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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-24617
IDG BOOKS WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 04-3078409
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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919 EAST HILLSDALE BLVD.
SUITE 400, FOSTER CITY, CA 94404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(650) 655-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $0.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of December 15, 1998 there were 14,280,000 shares of the Registrant's
Common Stock outstanding. The Aggregate market value of the voting stock held by
non-affiliates computed by reference to the closing price for the common stock
as quoted by the Nasdaq National Market as of December 15, 1998 was
approximately $53,662,500.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Stockholders for fiscal year ended
September 26, 1998 are incorporated by reference into Part I, Part II and
Part IV of this Annual Report on Form 10-K where indicated.
(2) Portions of the Registrant's Proxy Statement to be delivered to stockholders
in connection with the Annual Meeting of Stockholders to be held on February
9, 1999 are incorporated by reference into Part III of this Annual Report on
Form 10-K where indicated.
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IDG BOOKS WORLDWIDE, INC.
FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 26, 1998
TABLE OF CONTENTS
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PAGE
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PART I
Item 1: Business.................................................... 3
Item 2: Properties.................................................. 7
Item 3: Legal Proceedings........................................... 7
Item 4: Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 8
Item 6: Selected Financial Data..................................... 8
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 7A: Quantitative and Qualitative Disclosures about Market
Risk........................................................ 8
Item 8: Financial Statements and Supplemental Data.................. 8
Item 9: Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 8
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 9
Item 11: Executive Compensation...................................... 10
Item 12: Security Ownership of Certain Beneficial Owners and
Management.................................................. 10
Item 13: Certain Relationships and Related Transactions.............. 10
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 11
Signatures................................................................ 13
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IDG BOOKS WORLDWIDE, INC.
PART I
The following report contains forward-looking statements that involve risks
and uncertainties. IDG Books Worldwide, Inc. ("the Company") actual results
could differ materially from those anticipated in these forward-looking
statements. Potential risks and uncertainties include, among others, those set
forth in the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II, Item 7 of this report.
The Company's fiscal year ends on the last Saturday in September. Fiscal
years 1996, 1997 and 1998 ended on September 28, 1996, September 27, 1997 and
September 26, 1998, respectively and consisted of 52 weeks. For convenience,
throughout this Annual Report on Form 10-K, the fiscal year-ends are denoted as
September 30.
ITEM 1. BUSINESS
OVERVIEW
IDG Books Worldwide, Inc. is a leading publisher of computer, business and
self-help books designed to make learning accessible and fun. In 1997, the
Company produced more number one best-selling computer books than any other
publisher, according to Publishers Weekly. The Company publishes and markets 18
book series under well-known brand names, including its popular ". . . For
Dummies(R)" series. These books have created widespread recognition of the
Company's brands by consumers enabling it to successfully publish across a
variety of categories in technology, business and self-help. The Company's
portfolio of brand names includes more than 780 active titles. The Company has
approximately 75 million English-language books in print and has translated its
books into 36 languages. The Company believes that its readers value and trust
its products and brands to help obtain computer proficiency and professional
certification, general business know-how, career growth and personal enrichment.
The computer book category has been the fastest growing sector in the U.S. book
industry in each of the past six years and grew 8.2% in 1997 according to Simba
Information, Inc.
In December 1998, the Company purchased all of the stock of Cliffs Notes,
Inc., a privately held publisher of the popular literary study guides. Cliffs
Notes currently publishes approximately 300 titles including its original Notes
plus Quick Reviews of high school and college courses, test preparation guides,
advanced placement study aids and test preparation software.
The Company publishes its books in two general publishing groups, ". . .
For Dummies(R)" and IDG Books Technology, which target the distinct needs of
readers.
". . . For Dummies(R)". The ". . . For Dummies(R)" series is a best-selling
line of computer, business, personal finance, study aids, cooking, gardening,
do-it-yourself, health and fitness, and self-help books. The group consists of
more than 380 active titles and approximately 60 million copies in print, as
well as extensions into multimedia, music, on-line information and board games.
Windows For Dummies(R) has more than seven million copies in print across all
editions, and the current edition was the best-selling computer book in 1997
according to Publishers Weekly and USA Today. Other best-selling ". . . For
Dummies(R)" titles include Internet for Dummies(R), PCs For Dummies(R), Personal
Finance For Dummies(R), Golf For Dummies(R), Taxes For Dummies(R) and Cooking
For Dummies(R). Sales of the Company's ". . . For Dummies(R)" books accounted
for approximately 63% of the Company's net revenue in the Company's fiscal year
ended September 30, 1998.
IDG Books Technology. The IDG Books Technology Group is comprised of an
expanding collection of information technology books published in multiple book
series under a variety of brand names. These books appeal to a wide range of
readers, from beginners to knowledgeable professionals, including:
- 3-D Visual(R) -- an exclusive, award winning, four-color computer
hardware and software learning system packaged primarily in the ". . .
Simplified(TM)" series and the Teach Yourself. . . VISUALLY(TM) and
Master . . . VISUALLY(TM) sub-series;
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- One Step at a Time series -- self-paced, step-by-step lessons in a book
combined with a computer-based training CD ROM;
- Bible series -- comprehensive tutorial/reference on all major computing
topics; positioned as "100% comprehensive, 100% authoritative, 100% of
what you need";
- ". . . Secrets(R)" -- featuring key leading authorities targeted to
knowledgeable information technology professionals with over 18 titles
and 2.9 million books in print;
- Certification Study Guide series -- quality books and learning materials
for both core courses and electives for Microsoft certification training;
and
- Novell Press(TM) series -- the only official series of Novell product
training and user guides authorized and approved by Novell.
For the year ended September 30, 1998, IDG Books Technology Group book
sales accounted for approximately 37% of the Company's net revenue.
The Company's revenue is principally derived from sales in the United
States, which accounted for approximately 84% of sales in fiscal 1998. The
Company also markets its books in numerous countries throughout the world and
licenses its established brands and titles to third parties. Export sales of
English language books accounted for approximately 14% of the Company's sales in
fiscal 1998, while licensing and custom publishing revenue contributed 2% of
sales in fiscal 1998.
The Company was founded in 1990 as a wholly-owned subsidiary of
International Data Group, Inc., referred to in this Form 10-K as "IDG" or the
"Parent". In July 1998, the Company sold 3,180,000 shares of class A common
stock in an initial public offering. Upon completion of the offering, the Parent
owned 74.97% of the outstanding common stock and had 77.77% of the voting power.
OPERATING STRATEGY
The Company strives to provide a consistent, accessible and rewarding
learning experience to readers by offering quality products supported by mass
marketing which is timed to coincide with the introduction of new technology or
the emergence of new trends. To implement these objectives, the Company has
adopted the following operating strategies:
Focus on Branded Content and Mass Marketing. The Company creates quality
products, supported by extensive marketing campaigns which help build brand
recognition. The Company believes its valuable name recognition generates repeat
demand for its books and enables it to extend these brands into additional
licensed products and services.
Make Knowledge Accessible and Enjoyable. The Company believes millions of
individuals, businesses and families are challenged by technologies or are
trying to acquire new skills or enrich their lives. The Company specifically
designs its products to make learning accessible and fun.
Maintain Efficient and Proven Publication Process. The Company has
developed a successful process to conceive, acquire and produce new and revised
titles on a timely and cost-effective basis. The Company's staff of creative
personnel identifies and develops new titles and subject areas and draws on a
recognized and highly respected list of leading authorities, media celebrities
and experienced computer/Internet authors. This collaboration, in conjunction
with the Company's experienced editorial team, assures brand consistency through
high quality, easy-to-read publications. The Company's close working
relationships with technology industry leaders enable the Company to release
high quality and well supported products and services in a timely manner. The
Company believes this strategic focus has created a competitive advantage for
its technology books by enabling the Company to anticipate and meet customer
needs and to bring new and updated titles concurrently with the introduction of
new technologies. In addition, because of the popularity and demand for its
flagship brands, the Company can easily integrate new title and brand launches
into its existing marketing programs.
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EXPORT AND FOREIGN EDITIONS
The Company has licensed more than 3,500 of its titles for translation and
publication by third-party publishers in 36 languages throughout the world. The
Company serves the international English-language market and exports U.S.
editions through third-party distributors and booksellers throughout the world
and by licensing reprint rights to a third-party publisher in India. The
Company's publication of special editions for English markets outside the United
States has been initiated with Personal Finance For Dummies(R) For Canadians.
SALES AND MARKETING
The Company organizes its sales and marketing activities around customer
types to implement the Company's operating and growth strategies, focus on
building brands and expand the breadth and depth of its distribution network.
More than one quarter of the Company's employees are employed in its sales and
marketing organization.
Sales
The Company's domestic sales force consists of: (i) a national account
group working directly with national bookstore chains; (ii) a wholesale and mass
market group working with the centralized buying offices of national
wholesalers, memberships clubs, office superstores, mass merchandisers and
computer/electronic superstores; (iii) a field sales and new business
development group servicing regional and independent booksellers and wholesalers
who develop new channels of distribution for selected titles; and (iv) a special
markets group which services the education, corporate, government, on-line
retailer, catalog and custom publishing channels. With respect to certain
customers, primarily non-bookstore accounts, the Company also utilizes
commissioned sales representatives to support its own sales force.
The Company believes that booksellers have not traditionally been rewarded
for sales of books to the consumer, but rather on their purchases from book
publishers. The Company's sales and marketing efforts take advantage of the
Company's brand recognition with the consumer to create innovative sales
programs directed to the readers of the Company's books. Accordingly, the
Company has developed sales and marketing programs that, unlike those of other
book publishers, reward distributors and retailers for sales to the ultimate
consumer, the reader.
During fiscal 1998, Barnes and Noble, Inc., Ingram Book Company and Borders
Group, Inc. each accounted for more than 10%, and together accounted for
approximately 39%, of the Company's net revenue.
Marketing
The Company organizes its marketing activities around its brands to support
its sales efforts and brand identity. The Company's marketing professionals
engage in a variety of marketing promotions and activities, including: (i)
developing consumer-focused point of purchase and display materials; (ii)
creating account-focused promotional programs; (iii) coordinating cooperative
advertising spending strategies; and (iv) maximizing media exposure. In
addition, the Company's marketing staff host three sales and training seminars
per year and produces eight product catalogs annually.
In addition to its traditional sales and marketing efforts, the Company
maintains World Wide Web sites (www.idgbooks.com, www.dummies.com and
www.cliffs.com) where individual consumers can learn about and purchase the
Company's titles. The information contained on the Company's Web sites shall not
be deemed to be a part of this Report.
PRODUCTION, DISTRIBUTION AND FULFILLMENT
The Company's own staff edits the manuscripts of the authors of the books
it publishes. Freelance resources are utilized when workload exceeds in-house
capacity. Outside experts are used when necessary to ensure technical accuracy
of content and compatibility with final published software. The Company employs
state-of-the-art desktop publishing technology to graphically design book
content, create graphics and prepare
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the typographic layout for the book. Final electronic files for all text and
cover material are delivered to printers for reproduction via direct line and
Internet connection.
Distribution and fulfillment services to both retail and wholesale
customers are outsourced by the Company to two vendors. The Company's contracts
with these vendors expire in September 1999. One of these vendors accounted for
approximately 60% of the Company's distribution and fulfillment costs in each of
fiscal 1996, 1997 and 1998. It is anticipated that a single-source vendor will
be selected for distribution and fulfillment services to take advantage of the
efficiencies provided by the Company's new management information system and
order entry function.
PRINTING AND RAW MATERIALS
The Company utilizes a number of outside printers to print and bind its
books. Printing prices are negotiated annually with vendors who perform all
printing and binding in their plants. Due to the significant increase in
printing volume from year-to-year, the Company does not believe it is
strategically beneficial to negotiate multi-year printing contracts.
The Company's principal raw material is paper. The Company purchases paper
as needed from intermediaries representing paper mills and supplies it to its
printers. Paper accounts for approximately 50% of total inventory costs. Prior
to 1996, printers supplied paper to the Company for the books they printed. The
Company currently purchases paper from suppliers as needed and does not maintain
significant inventories of paper. Paper prices have been volatile over the past
several years and are affected by many factors, including demand, mill capacity,
pulp supply, energy and general economic conditions. In the past, paper has been
difficult to obtain due to industry-wide shortages. Paper supply agreements are
negotiated annually. Paper prices have been volatile over the past several
years. Currently, the Company has quarterly "price protection" (prices cannot be
increased within a quarter after an initial increase) and price caps per
quarter. Significant increases in paper prices could adversely affect the
Company's future financial condition or results of operations. The Company
believes that the existing arrangements providing for the supply of paper are
adequate and that, in any event, alternative sources are available.
