7
Martin F. Schacker....... 343,305 (11) 3.7
Norman W. Alexander...... 121,245 (12) 1.3
Marc E. Jaffe............ 85,414 (13) 1.0
Neil R. Austrian, Jr..... 63,582 (14) *
Neil M. Kaufman.......... 58,665 (15) *
Robert Gordon............ 31,073 (16) *
Kevin D. Sullivan........ 12,500 (17) *
All officers and directors
as a group (10 persons). 1,898,601 (18) 19.5
<FN>
- ----------
* Less than 1.0%.
(1) Unless otherwise indicated, the address for each beneficial owner
listed in the table is Software Publishing Corporation Holdings, Inc., 3A
Oak Road, Fairfield, New Jersey 07004.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities which may be acquired by such person within
60 days from the date on which beneficial ownership is to be deter-
mined upon the exercise of options, warrants or convertible securities.
(3) Each beneficial owner's percentage ownership is determined by assuming
that stock options and warrants that are held by such person (but not those
held by any other person) and which are exercisable within such 60 day
period, have been exercised.
(4) Represents (a) options to purchase 171,249 shares of Common Stock granted
to Mr. Leininger under the Company Stock Plans which are exercisable within
the next 60 days, (b) the 111,248 shares of Common Stock held by the Serif
(Europe) Limited Share Ownership Trust (the "Serif Trust"), of which Mr.
Leininger acts as trustee and as to which Mr. Leininger disclaims
beneficial ownership and (c) the 900,320 presently outstanding shares of
Common Stock beneficially owned by Barry A. Cinnamon and Lori Kramer
Cinnamon which Mr Leininger, as President of the Company, has the proxy to
vote pursuant to the terms of the Cinnamon Settlement Agreement. Does not
include options to purchase 237,501 shares of Common Stock granted to Mr.
Leininger under the Company Stock Plans which are not exercisable within
the next 60 days.
<PAGE>
(5) The address for Mr. Cinnamon and Ms. Kramer Cinnamon is 18480 Hillview
Drive, Los Gatos, California 95030.
(6) Includes (a) an aggregate 52,778 shares of Common Stock held by Mr.
Cinnamon as custodian for his minor children under the New Jersey Uniform
Gift to Minors Act, (b) options to purchase 115,333 shares of Common Stock
granted to Mr. Cinnamon under the Company Stock Plans which are exercisable
within the next 60 days and (c) options to purchase 21,164 shares of Common
Stock granted to Lori Kramer Cinnamon, Mr. Cinnamon's wife, under the
Company Stock Plans which are exercisable within the next 60 days. Does
not include (a) 990,558 shares of Common Stock issued in connection with
the Company's acquisition of the Serif subsidiaries and remaining
subject to a Stockholders Agreement, dated as of July 31, 1996 (the
"Stockholders Agreement"), to which Mr. Cinnamon is a party and pursuant
to which the holders of such 990,558 shares (including the Serif Trust,
Gwyn Jones and Norman Alexander) have agreed to vote their respective
shares of Common Stock for the director-nominees of the Company's Board
of Directors and Mr. Cinnamon has agreed to vote all of the securities of
the Company owned by him for Mr. Jones or Mr. Jones' nominee
(Norman Alexander) as a director of the Company, in each case until July
31, 1998 and (b) options to purchase 6,581 shares of Common Stock granted
to Ms. Kramer Cinnamon under the Company Stock Plans which are not
exercisable within the next 60 days. Pursuant to the Cinnamon Settlement
Agreement, Mr. Cinnamon and Ms. Kramer Cinnamon have granted the President
of the Company (presently, Mark E. Leininger) an irrevocable proxy to vote
all of the shares of Common Stock owned beneficially or of record by
either of them, in any capacity, in such manner as may be determined
by the President of the Company in his sole discretion.
(7) Represents (a) 847,542 shares of Common Stock owned of record by Barry
A. Cinnamon, Ms. Kramer Cinnamon's husband, (b) an aggregate of 52,778
shares of Common Stock held by Mr. Cinnamon as custodian for their minor
children under the New Jersey Uniform Gift to Minors Act, (c) options to
purchase 21,164 shares of Common Stock granted to Ms. Kramer Cinnamon under
the Company Stock Plans which are exercisable within the next 60 days and
(d) options to purchase 115,333 shares of Common Stock granted to Mr.
Cinnamon under the Company Stock Plans which are exercisable within the
next 60 days. Does not include (a) options to purchase 6,581 shares of
Common Stock granted to Ms. Kramer Cinnamon under the Company Stock Plans
which are not exercisable within the next 60 days and (b) the 990,558
shares remaining subject to the Stockholders Agreement to which Mr.
Cinnamon is a party.
(8) Represents 865,000 shares of Common Stock registered in the name of Howard
Milstein ("H. Milstein") and 24,000 shares registered in the name of
Ronald L. Altman ("Altman"). Does not include an option (the "Altman
Option") to purchase 96,100 shares of Common Stock (the "Altman Option
Shares") granted to Altman which is not exercisable within the next
60 days. According to a Schedule 13D filed by H. Milstein, Altma, Michael
Jesselson ("Jesselson") and Edward Milstein ("E. Milstein" and,
collectively with H. Milstein, Altman, and Jesselson, the "Milstein
Group"), the individuals comprising the Milstein Group have entered into
an agreement, dated as of October 23, 1997 (the "Milstein Group
Agreement"), which provides that (a) H. Milstein and E. Milstein each have
a 25% beneficial interest in the aggregate 889,000 shares of Common Stock
(the "Milstein Group Shares") registered in the names of H. Milstein and
Altman, and Jesselson has a 50% beneficial interest in the Milstein Group
Shares, (b) Altman has a 15% interest in the net profits or losses to the
others collectively resulting from the sale of the Milstein Group Shares
and (c) H. Milstein has the sole voting power and dispositive power with
regard to all of the Milstein Group Shares. The Milstein Group
Agreement also appears to provide that (a) in the event of the sale of the
Altman Option, Altman shall receive 50% of the net proceeds thereof (taking
into account any sales, commissions or related fees) and the balance of the
net proceeds shall be divided among H. Milstein, E. Milstein and Jesselson
in the proportion of 25%, 25% and 50%, respectively, (b) if the Altman
Option is exercised and the Altman Option Shares are subsequently sold,
Altman shall receive 50% of the net proceeds thereof (after taking into
account the payment of the exercise price and any costs of disposing of the
Altman Option Shares) and the balance of such net proceeds shall be divided
among H. Milstein, E. Milstein and Jesselson in the proportion of 25%, 25%
and 50%, respectively, and (c) H. Milstein has the sole power to dispose,
transfer and vote the Altman Option Shares and to exercise, dispose or
transfer the Altman Option. The address for Howard Milstein is c/o Douglas
Elliman, 575 Madison Avenue, New York, New York 10022. See "Legal
Proceedings."
(9) Does not include any of the shares of Common Stock or other securities of
the Company owned by any other party to the Stockholders Agreement.
The address for Mr. Jones is Barley Green Farm, Laxfield Road, Stradbrooke
Eye, Suffolk, England IP21 5JT.
<PAGE>
(10) Includes (a) warrants owned of record by M.S. Farrell Holdings, Inc. ("MSF
Holdings"), the corporate parent of MS Farrell, to purchase 113,500 shares
of Common Stock which are exercisable within the next 60 days, (b) 62,428
shares of Common Stock owned of record by MSF Holdings, (c) the
Underwriters' Purchase Options ("UPOs") owned of record by MS Farrell to
purchase 70,244 shares of Common Stock which are exercisable within the
next 60 days, (d) warrants owned of record by Martin F. Schacker, the
Chairman of the Board of Directors of MS Farrell and controlling person of
both MS Farrell and MSF Holdings (see note (11) below), to purchase 48,500
shares of Common Stock and (e) options to purchase 33,333 shares of Common
Stock granted to Mr. Schacker under the Company Stock Plans which are
exercisable within the next sixty days. Does not include (a) options to
purchase 66,667 shares of Common Stock granted to Mr. Schacker under the
Company Stock Plans which are not exercisable within the next 60 days or
(b) shares of Common Stock, UPOs and warrants to purchase an additional
195,561 shares of Common Stock originally granted to MS Farrell which
currently are owned by stockholders, directors, managing directors and
executive officers of MS Farrell and MSF Holdings and others. The address
for MS Farrell is 67 Wall Street, New York, New York 10005.
(11) Represents (a) warrants owned by Mr. Schacker to purchase 48,500 shares of
Common Stock which are exercisable within the next 60 days, (b) 77,728
shares of Common Stock owned by MS Farrell and MSF Holdings, each of
which Mr. Schacker is Chairman of the Board and the controlling person,
(c) options to purchase 33,333 shares of Common Stock granted to Mr.
Schacker under the Company Stock Plans which are exercisable within the
next sixty days, (d) warrants exercisable within the next 60 days to
purchase 113,500 shares of Common Stock owned of record by MSF Holdings
and (e) UPOs owned by MS Farrell to purchase 70,244 shares of Common Stock.
Does not include (a) options to purchase 66,667 shares of Common Stock
granted to Mr. Schacker under the Company Stock Plans which are not
exercisable within the next 60 days or (b) shares of Common Stock, UPOs
and warrants to purchase an additional 195,561 shares of Common Stock
originally granted to MS Farrell which currently are owned by stockholders,
directors, managing directors and executive officers of MS Farrell and MSF
Holdings and others. The address for Mr. Schacker is MS Farrell, 67 Wall
Street, New York, New York 10005.
(12) Includes options to purchase 53,332 shares of Common Stock granted to Mr.
Alexander under the Company Stock Plans which are exercisable within
the next 60 days. Does not include (a) options to purchase 72,918 shares
of Common Stock granted to Mr. Alexander under the Company Stock Plans
which are not exercisable within the next 60 days or (b) any of the shares
of Common Stock or other securities of the Company owned by any other
party to Stockholders Agreement. The address for Mr. Alexander is Burnside,
Church Walk, Marholm, Peterborough, PE 67H2 England.
(13) Represents options to purchase 85,414 shares of Common Stock granted
to Mr. Jaffe under the Company Stock Plans which are exercisable within the
next 60 days. Does not include options to purchase 117,086 shares of Common
Stock granted to Mr. Jaffe under the Company Stock Plans which are not
exercisable within the next 60 days. The address for Mr. Jaffe is Electric
Licensing Organization, 386 Park Avenue South, Suite 1900, New York, New
York 10016.
(14) Represents (a) 750 shares of Common Stock held in an Individual Retirement
Account ("IRA") for the benefit of Mr. Austrian, (b) 750 shares of Common
Stock held in an IRA for the benefit of Mr. Austrian's spouse and
(c) options to purchase 62,082 shares of Common Stock granted to Mr.
Austrian under the Company Stock Option Plans which are exercisable within
the next 60 days. Does not include options to purchase 71,668 shares of
Common Stock granted to Mr. Austrian under the Company Stock Option
Plans which are not exercisable within the next 60 days. The address for
Mr. Austrian is c/o Rust Group, 327 Congress Avenue, Suite 200, Austin,
Texas 78701.
(15) Includes options to purchase 36,665 shares of Common Stock granted to Mr.
Kaufman under the Company Stock Plans which are exercisable within the
next 60 days. Does not include options to purchase 8,335 shares of Common
Stock granted to Mr. Kaufman under the Company Stock Plans which are not
exercisable within the next 60 days. The address for Mr. Kaufman is Kaufman
& Associates, LLC, 50 Charles Lindbergh Boulevard, Suite 206, Mitchel
Field, New York 11553.
(16) Includes options to purchase 26,073 shares of Common Stock granted to Mr.