INTELLECTUAL PROPERTY
The Company regards its copyrights, trademarks, trade dress, trade secrets
and similar intellectual property rights in general, and its ". . . For
Dummies(R)" related trademarks, logos and trade dress in particular, as critical
to its success. The Company relies on copyright, trademark and trade secrets
laws and licensing and confidentiality agreements to protect its intellectual
property rights.
The Company registers each of its publications with the United States
Copyright Office, and all of the Company's publications are protected by
copyright laws. The Company pursues the registration of its material trademarks
in the United States and, based upon anticipated use, in certain other
countries. Effective trademark, copyright and trade secret protection, however,
may not be available in every country in which the Company's products are
available. Although individual book titles are generally not subject to
trademark protection, the Company has registered trademarks of certain series of
its books, such as ". . . For Dummies(R)", ". . . Simplified(TM)", "Teach
Yourself . . . VISUALLY(TM)", "3-D Visual(R)" and ". . . Secrets(R)" in the
United States and numerous other countries.
The Company has licensed in the past, and it expects that it may license in
the future, elements of its trademarks, trade dress and similar proprietary
rights to third parties, including in connection with the international editions
of the Company's books that may be controlled operationally by third parties.
While the Company attempts to ensure that the quality of its brands is
maintained by such licensees, there can be no assurance that such licensees will
not take actions that might materially and adversely affect the value of the
Company's proprietary rights or the reputation of its products, either of which
could have a material adverse effect on the Company's business. Moreover, while
the Company believes that it has the right to use ". . . For Dummies(R)" and its
other marks in connection with its business and generally to prohibit others
from using such marks in certain fields of use, there can be no assurance that
the Company will be able to maintain such rights.
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The Company may be subject to claims of alleged infringement by it or its
licensees of trademarks and other intellectual property rights from time to time
in the ordinary course of business. The Company does not believe there are any
such legal proceedings or claims that are likely to have, individually or in the
aggregate, a material adverse effect on the Company's business, financial
condition or results of operations.
Certain of the trademarks and trade names used by the Company are the
property of and are licensed from IDG, the Parent.
EMPLOYEES AND AUTHORS
As of September 30, 1998, the Company had a total of 428 employees. None of
the Company's employees is represented by a labor union, and the Company has
never experienced a work stoppage. The Company considers its relations with
employees to be good. The Company also relies on a recognized and highly
respected author list of leading authorities, media celebrities and
computer/Internet experts. The Company generally does not have long-term
contracts with its authors.
COMPETITION
The Company faces competition in each of its areas of publication directly
from other publishers and indirectly from nonprint media and expects that
competition will remain intense in the future.
The Company competes on the basis of editorial quality, timely introduction
of new titles, product positioning, pricing and brand name recognition. In
addition to the Company, Simon & Schuster, Microsoft Press and McGraw-Hill all
share a strong market presence in the United States and internationally in
technology publishing. The principal competitors for the Company's
business/self-help/lifestyle titles include Random House, Simon & Schuster and
HarperCollins. Each of these competitors has substantially greater financial
resources than the Company.
Nonprint media, such as the Internet, CD-ROMs and instructional videotapes,
may also present substantial competition to the Company. If computer users
increase their reliance on instructions and information disseminated online, the
Company's business could be adversely affected.
ITEM 2: PROPERTIES
The Company's headquarters are in Foster City, California, and the Company
has editorial, production and sales offices in Indianapolis, Chicago and New
York. The Company currently leases all of its offices pursuant to leases
terminating in 1998 through 2000. The Company believes that its properties are
in good operating condition and adequately serve the Company's current business
operations. The Company also anticipates that suitable additional or alternative
space, including those under lease options, will be available at commercially
reasonable terms for future expansion.
On November 4, 1998, the Company signed a 10-year lease agreement for a new
Indianapolis office facility. The planned commencement date is November 1, 1999.
The annual basic rent payments range from $1.2 million to $1.4 million over the
term of the lease.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is a part to various litigation matters
incidental to the conduct of its business. There is no pending or threatened
legal proceeding to which the Company is a party that, in the opinion of the
Company's management, is likely to have a material adverse effect on the
Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year ended
September 30, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Class A Common Stock has been traded on the Nasdaq
National Market under the symbol "IDGB" since July 28, 1998. The following table
sets forth the high and low closing sales prices of the Company's Class A Common
Stock for the period indicated and is as reported on the Nasdaq National Market.
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SALES PRICE
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QUARTER ENDED LOW HIGH
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Fourth Quarter (from July 28, 1998)................ $10.38 $16.42
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(b) On December 15, 1998, there were approximately 30 holders of record of
the Company's Class A Common Stock, although the Company believes that there is
a larger number of beneficial owners of its Common Stock. The last reported sale
price per share of Common Stock on December 15, 1998 on the Nasdaq National
Market was $16.875.
On July 27, 1998, the Company commenced an initial public offering, which
consisted of 3,180,000 shares of its Class A Common Stock (the "Offering") at
$15.50 per share pursuant to a registration statement (No. 333-53433) declared
effective by the Securities and Exchange Commission on July 27, 1998. The
Company used approximately $38.4 million of the net proceeds from the Offering
for the repayment of indebtedness owed to the Parent. The indebtedness was
incurred by the Company in connection with the dividend paid by the Company
prior to the Offering in the form of a promissory note. The Company used the
remaining $5.6 million of net proceeds for general corporate purposes.
Although the Company a paid dividend to IDG with the proceeds from the
Offering, the Company does not intend to pay any cash dividends with respect to
its common stock for the foreseeable future. The Company intends to retain any
earnings for use in the operation of its business and to fund future growth. Any
determination to pay dividends in the future will be at the discretion of the
Company's Board of Directors and will depend upon the Company's financial
condition and results of operations and capital requirements.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to the
information included under the caption "Selected Financial Data" on page 14 of
the Company's 1998 Annual Report to Stockholders.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information required by this item is incorporated by
reference to the information included under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 15
through 28 of the Company's 1998 Annual Report to Stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following information required by this item is incorporated by
reference to the information included under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on page 28 of the
Company's 1998 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company and their ages as of September 30, 1998:
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John J. Kilcullen......................... 39 Chairman of the Board of Directors and
Chief Executive Officer
Steven H. Berkowitz....................... 40 President and Publisher
John P. Ball.............................. 51 Executive Vice President, Operations and
Administration, and Secretary
Brenda L. McLaughlin...................... 37 Senior Vice President and Group Publisher
James A. Doehrman......................... 41 Vice President and Chief Financial Officer
Patrick J. McGovern....................... 61 Director
James A. Casella.......................... 50 Director
Jack A. Hoeft(1).......................... 52 Director
Lawrence B. Levy(1)....................... 39 Director
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(1) Board member as of October 3, 1998 and member of the Audit and Compensation
Committees
John J. Kilcullen. Mr. Kilcullen has served as Chief Executive Officer of
the Company since July 1991 and has been a director of the Company and Chairman
of the Board since March 1998. Prior to that, Mr. Kilcullen served as Vice
President, Sales and Marketing and Publisher of the Company from April 1990 to
July 1991. For the nine years prior to joining the Company, Mr. Kilcullen worked
in various sales and marketing capacities for two publishing industry leaders,
Bantam/Doubleday, Dell, Inc. and Prentice-Hall, and computer book publisher Que
Corporation.
Steven H. Berkowitz. Mr. Berkowitz has served as President and Publisher of
the Company since October 1996. Prior to that, Mr. Berkowitz served as Chief
Operating Officer and Publisher from October 1995 to September 1996, as
Executive Vice President, Worldwide Publishing Operations, from October 1994 to
September 1995, and as Chief Financial Officer and Vice President, Finance, from
June 1994 to October 1994. Prior to joining the Company, Mr. Berkowitz served as
Publisher of MIS: Press and M&T Books, a division of Henry Holt and Company,
from June 1991 to May 1994. Prior to 1991, Mr. Berkowitz worked for eight years
at Macmillan Publishing Company in numerous financial capacities including Vice
President of Finance and Administration during the period 1988 to 1991 and
before joining Macmillan Publishing Company he had three years of finance
experience with Paramount Pictures, Inc.
John P. Ball. Mr. Ball has served as Executive Vice President, Operations
and Administration, of the Company since joining the Company in April 1996 and
as Secretary of the Company since March 1998. Prior to joining the Company, Mr.
Ball acted as an independent publishing and graphic arts consultant from March
1995 to March 1996. From December 1986 to February 1994, Mr. Ball served as
Senior Vice President of Macmillan Publishing Company. Prior to joining
Macmillan Publishing Company, Mr. Ball worked in the publishing industry in a
senior production and manufacturing capacity for over 22 years, including the
last 17 years of the period as Vice President -- Production and Manufacturing
for William Morrow & Company, a leading publisher of trade and reference books.
Brenda L. McLaughlin. Ms. McLaughlin has served as Senior Vice President
and Group Publisher, of the Company since joining the Company in September 1994.
Prior to joining the Company, Ms. McLaughlin served as Associate Publisher of
MIS:Press and M&T Books from August 1993 to September 1994. From August 1989 to
July 1993, Ms. McLaughlin served as Acquisitions Editor, Editor-in-Chief and
Associate Publisher of M&T Books. Prior to joining M&T Books, Ms. McLaughlin
worked for five years in various editorial capacities in the technology magazine
businesses of Ziff-Davis, Inc. and McGraw-Hill, Inc.
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James A. Doehrman. Mr. Doehrman has served as Vice President and Chief
Financial Officer of the Company since March 1998. Prior to that, Mr. Doehrman
served as Vice President and General Manager, International Division, from July
1997 to March 1998. Prior to joining the Company, Mr. Doehrman served as Vice
President and Business Manager of the Latin American Division of Simon &
Schuster, Inc. from January 1996 to April 1997. From October 1993 to January
1996, Mr. Doehrman served as Vice President and International Controller of
Simon & Schuster. Mr. Doehrman joined Simon & Schuster, Inc. as Vice
President -- Accounting Services in April 1992. Prior to joining Simon &
Schuster, Inc. Mr. Doehrman had four years of financial experience with
Federated Department Stores, Inc., serving as Operating Vice
President -- Capital Control from 1989 to 1992. Prior thereto, Mr. Doehrman had
nine years of financial experience which included seven years of experience in
public accounting with Arthur Andersen & Co.
Patrick J. McGovern. Mr. McGovern has been a director of the Company since
its inception in February 1990. Mr. McGovern is the founder and chairman of the
board of the directors of International Data Group, Inc., the parent company of
the Company. Mr. McGovern has served as the Chairman and Chief Executive Officer
of IDG and its predecessor since February 1964. Mr. McGovern also serves on the
boards of directors of the Massachusetts Institute of Technology, the Magazine
Publishers Association and a number of IDG subsidiaries.
James A. Casella. Mr. Casella has been a director of the Company since
April 1998. Mr. Casella has served as the Chief Operating Officer of IDG since
March 1995. From March 1992 to March 1995, Mr. Casella served as the President
of Infoworld Media Group, Inc., a subsidiary of IDG. Mr. Casella also serves on
the board of directors of BPA International, a privately-held company.
Jack A. Hoeft. Mr. Hoeft has been a director of the Company since October
1998. Mr. Hoeft is currently a member of the Supervisory Board of Random House,
Inc., an international book publisher. Prior to that, Mr. Hoeft served as
Chairman and Chief Executive Officer of Bantam/Doubleday, Dell, Inc. from
January 1996 to July 1998 and as President and Chief Executive Officer from June
1991 to January 1996. Mr. Hoeft is also a member of the board of directors of
the Keller Tavern Preservation Society and a trustee of the University of
Dayton.
Lawrence B. Levy. Mr. Levy has been a director of the Company since October
1998. Since February 1995, Mr. Levy has served as Executive Vice President and
Chief Financial Officer of Pixar, a digital animation movie studio. From April
1991 to February 1995, Mr. Levy held various positions at Electronics For
Imaging, Inc., a digital color imaging product company, most recently as
Executive Vice President and Chief Financial Officer. Prior to that, Mr. Levy
was an attorney with Wilson Sonsini Goodrich & Rosati, a private law firm, where
he was elected to membership in February 1990.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item may be found in the sections entitled
"Executive Officer Compensation" and "Section 16(a) Beneficial Ownership
Reporting Compliance" appearing in the Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders on February
9, 1999. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item may be found in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" appearing in
the Proxy Statement to be delivered to stockholders in connection with the
Annual Meeting of Stockholders to be held on February 9, 1999. Such information
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item may be found in the section entitled
"Relationship with IDG and Certain Transactions" appearing in the Proxy
Statement to be delivered to stockholders in connection with the
10
<PAGE> 11
Annual Meeting of Stockholders to be held on February 9, 1999. Such information
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The following Financial Statements and Auditors' Report are incorporated
by reference from the Company's 1998 Annual Report to Stockholders:
Independent Auditors Report
Balance Sheets as of September 30, 1998 and 1997
Statements of Income for the years ended September 30, 1998, 1997 and
1996
Statements of Stockholders' Equity for the years ended September 30,
1998, 1997 and 1996
Statements of Cash Flows for the years ended September 30,
1998, 1997 and 1996
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULE.
Schedule II -- Valuation and Qualifying Accounts
3. EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference
into, this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
2.1 Cliffs Notes, Inc. Share Purchase Agreement.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Bylaws of the Registrant.
4.1* Form of Registrant's Class A common stock certificate.
10.1* Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.
10.2** 1998 Stock Plan, as amended, and forms of related
agreements.
10.3* 1998 Employee Stock Purchase Plan.
10.4* Form of Employment Agreement between the Registrant and John
J. Kilcullen dated as of July 1, 1998.
10.5* Form of Employment Agreement between the Registrant and
Steven H. Berkowitz dated as of July 1, 1998.
10.6* Form of Compensation Agreement between the Registrant and
John P. Ball dated as of July 1, 1998.
10.7* Form of Compensation Agreement between the Registrant and
James A. Doehrman dated as of July 1, 1998.
10.8* Form of Compensation Agreement between the Registrant and
Brenda L. McLaughlin dated as of July 1, 1998.
10.9* Corporate Services Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.10* Registration Rights Agreement between the Registrant and IDG
Enterprises, Inc. dated as of June 1, 1998.
10.11* Trademark License Agreement between the Registrant and IDG
dated June 1, 1998.
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.12* Non-competition Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.13* Tax Allocation Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.14* Restated Share Exchange Agreement between the Registrant,
IDG Enterprises, Inc. and State Street Bank and Trust
Company dated May 21, 1998.
10.15* Employee Stock Ownership Plan of Registrant effective as of
October 1, 1997.
10.16 Office Lease between Crosspoint Seven, LLC "Landlord" and
IDG Books Worldwide, Inc. "Tenant".
13.1 Annual Report to Stockholders.
23.1 Independent Auditors' Consent.
23.2 Independent Auditors' Report on Schedule.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1, as amended (File No. 333-53433) declared effective July 27, 1998.
** Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (File No. 333-67977), filed November 25, 1998.
(b) No reports on Form 8-K were filed during the quarter ended September 26,
1998.
(c) Exhibits: See Item 14(a)3 above.
(d) Financial Statement Schedules: See Item 14(a)2 above.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
IDG BOOKS WORLDWIDE, INC.
<TABLE>
<S> <C>
Date: December 28, 1998 By: /s/ JAMES A. DOEHRMAN
----------------------------------------------------
James A. Doehrman
Vice President and Chief Financial Officer
(Principal Accounting Officer and Duly
Authorized Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by or on behalf of the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN J. KILCULLEN Chairman of the December 28, 1998
- ----------------------------------------------------- Board of Directors,
(John J. Kilcullen) and Chief Executive Officer
/s/ STEVEN H. BERKOWITZ President and Publisher December 28, 1998
- -----------------------------------------------------
(Steven H. Berkowitz)
/s/ JAMES A. DOEHRMAN Vice President December 28, 1998
- ----------------------------------------------------- and Chief Financial Officer
(James A. Doehrman) (Principal Accounting
Officer and Duly
Authorized Officer)
/s/ PATRICK J. MCGOVERN Director December 28, 1998
- -----------------------------------------------------
(Patrick J. McGovern)
/s/ JAMES A. CASELLA Director December 28, 1998
- -----------------------------------------------------
(James A. Casella)
/s/ JACK A. HOEFT Director December 28, 1998
- -----------------------------------------------------
(Jack A. Hoeft)
/s/ LAWRENCE B. LEVY Director December 28, 1998
- -----------------------------------------------------
(Lawrence B. Levy)
</TABLE>
13
<PAGE> 14
SCHEDULE II
IDG BOOKS WORLDWIDE, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET DEDUCTIONS
BALANCE AT ADDITION -- CHARGED TO (RECOVERIES) BALANCE AT END
DESCRIPTION BEGINNING OF PERIOD EXPENSE AND OTHER(1) OF PERIOD
----------- ------------------- ---------------------- -------------- --------------
<S> <C> <C> <C> <C>
Allowance for sales returns
1996.......................... $15,160 $26,866 $26,636 $15,390
1997.......................... 15,390 31,026 28,583 17,833
1998.......................... 17,833 38,372 34,315 21,890
Allowance for doubtful accounts
1996.......................... 1,021 557 78 1,500
1997.......................... 1,500 1,811 (154) 3,465
1998.......................... 3,465 1,225 135 4,555
Reserve for inventory
obsolescence
1996.......................... 4,170 6,779 2,741 8,208
1997.......................... 8,208 5,194 1,468 11,934
1998.......................... 11,934 8,093 5,649 14,378
Reserve for royalty advances
1996.......................... 595 398 -- 993
1997.......................... 993 1,006 -- 1,999
1998.......................... 1,999 800 (463) 3,262
</TABLE>
(1) Other represents liabilities assumed in acquisition of publishing rights.
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
2.1 Cliffs Notes, Inc. Share Purchase Agreement.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Bylaws of the Registrant.
4.1* Form of Registrant's Class A common stock certificate.
10.1* Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.
10.2** 1998 Stock Plan, as amended, and forms of related
agreements.
10.3* 1998 Employee Stock Purchase Plan.
10.4* Form of Employment Agreement between the Registrant and John
J. Kilcullen dated as of July 1, 1998.
10.5* Form of Employment Agreement between the Registrant and
Steven H. Berkowitz dated as of July 1, 1998.
10.6* Form of Compensation Agreement between the Registrant and
John P. Ball dated as of July 1, 1998.
10.7* Form of Compensation Agreement between the Registrant and
James A. Doehrman dated as of July 1, 1998.
10.8* Form of Compensation Agreement between the Registrant and
Brenda L. McLaughlin dated as of July 1, 1998.
10.9* Corporate Services Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.10* Registration Rights Agreement between the Registrant and IDG
Enterprises, Inc. dated as of June 1, 1998.
10.11* Trademark License Agreement between the Registrant and IDG
dated June 1, 1998.
10.12* Non-competition Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.13* Tax Allocation Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.14* Restated Share Exchange Agreement between the Registrant,
IDG Enterprises, Inc. and State Street Bank and Trust
Company dated May 21, 1998.
10.15* Employee Stock Ownership Plan of Registrant effective as of
October 1, 1997.
10.16 Office Lease between Crosspoint Seven, LLC "Landlord" and
IDG Books Worldwide, Inc. "Tenant".
13.1 Annual Report to Stockholders.
23.1 Independent Auditors' Consent.
23.2 Independent Auditors' Report on Schedule.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1, as amended (File No. 333-53433) declared effective July 27, 1998.
** Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (File No. 333-67977), filed November 25, 1998.
(b) No reports on Form 8-K were filed during the quarter ended September 26,
1998.
(c) Exhibits: See Item 14(a)3 above.
(d) Financial Statement Schedules: See Item 14(a)2 above.
<PAGE> 1
SHARE PURCHASE AGREEMENT
DATED DECEMBER 7, 1998
BY AND AMONG
IDG BOOKS WORLDWIDE, INC.,
CLIFF'S NOTES, INC.,
AND
THE SHAREHOLDERS OF CLIFF'S NOTES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS................................................................1
1.1. DEFINITIONS................................................................1
ARTICLE 2 PURCHASE OF SHARES, PURCHASE PRICE, AND
RELATED MATTERS............................................................9
2.1. PURCHASE OF SHARES.........................................................9
2.2. CLOSING: EXCHANGE AND OTHER PAYMENTS; WIRING INSTRUCTIONS..................9
2.3. DETERMINATION OF PRELIMINARY NET BOOK VALUE...............................10
2.4. PURCHASE PRICE............................................................10
2.5. HOLDBACKS.................................................................10
2.6. CLOSING...................................................................10
2.7. POST-CLOSING PURCHASE PRICE ADJUSTMENT....................................10
ARTICLE 3 REPRESENTATIONS REGARDING CLIFFS..........................................11
3.1. EXISTENCE AND GOOD STANDING...............................................11
3.2. CAPITAL STOCK.............................................................11
3.3. AUTHORIZATION AND VALIDITY OF THIS AGREEMENT..............................12
3.4. AUDITED STATEMENTS; TRIAL BALANCE SHEET; DEBTS; ACCOUNTS RECEIVABLE.......12
3.5. ABSENCE OF CHANGES........................................................13
3.6. BOOKS AND RECORDS.........................................................15
3.7. SUBSIDIARIES..............................................................15
3.8. SCHEDULED ASSETS..........................................................15
3.9. TITLE TO ASSETS; NO ENCUMBRANCES..........................................17
3.10. OPERATING CONDITION.......................................................18
3.11. INSURANCE.................................................................18
3.12. PROPRIETARY PROPERTY......................................................18
3.13. THE WORKS.................................................................19
3.14. CONTRACTS AND LEASES......................................................19
3.15. INTERESTS IN AND RELATIONS WITH AUTHORS, CUSTOMERS, SUPPLIERS, ETC........20
3.16. REAL PROPERTY.............................................................20
3.17. EMPLOYMENT MATTERS........................................................21
3.18. EMPLOYEE BENEFIT PLANS....................................................22
3.19. NO CONFLICT OR DEFAULT....................................................25
3.20. GOVERNMENTAL CONSENTS AND APPROVALS; NO VIOLATIONS........................26
3.21. THIRD PARTY CONSENTS......................................................26
3.22. LITIGATION................................................................26
3.23. TAXES.....................................................................26
3.24. SOFTWARE MATTERS..........................................................28
3.25. COMPLIANCE WITH LAWS......................................................28
3.26. ENVIRONMENTAL LAWS AND REGULATIONS........................................28
3.27. BANK ACCOUNTS, POWERS OF ATTORNEY.........................................29
3.28. BROKER'S OR FINDER'S FEES.................................................29
3.29. ACCURACY OF DISCLOSURE....................................................29
ARTICLE 4 REPRESENTATIONS OF THE SHAREHOLDERS.......................................30
4.1. OWNERSHIP OF SHARES.......................................................30
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
4.2. AUTHORIZATION AND VALIDITY OF AGREEMENT...................................30
4.3. RESTRICTIVE DOCUMENTS.....................................................30
4.4. BROKER'S OR FINDER'S FEES.................................................30
4.5. CONTRACT PAYMENTS.........................................................30
4.6. SHAREHOLDER NOTES.........................................................31
ARTICLE 5 REPRESENTATIONS OF IDGB...................................................31
5.1. EXISTENCE AND GOOD STANDING; POWER AND AUTHORITY..........................31
5.2. RESTRICTIVE DOCUMENTS.....................................................31
5.3. PURCHASE FOR INVESTMENT...................................................31
5.4. EXISTENCE OF FINANCING....................................................31
5.5. BROKER'S OR FINDER'S FEES.................................................31
ARTICLE 6 TRANSACTIONS PRIOR TO THE CLOSING EFFECTIVE DATE
AND RELATED COVENANTS.....................................................32
6.1. PRESS RELEASE AND DISCLOSURE..............................................32
6.2. CONDUCT OF BUSINESS.......................................................32
6.3. EMPLOYEE MATTERS..........................................................34
6.4. EXCLUSIVE DEALING.........................................................36
6.5. DUE DILIGENCE EXAMINATION OF CLIFFS.......................................36
6.6. FURTHER ACTIONS AND THIRD PARTY CONSENTS..................................37
6.7. NOTIFICATION OF CERTAIN MATTERS...........................................37