Gordon under the Company Stock Option Plans which are exercisable within
the next 60 days. Does not include options to purchase 143,309 shares of
Common Stock granted to Mr. Gordon nder the Company Stock Option Plans
which are not exercisable within the next 60 days.
(17) Represents options to purchase 12,500 shares of Common Stock granted to Mr.
Sullivan under the Company Stock Option Plans which are exercisable within
the next 60 days. Does not include options to purchase 37,500 shares of
<PAGE>
Common Stock granted to Mr. Sullivan under the Company Stock Option Plans
which are not exercisable within the next 60 days.
(18) Includes (a) an aggregate 712,892 shares of Common Stock issuable upon
exercise of the options and warrants discussed in notes (4) and (10)
through (17) above which are exercisable within the next 60 days, (b) the
111,248 shares of Common Stock registered in the name of the Serif Trust
and (c) the 900,320 shares of Common Stock beneficially owned by Mr.
Cinnamon and Ms. Kramer Cinnamon which are subject to the proxy granted to
Mr. Leininger, as President of the Company, pursuant to the terms of the
Cinnamon Settlement Agreement.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions.
Martin F. Schacker, a director of the Company, is Chairman of the Board of
Directors of MS Farrell and MSF Holdings, the parent holding company of MS
Farrell. MS Farrell acted as placement agent on behalf of the Company in selling
an aggregate of 1,115,250 shares of Class A Convertible Preferred Stock of the
Company in June 1994 and an additional 75,000 shares of Class A Convertible
Preferred Stock in November 1994 for aggregate gross proceeds of $1,190,250. In
consideration for its services in connection therewith, MS Farrell received a
10% commission and a 3% non-accountable expense allowance on the gross proceeds
of such offering, a warrant which became exercisable for an aggregate of 302,354
shares of Common Stock which MS Farrell has exercised in full for nominal
consideration, and certain other consideration. As a result of such warrant
exercise, MS Farrell became a holder of more than 5% of the outstanding Common
Stock.
In May 1995, MS Farrell loaned $100,000 to the Company (the "MS Farrell
Loan"). The MS Farrell Loan was evidenced by a promissory note in the principal
amount of $100,000, bearing interest at a rate equal to fourteen percent (14%)
per annum, maturing on the earlier of (i) December 25, 1995 or (ii) the
consummation of a subsequent offering of securities other than similar notes.
The MS Farrell Loan was secured by the Company's accounts receivable. In June
through August 1995, MS Farrell acted as placement agent with respect to an
aggregate $459,000 principal amount of additional 14% Promissory Notes issued by
the Company to other persons. MS Farrell did not receive any compensation in
connection with the sale of these additional 14% Promissory Notes. MS Farrell
also acted as placement agent on behalf of the Company in selling an aggregate
of $1,250,000 principal amount of promissory notes and 243,902 shares of Common
Stock in August 1995. In connection with its services therewith, MS Farrell
received a 10% commission and a 3% non-accountable expense allowance on the
gross proceeds of such offering. The MS Farrell Loan was repaid from the
Company's proceeds of such offering.
MS Farrell acted as representative of the underwriters of the Company's
initial public offering (the "IPO"), which was consummated on December 12, 1995,
pursuant to which the Company sold an aggregate 1,142,400 shares of Common Stock
for gross proceeds of $5,854,800. As compensation for its underwriting services
in connection with the IPO, MS Farrell received a 10% underwriting discount and
a 3% non-accountable expense allowance of the gross proceeds from the IPO and
Underwriters' Purchase Options to purchase 103,300 shares of Common Stock at
$6.15 per share for a four year period terminating on December 5, 2000.
Pursuant to an engagement agreement, dated December 23, 1993, between the
Company and MS Farrell, the Company agreed (a) to use MS Farrell as its
exclusive investment banker for a five-year period, (b) to pay monthly
consulting fees to MS Farrell of $2,500 until December 1998, in connection with
which the Company paid MS Farrell $138,128 through August 20, 1996, and (c) to
pay to MS Farrell a fee of 2% of the greater of the maximum commitment under, or
the maximum amount actually borrowed by the Company pursuant to, a conventional
line of credit extended to the Company by a bank or other short-term lender
introduced to the Company by MS Farrell. The Company had the right to terminate
the above-described obligations under this engagement agreement upon the payment
of $250,000 in cash. In August 1996, in exchange for the right to pay such
termination fee in shares of Common Stock, the suspension of payment of
obligations under this engagement agreement and certain other consideration, the
Company granted to MS Farrell and a designee thereof warrants (the "MSF
Warrants")to purchase 500,000 shares of Common Stock exercisable at $6.875 per
share for a six-year period and extended the expiration date of the
Underwriters' Purchase Options to August 22, 2002. In March 1997, the Company
exercised its right to terminate the Company's investment banking obligations to
<PAGE>
MS Farrell and, in connection therewith, issued an aggregate of 71,428 shares of
Common Stock to MSF Holdings, the parent holding company of MS Farrell, and to
one other designee thereof.
In June 1996, the Company loaned $200,000 to a corporation (the "Debtor")
of which MS Farrell is an affiliate and of which Martin F. Schacker, a director
of the Company and Chairman of the Board of MS Farrell, is a director and
stockholder and Neil M. Kaufman, a director of the Company, is a stockholder.
This loan was represented by a promissory note (the "Debtor Note") bearing
interest at 14% per annum which was secured by the assets of Debtor. In
connection with this loan, the Company also received a warrant (the "Innapharma
Warrant") to purchase 100,000 shares of the common stock of Innapharma, Inc., a
pharmaceutical company ("Innapharma"), of which MS Farrell may also be
considered an affiliate and of which Mr. Schacker is a director, at an exercise
price of $5.50 per share. In March 1997, in consideration for a warrant (the
"Debtor Warrant") to purchase 100,000 shares of the common stock of the Debtor
at an exercise price of $1.00 per share, exercisable for a six year period, the
Company agreed to extend the maturity of the Debtor Note and the Company further
agreed to exchange the Debtor Note for a similar note (the "Innapharma Note")
bearing interest at 12% per annum issued by Innapharma maturing on the earlier
of November 27, 1997 or the consummation of an offering of equity securities of
Innapharma. In July, 1997, the Innapharma Note was repaid in full (including all
accrued interest thereon) and contemporaneously therewith, the Company assigned
the Innapharma Warrant to MS Farrell in exchange for a reduction in the number
of shares of Common Stock that may be purchased under the MS Farrell Warrants by
100,000 to 400,000 shares.
Pursuant to a Financial Advisory Agreement, dated as of November 20, 1997
(the "1997 Farrell Agreement"), between the Company and MS Farrell, the Company
retained MS Farrell to perform specified financial advisory services for the
Company on a non-exclusive basis. In consideration for entering into the 1997
Farrell Agreement, the number of shares of Common Stock that may be purchased
upon exercise of the MS Farrell Warrants was reduced by 60,000 to 340,000
shares, the number of shares of Common Stock that may be purchased upon exercise
of the Underwriters' Purchase Options was reduced by 15,495 to 87,805 shares,
the exercise price of both the MS Farrell Warrants and Underwriters' Purchase
Options was reduced to $2.00 per share and MS Farrell waived all anti-dilutive
rights under the Underwriters' Purchase Options and MS Farrell Warrants in
connection with the Company's October 1997 sale of 962,000 shares of Common
Stock in a private placement transaction. Under the 1997 Farrell Agreement, the
Company is obligated to pay MS Farrell between 2% and 7% of the aggregate
consideration paid in any merger, consolidation, recapitalization, business
combination or other stock or asset transaction in which MS Farrell participates
as an identifying or introducing agent or in connection with which the Company
seeks the advice of MS Farrell. Pursuant to an Amendment to the Financial
Advisory Agreement, dated January 10, 1998 (the "1998 Farrell Agreement"),
between the Company and MS Farrell, MS Farrell agreed to perform additional
financial advisory services for the Company. In consideration for entering into
the 1998 Farrell Agreement, the per share exercise price of the MS Farrell
Warrants and Underwriters' Purchase Options was reduced to the lesser of: $1.27
or 120% of the sale price of any shares of Common Stock sold by the Company to a
source introduced by MS Farrell within the twelve-month period terminating on
January 27, 1999; provided, however, that the per share exercise price may not
be less than $1.06; and the expiration date of the MS Farrell Warrants and
Underwriters' Purchase Options was extended to August 20, 2002.
Prior to the Company's IPO, Barry A. Cinnamon, formerly the President,
Chief Executive Officer and Chairman of the Board of the Company and currently a
principal stockholder of the Company, and Richard Bergman, the Company's former
Vice President of Product Development, placed into escrow an aggregate of
542,500 shares of Common Stock (the "Escrow Shares"), 500,000 of which shares
were placed in escrow by Mr. Cinnamon and 42,500 of which shares were placed in
escrow by Mr. Bergman. In April 1996, upon the execution and delivery by the
Company of a letter of intent to acquire all of the issued and outstanding
capital stock of Serif Inc. and Serif (Europe) Limited, 217,000 shares of Common
Stock then held in escrow were released from escrow and delivered to the
above-named stockholders, 200,000 of which shares were delivered to Mr. Cinnamon
and 17,000 of which shares were delivered to Mr. Bergman (the "April 1996 Escrow
Release"). In September 1996, 314,000 of the remaining shares of the Company
Common Stock then held in escrow were released from escrow and delivered to Mr.
Cinnamon (300,000 shares) and Mr. Bergman (14,000 shares) (the "September 1996
Escrow Release"; and together with the April 1996 Escrow Release, the "Escrow
Releases"). Presently, no shares remain in escrow and all of the arrangements
relating to the Escrow Shares have been terminated. The Company incurred a
compensation expense of approximately $2,773,180 in connection with the Escrow
Releases in 1996. See "Item 6. Management's Discussion and Analysis or Plan of
Operation."
<PAGE>
In April 1996, Barry A. Cinnamon sold 44,000 shares of Common Stock to MS
Farrell for a price equal to $2.00 per share, and, in August 1996, Mr. Cinnamon
sold 42,946 shares of Common Stock to MS Farrell for a price equal to $6.00 per
share.
Pursuant to the Cinnamon Agreements, Barry A. Cinnamon and Lori Kramer
Cinnamon resigned as officers, directors and employees of the Company and the
Company granted Mr. Cinnamon a license to certain aspects of the Company's
Intelligent Formatting technology in connection with an Internet database
reporting software product which had been under preliminary development by the
Company. Mr. Cinnamon and Ms. Kramer Cinnamon are husband and wife. Under the
terms of the Cinnamon Settlement Agreement, (a) the Company paid Mr. Cinnamon
$56,000, and agreed to (i) reimburse Mr. Cinnamon for his verified reasonable
expenses incurred in the normal course of the fulfillment of his duties as an
officer and director of the Company, (ii) pay Mr. Cinnamon $10,000 per month for
a twenty month period, (iii) continue to make all payments with respect to
health insurance for the Cinnamons' benefit comparable to the coverage available
to the Company's executive officers through the earlier of December 31, 1999 or
such time as Mr. Cinnamon is employed or retained on a substantially full-time
basis, (iv) reimburse Mr. Cinnamon for his reasonable moving expenses, up to a
maximum of $15,000, and (v) register for resale by Mr. Cinnamon 865,000 shares
of Common Stock in the Company's proposed Registration Statement on Form S-3,
and (b) (i) Mr. Cinnamon surrendered for cancellation all 60,520 shares of Class
B Voting Preferred Stock, Series A, of the Company, (ii) the Cinnamons
irrevocably appointed the President of the Company as proxy to vote all shares
of Common Stock owned beneficially or of record by either of them, in any
capacity, in such manner as may be determined by the President of the Company in
his sole discretion, and (iii) the Cinnamons agreed to limit the sale of their
shares of Common Stock to a specified schedule under certain circumstances. In
addition, the Company and Mr. Cinnamon and Ms. Kramer Cinnamon exchanged
releases, the release by Mr. Cinnamon and Ms. Kramer Cinnamon extending to the
Company's subsidiaries, officers, directors, stockholders, attorneys and others.