ARTICLE 7 CONDITIONS PRECEDENT TO IDGB'S OBLIGATIONS................................38
7.1. CLIFFS' BOARD AND SHAREHOLDER APPROVALS...................................38
7.2. THIRD PARTY CONSENTS AND APPROVALS........................................38
7.3. ABSENCE OF GOVERNMENTAL OR OTHER OBJECTION................................38
7.4. TRUTH AND PERFORMANCE OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.......38
7.5. EVIDENCE OF TITLE.........................................................38
7.6. APPROVAL OF DOCUMENTATION.................................................39
7.7. LICENSES..................................................................39
7.8. GOOD STANDING AND OTHER CERTIFICATES......................................39
7.9. OPINION OF COUNSEL........................................................39
7.10. RESIGNATIONS..............................................................39
7.11. ACTIONS TO TERMINATE BENEFIT PLANS........................................39
7.12. EXCLUDED DEBT, SHAREHOLDER NOTES, AND FOUNDATION PAYMENT..................40
7.13. COVOLIK AGREEMENT.........................................................40
7.14. OFFICE/WAREHOUSE FACILITY LEASE...........................................40
7.15. ESCROW ACCOUNT AND AGREEMENT..............................................40
7.16. TERMINATION OF SHAREHOLDERS' AGREEMENT....................................41
7.17. PERMISSION AND RELEASE FOR USE OF NAME AND LIKENESS.......................41
7.18. NO MATERIAL ADVERSE EFFECT................................................41
ARTICLE 8 CONDITIONS PRECEDENT TO CLIFFS' AND THE
SHAREHOLDERS' OBLIGATIONS.................................................41
8.1. TRUTH OF REPRESENTATIONS AND WARRANTIES...................................41
8.2. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS..............................41
8.3. PERFORMANCE OF AGREEMENTS.................................................42
8.4. APPROVAL OF DOCUMENTATION.................................................42
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 9 NOT-TO-COMPETE COVENANT; CONFIDENTIALITY..................................42
9.1. NON-COMPETITION...........................................................42
9.2. CONFIDENTIALITY...........................................................43
ARTICLE 10 TAX MATTERS...............................................................43
10.1. TAX PERIOD ENDING ON OR BEFORE THE CLOSING EFFECTIVE DATE.................43
10.2. TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING EFFECTIVE
DATE......................................................................44
10.3. COOPERATION ON TAX MATTERS................................................44
10.4. INDEMNIFICATION...........................................................45
ARTICLE 11 SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION..............................45
11.1. SURVIVAL OF REPRESENTATIONS...............................................45
11.2. INDEMNIFICATION...........................................................45
11.3. INDEMNIFICATION PROCEDURE.................................................48
ARTICLE 12 TERMINATION...............................................................49
12.1. TERMINATION...............................................................49
12.2. EFFECT OF TERMINATION.....................................................50
ARTICLE 13 GENERAL PROVISIONS........................................................50
13.1. EXPENSES..................................................................50
13.2. GOVERNING LAW, ATTORNEYS' FEES............................................50
13.3. TABLE OF CONTENTS; CAPTIONS...............................................51
13.4. NOTICES...................................................................51
13.5. NO ASSIGNMENT.............................................................52
13.6. COUNTERPARTS..............................................................52
13.7. ENTIRE AGREEMENT..........................................................52
13.8. AMENDMENTS................................................................52
13.9. SEVERABILITY..............................................................52
13.10. THIRD PARTY BENEFICIARIES.................................................53
</TABLE>
EXHIBITS AND SCHEDULES
EXHIBITS
1.1(t) FOUNDATION ASSIGNMENT
1.1(ar) HILLEGASS ASSIGNMENT
6.6(b) PRINTER LETTER
7.9 OPINION OF CLIFFS' AND THE SHAREHOLDERS' COUNSEL
7.13 COVOLIK EMPLOYMENT AGREEMENT
7.14 AMENDMENT TO OFFICE LEASE
7.15 ESCROW AGREEMENT
7.17 HILLEGASS PERMISSION AND RELEASE AGREEMENT
SCHEDULES
1.1(g) BANK NOTES PAYABLE
1.1(t) CONTRACT PAYMENTS
1.1(ao) FOUNDATION PAYMENT
1.1(bv) SHAREHOLDER NOTES
2.1 SHAREHOLDERS AND SHARE OWNERSHIP
(iii)
<PAGE> 5
3.4(c) NO OTHER DEBTS OR OBLIGATIONS
3.5(d) MODIFICATIONS IN COMPENSATION OR BENEFITS
3.5(m) COMMENCEMENT, NOTICE OR THREAT OF LAWSUIT
3.8(a)(i) TRADEMARKS
3.8(b) THE WORKS
3.8(c) INVENTORY
3.8(d)(i) AUTHOR AND FREELANCE AGREEMENTS
3.8(d)(ii) SALES AND DISTRIBUTION AGREEMENTS
3.8(d)(iii) CUSTOMER AGREEMENTS
3.8(d)(iv) FOREIGN TRANSLATION AGREEMENTS
3.8(d)(v) SUBSIDIARY RIGHTS AGREEMENTS
3.8(d)(vi) PRINTING AND MANUFACTURING AGREEMENTS AND ARRANGEMENTS
3.8(d)(vii) COMMERCIAL SOFTWARE LICENSE AGREEMENTS
3.8(d)(viii) WEBSITE DEVELOPMENT AND HOSTING AGREEMENTS
3.8(d)(ix) ADVERTISING AGREEMENTS
3.8(d)(x) CONSULTING AGREEMENTS
3.8(e)(i) LESSEE LEASES AND SUBLEASES
3.8(e)(ii) LESSOR LEASES AND SUBLEASES
3.8(e)(iii) PERSONAL PROPERTY LEASES
3.8(f) PLATES AND FILM
3.8(g) EQUIPMENT/DEPRECIATION SCHEDULE
3.8(h) ART WORK
3.8(i) BUSINESS LICENSES
3.9 ENCUMBRANCES
3.11 INSURANCE POLICIES
3.14(a) CONTRACTS AND LEASES
3.14(b)(i) OBLIGATIONS OR PAYMENTS TO CLIFF'S IN EXCESS OF $25,000
3.14(b)(vii) AGREEMENTS CONTAINING PROVISIONS LIMITING CLIFF'S RIGHTS OR
FREEDOM TO COMPETE
3.14(b)(x) AGREEMENTS CONTAINING AGREEMENTS OR INSTRUMENTS RELATING TO THE
BORROWING OF MONEY OR EXTENSIONS OF CREDIT
3.17(a) EMPLOYEES
3.17(c) CONTRACTUAL OR OTHER OBLIGATIONS TO PROVIDE SEVERANCE PAYMENTS
3.18 EMPLOYEE BENEFIT PLANS
3.18(d) CURRENT INDIVIDUALS ELECTING COBRA
3.19 CONFLICTS/DEFAULTS
3.21 THIRD PARTY CONSENTS
3.22 LITIGATION
3.23(a) TAX RETURN EXCEPTIONS
3.23(c) AUDITS
3.23(c)(v) CLAIMS IN WRITING BY ANY TAX AUTHORITY
3.23(c)(viii) CERTAIN TAX ITEMS
3.27 BANK AND SAFE DEPOSIT LISTS, POWER OF ATTORNEY
3.28 INVESTMENT BANKER
3.29 INTERESTED PARTY TRANSACTIONS
6.3(b) SEVERANCE AMOUNTS
7.15(c) GIBSON CLAIM INDEMNITY
11.2(b)(iii) EMPLOYEE BENEFITS INDEMNITY
(iv)
<PAGE> 6
SHARE PURCHASE AGREEMENT
This is a Share Purchase Agreement ("Agreement") dated as of December 7,
1998, by and among IDG Books Worldwide, Inc., a Delaware corporation ("IDGB"),
Cliff's Notes, Inc., a Nebraska corporation ("Cliffs"), and all of the
shareholders of Cliffs (the "Shareholders").
RECITALS
a. Cliffs owns and operates a publishing business which publishes and
sells print and electronic works and software products under the "Cliffs"
Imprints using the Proprietary Property;
b. The Shareholders collectively own all of the issued and outstanding
shares of capital stock of Cliffs;
c. The Shareholders desire to sell and IDGB desires to purchase, one
hundred percent (100%) of the outstanding shares of capital stock of Cliffs,
subject to the representations, warranties, and covenants of the parties set
forth in this Agreement.
In consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties and covenants
herein contained, the parties agree as follows:
ARTICLE 1 - DEFINITIONS.
1.1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
in this Agreement have the meanings set forth in this Section 1.1.
a. "ACCOUNTANTS" means IDGB's certified public accountants,
Deloitte Touche, LLP.
b. "AFFILIATE" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, another Person.
c. "AGREEMENT" means this Share Purchase Agreement and all
Exhibits and Schedules hereto, as the same may be amended.
d. "AUDITED STATEMENTS" has the meaning set forth in Section
3.4(a).
e. "AUTHOR ADVANCES" means cash advances against future
royalties payable, made by Cliffs under the Author Agreements.
f. "AUTHOR AGREEMENTS" has the meaning specified in Section
3.8(d)(i).
- 1 -
<PAGE> 7
g. "BANK NOTES PAYABLE" means all of Cliffs' notes payable and
outstanding principal and accrued and unpaid interest thereon as of the date
hereof (including the U.S. Bank note payable), as set forth on Schedule 1.1(g)
which schedule shall be updated as of the Closing Effective Date.
h. "BUSINESS" means Cliffs' business of creating, developing,
producing, marketing, selling, distributing, licensing, and otherwise publishing
the Works utilizing the Proprietary Property.
i. "CLAIM" has the meaning specified in Section 11.3.
j. "CLIFFS ACCOUNTING PRINCIPLES" OR "CAP" means GAAP, except
for the GAAP departures noted in the Reviewed Statements of Cliffs as of and for
the year ending June 30, 1998 and the absence of a bad debt reserve.
k. "CLIFFS" means Cliff's Notes, Inc., a Nebraska corporation.
l. "CLOSING" has the meaning specified in Section 2.6.
m. "CLOSING DATE BALANCE SHEET" means the unaudited balance
sheet of Cliffs reviewed by the Accountants pursuant to Section 2.7(a) as of the
Closing Effective Date.
n. "CLOSING DATE NET BOOK VALUE" means the amount, as reflected
on the Closing Date Balance Sheet, which is equal to Cliffs' total assets less
total liabilities, as determined in accordance with CAP as of the close of
business on the Closing Effective Date.
o. "CLOSING DATE NET BOOK VALUE DIFFERENTIAL" means the positive
amount, if any, by which the Closing Date Net Book Value is greater than
$5,000,000 or the negative amount, if any, by which the Closing Date Net Book
Value is less than $5,000,000. In calculating the Closing Date Net Book Value
Differential, the following items, to the extent, if at all, they are reflected
on the Closing Date Balance Sheet, shall be deducted from the liabilities or
added to the assets of Cliffs as is appropriate in accordance with CAP: (i) the
Contract Payments (the payment on account of, or any accrual for which, shall
not be reflected on the Closing Date Balance Sheet); (ii) the Severance Amounts
(the payment on account of, or any accrual for which, shall not be reflected on
the Closing Date Balance Sheet); (iii) the Foundation Payment (which shall be
reflected as an asset on the Closing Date Balance Sheet); (iv) the Excluded Debt
(which shall be deducted from the liabilities on the Closing Date Balance
Sheet); and (v) the Transaction Costs (if accrued shall be deducted from the
liabilities, and if paid shall be added to the cash shown, on
- 2 -
<PAGE> 8
the Closing Date Balance Sheet).
p. "CLOSING EFFECTIVE DATE" means the last day of the month
ending prior to the Closing.
q. "CLOSING PAYMENT" means the Preliminary Purchase Price less
$2,250,000.
r. "CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder from time to time.
s. "COBRA" means the requirements of Part 6 of Subtitle B of
Title I of ERISA and Code Section 4980B.
t. "CONTRACT PAYMENTS" means Cliffs' obligations for all
remaining and final payments under the employment agreements with Messrs.
Covolik and Lincoln, and consulting agreement with Mr. Slotin, as set forth on
Schedule 1.1(t) as to each of Mr. Covolik, Lincoln and Slotin.
u. "CONTRACTS" has the meaning specified in Section 3.8(d).
v. "CONTROLLED GROUP" has the meaning set forth in Code Section
1563.
w. "COPYRIGHTS" means all copyrights throughout the world, under
U.S. and international laws, and includes without limitation all copyrights in
and to the Works (and source codes in any software contained therein, including
StudyWare), the Imprints, the Manuscripts, Cliffs' Website cliffnotes.com.,
promotional and marketing materials, catalogs and brochures, graphic design
materials, posters, characters, cartoons, and other copyrightable matter, all as
used in the Business.
x. "DAMAGES" has the meaning specified in Section 11.2.
y. "EMPLOYEE BENEFIT PLANS" means any (i) nonqualified deferred
compensation or retirement plan or arrangement, (ii) qualified defined
contribution or defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), (iii) Employee
Welfare Benefit Plan or fringe benefit or other retirement, bonus, or incentive
plan or program, or (iii) severance plan whether formal or informal and whether
deemed an Employee Pension Benefit Plan or Employee Welfare Benefit Plan.
z. "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(2).
aa. "EMPLOYEES" has the meaning set forth in Section 6.3.
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<PAGE> 9
bb. "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Section 3(1).
cc. "ENCUMBRANCES" means all mortgages, pledges, liens,
encumbrances, security interests, equities, charges, and restrictions of any
nature, except for liens arising by operation of law for taxes not yet due and
payable.
dd. "ENVIRONMENTAL CLAIMS" means any administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such Law, including (i)
Environmental Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
Environmental law, and (ii) Environmental Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
ee. "ENVIRONMENTAL LAW(S)" means any applicable federal, state
or local statute, law, rule, regulation, ordinance, code, policy or rule of
common law in effect and in each case as amended as of the Closing, and any
judicial or administrative interpretation thereof as of the Closing, including
any judicial or administrative order, consent decree or judgment, relating to
the environment, health, safety or Hazardous Materials, including the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 6901, et seq.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 9601, et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; the Toxic
Substances Control Act, 15 U.S.C. Section 2601, et seq.; the Clean Air Act, 42
U.S.C. Section 7401, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300f, et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701, et seq.;
the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C., Section
651, et seq.; and their state and local counterparts and equivalents.
ff. "ERISA" has the meaning specified in Section 3.18.
gg. "ERISA AFFILIATE" means each entity which is treated as a
single employer with Seller for purposes of Code Section 414.
hh. "ESCROW ACCOUNT" means the escrow account established under
Section 7.15.
ii. "ESCROW AGENT" means U.S. Bank National Association.
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<PAGE> 10
jj. "ESCROW AGREEMENT" means the agreement, in the form attached
hereto as Exhibit 1.1(aj), between the Escrow Agent, IDGB, and the Shareholders.
kk. "EXCLUDED DEBT" means the following as of the Closing
Effective Date (i) Bank Notes Payable, (ii) the Shareholder Notes, and (iii)
Cliffs' bank overdrafts (if any).
ll. "FIDUCIARY" has the meaning set forth in ERISA Section
3(21).
mm. "FOUNDATION" means Cliff's Charitable Foundation, a
non-profit corporation organized under Nebraska law.
nn. "FOUNDATION ASSIGNMENT" means the Foundation's quitclaim
assignment and release to Cliffs, in the form attached hereto as Exhibit
1.1(an).
oo. "FOUNDATION PAYMENT" means the amount paid by Cliffs to the
Foundation to effect the Foundation Assignment and terminate and otherwise
extinguish the Transfer Agreement, as such amount is set forth on Schedule
1.1(ao).
pp. "GAAP" means generally accepted accounting principles in the
United States, applied on a basis which is consistent with Cliffs' past
practices and policies throughout the periods indicated, and in cases where
Cliffs' past practices are inconsistent with generally accepted accounting
principles, generally accepted principles will apply.
qq. "HAZARDOUS MATERIALS" means (i) any petroleum or petroleum
products, radioactive materials, asbestos in any form, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls, and radon gas, and (ii) any chemicals,
materials or substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants"
or words of similar import, under any applicable Environmental Law.
rr. "HILLEGASS ASSIGNMENT" means the form of quitclaim
assignment attached hereto as Exhibit 1.1(ar), from Clifton Hillegass to Cliffs.
ss. "HIPAA" means the Health Insurance Portability and
Accountability Act of 1996, as amended.
tt. [[INTENTIONALLY OMITTED.]]
uu. "IDGB" means IDG Books Worldwide, Inc., a Delaware
corporation.
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<PAGE> 11
vv. "IMPRINT(S)" means the following imprints and brands owned
by Cliffs and used in the Business: Cliffs Notes, Cliffs Test Preparation
Guides, Cliffs Quick Reviews, Cliffs Advanced Placement Series, Cliffs Complete
Study Editions, Studyware, and Centennial Press (collectively, the "Imprints").
ww. "INDEMNIFIED PARTY" has the meaning specified in Section
11.3.
xx. "INDEMNIFYING PARTY" has the meaning specified in Section
11.3.
yy. "INDEMNITY HOLDBACK" has the meaning specified in Section
2.5.
zz. "INVENTORY" means all inventories of every kind and nature
and wheresoever situated, including without limitation all inventories of
completed (finished goods) and partially completed (works-in-process) books and
other literary works of or pertaining to the Business, all as determined in
accordance with CAP.
aaa. "LEASES" means the Lessor Leases, Lessee Leases, and
Personal Property Leases, collectively.
bbb. "LESSEE LEASES" has the meaning specified in Section
3.8(e)(i).
ccc. "LESSOR LEASES" has the meaning specified in Section
3.8(e)(ii).
ddd. "MANUSCRIPTS" means manuscripts or manuscripts in progress
created or to be created in connection with the Works, including all computer
files, notes, plates, film, negatives, bluelines, art board, laser generated
proofs, treatments and illustrations.
eee. "MATERIAL ADVERSE EFFECT" means a material adverse effect
on the assets, financial condition, results of operations, or prospects of the
Business taken as a whole, excluding seasonal effects, publishing industry
trends, and information which is publicly known.
fff. "PBGC" means the Pension Benefit Guaranty Corporation.
ggg. "PERSON" means any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated association,
governmental authority, or other entity.
hhh. "POST-CLOSING PURCHASE PRICE ADJUSTMENT" has the
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<PAGE> 12
meaning set forth in Section 2.7.
iii. "PRELIMINARY NET BOOK VALUE" means the Preliminary Net Book
Value of Cliffs determined in accordance with CAP, as determined under Section
2.3.
jjj. "PRELIMINARY NET BOOK VALUE DIFFERENTIAL" means the
positive amount, if any, by which the Preliminary Net Book Value is greater than
$5,000,000 or the negative amount, if any, by which the Preliminary Net Book
Value is less than $5,000,000. In calculating the Preliminary Net Book Value
Differential, the following items, to the extent, if at all, they are reflected
on the Trial Balance Sheet, shall be deducted from the liabilities or added to
the assets of Cliffs as is appropriate in accordance with CAP: (i) the Contract
Payments (the payment on account of, or any accrual for which, shall not be
reflected on the Closing Date Balance Sheet); (ii) the Severance Amounts (the
payment on account of, or any accrual for which, shall not be reflected on the
Closing Date Balance Sheet); (iii) the Foundation Payment (which shall be
reflected as an asset on the Closing Date Balance Sheet); (iv) the Excluded Debt
(which shall be deducted from the liabilities on the Closing Date Balance
Sheet); and (v) the Transaction Costs (if accrued shall be deducted from the
liabilities, and if paid shall be added to the cash shown, on the Closing Date
Balance Sheet).
kkk. "PRELIMINARY PURCHASE PRICE" has the meaning set forth in
Section 2.3.
lll. "PROHIBITED TRANSACTION" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
mmm. "PROPRIETARY PROPERTY" means (i) all Trademarks,
Copyrights, any author or moral rights and waivers, trade secrets, patents,
inventions, industrial designs and designs, know-how, proprietary technology and
processes, and all goodwill relating to the foregoing, (ii) whether registered
or at common law, U.S. or international, and including any applications,
registrations, continuations in part, divisional applications, or analogous
rights, and (iii) all other intellectual and proprietary property, including the
Proprietary Property described on Schedule 3.8(a), all as used in the Business
throughout the world.
nnn. "PURCHASE PRICE" has the meaning set forth in Section 2.4.
ooo. "REAL PROPERTY" means any real property and improvements
previously or currently owned, leased, operated or occupied by Cliffs.
ppp. "RELATED PARTY" has the meaning set forth in Section 3.5(l)
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<PAGE> 13
qqq. "REPORTABLE EVENT" has the meaning set forth in ERISA
Section 4043."
rrr. "SALES RETURNS ADJUSTMENT" means the (i) the dollar amount
of returns which Cliffs has notice of but has not yet received, processed and
expensed as of the Closing Effective Date, minus (ii) $100,000.
sss. "SCHEDULED ASSETS" has the meaning specified in Section
3.8.
ttt. "SEVERANCE AMOUNTS" means the severance amounts which may
be paid to certain Employees in accordance with Section 6.3.
uuu. "SEVERANCE AMOUNTS ADJUSTMENT" means the amount shown on
Schedule 6.3(b).
vvv. "SHAREHOLDER NOTES" means Cliffs' notes payable to the
Shareholders, with the outstanding principal balance and accrued and unpaid
interest thereon as of the date hereof as set forth on Schedule 1.1(bv).
Schedule 1.1(bv) shall be updated as of the Closing Effective Date and delivered
at Closing.
www. "SHAREHOLDERS AGREEMENT" means that certain Shareholders
Agreement dated July 31, 1983, as amended February 1, 1984, among Cliffs and the
Shareholders.
xxx. "SHAREHOLDERS' KNOWLEDGE" means the actual knowledge of
Robert E. Covolik, Douglas Lincoln, J. Richard Spellman, or Ellen Cox.
yyy. "SHAREHOLDER REPRESENTATIVES" means Richard Spellman and
Robert Covolik, or their successors as appointed in accordance with the Escrow
Agreement.
zzz. "SHARES" means the 44,925 shares of common stock of Cliffs,
all of which shares are owned by the Shareholders and represent one hundred
percent (100%) of the outstanding shares of common stock of Cliffs.
aaaa. "SPECIAL HOLDBACK" has the meaning set forth in Section
2.5.
bbbb. "TAXES" means all Federal, state, local and foreign taxes,
assessments (including assessments arising from federal or state audits),
duties, fees, levies or other governmental charges of any kind whatsoever, and
all estimated taxes, deficiency assessments, additions to tax, penalties and
interest.
cccc. "TRADEMARKS" means all trademarks, service marks, trade
names, trade dress, Internet domain names, business
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<PAGE> 14
names, brand names, logos, proprietary icons, imprints, get-up, and line
extensions (if applicable), all as used in the Business.
dddd. "TRANSACTION COSTS" has the meaning set forth in Section
13.1.
eeee. "TRANSFER AGREEMENT" means that certain Agreement for
Transfer of Copyrights dated July 1, 1991, between the Foundation and Cliffs.
ffff. "TRIAL BALANCE SHEET" means the general ledger trial
balance sheet prepared in accordance with CAP (subject to the inclusion of the
Sales Returns Adjustment, if any) for the month-end as of the Closing Effective
Date (which shall include a physical inventory of the Inventory as of October
31, 1998 taken by Cliffs and observed by IDGB and updated to the date of the
Trial Balance Sheet), setting forth Cliffs' asset and liability accounts, and
the Sales Returns Adjustment (if any).
gggg. "TRIAL BALANCE SHEET DATE" means the date of the Trial
Balance Sheet, as determined under Section 1.1(cf) immediately above.
hhhh. "WORKS" means all of Cliffs' literary works and related
products published under the Imprints, under the Author Agreements or otherwise,
including original and revised editions, frontlist and backlist titles, and any
and all existing Works and works in progress, and regardless of whether such
Works are stored or published in print, electronic (including online), software,
or other media.
ARTICLE 2 - PURCHASE OF SHARES, PURCHASE PRICE, AND
RELATED MATTERS.
2.1. PURCHASE OF SHARES. IDGB agrees to purchase from each Shareholder
and each Shareholder agrees to sell, assign, transfer, and deliver to IDGB the
number of Shares set forth opposite the name of such Shareholder on Schedule
2.1.
2.2. CLOSING: EXCHANGE AND OTHER PAYMENTS; WIRING INSTRUCTIONS.
a. EXCHANGE. At the Closing, each Shareholder shall deliver or
cause to be delivered share certificates representing the Shares owned by such
Shareholder, duly endorsed and assigned for transfer to IDGB. IDGB shall deliver
to each Shareholder by wire transfer, the Shareholder's pro-rata share of the
Closing Payment. At the Closing, IDGB will also (i) make the Foundation Payment,
(ii) pay the holders of the Excluded Debt the full amount thereof, and (iii) pay
the holders of the Shareholder Notes the full amount thereof.
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<PAGE> 15
b. WIRE TRANSFER. Not later than five (5) days prior to the date
of Closing, Cliffs shall provide IDGB with wire transfer instructions for
payments to (i) the Foundation as to the Foundation Payment, (ii) the holders of
the Excluded Debt, and (iii) the Shareholders and the holders of the Shareholder
Notes.
2.3. DETERMINATION OF PRELIMINARY NET BOOK VALUE. Prior to the Closing,
Cliffs will provide to IDGB a Trial Balance Sheet. Based on the Trial Balance
Sheet, the parties will determine the Preliminary Net Book Value Differential
and the Preliminary Purchase Price. The Preliminary Purchase Price shall equal
$12,652,930.00, plus the Preliminary Net Book Value Differential.