See "Item 3. Legal Proceedings."
In July 1996, the Company acquired all of the issued and outstanding shares
of capital stock of Serif Inc. and Serif (Europe) Limited. Pursuant to the terms
of the agreements for such acquisitions (the "Serif Acquisition Agreements"),
the Company issued to Norman Alexander an aggregate 67,913 shares of Common
Stock and agreed to nominate Gwyn Jones or his designee to the Board of
Directors of the Company. Mr. Jones, who became a holder of more than 5% of the
outstanding Common Stock as a result of the consummation of the Serif
Acquisition Agreements, designated Mr. Alexander as his nominee and Mr.
Alexander was elected as a director of the Company in October 1996. In addition,
Barry A. Cinnamon, Norman Alexander and the other former stockholders of the
Serif companies entered into the Stockholders Agreement pursuant to which each
party agreed, for a term of two years, to vote their respective shares of Common
Stock in favor of the election as directors of the nominees for directors
designated by the Company's Board of Directors and in favor of the election as a
director of Mr. Jones or Mr. Jones' designee. Pursuant to the terms of the Serif
Acquisition Agreements, the Company entered into a three-year employment
agreement with Gwyn Jones, the founder and largest stockholder of Serif, and the
Company elected Gwyn Jones as a director in Class II. In October 1996, Mr. Jones
resigned as an officer, director and employee of the Company and Serif pursuant
to agreements under which Mr. Jones received or is to receive the base salary
payable under his employment agreement and certain other consideration,
including the elimination of the prohibition on Mr. Jones selling the 469,804
shares of Common Stock which Mr. Jones received pursuant to the Serif
Acquisition Agreements and the substitution, in lieu thereof, of a restriction
allowing him to sell no more than thirty percent (30%) of the average daily
trading volume of Common Stock in any week and certain other restrictions.
Digital Paper, Inc. ("Digital Paper"), and its stockholders, one of whom is
Daniel Fraisl, formerly Vice President - Research and Development of the
Company, entered into an amendment to the Stock Purchase Agreement by which SPC
acquired Digital Paper, which amendment became effective upon consummation of
the Merger. The amendment provided that a remaining payment of $1,650,000 and
two incentive payments with an aggregate total of $325,000 upon the attainment
of certain product sales and development criteria, which is required by the
terms of the Stock Purchase Agreement to be made by SPC to Digital Paper's
stockholders in cash or in shares of SPC common stock, be paid in cash or in
shares of Common Stock, at the option of each such stockholder. None of the
criteria were met in 1996, but were achieved in 1997. Pursuant to a Settlement
and General Release Agreement, dated as of July 25, 1997 (the "Fraisl Settlement
Agreement"), among Mr. Fraisl, the Company and SPC, Mr. Fraisl resigned as an
officer and employee of the Company and SPC and, in connection therewith,
received a lump sum payment of $85,000, payment with respect to accrued vacation
time and the Company's agreement to make all payments in respect of health
<PAGE>
insurance for Fraisl's benefit for a six month period. The Company also agreed
that all stock options previously granted to Fraisl would remain exercisable
through January 24, 1998, to the extent exercisable on July 25, 1997. None of
these options were exercised. In addition, pursuant to a Consulting Agreement,
dated as of July 25, 1997 (the "Fraisl Consulting Agreement"), between SPC and
Fraisl, SPC retained Fraisl for a two year period to provide certain consulting
services relating to the Company's Intelligent Formatting technology.
During 1995, SPC entered into three-year, non-interest-bearing loan
agreements with Irfan Salim, the then President and Chief Executive Officer of
SPC, in the amount of $300,000, and with Robert T. Iguchi, the then Vice
President of North American Sales and Service of SPC, in the amount of $117,000.
Both of these obligations were secured by the right to a second deed of trust on
their respective homes. During the fourth fiscal quarter of 1996, Mr. Iguchi
repaid to the Company the outstanding balance of his loan, in the amount of
$117,000. During the SPC 1996 Fiscal Year, SPC forgave $125,000 of Mr. Salim's
loan, which was treated as compensation to him. The $175,000 balance of Mr.
Salim's loan was due on February 17, 1997. Pursuant to an agreement with Mr.
Salim, the Company received $125,000 in full payment of the Company's loan to
Mr. Salim.
During 1996, the Company incurred approximately $350,000 in legal fees to
Blau Kramer, then its counsel. During 1997, the Company incurred approximately
$480,000 in legal fees to Moritt Hock, then its counsel. Neil M. Kaufman, a
director of the Company, was a member of Blau Kramer during 1996 and a partner
in Moritt Hock during 1997. Mr. Kaufman currently is the principal of Kaufman &
Associates, LLC, counsel to the Company. During 1997, the Company incurred
approximately $55,000 in legal fees to the predecessor of Kaufman & Associates,
LLC. In 1996 and 1997, Blau Kramer and Moritt Hock acted as counsel to MS
Farrell in connection with four private placement transactions, two of such
transactions involving Innapharma, and also acted as counsel to the Debtor.
Martin F. Schacker, a director of the Company, is Chairman of the Board of MS
Farrell and a director of Innapharma; and MS Farrell may also be considered an
affiliate of Innapharma.
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.
Pursuant to a Settlement and General Release Agreement, dated as of January
30, 1997 (the "Frazer Settlement Agreement"), among Miriam K. Frazer ("Frazer"),
the Company and SPC, Frazer resigned as an officer and employee of the Company
and SPC and, in connection therewith, received, among other things, payments
aggregating $165,000 and an additional payment with respect to accrued vacation
time. The Company also agreed that all stock options previously granted to
Frazer would remain exercisable through July 30, 1997, to the extent exercisable
on January 30, 1997.
On January 28, 1998, the Compensation Committee of the Board of Directors
of the Company determined to compensate Marc E. Jaffe for his services as
Chairman of the Board of Directors of the Company at the rate of $5,000 per
month, payable $2,500 in the month of service and $2,500 twelve months after
such initial payment. During 1996, the Company paid $2,000 to Electronic
Licensing Organization, Inc. ("ELO") in respect of electronic content licensing
services. There were no payments made to ELO by the Company in 1997.
With respect to compensation paid to Barry A. Cinnamon and Mark E.
Leininger in their capacities as employees of the Company, see "Item 10.
Executive Compensation."
In connection with the Repricing Program, options held by directors and
executive officers granted under the Company Stock Plans were repriced as
follows:
<PAGE>
<TABLE>
<CAPTION>
Prior Option Repriced Option (1)
Shares Per Share Shares
Optionee Underlying Option Exercise Price Underlying Option Expiration Date
<S> <C> <C> <C> <C>
Norman W. Alexander..... 25,000 $ 5.03 18,750 12/19/06
Norman W. Alexander..... 10,000 2.0125 7,500 7/31/07
Neil R. Austrian, Jr.... 25,000 2.75 18,750 4/25/06
Neil R. Austrian, Jr.... 10,000 5.875 7,500 7/31/06
Neil R. Austrian, Jr.... 10,000 2.0125 7,500 7/31/07
Robert Gordon........... 75,000 5.875 56,250 7/31/06
Robert Gordon........... 810 6.25 607 10/14/06
Robert Gordon........... 1,735 3.875 1,301 12/31/06
Robert Gordon........... 1,000 3.43 750 2/4/07
Robert Gordon........... 1,328 2.9375 996 3/31/07
Robert Gordon........... 135,000 2.25 101,250 5/13/07
Marc E. Jaffe........... 5,000 2.50 3,750 10/31/04
Marc E. Jaffe........... 25,000 2.75 18,750 8/2/05
Marc E. Jaffe........... 10,000 5.875 7,500 7/31/06
Marc E. Jaffe........... 10,000 2.0125 7,500 7/31/07
Neil M. Kaufman......... 25,000 3.75 18,750 4/24/06
Neil M. Kaufman......... 25,000 5.03 18,750 12/19/06
Neil M. Kaufman......... 10,000 2.0125 7,500 7/31/07
Mark E. Leininger....... 20,000 3.75 15,000 7/20/05
Mark E. Leininger....... 10,000 4.25 7,500 2/19/06
Mark E. Leininger....... 70,000 2.75 52,500 4/25/06
Mark E. Leininger....... 145,000 7.56 108,750 9/28/06
Mark E. Leininger....... 300,000 3.43 225,000 2/4/07
<FN>
- ---------
(1) The exercise price of all options were repriced to $1.25 per share.
(2) Under the terms of the Cinnamon Settlement Agreement all of the options
granted to Mr. Cinnamon and Ms. Kramer Cinnamon will expire on December 19,
1998.
</FN>
</TABLE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Set forth below are all exhibits to this Annual Report on Form 10-KSB:
3.1 Composite of Certificate of Incorporation of the Company, as amended
to date. (Incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076),
for the quarter ended June 30, 1997, filed with the Commission on
August 19, 1997.)
3.2 Certificate of Designations of the Junior Participating Preferred
Stock, Series A, filed with the Delaware Secretary of State on March
31, 1998.
3.3 By-laws of the Company, as amended.
4.1 Specimen Common Stock Certificate.
10.1 Company 1994 Long Term Incentive Plan, as amended to date.
(Incorporated by reference to Exhibit 10.46 to the Company's Quarterly
Report on Form 10-QSB (Commission File Number: 1-14076), for the
quarter ended June 30, 1997, filed with the Commission on August 19,
1997.)
10.2 Company Outside Director and Advisor Stock Option Plan, as amended to
date. (Incorporated by reference to Exhibit 10.47 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076),
for the quarter ended June 30, 1997, filed with the Commission on
August 19, 1997.)
10.3 SPC 1987 Stock Option Plan. (Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-8 (Registration
Number: 333-19509), filed with the Commission on January 10, 1997.)
<PAGE>
10.4 SPC 1989 Stock Plan. (Incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-8 (Registration Number:
333-19509), filed with the Commission on January 10, 1997.)
10.5 SPC 1991 Stock Option Plan. (Incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-8 (Registration
Number: 333-19509), filed with the Commission on January 10, 1997.)
10.6 Employment Agreement dated as of December 27, 1993, as amended through
Amendment No. 6, between the Company and Barry A. Cinnamon.
(Incorporated by reference to Exhibit 10.3 to the Company's Amendment
No. 1 to Registration Statement on Form SB-2 (Registration Number:
33-97184), filed with the Commission on November 6, 1995,
Exhibit 10.30 to the Company's Quarterly Report on Form 10-QSB
(Commission File Number: 1-14076), for the quarter ended March 31,
1996, filed with the Commission on May 14, 1996, and Exhibit 10.35
to the Company's Quarterly Report on Form 10-QSB (Commission File
Number: 1-14076), for the quarter ended September 30, 1996, filed
with the Commission on November 5, 1996.)
10.7 Amendment No. 7 to Employment Agreement between the Company and Barry
A. Cinnamon. (Incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-KSB (Commission File Number:
1-14076), for the year ended December 31, 1996, filed with the
Commission on April 15, 1997.)
10.8 Employment Agreement dated as of December 27, 1993, as amended through
Amendment No. 3, between the Company and Lori Kramer Cinnamon.
(Incorporated by reference to Exhibit 10.4 to the Company's Amendment
No. 1 to Registration Statement on Form SB-2 (Registration Number:
33-97184), filed with the Commission on November 6, 1995.)
10.9 Settlement and General Release Agreement, dated as of September 26,
1997, among Joseph Szczepaniak, the Company and Software Publishing
Corporation. (Incorporated by reference to Exhibit 10.52 to the
Company's Quarterly Report on Form 10-QSB (Commission File Number:
1-14076), for the quarter ended September 30, 1997, filed with the
Commission on November 14, 1997.)
10.10 Settlement and General Release Agreement, dated s of July 25, 1997,
among Daniel J. Fraisl, the Company and Software Publishing
Corporation. (Incorporated by reference to Exhibit 10.48 to the
Company's Quarterly Report on Form 10-QSB (Commission File Number:
1-14076), for the quarter ended June 30, 1997, filed with the
Commission on August 19, 1997.)
10.11 Agreement dated October 25, 1996 between the Company and Mark E.
Leininger. (Incorporated by reference to Exhibit 10.36 to the
Company's Quarterly Report on Form 10-QSB (Commission File Number:
1-14076), for the quarter ended September 30, 1996, filed with the
Commission on November 5, 1996.)
10.12 Agreement and Plan of Reorganization dated as of October 1, 1996
among the Company, SPC and SPC Acquisition Corporation.
(Incorporated by reference to Exhibit 2 to the Company's Registration
Statement on Form S-4 (Registration Number: 333-16449), filed with
the Commission on November 21, 1996.)
10.13 Form of Bridge Unit Subscription Agreement. (Incorporated by
reference to Exhibit 10.7 to the Company's Registration Statement
on Form SB-2 (Registration Number: 33-97184), filed with the
Commission on September 21, 1995.)
10.14 Stock Option Agreement dated as of August 2, 1994 between the Company
and Berlitz Publishing Company, Inc. (Incorporated by reference to
Exhibit 10.10 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on
September 21, 1995.)
10.15 Settlement and General Release Agreement dated as of January 30, 1997
between the Company and Miriam K. Frazer. (Incorporated by reference
to Exhibit 10.15 to the Company's Annual Report on Form 10-KSB
(Commission File Number: 1-14076), for the year ended December 31,
1996, filed with the Commission on April 15, 1997.)
10.16 Agreement, dated June 14, 1994, as amended, between the Company, M.S.
Farrell & Co., Inc. and the holders of shares of Class A Convertible
Preferred Stock. (Incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form SB-2 (Registration
Number: 33-97184), filed with the Commission on September 21, 1995.)
10.17 Form of Indemnification Agreement between the Registrant and its
executive officers and directors. (Incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on
September 21, 1995.)
10.18 Form of Underwriters' Purchase Option (Specimen).
10.19 Form of Lock-Up Agreement dated as of July 31, 1996 relating to
limitations on stock sales between the Company and each of the former
stockholders of Serif Inc. (Incorporated by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-KSB (Commission
File Number: 1-14076), for the year ended December 31, 1996, filed
with the Commission on April 15, 1997.)
<PAGE>
10.20 Form of Lock-Up Agreement dated as of July 31, 1996 relating to
limitations on stock sales between the Company and each of the former
stockholders of Serif (Europe) Limited. (Incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-KSB
(Commission File Number: 1-14076), for the year ended December 31,
1996, filed with the Commission on April 15, 1997.)
10.21 Agreement and Plan of Reorganization dated as of July 31, 1996
among the Company, Serif Inc., Gwyn Jones and all other stockholders
of Serif Inc. (Incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K (Date of Report: July 31, 1996)
(Commission File Number: 1-14076), filed with the Commission on August
13, 1996.)
10.22 Agreement and Plan of Reorganization dated as of July 31, 1996 among
the Company, Serif (Europe) Limited, Gwyn Jones and all other
stockholders of Serif (Europe) Limited. (Incorporated by reference to
Exhibit 4.4 to the Company's Current Report on Form 8-K (Date of
Report: July 31, 1996) (Commission File Number: 1-14076), filed with
the Commission on August 13, 1996.)
10.23 Registration Rights Agreement dated July 31, 1996 between the
Company and the former stockholders of Serif Inc. and Serif (Europe)
Limited. (Incorporated by reference to Exhibit 10.31 to the Company's
Current Report on Form 8-K (Date of Report: July 31, 1996) (Commission
File Number: 1-14076), filed with the Commission on August 13, 1996.)
10.24 Escrow Agreement dated July 31, 1996, among the Company, Serif Inc.,
the former stockholders of Serif Inc., Gwyn Jones and Blau, Kramer,
Wactlar & Lieberman, P.C. (Incorporated by reference to Exhibit 2
to the Schedule 13D Statement of Barry A. Cinnamon, with respect
to the Common Stock of the Company, filed with the Commission on
October 31, 1996.)
10.25 Localization and Distribution Agreement for Harvard Graphics Windows
Products dated February 16, 1995 between Choten, Inc. and SPC.
(Incorporated by reference to Exhibit 10.21 to Software Publishing
Corporation's Annual Report on Form 10-K (Commission File Number:
0-14025), for the fiscal year ended September 30, 1995, filed with the
Commission on December 29, 1995.)
10.26 Escrow Agreement dated July 31, 1996, among the Company, Serif
(Europe) Limited, the former Stockholders of Serif (Europe) Limited,
Gwyn Jones and Blau, Kramer, Wactlar & Lieberman, P.C. (Incorporated
by reference to Exhibit 10.28 to the Company's Annual Report
on Form 10-KSB (Commission File Number: 1-14076), for the year ended
December 31, 1996, filed with the Commission on April 15, 1997.)
10.27 Lease Agreement dated September 7, 1995 between Community Towers LLC
and the Company, for facilities located at 111 North Market Street,
San Jose, California. (Incorporated by reference to Exhibit 10.22 to
Software Publishing Corporation's Annual Report on Form 10-K
(Commission File Number: 0-14025), for the fiscal year ended September
30, 1995, filed with the Commission on December 29, 1995.)
10.28 Stockholders' Agreement dated as of July 31, 1996 among Barry A.
Cinnamon, Gwyn Jones and the former stockholders of Serif Inc. and
Serif (Europe) Limited. (Incorporated by reference to Exhibit 1 to
the Schedule 13D Statement of Barry A. Cinnamon, with respect to the
Common Stock of the Company, filed with the Commission on October 31,
1996.)
10.29 Letter Agreement dated October 24, 1996 between the Company and Gwyn
Jones. (Incorporated by reference to Exhibit 10.31 to the Company's
Annual Report on Form 10-KSB (Commission File Number: 1-14076), for
the year ended December 31, 1996, filed with the Commission on April
15, 1997.)
10.30 Compromise Agreement executed October 24, 1996 between the Company
and Gwyn Jones. (Incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-KSB (Commission File Number:
1-14076), for the year ended December 31, 1996, filed with the
Commission on April 15, 1997.)
10.31 Settlement and General Release Agreement dated as of July 23, 1996
among the Company, Richard Bergman and Barry Cinnamon.
(Incorporated by reference to Exhibit 10.32 to the Company's Current
Report on Form 8-K (Date of Report: July 31, 1996) (Commission File
Number: 1-14076), filed with the Commission on August 13, 1996.)
10.32 Escrow Agreement dated as of December 27, 1993, as amended through
September 5, 1996, among the Company, Barry A. Cinnamon, Richard
Bergman and Blau, Kramer, Wactlar & Lieberman, P.C. (Incorporated
by reference to Exhibit 10.25 to the Company's Amendment No. 1 to
Registration Statement on Form SB-2 (Registration Number: 33-97184),
filed with the Commission on November 6, 1995, Exhibit 10.32 to
the Company's Quarterly Report on Form 10-QSB (Commission File Number:
1-14076), for the quarter ended March 31, 1996, filed with the
Commission on May 14, 1996, and Exhibit 10.34 to the Company's
Quarterly Report on Form 10-QSB (Commission File Number: 1-14076),
for the quarter ended September 30, 1996, filed with the Commission
on November 5, 1996.)
<PAGE>
10.33 Escrow Agreement dated as of May 25, 1995, as amended through
September 5, 1996, among the Company, Barry A. Cinnamon, Richard
Bergman and Blau, Kramer, Wactlar & Lieberman, P.C. (Incorporated by
reference to Exhibit 10.26 to the Company's Amendment No. 1 to
Registration Statement on Form SB-2 (Registration Number: 33-97184),
filed with the Commission on November 6, 1995, and Exhibit 10.34 to
the Company's Quarterly Report on Form 10-QSB (Commission File Number:
1-14076), for the quarter ended September 30, 1996, filed with the
Commission on November 5, 1996.)
10.34 Stock Purchase Agreement dated March 31, 1995 among SPC, Digital
Paper, Inc., Daniel J. Fraisl, Carl Meyer and Anthony N. Hoeber.
(Incorporated by reference to Exhibit 10.4 to Software Publishing
Corporation's Quarterly Report on Form 10-Q (Commission File Number:
0-14025), for the quarter ended March 31, 1995, filed with the
Commission on May 15, 1995.)
10.35 Amendment to Stock Purchase Agreement dated as of April 2, 1996
among SPC, Digital Paper, Inc. Daniel J. Fraisl, Carl Meyer and
Anthony N. Hoeber. (Incorporated by reference to Exhibit 10.39 to the
Company's Annual Report on Form 10-KSB (Commission File Number:
1-14076), for the year ended December 31, 1996, filed with the
Commission on April 15, 1997.)
10.36 Amendment No. 2 to Stock Purchase Agreement dated October 1, 1996
among SPC, Digital Paper, Inc., Daniel J. Fraisl, Carl Meyer and
Anthony N. Hoeber. (Incorporated by reference to Exhibit 10.40 to
the Company's Annual Report on Form 10-KSB (Commission File Number:
1-14076), for the year ended December 31, 1996, filed with the
Commission on April 15, 1997.)
10.37 Asset Purchase Agreement dated as of May 1, 1996 between the Company
and BizEd, Inc. (Incorporated by reference to Exhibit 10.41 to the
Company's Annual Report on Form 10-KSB (Commission File Number:
1-14076), for the year ended December 31, 1996, filed with the
Commission on April 15, 1997.)
10.38 Consulting Agreement dated as of May 1, 1996 between the Company and
Clifford J. Schorer, Jr. (Incorporated by reference to Exhibit 10.42
to the Company's Annual Report on Form 10-KSB (Commission File Number:
1-14076), for the year ended December 31, 1996, filed with the
Commission on April 15, 1997.)
10.39 Form of MS Farrell Warrant Certificate issued to MS Farrell & Co.,
Inc. and certain other persons.
10.40 Letter Agreement dated March 27, 1997 between the Company and M.S.
Farrell & Co., Inc. (Incorporated by reference to Exhibit 10.45
to the Company's Annual Report on Form 10-KSB (Commission File
Number: 1-14076), for the year ended December 31, 1996, filed with
the Commission on April 15, 1997.)
10.41 Consulting Agreement, dated as of July 25, 1997, between the Company
and Daniel J. Fraisl. (Incorporated by reference to Exhibit 10.49
to the Company's Quarterly Report on Form 10-QSB (Commission File
Number: 1-14076), for the quarter ended June 30, 1997, filed with
the Commission on August 19, 1997.)
10.42 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). (Incorporated by reference to
Exhibit 10.50 to the Company's Quarterly Report on Form 10-QSB
(Commission File Number: 1-14076), for the quarter ended September
30, 1997, filed with the Commission on November 14, 1997.)
10.43 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. (Incorporated by
reference to Exhibit 10.51 to the Company's Quarterly Report on Form
10-QSB (Commission File Number: 1-14076), for the quarter ended
September 30, 1997, filed with the Commission on November 14,
1997.)
10.44 Option, dated October 23, 1997, issued to Ronald L. Altman.
Incorporated by reference to Exhibit 10.53 to the Company's Quarterly
Report on Form 10-QSB (Commission File Number: 1-14076), for the
quarter ended September 30, 1997, filed with the Commission on
November 14, 1997.)
10.45 Settlement and Release Agreement, dated December 19, 1997, among
the Registrant, Barry A. Cinnamon and Lori Kramer Cinnamon.