2.4. PURCHASE PRICE. The total purchase price for the Shares (the
"Purchase Price") shall equal $12,652,930.00, plus the Closing Date Net Book
Value Differential.
2.5. HOLDBACKS. IDGB shall hold back $1,750,000 (the "Indemnity
Holdback") and $500,000 (the "Special Holdback") and deposit the Indemnity
Holdback and the Special Holdback in the Escrow Account in accordance with the
Escrow Agreement.
2.6. CLOSING. Subject to the fulfillment of the conditions to Closing in
Articles 7 and 8 herein, the purchase and sale of the Shares (the "Closing")
shall take place at 10:00 a.m. at the offices of counsel to Cliffs and the
Shareholders, McDermott, Will & Emery, 227 West Monroe Street, Chicago, Illinois
60606-5096, not later than December 18, 1998. The purchase, sale, and exchanges
referred to in Sections 2.1 and 2.2 shall be effective as of 12:00 midnight on
the Closing Effective Date.
2.7. POST-CLOSING PURCHASE PRICE ADJUSTMENT.
a. DETERMINATION OF CLOSING DATE NET BOOK VALUE. Within sixty
(60) days after the Closing Effective Date, the Accountants, at IDGB's expense,
will perform an audit of the Closing Date Balance Sheet prepared by Cliffs. Such
balance sheet will be prepared in accordance with CAP. The inventory balance
reported in the Closing Date Balance Sheet will reflect the October 31, 1998
balance that was subjected to a physical count by Cliffs, adjusted for inventory
activity from such date through the Closing Effective Date. Based on such
audited Closing Date Balance Sheet, the parties shall jointly determine the
Closing Date Net Book Value Differential.
b. INFORMATION SHARING; RESOLUTION OF DISPUTES.
(i) At the Shareholder Representatives' request, which shall be
within five (5) business days after the Accountants' delivery of the audited
Closing Date Balance Sheet, IDGB will cause Cliffs and/or the Accountants to
share their work papers and related materials used in performing the audit of
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<PAGE> 16
the Closing Date Balance Sheet with the Shareholder Representatives. In the
event the Shareholder Representatives do not request Cliffs' and/or the
Accountants' work papers or related materials within five (5) business days
after the Accountants delivery of the audited Closing Date Balance Sheet, the
Closing Date Balance Sheet shall be final and binding on the parties.
(ii) In the event that a dispute arises as to the Closing Date
Net Book Value Differential which the parties are unable to resolve among
themselves within ten (10) business days after the provision by Cliffs and/or
the Accountants of their work papers and related materials to the Shareholder
Representatives, the parties will engage Arthur Andersen LLP to review the
disputed information only and render a final accounting and determination of the
Closing Date Net Book Value Differential. Such determination shall be final and
binding on the parties. In the event Arthur Andersen LLP is so engaged, the
Shareholders shall bear one-half (1/2) and IDGB shall bear one-half (1/2) of
Arthur Andersen LLP's fees and costs.
c. PAYMENT OF POST-CLOSING PURCHASE PRICE ADJUSTMENT. If the
Purchase Price is greater than the Preliminary Purchase Price, IDGB will pay the
excess to the Shareholders pro rata. If the Purchase Price is less than the
Preliminary Purchase Price, then the Escrow Agent will distribute the excess out
of the Indemnity Holdback to IDGB pursuant to the Escrow Agreement. Any such
payments will be made within five (5) business days after the final
determination of the Closing Date Net Book Value Differential.
ARTICLE 3 - REPRESENTATIONS REGARDING CLIFFS.
Cliffs and the Shareholders hereby represent and warrant to IDGB,
subject to such exceptions as are disclosed with a description of the relevant
facts in the disclosure schedules (referencing the appropriate section number)
supplied by Cliffs to IDGB and dated as of the date hereof, as follows:
3.1. EXISTENCE AND GOOD STANDING. Cliffs is a corporation duly
organized, validly existing, and in good standing under the laws of the state of
Nebraska. Cliffs has the requisite corporate power and authority to own, lease,
and operate its properties and to carry on the Business as now conducted and as
presently proposed to be conducted. Cliffs is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the Business
makes such qualification or license required by law.
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<PAGE> 17
3.2. CAPITAL STOCK.
a. CAPITAL STRUCTURE. Cliffs has total authorized capital of
250,000 shares of common stock. There are 44,925 shares of Cliffs' common stock
issued and outstanding, consisting of the Shares. There are 16,075 shares of
treasury stock. There are 189,000 shares of Cliffs' common stock authorized and
unissued. As of the Closing Effective Date, the number of shares of common stock
that are authorized, issued, and outstanding will be the same as the date
hereof.
b. OTHER. The Shares are duly authorized, validly issued, fully
paid, and nonassessable. The Shares have been issued in compliance with all
applicable federal and state securities laws. The Shares were not when issued
nor are they currently subject to any preemptive rights, except as otherwise
waived by any Persons entitled thereto at Closing, under statute, Cliffs'
Articles of Incorporation or Bylaws, or any agreement to which Cliffs is a party
or by which Cliffs is bound. Except for the Shareholders' Agreement, there are
no outstanding subscriptions, options, warrants, rights, calls, conversion or
exchange rights, rights of first refusal, contracts, commitments, proxies,
voting trusts or agreements, plans, or other agreements relating to the
purchase, issuance, sale, or voting of the Shares or any shares of Cliffs'
common stock, to which any of the Shareholders are parties or otherwise.
3.3. AUTHORIZATION AND VALIDITY OF THIS AGREEMENT.
Cliffs has the requisite corporate power and authority to execute and deliver,
and consummate the transactions contemplated by, this Agreement. The execution
and delivery of, and consummation of the transactions contemplated by, this
Agreement by Cliffs have been duly authorized and approved by its Board of
Directors and Shareholders and no other corporate action on the part of Cliffs
is necessary to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Cliffs and, assuming due execution of
this Agreement by the other parties hereto, is a valid and binding obligation of
Cliffs enforceable against Cliffs in accordance with its terms, except to the
extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and general equitable principles.
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<PAGE> 18
3.4. AUDITED STATEMENTS; TRIAL BALANCE SHEET; DEBTS; ACCOUNTS
RECEIVABLE.
a. AUDITED STATEMENTS. Cliffs has furnished IDGB with the
following financial statements and Independent Accountants Audit Report thereon:
Balance Sheets as of June 30, 1998 and the related Statements of Operations,
Stockholders' Equity and Cash Flows for the years then ended, together with the
audit report of the Accountants (the "Audited Statements"). The Audited
Statements have been prepared in accordance with GAAP as of and applicable for
the fiscal year ending June 30, 1998, and the Audited Statements fairly present
the financial position and operating results of Cliffs as of the dates, and for
the periods, indicated therein.
b. GENERAL LEDGERS. All of Cliffs' general ledgers and related
documentation are located at Cliffs' principal corporate headquarters in
Lincoln, Nebraska. The general ledgers accurately reflect the underlying facts
and transactions in all material respects. Cliffs has provided IDGB with the
general ledger trial balances for the months ending July 30, August 31,
September 30, and October 31, 1998. Cliffs will also furnish IDGB with the
general ledger trial balances for all months ending prior to the Trial Balance
Sheet Date. The aforesaid trial balances, including the Trial Balance Sheet,
have been and will be prepared on a basis consistent with CAP and fairly
present, subject to the CAP exceptions to GAAP and the absence of footnotes, the
financial position and operating results of Cliffs as of the dates, and for the
periods, indicated therein.
c. NO OTHER DEBTS. Except as set forth on Schedule 3.4(c), there
are no debts, liabilities, or obligations with respect to Cliffs which are
required to be shown on a GAAP statement or to which Cliffs' assets are subject
which are required to be shown on a GAAP statement, whether liquidated,
unliquidated, accrued, absolute, contingent, or otherwise (whether or not
required to be reflected in the Audited Statements or the Trial Balance Sheet),
except for (i) those expressly set forth on the Audited Statements or the Trial
Balance Sheet, (ii) trade payables arising thereafter in the ordinary course of
business, (iii) return policy obligations, and (iv) liabilities specifically
disclosed in the schedules attached hereto, provided that this representation
shall not be deemed to be breached to the extent that any liability is reflected
on the Closing Date Balance Sheet as finally determined.
d. ACCOUNTS RECEIVABLE. The accounts receivable shown on the
Audited Statements and Trial Balance Sheet arose in the ordinary course of
business and have been collected or to the Shareholders' Knowledge are
collectible in the book amounts thereof, less the allowances for doubtful
accounts, if any, determined in accordance with CAP consistently applied and in
ac-
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<PAGE> 19
cordance with the Cliffs' past practices. The accounts receivable of Cliffs
arising after the Trial Balance Sheet Date and before the Closing Effective Date
arose in the ordinary course of business (subject to stated terms of discount in
invoices) and have been collected or to the Shareholders' Knowledge are
collectible in the book amounts thereof, less an allowance for doubtful
accounts, if any, determined in accordance with GAAP consistently applied and in
accordance with Cliffs' past practices. None of the accounts receivable of
Cliffs is subject to any material claim of offset, recoupment, setoff, or
counter-claim, except for rights of return in accordance with Cliffs policies.
3.5. ABSENCE OF CHANGES. Since the date of the Audited Statements, there
has not been:
a. Any material (in excess of $2,500 for any single item)
damage, destruction or loss to any asset or property, tangible or intangible, of
Cliffs;
b. Any material transaction relating to or involving Cliffs
(other than the transactions contemplated herein) which was entered into, or
carried out by Cliffs other than in the ordinary and usual course of business;
c. Any change made by Cliffs in its accounting or tax practices
or procedures relating thereto, or any material change made by Cliffs in its
method of operating the Business;
d. Any increase in or modification of the compensation or
benefits payable or to become payable by Cliffs to any of its directors,
officers, or employees, including the declaration, payment or commitment or
obligation of any kind for Cliffs' payment of a bonus, additional salary or
other extra-ordinary compensation to any such Person(s);
e. Any sale, lease, or disposition of, or any agreement to sell,
lease, or dispose of any of Cliffs' assets, other than sales, leases or
dispositions in the usual and ordinary course of business and consistent with
past practices;
f. Any amendment, waiver, release, rescission, or termination of
any material agreement, license, or other instrument to which Cliffs is a party,
including any write-off or other compromise on any account receivable outside
the ordinary course of business;
g. Any adverse change in Cliffs' relationships with any
significant vendor(s) or customer(s) (except any conditions arising only from
the internal financial condition of any such vendor or customer);
h. Any sales or dispositions, or any discussions re-
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<PAGE> 20
lating thereto, of the Proprietary Property;
i. Any purchase or lease or any agreements to purchase or lease
property or assets by Cliffs in excess of $10,000 individually, or in excess of
$25,000 in the aggregate;
j. Any issuance, redemption, repurchase, or other acquisition of
shares of capital stock of Cliffs, or any declaration, setting aside, or payment
of any dividend or other distribution (whether in cash, stock, or property) with
respect to the capital stock of Cliffs;
k. Any alteration of any term of any outstanding security of
Cliffs, including its capital stock, debt securities, promissory notes, or other
evidences of indebtedness;
l. Any loan by Cliffs to any officer, director, or any relative
of any officer or director (a "Related Party"), any loan by Cliffs to any other
Person, guaranteeing by Cliffs of any indebtedness (whether of a Related Party
or otherwise) as to any Person, or any renewal, extension, or alteration of any
terms of any of the foregoing;
m. Except as set forth on Schedule 3.5(m), commencement or
notice or threat of commencement of any lawsuit or similar proceeding by or
against any third party, including claim of wrongful discharge or other
employment related claim;
n. Amendments or changes to Cliffs' Articles of Incorporation,
Bylaws, or any other charter documents of Cliffs;
o. Negotiation or agreement by Cliffs or any officer or
employees thereof to do any of the things described in the preceding clauses
3.5(b) through 3.5(n) (other than negotiations with IDGB and its representatives
regarding the transactions contemplated by this Agreement); or
p. Any event or condition of any character which may reasonably
be expected to have a Material Adverse Effect.
3.6. BOOKS AND RECORDS. All of Cliffs corporate records and minute books
are located at Cliffs' principal corporate headquarters in Lincoln, Nebraska.
Copies of all of Cliffs' corporate records and minute books have been provided
to IDGB and its counsel. The corporate records of Cliffs accurately reflect the
underlying facts and transactions in all material respects. The minute books and
related corporate records of Cliffs contain accurate records of all material
corporate actions taken by the Shareholders and Board of Directors of Cliffs.