(Incorporated by reference to Exhibit 10.54 to the Company's
Current Report on Form 8-K (Date of Report: December 19, 1997)
(Commission File Number: 1-14076), filed with the Commission on
December 30, 1997.)
10.46 License Agreement, dated December 19, 1997, between Software
Publishing Corporation and Barry A. Cinnamon. (Incorporated by
reference to Exhibit 10.55 to the Company's Current Report on Form
8-K (Date of Report: December 19, 1997) (Commission File Number:
1-14076), filed with the Commission on December 30, 1997.)
<PAGE>
10.47 Financial Advisory Agreement, dated as of November 20, 1997,
between the Registrant and M.S. Farrell & Co., Inc.
10.48 Amendment to the Financial Advisory Agreement, dated as of
January 28, 1998, between the Registrant and M.S. Farrell & Co., Inc.
10.49 Amendment No. 1 to Escrow Agreement, dated as of April 1, 1997,
among the Company, Serif Inc., Norman W. Alexander, Moritt, Hock &
Hamroff, LLP and Blau, Kramer, Wactlar & Lieberman, P.C.
10.50 Amendment No. 1 to Escrow Agreement, dated as of April 1, 1997, among
the Company, Serif (Europe) Limited, Norman W. Alexander, Moritt, Hock
& Hamroff, LLP and Blau, Kramer, Wactlar & Lieberman, P.C.
10.51 Rights Agreement, dated as of March 31, 1998, between the Company and
American Stock Transfer & Trust Company.
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Richard A. Eisner & Company, LLP. 23.3 Consent of Ernest &
Young U.K.
24 Powers of Attorney (set forth on the signature page of this Annual
Report on Form 10-KSB).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
On December 30, 1997, the Company filed a Current Report on Form 8-K (Date
of Report: December 19, 1997) with the Commission reporting, as an Item 5
disclosure, the restructuring of the Company's operations and management. No
financial statements were required to be or were filed with this Form 8-K. This
Form 8-K was amended by Amendment No. 1 on Form 8-K/A, filed with the Commission
on January 9, 1998.
On February 13, 1998 the Company filed a Current Report on Form 8-K (Date
of Report: February 11, 1998) with the Commission reporting, as an Item 4
disclosure, the change in the Company's auditors. This Form 8-K was amended by
Amendment No.1 on Form 8-K/A filed with the Commission on February 17, 1998.
<PAGE>
Index to Financial Statements
Independent Auditors' Reports..............................................F-2
Balance Sheet at December 31, 1997 ........................................F-5
Statements of Operations for the years ended December 31,
1997 and 1996............................................................F-6
Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996...............................................F-7
Statements of Cash Flows for the years ended December
31, 1997 and 1996........................................................F-8
Notes to Financial Statements..............................................F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Software Publishing Corporation Holdings, Inc.
Fairfield, New Jersey
We have audited the consolidated balance sheet of Software Publishing
Corporation Holdings, Inc. and subsidiaries (formerly Allegro New Media, Inc.
and subsidiaries) as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the financial statements of
Serif (Europe) Limited, a wholly owned subsidiary, which statements reflected
total assets of $2,594,742 at December 31, 1997 and total revenues of $7,266,486
for the year then ended. Those financial statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Serif (Europe) Limited is based solely on
the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
the financial statements enumerated above present fairly, in all material
respects, the consolidated financial position of Software Publishing Corporation
Holdings, Inc. and subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As described in Note 9, the Company has applied to enter into a closing
agreement with the Internal Revenue Service with respect to dual consolidated
losses previously utilized by a wholly owned subsidiary of the Company, Software
Publishing Corporation ("SPC"). Such closing agreement, if not consummated, will
require the Company to recognize a tax of approximately $8 million on
approximately $24.5 million of SPC's previous dual consolidated losses.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 15, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Serif (Europe) Limited
We have audited the accompanying balance sheet of Serif (Europe) Limited as of
December 31, 1997, and the related statements of operations, cash flows and
shareholders' equity for the year then ended. The financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Serif (Europe) Limited at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with United States generally accepted accounting
principles.
/s/ Ernst & Young
Ernst & Young
Chartered Accountants
April 9, 1998
Nottingham, England
F-3
<PAGE>
Board of Directors
Software Publishing Corporation Holdings, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Software Publishing Corporation
Holdings, Inc. and subsidiaries (formerly, Allegro New Media, Inc.) for the year
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations, changes in
stockholders' equity and cash flows of Software Publishing Corporation Holdings,
Inc. and subsidiaries (formerly, Allegro New Media, Inc.) for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/Ernst & Young
Hackensack, New Jersey
April 14, 1997
F-4
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . $ 2,586,753
Marketable securities. . . . . . . . . . . . . . . . . 173,600
Accounts receivable, less allowances of $623,000 1,324,102
Inventories. . . . . . . . . . . . . . . . . . . . . . 567,336
Prepaid expenses and other current assets. . . . 329,591
___________
Total current assets . . . . . . . . . . . . 4,981,382
Property and equipment, net. . . . . . . . . . . . . . . . 568,888
Acquired software, net of accumulated amortization of $2,460,250 4,446,750
Goodwill, net of accumulated amortization of $106,173. . . 268,559
Restricted cash. . . . . . . . . . . . . . . . . . . . . . 300,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . 63,923
___________
Total assets . . . . . . . . . . . . . . . . $10,629,502
___________
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current liabilities:
<S> <C>
Accounts payable . . . . . . . . . . . . . . . . . . . $ 3,015,198
Accrued liabilities. . . . . . . . . . . . . . . . . . 4,112,267
Current portion of long-term debt. . . . . . . . . . . 173,866
___________
Total current liabilities. . . . . . . . . 7,301,331
Long-term debt, less current maturities. . . . . . . . . 184,765
___________
Total liabilities. . . . . . . . . . . . . 7,486,096
___________
Commitments and contingencies. . . .. . . . . . . . . . . --
Stockholders' equity: . . . . . . . . . . . . . . . . . . --
Serial Preferred Stock, authorized 1,939,480 shares,
none issued and outstanding. . . . . . . . . . . . . --
Class B Voting Preferred Stock, Series A, 60,520
shares authorized, none issued and outstanding. . . . --
Common stock, par value $.001 per share, authorized
30,000,000 shares; issued and outstanding 9,011,418
shares. . . . . . . . . . . . . . . . . . . . . . . . 9,011
Additional paid-in capital. . . . . . . . . . . . . . . 42,965,813
Accumulated deficit . . . . . . . . . . . . . . . . . . (39,831,418)
___________
Total stockholders' equity. . . . . . . . . 3,143,406
___________
Total liabilities and stockholders' equity. $ 10,629,502
<FN>
See report of independent auditors and accompanying notes.
</FN>
</TABLE>
F-5
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
<S> <C> <C>
Net sales................................ $ 17,156,865 $ 4,700,955
Cost of goods sold....................... 4,155,749 1,817,688
____________ ___________
Gross profit................ 13,001,116 2,883,267
Selling, general and administrative expenses (19,314,385) (7,496,665)
Costs associated with release of escrow shares -- (2,773,180)
Product development..................... (3,227,215) (1,077,615)
In-process research and development acquired -- (17,514,000)
Restructuring expenses................. (375,902) (1,104,353)
Other income, net...................... 195,655 121,380
____________ ___________
Loss before income taxes.. $ (9,720,731) $(26,961,166)
Income taxes........................... (47,035) (78,201)
____________ ___________
Net loss................. $ (9,767,766) $(27,039,367)
____________ ___________
Loss per common share:
Net loss per common share -
basic and diluted.................. $ (1.19) $ (7.48)
Weighted average number of common shares
outstanding - basic and diluted.... 8,203,065 3,614,479
<FN>
See report of independent auditors and accompanying notes.
</FN>
</TABLE>
F-6
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class B Additional Total
Voting Preferred Common Stock Paid-In Accumulated Stockholders'
Stock Series A $.001 Par Value Capital Deficit Equity
----------------- --------------- ---------- ----------- ------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............. 60,520 $ 61 3,335,077 $ 3,335 $ 6,158,753 $ (3,024,285) $ 3,137,864
Issuance of common stock from exercise
of options........................... 19,666 20 73,728 73,748
Issuance of common stock upon exercise of
over-allotment option................ 109,400 109 464,777 464,886
Issuance of common stock purchase warrants 767,297 767,297
Issuance of common stock and options in
connection with business combinations 4,376,162 4,376 31,352,643 31,357,019
Issuance of common stock and common stock to
be issued for services and compensation 19,938 20 141,059 141,079
Costs associated with the release of
escrow shares........................ 2,773,180 2,773,180
Net loss................................. (27,039,367) (27,039,367)
_______ ______ _________ _______ ___________ _____________ _____________
Balance at December 31, 1996............. 60,520 $ 61 7,860,243 $ 7,860 $41,731,437 $(30,063,652) $ 11,675,706
Issuance of common stock in payment of
liabilities for services in connection
with business combinations........... 111,272 111 (111)
Issuance of common stock in payment of
liability for services............... 2,475 3 14,997 15,000
Issuance of common stock in connection with
cancellation of agreement for services 71,428 71 249,929 250,000
Issuance of common stock from exercise
of options........................... 5,000 5 9,995 10,000
Sale of common stock..................... 961,000 961 959,505 960,466
Retirement of Class B Voting Preferred
Stock, Series A...................... (60,520) $ (61) 61 --
Net loss................................. (9,767,766) (9,767,766)
_______ ______ _________ _______ ___________ _____________ _____________
Balance at December 31, 1997............. 0 $ 0 9,011,418 $ 9,011 $42,965,813 $(39,831,418) $ 3,143,406
<FN>
See report of independent auditors and accompanying notes.
</FN>
</TABLE>
F-7
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
<S> <C> <C>
Operating activities:
Net loss.................................... $ (9,767,766) $(27,039,367)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 6,358,731 293,781
Costs associated with the release of
escrow stock........................... -- 2,773,180
Costs associated with issuance of common
stock and common stock purchase warrants -- 908,376
In-process research and development acquired -- 17,514,000
Provisions for accounts receivable........ 171,000 501,000
Sale of marketable securities............. 6,154,580
Changes in operating assets and liabilities:
Accounts receivable..................... 496,688 209,231
Inventories............................. 146,251 14,850
Prepaid expenses and other current assets (93,742) (37,417)
Other assets............................ 59,938 171,613
Accounts payable........................ (493,863) 22,782
Accrued liabilities..................... (5,808,791) 4,454,367
_____________ _____________
Net cash used in operating activities... (2,776,974) (213,604)
_____________ _____________
Investing activities:
Purchase of property and equipment.......... (266,275) (116,896)
Restricted cash draw downs.................. 1,350,000
Cash and cash equivalents acquired in
business combination, net of cash paid.... -- 1,963,342
_____________ _____________
Net cash provided by investing
activities.................... 1,083,725 1,846,446
_____________ _____________
Financing activities:
Proceeds from issuance of notes payable..... 124,873
Proceeds from sale of common stock.......... 970,466 538,634
Payment of long-term debt................... (1,523,918)
Costs incurred to register common stock..... -- (391,167)
_____________ _____________
Net cash (used in) provided
by financing activities....... (553,452) 272,340
_____________ _____________
(Decrease) increase in cash and cash equivalents (2,246,701) 1,905,182
Cash and cash equivalents at beginning of year 4,833,454 2,928,272
_____________ _____________
Cash and cash equivalents at end of year.... $ 2,586,753 $ 4,833,454
Supplemental disclosure of noncash financing and investing activities:
Activities in connection with business combinations:
Short-term investments acquired........... -- $ 6,328,180
Common stock and stock options issued, net -- 31,357,019
Notes payable assumed..................... -- 1,757,675
Restricted cash........................... -- 1,650,000
Common stock issued in payment of
liabilities for services................ $ 265,000
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest paid............................. $ 60,328
Income taxes.............................. 1,974
<FN>
See report of independent auditors and accompanying notes.
</FN>
</TABLE>
F-8
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Summary of Significant Accounting Policies
Nature of Business
Software Publishing Corporation Holdings, Inc. (formerly known as Allegro
New Media, Inc.) ("SPCH") and subsidiaries (collectively, the "Company"), is an
international developer and supplier of desktop publishing, presentation
graphics and business productivity computer software products to corporate
customers, consumers, retail and wholesale customers and original equipment
manufacturers primarily in the United States and Europe.
Liquidity and Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a working capital deficiency of $2,319,949 as of
December 31, 1997. If the Company does not attain its revenue and cash
collection goals or if the Company's cash resources are not sufficient, it may
be necessary to obtain additional financing to fund the Company's operations.
The Company is considering an equity offering; however, there can be no
assurance that the Company will be successful in such an offering or in
obtaining other sources of financing. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Principles of Consolidation
The consolidated financial statements include the accounts of SPCH and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The translation of foreign currencies into
United States dollars for subsidiaries where the local currency is the
functional currency is performed for balance sheet accounts using the exchange
rate in effect at year end and for revenue and expense accounts using an average
rate for the period. For foreign operations which are considered an extension of
United States operations, the United States dollar is used as the functional
currency. Gains and losses resulting from remeasurement and foreign currency
transactions are included in the results of operations.
Business Combinations
The Company has accounted for all business combinations under the purchase
method of accounting. Under this method the purchase price is allocated to the
assets and liabilities of the acquired enterprise as of the acquisition date
based on their estimated respective fair values and are subject to revision for
a period not to exceed one year from the date of acquisition. The results of
operations of the acquired enterprise are included in the Company's consolidated
financial statements for the period subsequent to the acquisition. Stockholders'
equity as of December 31, 1996 includes amounts for shares required to be issued
in connection with one of these transactions.
Concentration of Credit Risk
The Company performs periodic credit evaluations of its customers but
generally does not require collateral from its customers.
Revenue Recognition
Revenue is generally recognized upon shipment of products to customers and
is recorded net of allowances for anticipated returns for potential excess
quantities in the distribution channel. Certain customers have been provided
F-9
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
goods on a consignment basis. Revenues on these transactions are recognized upon
the sale of products to the ultimate customer. Revenue for "locked versions" of
software are recognized when customers purchase an unlocking code.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of
three months or less when purchased.
Inventories
Inventories, which are principally finished goods, are stated at the lower
of cost (first-in, first-out) or market.
Royalty Advances
Non-refundable royalty payments in connection with licensing contracts for
the Company's products are generally amortized based on product sales.
Management evaluates the future realization of royalty advances periodically and
charges to cost of goods sold any amounts they believe will not be recovered
through future sales.
Product Development Costs and Acquired Software
Costs incurred in the development of new software products and enhancements
to existing software products are expensed as incurred until technological
feasibility has been established. To date, the Company's product development has
been completed concurrent with the establishment of technological feasibility
and, accordingly, no costs have been capitalized.
Acquired software consists of the value of product development acquired as
a result of business combinations and is being amortized over a three year
period.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis based upon the estimated useful lives of the related assets,
generally 3 to 7 years. Leasehold improvements are amortized on a straight-line
basis over the shorter of the life of the improvement or the remainder of the
lease term.
Goodwill
Goodwill represents costs in excess of net assets of businesses acquired in
purchase transactions. Goodwill is being amortized on a straight-line basis over
5 years. Goodwill associated with the Software Publishing Corporation
acquisition (Note 2) was reduced during to reflect the settlement and adjustment
of acquisition and pre-acquisition liabilities and accruals.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. These estimates principally include provisions for sales
returns and allowances, purchase price allocations, and contingent assets and
liabilities. Actual results could differ from these estimates.
F-10
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The resulting asset at December 31, 1997
was fully reserved since management believes it is more likely than not that the
realization of such benefit will not be realized.
Loss Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") in the year ended December 31, 1997 and
has retroactively applied the affects thereof to the year ended December 31,
1996. SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes anti-dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share.
Basic loss per share is computed based upon the weighted average number of
common shares outstanding during each year. Stock options did not have an effect
on the computation of diluted earnings per share in 1997 and 1996 since they
were anti-dilutive.
Marketable Securities
The Company accounts for investments in marketable securities pursuant to
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). SFAS No. 115
requires, among other things, the classification of investments in one of three
categories based upon the Company's intent: trading, available-for-sale and
held-to-maturity, with trading and available-for sale securities carried at
market value and held to maturity carried at amortized cost. The Company
accounts for marketable securities as trading securities and gains and losses
are included in the statement of operations.
Fair Value of Financial Investments
The fair value of the Company's financial instruments, including cash and
cash equivalents, marketable securities, accounts receivable, accounts payable,
accrued liabilities and long-term debt approximate their carrying values because
of short-term maturities or because their interest rates approximate current
market rates.
Recently Issued Accounting Announcements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company is in
the process of determining its preferred format. The adoption of SFAS No. 130
will have no impact on the Company's consolidated results of operations,
financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises report
F-11
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. Financial statement disclosures for prior
periods are required to be restated. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's consolidated results of operations, financial position or cash
flows.
Advertising and Promotion Costs
Advertising and promotion costs include the costs of advertising,
catalogues, direct mail and postage and are expensed as incurred. These costs
amounted to approximately $6,978,000 and $1,818,000 in 1997 and 1996,
respectively.
2. Business Combinations
On July 31, 1996, the Company acquired all of the outstanding common stock
of Serif Inc. and all of the outstanding preference shares and ordinary shares
of Serif (Europe) Limited (collectively, "Serif"). Serif is engaged in the
development and marketing of personal computer software products in the United
States and Europe, principally the United Kingdom. The aggregate purchase price,
including all direct costs, was approximately $4,200,000 and was principally
financed through the issuance of 1,000,000 shares of the Company's common stock.
As a result of the preliminary purchase price allocation, a charge to earnings
of approximately $3,514,000 was recorded on the date of acquisition representing
the cost assigned to in-process research and development. The cost of the
acquisition exceeded the fair value of Serif's net assets by approximately
$400,000, which was recorded as goodwill.
On December 27, 1996, the Company acquired all of the outstanding common
stock of Software Publishing Corporation ("SPC"). SPC is engaged in the
development and marketing of personal computer software products, principally in
the United States. The aggregate purchase price, including all direct costs, was
approximately $30,000,000 and was principally financed through the issuance of
3,376,162 shares of the Company's common stock. As a result of the preliminary
purchase price allocation, a charge to earnings of approximately $14,000,000 was
recorded on the date of acquisition representing the cost assigned to in-process
research and development. The cost of the acquisition exceeded the fair value of
SPC's net assets by approximately $3,795,000, which was recorded as goodwill as
of the acquisition date and was subsequently eliminated in 1997 as a result of
settlement and adjustment of pre-acquisition liabilities and accruals.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had occurred on January 1, 1996 and does
not purport to be indicative of what would have occurred had the acquisitions
occurred on the date indicated or of the results which may occur in the future.
Year Ended December 31, 1996
----------------------------
Net sales......................... $21,781,955
Net loss.......................... $22,259,598
Net loss per share................ $2.94
F-12
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
3. Marketable Securities
<TABLE>
<CAPTION>
Marketable securities at fair market value consist of the following at
December 31, 1997:
<S> <C>
Common stock of Computer Concepts Corporation......... $ 173,600
___________
4. Property and Equipment
Property and equipment consists of the following as of December 31, 1997:
Office furniture and equipment........................ $ 961,784
Leasehold improvements................................ 101,000
___________
1,062,784
Less accumulated depreciation......................... (493,896)
___________
Total................................................. $ 568,888
___________
</TABLE>
5. Long-term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following at December 31, 1997:
<S> <C>
Note payable - vendor payable in monthly varying installments
commencing March 1998 through May 1999 and bearing
interest at 7% per annum............................ $ 145,000
Notes payable - landlord payable in monthly installments
of $1,402 through March 2002 and bearing interest at
10% per annum....................................... 58,068
Bank loans payable in monthly installments of $4,100 through
July 2000 and bearing interest at 9.5% per annum.... 58,435
Capital lease obligation payable in quarterly installments
of $6,300 through June 2002 and bearing interest
at 10.25% per annum................................. 97,128
___________
$ 358,631
Less current maturities............................... (173,866)
___________
$ 184,765
___________
</TABLE>
Maturities of long-term debt as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
<S> <C>
1998 . . . . . $ 173,866
1999 . . . . . 84,701
2000 . . . . . 39,492
2001 . . . . . 38,759
2002 . . . . . 21,813
_________
Total. . . . . $ 358,631
_________
</TABLE>
F-13
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
6. Accrued Liabilities
Accrued liabilities at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Accrued legal costs. . . . . . . . $ 412,739
Accrued restructuring costs. . . . 375,902
Income taxes payable . . . . . . . 924,835
Other accruals . . . . . . . . . . 2,398,791
___________
$ 4,112,267
___________
</TABLE>
7. Stockholders' Equity
During 1993, certain of the then existing employee/stockholders of the
Company agreed to place an aggregate of 1,000,000 newly issued shares of the
Company's common stock into escrow. In 1994, 677,500 of these shares were
canceled with the approval of such stockholders. Under the terms of the escrow
agreement, the remaining shares were to be released to the stockholders based
upon the Company achieving certain financial results, as defined. On May 25,
1995, certain stockholder employees surrendered to the Company a total of
280,000 shares of the Company's common stock and agreed to place an additional
220,000 shares under the terms of an additional escrow agreement. These shares
were to be released to the stockholders upon the Company attaining certain
financial results, as defined. During 1996, the Company's Board of Directors
released a total of 531,000 shares held under the escrow agreements. This
release resulted in the recognition of compensation expense totaling $2,773,180
based on the fair value of the shares on the date of release. The remaining
11,500 shares were canceled by the Company.
In December 1995, the Company completed an initial public offering of
1,033,000 shares of its common stock and received net proceeds of $4,156,411.
Upon the completion of this offering the Company repaid all of the 10% notes
payable then outstanding and issued 243,902 shares of its common stock to the
holders thereof. The Company incurred an extraordinary loss of $990,928 relating
to deemed interest and deferred financing costs associated with the repayment of
the 10% notes payable. In January 1996, the Company issued 109,400 shares of
common stock in connection with the exercise of the over-allotment option by the
underwriter of the Company's initial public offering and received net proceeds
of $464,886 in connection therewith.
In connection with a license agreement, in 1994 the licensor was granted an
option to purchase up to 100,000 shares of the Company's common stock at a price
per share equal to the initial public offering price (less underwriting
discounts). This agreement expires on July 31, 1998.
On July 31, 1996, the Company acquired all of the outstanding common stock
and preferred shares of 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.
On December 27, 1996, the Company acquired all of the outstanding common
stock of SPC. The aggregate purchase price was approximately $30,000,000 and was
principally financed through the issuance of 3,376,162 shares of Common Stock.
In February 1997, the Company issued an aggregate 111,272 shares of common
stock in payment for services associated with the acquisition of SPC to three
financial advisors which was accrued for and reflected in additional paid-in
F-14
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
capital in 1996. Also, in February 1997, the Company issued 2,475 shares of its
common stock for payment of $15,000 in consulting fees which was accrued as a
liability in 1996.