3.7. SUBSIDIARIES. Cliffs does not own, directly or indirectly, any
capital stock or other equity or proprietary interest in any corporation,
partnership, association, trust, joint ven-
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<PAGE> 21
ture, or other entity.
3.8. SCHEDULED ASSETS. The purpose of this Section 3.8 is to accurately
set forth, via schedule, certain tangible and intangible assets of Cliffs which
are used in the operation of the Business which are not specifically identified
as separate line items or otherwise on the Audited Statements or Trial Balance
Sheet nor will such items be specifically identified in the Audited Statements.
The assets set forth in this Schedule 3.8 (the "Scheduled Assets") consist of
the following:
a. PROPRIETARY PROPERTY. The Trademarks and Copyrights, as set
forth on the following Schedules:
(i) The Trademarks, as set forth on Schedule 3.8(a)(i);
(ii) The Copyrights in and to the Works, as set forth on
Schedule 3.8(b).
b. WORKS. The Works, as currently offered for sale by Cliffs in
any channel or medium, including in Cliffs' Website, all as set forth on
Schedule 3.8(b). Schedule 3.8(b) sets forth, as to each such Work, its title,
name of author, first publication date, whether the Work is an original or
revised edition, ISBN, copyright owner, copyright registration date, and
copyright registration number.
c. INVENTORY. The Inventory as of October 31, 1998 is set forth
on Schedule 3.8(c).
d. CONTRACTS. The Contracts in effect on the date hereof, as
listed on Schedules 3.8(d)(i) through 3.8(d)(ix) (the "Contracts"), but subject
to the provisions of Section 3.14(b).
(i) All written agreements with authors, series editors,
and similar content providers ("Author Agreements"), and agreements with
illustrators, graphic artists, and voice talent ("Freelance Agreements")
(as to Author Agreements and Freelance Agreements whether on a
"work-made-for-hire" or royalty basis), and all other licenses and
permissions granted to Cliffs for use of graphic images, photographs and
other artwork for the Works, all as set forth on Schedule 3.8(d)(i).
Schedule 3.8(d)(i) also includes, for each Author Agreement, the title
of the Work, the author's name, Author's Advance, date of agreement, and
for each Freelance Agreement the name of the freelancer and date of such
agreement.
(ii) The domestic and international sales representative
and distribution agreements set forth on Schedule 3.8(d)(ii).
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<PAGE> 22
(iii) All written agreements with Cliffs' customers,
other than purchase orders involving amounts of less than $2,500.00
annually, as set forth on Schedule 3.8(d)(iii).
(iv) All agreements pertaining to Cliffs' licenses (if
any) of foreign translation rights to the Works, including the agent
agreement relating to such rights, as set forth on Schedule 3.8(d)(iv).
(v) All other licenses and permissions granted by Cliffs
in respect of display or reproduction rights as to the Works, as set
forth on Schedule 3.8(d)(v).
(vi) All printing and other manufacturing agreements and
arrangements of Cliffs, whether oral or written, as set forth or
otherwise described on Schedule 3.8(d)(vi).
(vii) All commercial software licenses in force as of
the date hereof, under which Cliffs is a licensee, as set forth on
Schedule 3.8(d)(vii).
(viii) All Website development, Website hosting and
other agreements, as set forth on Schedule 3.8(d)(viii).
(ix) All advertising agency, public relations, and
similar agreements, as set forth on Schedule 3.8(d)(ix).
(x) All consulting agreements which are not cancelable,
without penalty, on less than ninety (90) days notice, as set forth on
Schedule 3.8(d)(x).
e. REAL AND PERSONAL PROPERTY LEASES.
(i) Schedule 3.8(e)(i) contains a list of all leases and
subleases to which Cliffs is a party under which it leases Real Property
from another ("Lessee Leases"). A true and complete copy of each such
Lessee Lease has been provided to IDGB.
(ii) Schedule 3.8(e)(ii) contains a list of all leases
or subleases to which Cliffs is a party and under which it leases Real
Property and is entitled to receive payments ("Lessor Leases").
(iii) Schedule 3.8(e)(iii) contains a list of all
personal property leases to which Cliffs is a party ("Personal Property
Leases").
f. PLATES, ETC. All plates, film, proofs, and similar items used
in conjunction with the Manuscripts in the production of the Works, as set forth
on Schedule 3.8(f). Sched-
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<PAGE> 23
ule 3.8(f) shows the locations of such materials. All software and the equipment
used in the replication of Cliffs' software products are stored at Cliffs'
principal headquarters.
g. EQUIPMENT. All automobiles, furniture, fixtures, equipment,
computers, racks, forklifts, scales, office and warehouse equipment, and/or
other items of personal property, as set forth on Schedule 3.8(g) or otherwise
used in the operation of the Business. IDGB acknowledges and agrees that
Schedule 3.8(g) will contain a listing of assets which is the same as Cliffs'
"depreciation schedule."
h. ART WORK. The works of fine art, as listed on Schedule
3.8(h). The parties hereby agree that the art work shall be recorded on the
Closing Date Balance Sheet at $175,000. Additionally, in the event that any of
such art work is stolen, damaged, or misplaced between the date of this
Agreement and the date of Closing, the amounts attributable to such stolen,
damaged, or misplaced art work shall be remitted to IDGB out of the Indemnity
Holdback.
i. BUSINESS LICENSES. All business licenses used in the
Business, as set forth on Schedule 3.8(i).
3.9. TITLE TO ASSETS; NO ENCUMBRANCES. Cliffs is the sole and exclusive
legal and beneficial owner of all of its assets and properties, including
without limitation the Scheduled Assets. Cliffs is not a party to, or bound by,
any contract or obligation that requires it to sell or otherwise dispose of, or
limits or compromises its ability to use, its assets or properties. Except as
set forth on Schedule 3.9, Cliffs' assets and properties are not subject to any
Encumbrances. These warranties do not apply to the Proprietary Property, which
is the subject of Section 3.12.
3.10. OPERATING CONDITION. All of Cliffs tangible assets currently in
active use, including those tangible assets which are Scheduled Assets, are
suitable for the purposes for which they are used, are in good operating
condition and repair, free from known defects except for minor defects which do
not interfere with the continued use thereof. Each tangible asset of Cliffs has
been serviced and maintained in accordance with customary industry practices,
although IDGB acknowledges that from time to time some equipment may require
repair or maintenance.
3.11. INSURANCE. Schedule 3.11 lists all policies of general
comprehensive liability, property, fire and casualty, medical and health,
products liability, workers compensation, directors and officers liability, and
other forms of insurance owned or held by Cliffs (the "Insurance Policies"),
including name of carrier, policy number, annual premium, deductible, and
expiration/renewal dates. Cliffs has not been denied insurance by any insurance
carrier during the past five (5) years nor has any
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<PAGE> 24
insurance policy been cancelled with regard to Cliffs or the Business. Cliffs
has not received (i) any notice of cancellation of any coverage described in
such Insurance Policies or refusal of coverage thereunder, or (ii) any other
indication that any such policies are no longer in full force and effect or that
the issuer of any such policies is no longer willing or able to perform its
obligations thereunder. There is no claim by Cliffs pending under any of such
policies as to which coverage has been questioned, denied, or disputed by the
underwriter. All premiums payable under all such policies have been paid, and to
the Shareholders' Knowledge Cliffs is in full compliance with the terms of such
policies, including without limitation the notice requirements of such policies.
Cliffs is not aware of any threatened termination of or material premium
increase with respect to any of such policies. Cliffs is not a payee under or
beneficiary of any fidelity, surety or completion bonds or similar instruments.
3.12. PROPRIETARY PROPERTY. Cliffs is the sole and exclusive owner of
all right, title, and interest in and to the Copyrights (except as to certain
Works set forth on Schedule 3.8(b)) and Trademarks throughout the world, and to
the Shareholders' Knowledge the other Proprietary Property. Other than the
Contracts, there are no outstanding options, licenses, or agreements of any kind
relating to the Proprietary Property. The Proprietary Property is not subject to
any Encumbrances. The Copyrights and Trademarks, and to the Shareholders'
Knowledge the other Proprietary Property, and the use thereof in the operation
of the Business do not infringe upon any copyright, trademark, trade secret, or
any other intellectual property or proprietary rights of any Person. There is
not pending or threatened any claim or litigation, and Cliffs and the
Shareholders are not aware of the basis for any such claim or litigation,
contesting the right of Cliffs to use any of the Proprietary Property. To the
Shareholders' Knowledge, no Person is engaging in any act which infringes on
Cliffs' ownership or use of, or exclusive right, title, and interest to, the
Proprietary Property. To the Shareholders' Knowledge, there is no state of facts
that casts doubt on the validity or enforceability of any of the Proprietary
Property.
3.13. THE WORKS. The Works set forth on Schedule 3.8(b) do not (i)
violate any copyright, trademark or any other intellectual property or
proprietary right of any Person, (ii) contain defamatory or unlawful statements,
or statements that violate any Person's or entity's privacy, publicity or
similar right, (iii) contain information, instructions, or content that
recommends unlawful activities or could reasonably cause injury to a Person or
property, or (iv) in any manner discriminate against any Person on the basis of
race, gender, age, religion, disability, or otherwise, other than as may exist
in the underlying literary work. All factual statements and data contained in
the Works are true and correct in all respects.
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<PAGE> 25
3.14. CONTRACTS AND LEASES.
a. FULL FORCE AND EFFECT. The Contracts, the Leases, and all
other contracts, agreements, and leases to which Cliffs is a party or to which
it is subject (whether or not listed on Schedule 3.8) are in full force and
effect, all sums (including without limitation, Author Advances, royalties,
rent, lease, and finance payments) required to be paid by Cliffs and the other
parties thereunder have been timely paid, and there currently exists no breach
or event of default or event, condition or act by Cliffs, or to the
Shareholders' Knowledge the other party thereto, which with the giving of
notice, the lapse of time or the occurrence of another event or condition, is or
would become a breach or event of default thereunder, and Cliffs has not
received notice and is not otherwise aware of any such breach or event of
default thereunder.
b. NO OTHER COMMITMENTS. Except as set forth on Schedule 3.8 or
Schedule 3.14, there are no contracts or commitments, whether written or
unwritten, to which Cliffs is a party or to which it is subject which:
(i) involve obligations (contingent or otherwise) of, or
payments to, Cliffs in excess of $25,000 (or the transfer of property or
rights with a value in excess of $25,000 or which have a term extending
beyond twelve (12) months from the date of this Agreement;
(ii) involve any lease of personal property having a
value individually in excess of $10,000;
(iii) obligate Cliffs under any purchase order or
contract for the purchase of raw materials involving $10,000 or more;
(iv) contain provisions restricting the development,
manufacture, or distribution of Cliffs' products;
(v) to the Shareholders' Knowledge, relate to any aspect
of the Business in which any person who was or is an officer, director,
Shareholder or employee of Cliffs (or any person, firm, partnership,
trust, corporation, or other entity affiliated with such persons) has an
interest or serves as a director, officer, employee, or consultant;
(vi) involve any joint venture or partnership agreement
or arrangement which involve a sharing of profits;
(vii) involve any agreement containing provisions
limiting or purporting to limit the rights or freedom of Cliffs to
compete in any line of business or geographic area, or involve the
marketing or distribution of Cliffs'
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<PAGE> 26
products;
(viii) involve any agreement of indemnification (except
customary provisions in customer or vendor contracts) or guaranty;
(ix) establish any powers of attorney;
(x) involve any mortgages, loans, credit agreements,
security agreements, or other agreements or instruments relating to the
borrowing of money or extension of credit, or otherwise obligate Cliffs
to repay borrowed money; or
(xi) involve any other agreement, contract or commitment
which is material to Cliffs' taken as a whole.
3.15. INTERESTS IN AND RELATIONS WITH AUTHORS, CUSTOMERS, SUPPLIERS,
ETC. Cliffs generally maintains positive relations with its authors, customers,
lessors, suppliers, distributors, licensors and others with whom it does
business and to the Shareholders' Knowledge there is no material negative
circumstance or material adverse event which is not known to the general public
as to which Cliffs or the Shareholders are aware which would reasonably
jeopardize continuing to do business with any such Persons after the Closing.
3.16. REAL PROPERTY. Except for leasehold fixtures reflected in the
Audited Statements, Cliffs owns no Real Property.