In 1996, the Company granted warrants, exercisable at $6.875 per share
until August 22, 2002, to purchase 500,000 shares of the Company's common stock
and agreed to issue 71,428 shares of its common stock to the underwriter of its
initial public offering, and a designee thereof, to modify and terminate,
respectively, certain contractual rights of such underwriter. The related costs
amounted to $1,026,000 in 1996 and are included in selling, general and
administrative expenses in 1996. The 71,428 shares of common stock were issued
in 1997 in satisfaction of the related liability of $250,000 recorded in 1996.
In March 1997, the Company received proceeds of $10,000 for the issuance of
5,000 shares of Common Stock for the exercise of certain stock options.
In October 1997, the Company consummated the sale of an aggregate 961,000
shares of Common Stock to five investors for net proceeds of $960,466 in private
transactions. In connection with such sale, the Company 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 advisor.
Preferred Stock
There are 1,939,480 authorized shares of Serial Preferred Stock, par value
$.001 per share. Any shares of Serial Preferred Stock that have been redeemed
are deemed retired and extinguished and may be reissued. The Board of Directors
establishes and designates the series and fixes the number of shares and the
relative rights, preferences and limitations of the respective series of the
Serial Preferred Stock. No shares were issued or outstanding at December 31,
1997.
The Class B Voting Preferred Stock, Series A ("Class B Voting Preferred")
has maximum liquidation rights of $.001 per share, but is not permitted to
receive dividends. The issued shares of the Class B Voting Preferred have been
retired and canceled.
In March 1998, the Company authorized 100,000 shares of Junior
Participating Preferred Stock, Series A, par value $.001 per share. The Junior
Preferred Stock has preferential voting, dividend and liquidation rights over
the Common Stock.
On March 31, 1998, the Company declared a dividend distribution, payable
April 30, 1998, of one Preferred Share Purchase Right ("Right") on each share of
Common Stock. Each Right, when exercisable, entitles the registered holder
thereof to purchase from the Company one one-thousandth of a share of Junior
Preferred Stock at a price of $1.00 per one one-thousandth of a share (subject
to adjustment). The one one-thousandth of a share is intended to be the
functional equivalent of one share of the Common Stock.
The Rights will not be exercisable or transferable apart from the Common
Stock until an Acquiring Person, as defined in the Rights Agreement, dated as of
March 31, 1998, between the Company and American Stock Transfer & Trust Company,
without the prior consent of the Company's Board of Directors, acquires 20% or
more of the voting power of the Common Stock or announces a tender offer that
would result in 20% ownership. The Company is entitled to redeem the Rights, at
$.001 per Right, any time before a 20% position has been acquired or in
connection with certain transactions thereafter announced. Under certain
circumstances, including the acquisition of 20% of the Common Stock, each Right
not owned by a potential Acquiring Person will entitle its holder to purchase,
at the Right's then-current exercise price, shares of Junior Preferred Stock
having a market value of twice the Right's exercise price.
F-15
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Holders of a Right will be entitled to buy stock of an Acquiring Person at
a similar discount if, after the acquisition of 20% or more of the Company's
voting power, the Company is involved in a merger or other business combination
transaction with another person in which its common shares are changed or
converted, or the Company sells 50% or more of its assets or earning power to
another person. The Rights expire on April 20, 2008.
8. Restructuring Expenses
In connection with the closure of its California offices initiated in
December 1997 and completed in February 1998, the Company initiated a
restructuring program, the expenses and charges relating to which consist of
employee severance arrangements ($84,292), a settlement agreement with its
former President and Chief Executive Officer ($256,000), the elimination of
lease facilities in California and other related costs ($35,610).
9. Income Taxes
At December 31, 1997 the Company has available net operating loss
carryforwards of approximately $84,000,000 that expire in years 2002 through
2012, and general business credit carryovers of approximately $1,500,000, which
expire in years 2005 and 2006. These carryforwards are subject to the
limitations as described below.
The significant components of the Company's deferred tax assets and
liabilities, as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Current:
<S> <C>
Reserve for accounts receivable, inventory and other.. $ 832,000
Valuation allowance for current deferred tax assets... (832,000)
____________
Net current deferred tax assets. -0-
____________
Non-current:
Depreciation.......................................... 1,721,000
General business credit carryforwards................. 1,527,000
Net operating loss carryforwards 33,696,000
____________
Total non-current deferred tax assets............... 36,944,000
____________
Valuation allowance for non-current deferred tax
assets.............................................. (34,528,000)
____________
Net non-current deferred tax assets................. -0-
____________
$ -0-
____________
</TABLE>
The increase in the valuation allowance during the year ended December 31,
1997 in the amount of $980,000 was due principally to the net operating loss
incurred.
F-16
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
The Company's loss before taxes is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
United States....................... $(9,871,203) $(27,154,223)
Foreign............................. 150,472 193,057
____________ _____________
$(9,720,731) $(26,961,166)
</TABLE>
The provision for income taxes of $47,035 for 1997 and $78,201 in 1996
consists principally of foreign taxes which are currently payable.
The reconciliation of income tax computed at the United States federal
statutory tax rates to the recorded income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Tax (benefit) at United States federal
statutory rates.................. $(3,305,000) $ (9,167,000)
Permanent differences.............. 1,322,000
Write-off of in-process research
and development costs............ 5,955,000
Costs associated with release of
escrow shares.................... 942,900
Change in valuation allowance from
operations....................... 1,900,000 2,262,600
Foreign and state income taxes..... 47,205 78,201
Other.............................. 83,000 6,500
____________ _____________
$ 47,205 $ 78,201
____________ _____________
</TABLE>
The Tax Reform Act of 1986 enacted a complex set of rules limiting the
potential utilization of net operating loss and tax credit carryforwards in
periods following a corporate "ownership change". In general, for federal income
tax purposes, an ownership change is deemed to occur if the percentage of stock
of a loss corporation owned (actually, constructively and, in some cases,
deemed) by one or more "5% shareholders" has increased by more than 50
percentage points over the lowest percentage ownership of such stock owned
during a three-year testing period. With regard to the purchase of SPC, such a
change in ownership occurred. As a result of the change, the Company's ability
to utilize its net operating loss carryforwards and general business credits
will be limited to approximately $1.2 million of taxable income per year as of
December 31, 1997 and losses subsequent to 1996 can be fully utilized until it
is used or expired. The SPC portion of the net operating loss carryforwards
totaling approximately $69 million are also subject to the additional limitation
that such losses can only be utilized to offset the separate company taxable
income of SPC.
In connection with the purchase of SPC, the Company applied for a closing
agreement with the Internal Revenue Service pursuant to which the Company will
become jointly and severally liable for SPC's tax obligations upon occurrence of
a "triggering event" requiring recapture of dual consolidated losses previously
utilized by SPC. Such closing agreement will avoid the Company being required to
recognize a tax of approximately $8 million on approximately $24.5 million of
SPC's previous dual consolidated losses at the acquisition date.
F-17
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
While the Company believes it will obtain this agreement, failure to do so
could result in the recognition of this tax liability.
10. Stock Option Plans
The Company has five stock options plans: the Allegro New Media, Inc. 1994
Long-Term Incentive Plan (the "1994 Incentive Plan"), the Outside Directors and
Advisors Stock Option Plan (the "Company Directors Plan"), the Software
Publishing Corporation 1987 Stock Option Plan, the Software Publishing
Corporation 1989 Stock Option Plan and the Software Publishing Corporation 1991
Stock Option Plan (collectively, the "SPC Stock Option Plans"). All plans are
administered by the Board of Directors or a committee thereof.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation." ("SFAS No. 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Elements of the Company's various stock option plans include the following:
The 1994 Incentive Plan - In December 1993, the Company's Board of
Directors and stockholders adopted the 1994 Incentive Plan. Under the terms of
the 1994 Incentive Plan, the Company's Board of Directors or a committee thereof
may grant options, stock appreciation rights, restricted stock performance
grants of the Company's common stock, cash or other assets to employees,
consultants and others who perform services for the Company at such prices as
may be determined by the Board of Directors (which price may be no less than 85%
of the fair market value of the common stock on the date of grant in the case of
nonqualified stock options). In June 1997, the Company's stockholders approved
the increase of the maximum number of shares under the 1994 Incentive Plan from
3,000,000 to 4,000,000. The options currently outstanding vest over a period of
up to five years and expire after 10 years.
The Company's Directors Plan - In August 1995, the Company's Board of
Directors and stockholders approved the Company's Directors Plan. Under the
terms of this plan, each new non-employee director and member of the Advisory
Committee receives options to purchase 25,000 shares exercisable at fair market
value on the date of grant upon becoming such a director or member. In addition,
on each August 1 thereafter each such person will receive options to purchase
10,000 shares of the Company's common stock at an exercise price equal to the
fair market value at the respective dates of grant. The Advisory Committee of
the Company was dissolved in 1997. The maximum number of shares of common stock
subject to this plan is 500,000. The options vest over a period of two years and
expire after 10 years.
The SPC Plans - Options under the SPC Stock Option plans may be granted for
periods of up to ten years, for the 1987 and 1989 plans, at prices no less than
50% of fair value and for the 1991 plan, an exercise price no lower than 85% of
fair value, in each case for non qualified options, and at not less than fair
market value for incentive stock options. To date all options have been issued
at fair value. Options become exercisable at such times and under such
conditions as determined by the Board of Directors. As a result of the
acquisition of SPC by the Company all options outstanding under the SPC Plans
were converted (based on the exchange ratio used to complete the acquisition) to
options to acquire the Company's common stock.
F-18
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
In addition to the Plan's described above, the Company's Board of Directors
from time-to-time has granted outside consultants and vendors non-plan options.
Specific terms of each such grant are at the sole discretion of the Board of
Directors and are generally at prices not less than the fair market value at the
date of grant.
Option activities under the plans and for the non-plan options are detailed
in the following table:
<TABLE>
<CAPTION>
Weighted
Average
1994 Company's Exercise
Incentive Directors SPC Non- Price Per
Plan Plan Plans Plan Share
Outstanding at
<S> <C> <C> <C> <C> <C>
January 1, 1996..... 354,737 175,000 100,000 $ 3.13
Granted........... 1,119,310 215,000 50,000 4.43
Assumed........... -- 651,360 5.01
Exercised......... -- (19,666) 3.75
Forfeited......... (12,500) 3.75
___________ _______ ________ _______ ______
Outstanding at
January 1, 1997..... 1,461,547 370,334 651,360 150,000 3.99
Granted........... 3,512,467 50,000 55,000 2.06
Exercised......... (5,000) 2.00
Forfeited......... (1,249,000) (25,000) (488,989) 3.43
Repriced - granted 736,725 120,000 4,871 1.25
Repriced - forfeited (982,300) (160,000) (6,494) 2.96
___________ _______ ________ _______ ______
Outstanding at
December 31, 1997... 3,474,689 355,334 215,748 150,000 $ 2.29
___________ _______ ________ _______ ______
Exercisable at
December 31, 1997... 308,434 277,740 142,832 150,000 $ 3.84
___________ _______ ________ _______ ______
Exercisable at
December 31, 1996... 98,128 160,325 109,627 150,000 $ 4.76
___________ _______ ________ _______ ______
</TABLE>
As of December 31, 1997, 5,208,196 shares of common stock are reserved for
issuance under the plans described above.
In August 1997, the Board of Directors approved a repricing program
pursuant to which the Company offered to the Company's then current officers,
employees and directors holding options granted under the Company's various
stock option plans an opportunity to reprice the exercise price of their
respective options granted under the Company's stock option plans to $1.25 per
share of common stock which was the fair value as of the repricing program,
provided that the option holder surrender 25% of their options.
The weighted average fair value of options granted was $1.57 and $3.36 for
1997 and 1996, respectively.
F-19
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
At December 31, 1997, for each of the following classes of options as
determined by range of exercise price, the following information regarding
weighted-average exercise prices and weighted average remaining contractual
lives of each class is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Weighted Average Exercise
Average Remaining Number of Price of
Number Exercise Contract Life Options Options
of Price of of Outstanding Currently Currently
Option Class Options Options Options Exercisable Exercisable
<S> <C> <C> <C> <C> <C>
Prices ranging from:
$0.81 - $1.99... 2,389,488 $ 1.19 9.48 259,503 $ 1.18
$2.00 - $3.99... 1,358,406 2.87 8.47 259,129 2.87
$4.00 - $5.99... 387,877 5.07 4.25 310,374 4.96
$6.00 - $7.99... 60,000 6.92 4.62 50,000 6.75
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had been
accounting for its employee stock options under the fair value method of that
statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
1997 and 1996, respectively: weighted-average risk-free interest rates of 6.25%
for 1997 and 6.5% for 1996; no dividends; volatility factors of the expected
market price of the Company's common stock of 1.2046 for 1997 and .7601 for 1996
and a weighted-average expected life of the options of 5.13 years for 1997 and
7.5 years for 1996.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options granted in 1997 and 1996 is amortized to expense over the options'
vesting period. The Company's pro forma information follows:
<TABLE>
1997 1996
<S> <C> <C>
Pro forma net loss........................ $(11,204,354) $(27,626,144)
Pro forma net loss per share-basic and
diluted............................... $ (1.37) $ (7.64)
</TABLE>
The pro forma disclosures presented above for 1997 and 1996, respectively,
reflect compensation expense only for options granted in 1997 and 1996. These
amounts may not necessarily be indicative of the pro forma effect of SFAS No.
123 for future periods in which options may be granted.
F-20
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
11. Commitments and Contingencies
Leases
The Company leases certain office space under non-cancelable operating
leases. In addition to the fixed rentals, certain of the leases require the
Company to pay certain additional amounts based on certain costs related to the
property. Certain of the leases have renewal options for periods of up to 2
years. Rental expense was approximately $540,000 and $108,000 in 1997 and 1996,
respectively.
Future minimum lease payments under non-cancelable operating leases with
terms of one year or more are as follows:
<TABLE>
<S> <C>
1998 . . . . . $ 255,000
1999 . . . . . 255,000
2000 . . . . . 248,000
2001 . . . . . 254,000
2002 . . . . . 72,000
__________
Total. . . . . $ 1,084,000
__________
</TABLE>
Pending Litigation
On January 30, 1998, an action was commenced against the Company, Mark E.
Leininger and Barry A. Cinnamon in the United States District Court, Southern
District of New York. Mr. Leininger currently is President, Chief Operating
Officer and a director of the Company and Mr. Cinnamon formerly was Chairman of
the Board, President and Chief Executive Officer of the Company. In the action,
plaintiffs allege that, in October 1997, they purchased an aggregate 889,000
shares of the Company's common stock for gross proceeds of $919,495 based upon
certain statements made to one of the plaintiffs. Plaintiffs further allege that
such statements were intentional misrepresentations of material fact that were
designed to deceive plaintiffs as to the Company's true financial state and to
induce the plaintiffs to invest in the Company. Plaintiffs seek recision of
their investment and a return of their purchase price and certain other relief.
The Company believes that these claims are without merit and intends to
vigorously defend itself in this action. The Company has filed an answer in this
action denying the plaintiffs' allegations and asserting affirmative defenses,
including that the plaintiffs' subscription agreements bar plaintiffs' claims,
and asserting counterclaims that, among other things, plaintiffs breached
certain of the representations contained in their subscription agreements, that
plaintiff Altman breached his fiduciary duties to the Company and that
plaintiffs' violated Section 13(d) of the Exchange Act by filing a materially
false and misleading Schedule 13D with respect to the Common Stock.
On February 13, 1998, a summons and complaint was filed in the Superior
Court of New Jersey, Essex County under the caption Barry Cinnamon and Lori
Kramer Cinnamon, suing derivatively on behalf of Software Publishing Corporation
Holdings, Inc. and its shareholders, and Barry Cinnamon and Lori Kramer
Cinnamon, individually, v. Software Publishing Corporation Holdings, Inc., Neil
M. Kaufman, Mark Leininger and John Does 1-10. Mr. Leininger is President, Chief
Operating Officer and a director of the Company; Mr. Kaufman is a director of
the Company, the principal of Kaufman & Associates, LLC, counsel to the Company,
and was Secretary of the Company from December 1996 to December 1997; Mr.
Cinnamon was Chairman of the Board, President and Chief Executive Officer of the
Company until December 19, 1997; and Ms Kramer Cinnamon was an officer and
director of the Company until December 19, 1997. To date, the summons and
complaint has been served on the Company, and has not been served on either of
the named individual defendants or any of the other defendants. In this action,
plaintiffs seek (i) the recision of the Settlement and General Release
Agreement, dated as of December 19, 1998 (the "Cinnamon Settlement Agreement"),
F-21
<PAGE>
Software Publishing Corporation Holdings, Inc. and Subsidiaries
(Formerly Allegro New Media, Inc. and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
between the Company and each plaintiff and the License Agreement, dated as of
December 19, 1998 (the "Cinnamon License Agreement," and, together with the
Cinnamon Settlement Agreement, the "Cinnamon Agreements"), between the Company
and Mr. Cinnamon, (ii) payment of the full amount of compensation due under
their former respective employment agreements with the Company, (iii) that Mr.
Kaufman be enjoined from continuing to act as a director and officer of, and
counsel to, the Company, (iv) that the Company be required to provide an
"'opinion letter' as required by the Securities Exchange Act of 1934, as
amended, to permit the sale of shares of stock held by the Cinnamons without
restriction," (v) that the Company be required to immediately register the stock
held by plaintiffs and (vi) compensatory and punitive damages, attorney's fees,
and other relief. Plaintiffs seek such relief based upon their allegations that
the defendants improperly caused the resignation of plaintiffs from their
positions as officers and directors of the Company, that Mr. Kaufman improperly
influenced the decision of the Board of Directors to adopt the Company's
December 1997 restructuring plan (thereby rejecting Mr. Cinnamon's plans for the
Company), and that the Cinnamon Agreements were entered into by each plaintiff
under duress and the coercion of defendants (despite plaintiffs having been
represented by counsel in connection with these matters). The Company believes
that the plaintiff's allegations are without merit, and intends to vigorously
defend itself in this action.
The Company has other litigation matters in progress in the ordinary course
of business. In the opinion of management, all of such other pending litigation
of the Company will be resolved without a material adverse effect of the
Company's financial position, results of operations or cash flows.
12. Foreign Operations
The Company conducts its business within the computer software industry
segment.
Foreign operations as of December 31, 1997 and for the year then ended are
as follows:
<TABLE>
<CAPTION>
United
States Europe Eliminations Consolidated
<S> <C> <C> <C> <C>
Net sales.................... $ 8,770,684 $8,386,181 $17,156,865
(Loss) income before income
taxes...................... $(10,445,713) $ 724,982 $(9,720,731)
Identifiable assets as of
December 31, 1997.......... $ 7,554,216 $3,489,164 $(413,878) $10,629,502
============ ========== ========== ===========
</TABLE>
13. Related Party Transaction
The Company incurred legal expenses of approximately $600,000 in 1997 and
$350,000 in 1996 to a law firm in which a director of the Company was a member,
of which approximately $176,000 is included in accounts payable at December 31,
1997.
F-22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOFTWARE PUBLISHING CORPORATION
HOLDINGS, INC.
Date: April 15, 1998 By: /s/ Mark E. Leininger
Mark E. Leininger
President and Chief Operating Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-KSB has been signed on April 15, 1998 by
the following persons in the capacities indicated. Each person whose signature
appears below constitutes and appoints Mark E. Leininger and Kevin D. Sullivan,
or either of them, with full power of substitution, his/her true and lawful
attorneys-in-fact and agents to do any and all acts and things in his/her name
and on his/her behalf in his/her capacities indicated below which they or either
of them may deem necessary or advisable to enable Software Publishing
Corporation Holdings, Inc. to comply with the Securities Exchange Act of 1934,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Annual Report on Form 10-KSB,
including specifically, but not limited to, power and authority to sign for
him/her in his/her name in the capacities stated below, any and all amendments
thereto, granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in such connection, as fully to all intents and purposes as
he/her might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
/s/ Mark E. Leininger Chief Operating Officer and Director
Mark E. Leininger (Principal Executive Officer)
/s/ Kevin D. Sullivan Chief Financial Officer, Vice President -
Kevin D. Sullivan Finance, Treasurer
/s/ Marc E. Jaffe Chairman of the Board of Directors
Marc E. Jaffe
/s/ Neil M. Kaufman Director
Neil M. Kaufman
/s/ Norman W. Alexander Director
Norman W. Alexander
<PAGE>
/s/ Neil R. Austrian, Jr. Director
Neil R. Austrian, Jr.
/s/ Martin F. Schacker Director
Martin F. Schacker
<PAGE>
CORPORATE OFFICERS BOARD OF DIRECTORS
Mark E. Jaffe, Esq. Marc E. Jaffe, Esq.
Chairman of the Board Chairman of the Board
Software Publishing Software Publishing
Corporation Holdings, Inc. Corporation Holdings, Inc.
President President
Electronic Licensing Electronic Licensing
Corporation Corporation
Mark E. Leininger Mark E. Leininger
President President
Chief Operating Officer Chief Operating Officer
Software Publishing
Kevin Sullivan Corporation Holdings, Inc.
Chief Financial Officer
Vice President Norman W. Alexander
Finance, Treasurer Retired Director and Chairman
Imperial Foods, Ltd.
New York, New York 10005
Robert Gordon
Vice President- Neil R. Austrian, Jr.
Marketing and Sales Partner
Rust Group
LOCATIONS
Corporate Headquarters Neil M. Kaufman, Esq.
Software Publishing Member
Corporation Holdings, Inc. Kaufman & Associates, LLC
3A Oak Road
Fairfield, New Jersey 07004 Martin F. Schacker
973-808-1992 Chairman
M.S. Farrell & Co., Inc.
Other locations operating as: STOCKHOLDER INFORMATION
Serif Inc. Stockholder Information
107-109 Northeastern Blvd. NASDAQ SmallCap Market
Nashua, New Hampshire 03062 Symbol: SPCO
603-889-8650 Boston Stock Exchange
Symbol: SPC
International Locations:
Serif (Europe) Limited Legal Counsel
The Software Centre Kaufman & Associates, LLC
Unit 12, Wilford Industrial Estate 50 Charles Lindbergh Blvd.
Nottingham Suite 206
United Kingdom, NG7 5NR Mitchel Field, New York 11553
011-44-115-912-2000
Transfer Agent & Registrar
Software Publishing GmbH American Stock Transfer and Trust Company
Kolpingring 16/Haus D 40 Wall Street
Oberhaching, Germany 82041 New York, New York 10005
011-4989-613-940-0 718-921-8200
Annual Meeting Independent Auditors
May 26, 1998 at 1:00 p.m. Richard A. Eisner & Company, LLP
Radisson Hotel & Suites 575 Madison Avenue
690 Route 46 East New York, New York 10022
Fairfield, New Jersey 07004
Safe Harbor Statement
Except for historical information contained herein, the matters set forth herein
which are forward-looking statements involve certain risks and uncertainties
that could cause actual results to differ form those in the forward-looking
statements. Potential risks and uncertainties include such factors as the level
of business and consumer spending for computer software, the market acceptance
and sales of the Company's products, the competitive environment within the
computer software industry, the ability of the Company to complete and realize
benefits from the integration of operations of Allegro, SPC, and Serif, the
level and costs incurred in connections with the Company's product development
efforts and the financial strength of the retail industry. Investors are
directed to consider other risks and uncertainties as discussed in documents
filed by the Company with the Securities and Exchange Commission.
1998, Software Publishing Corporation Holdings, Inc. All rights reserved.