3.17. EMPLOYMENT MATTERS.
a. EMPLOYEES. Schedule 3.17(a) lists the employees of Cliffs
(collectively, "Employees"), including his or her name, job title, weekly or
other rate of compensation, whether fixed or commission or a combination
thereof.
b. AT WILL NATURE OF RELATIONSHIP. The employment or service
relationship of each of the Employees is "at will". Except as set forth on
Schedule 3.17, Cliffs is not a party to any employment agreement, written or
unwritten, with any Employee or any other Person. Cliffs has made no promises,
representations, or guarantees to any of its Employees regarding their
employment which in any way has modified the "at will" nature of their
relationship.
c. NO NOTICE OR OTHER OBLIGATIONS. Cliffs does not have any
contractual or other obligation (i) to provide any particular form or period of
notice prior to termination, or (ii) except for the Contract Payments, to pay
any such Employees any severance or other termination payments in connection
with the termination of their employment relationship with Cliffs or as a result
of the transactions contemplated hereby. Cliffs does
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<PAGE> 27
not owe and has not accrued any bonuses or vacation pay or retirement benefits
to any Employee or former Employee, other than as expressly set forth on the
payroll and other records delivered by Cliffs to IDGB prior to Closing.
d. COMPLIANCE WITH EMPLOYMENT LAWS. Cliffs is in compliance with
all federal, state or other applicable laws, rules and regulations, respecting
employment and employment practices, terms and conditions of employment,
discrimination, harassment, wages, hours and overtime rates, and the withholding
and payment of taxes from the compensation of employees, and all other laws and
regulations pertaining to employment and employee benefits. Cliffs has not, and
is not, engaged in any unfair labor practices. No unfair labor practice
complaint against Cliffs is pending before or has been threatened by any
governmental authority.
e. NO STRIKES. There is no labor strike, dispute, slowdown or
stoppage pending or threatened against or involving Cliffs. Cliffs is not a
party to any collective bargaining agreement and no collective bargaining
agreement is currently being negotiated by Cliffs.
f. NO CLAIMS. Except as set forth in Schedule 3.22, no claim,
action, proceeding, or investigation in respect of the employment of any
Employee is currently being asserted, or to the Shareholders' Knowledge,
threatened, against Cliffs. To the Shareholders' Knowledge, all of the Employees
are in compliance with their employment obligations to Cliffs and there exist no
grounds for the termination "for cause" thereof.
g. NO JUDGMENTS. Cliffs is not subject to any outstanding order,
writ, judgment, injunction, decision, award, compliance order, consent decree,
conciliation agreement, settlement agreement, affirmative action plan,
determination letter, or advisory of any court, governmental, regulatory, or
administrative authority or body, or arbitrator or arbitration panel, relating
to any employment matter.
3.18. EMPLOYEE BENEFIT PLANS.
a. EMPLOYEE BENEFIT PLANS. Schedule 3.18 lists each Employee
Benefit Plan that Cliffs maintains or to which Cliffs contributes or has any
obligation to contribute. Cliffs previously maintained the Cliffs Notes, Inc.
Pension Plan, which was terminated in 1990, and has not maintained any other
Employee Benefit Plans.
(i) Except as listed on Schedule 3.18, each such
Employee Benefit Plan (and each related trust, insurance contract, or
fund) is in material compliance in form and in operation in all respects
with applicable requirements of ERISA, the Code, and other applicable
laws. Each
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<PAGE> 28
such Plan has been operated, and its benefits provided, in accordance
with its Plan documents in all material respects.
(ii) All required reports, notices and descriptions
(including Form 5500 Annual Reports, summary annual reports, notices of
determination letter requests, PBGC-1's, and summary plan descriptions)
have been timely filed and distributed appropriately with respect to
each such Employee Benefit Plan except as listed on Schedule 3.18. The
requirements of COBRA and HIPAA have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan except
as listed on Schedule 3.18.
(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are due
have been paid to each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and all contributions for the period through the
date of Closing which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued and reflected as a liability on
the Closing Date Balance Sheet. All premiums or other payments for all
periods ending on or before the date of Closing have been paid with
respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(iv) In the case of each such Employee Benefit Plan
which is an Employee Pension Benefit Plan which meets, or which is
intended to meet, the requirements of a "qualified plan" under Code
Section 401(a)
(a) Such plan has received a favorable
determination letter from the
Internal Revenue Service that it is
a "qualified plan";
(b) Since the receipt of such favorable
determination letter, such plan has
been amended to comply with all
applicable changes in statutes and
regulations to the extent the
remedial amendment period for such
changes has expired.
(c) Continued reliance on such
determination letter is permissible
through the Closing under Internal
Revenue Service rules and policies
with respect thereto; and
(d) Shareholders are not aware of any
facts or circumstances that could
result in the revocation of such
determination letter.
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<PAGE> 29
Each determination letter received relates to the Plan as adopted by
Cliffs, and not merely to the form of a prototype plan or similar
instrument.
(v) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee Pension
Benefit Plan.
(vi) The Shareholders have delivered to IDGB correct and
complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each Employee Benefit Plan listed on Schedule 3.18.
(vii) With respect to each Employee Welfare Benefit Plan
which has distributed any benefits taxable to recipients under pertinent
provisions of the Code, appropriate reporting, withholding, and payment
of applicable taxes have been made and paid by Cliffs.
(viii) No excess contributions have been made by Cliffs
to an Employee Pension Benefit Plan which would give rise to an
obligation for the reporting of, or payment of excise taxes with respect
to, such contributions.
(ix) There has been no return to Cliffs of contributions
made to any Employee Benefit Plan in violation of plan documents or
pertinent provisions of ERISA or the Code.
(x) True and correct schedules of all contributions and
benefits ever made for, or accrued to, all cur rent Cliffs employees
pertinent to calculations which might be required for benefit plan
purposes under the Code, such as but not limited to sections 401 or 415
thereof, or the data from which to compile them, will be available to
IDGB at or after the Closing. Each such Employee Benefit Plan which is
an Employee Pension Benefit Plan has complied in all material respects
with all such requirements for each applicable measuring year.
(xi) With respect to all Employee Benefit Plans ever
terminated by Cliffs, all assets of such Plans were distributed in
accordance with the Plan documents and applicable provisions of the Code
and ERISA, and Forms 5500 and similar reporting forms were filed through
the final period ending with the last distribution.
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<PAGE> 30
(xii) With respect to the medical expense reimbursement
arrangement maintained by Cliffs, all benefits paid which were required
to be reported to the Internal Revenue Service as taxable income under
the requirements of Section 105(h) of the Code were properly and timely
reported.
b. NO TERMINATIONS OR REPORTABLE EVENTS. With respect to each
Employee Benefit Plan that Cliffs or any ERISA Affiliate maintains or ever has
maintained or to which any of them contributes, ever has contributed, or ever
has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been the
subject of a Reportable Event as to which notices would be required to
be filed with the PBGC. In the case of any such Employee Benefit Plan
that has been terminated, all required forms and information were filed
with the PBGC, PBGC approval for such termination was obtained or was
deemed to be obtained under applicable PBGC rules, and the plan was
qualified under Section 401(a) of the Code in all material respects at
all times through the date distribution of assets was completed. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or, to the
knowledge of any of the Shareholders and the directors and officers (and
employees with responsibility for employee benefits matters) of Cliffs,
threatened.
(ii) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan for which an exemption is not
available. No Fiduciary has any liability for breach of fiduciary duty
or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any
such Employee Benefit Plan (other than routine claims for benefits) is
pending or, to the knowledge of any of the Shareholders and the
directors and officers (and employees with responsibility for employee
benefits matters) of Cliffs, threatened. None of the Shareholders and
the directors and officers (and employees with responsibility for
employee benefits matters) of Cliffs has any knowledge of any basis for
any such action, suit, proceeding, hearing, or investigation.
(iii) Cliffs has not incurred, and none of the
Shareholders and the directors and officers (and employees with
responsibility for employee benefits matters) of Cliffs has any reason
to expect that Cliffs will incur, any liabil-
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<PAGE> 31
ity to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability as defined in
ERISA Section 4201) or under the Code with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan.
c. CONTROLLED GROUP. None of Cliffs and the other members of the
Controlled Group that includes Cliffs contributes to, ever has contributed to,
or ever has been required to contribute to any Multiemployer Plan or has any
liability (including withdrawal liability as defined in ERISA Section 4201)
under any Multiemployer Plan.
d. COBRA; NO OTHER CONTRIBUTIONS. As noted on Schedule 3.18,
Cliffs does not maintain, nor has it ever maintained or contributed to, nor was
it ever required to contribute to, any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with COBRA). Schedule 3.18(d) lists former employees
of Cliffs currently receiving COBRA benefits and their employment termination
dates.
3.19. NO CONFLICT OR DEFAULT. Except as set forth on Schedule 3.19,
neither the execution, delivery, or performance of this Agreement will (i)
conflict with or result in the breach of any term or provision of the Articles
of Incorporation or Bylaws of Cliffs, or of any agreement, contract, deed,
mortgage, order, judgment, decree, injunction, or legal obligation to which
Cliffs or any of the Shareholders is a party, or by which Cliffs' assets are
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder, or (ii)
result in the creation or imposition of an Encumbrance on any of Cliffs' assets
or give to any Person any rights of termination, acceleration, or cancellation,
in or with respect to the Business or Cliffs'
assets.
3.20. GOVERNMENTAL CONSENTS AND APPROVALS; NO VIOLATIONS. The execution,
delivery, and performance of this Agreement by Cliffs and the Shareholders and
the consummation of the transactions contemplated hereby (i) will not violate
any law, statute, rule, regulation, order or decree of any governmental
authority by which Cliffs or the Shareholders are bound, and (ii) will not
require any filing with, or permit, consent or approval of, or the giving of any
notice to any governmental authority or any other Person.
3.21. THIRD PARTY CONSENTS. Except as set forth on Schedule 3.21, no
consent, approval, or authorization of any third party (private or governmental)
is required in connection with the execution, delivery or performance of this
Agreement by Cliffs or the Shareholders.
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<PAGE> 32
3.22. LITIGATION. Except as set forth on Schedule 3.22, there is no
action, suit, proceeding at law or in equity, arbitration, or administrative or
other proceeding or investigation, pending or threatened, against or affecting
Cliffs or its assets or properties, and neither Cliffs nor the Shareholders know
of any valid basis for any such action, suit, proceeding or investigation.
Cliffs is not presently subject to any judgment, order or decree entered in any
lawsuit or other judicial or administrative proceeding.
3.23. TAXES.
a. TAX RETURNS. Except as set forth on Schedule 3.23(a), Cliffs
has timely filed or caused to be timely filed with the appropriate taxing
authorities all returns, statements, forms and reports for Taxes ("Tax Returns")
that are required to be filed by, or with respect to, Cliffs on or prior to the
Closing. Cliffs is not currently the beneficiary of any extension of time within
which to file a Tax Return. Cliffs has provided IDGB with copies of all Tax
Returns since the fiscal year ending June 30, 1995. The Tax Returns have
accurately reflected in all material respects all liability for Taxes of Cliffs
for the periods covered thereby.
b. PAYMENT OF TAXES. All Taxes of Cliffs for all taxable years
ending on or prior to June 30, 1998 showing or otherwise due, have been timely
paid. With respect to the taxable year beginning July 1, 1998, all Taxes on net
income earned prior to the Trial Balance Sheet Date have been timely paid or
accrued and adequately disclosed and fully provided for as a liability on the
Trial Balance Sheet.
c. OTHER TAX MATTERS.
(i) Except as set forth on Schedule 3.23(c), Cliffs has
not been the subject of an audit or other examination of Taxes by the
tax authorities of any nation, state or locality nor has it received any
written notices nor, to the Shareholders' Knowledge any oral notices,
from any taxing authority relating to any issue which could affect the
Tax liability of Cliffs.
(ii) Cliffs has not (a) entered into an agreement or
waiver or been requested to enter into an agreement or waiver extending
any statute of limitations relating to the payment or collection of
Taxes of Cliffs, (b) applied for nor received a ruling or determination
from a taxing authority regarding a past or prospective transaction of
Cliffs, and (c) is not presently contesting the Tax liability of Cliffs
before any court, tribunal or agency.
(iii) All Taxes which Cliffs is (or was) required by law
to withhold or collect have been duly withheld or
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<PAGE> 33
collected, and have been timely paid over to the proper authorities to
the extent due and payable.
(iv) There are no written or otherwise binding tax
sharing, allocation, indemnification or similar agreements or
arrangements in effect as between Cliffs or any predecessor or affiliate
of Cliffs or any other party under which IDGB or Cliffs could be liable
for any Taxes or other claims of any party.
(v) No claim in writing and to the Shareholders'
Knowledge no other claim, has ever been made by any authority in a
jurisdiction where Cliffs does not file Tax Returns that it is or may be
subject to taxation in that jurisdiction.
(vi) No officer or director, and to the Shareholders'
Knowledge no employee responsible for tax matters of Cliffs, expects or
has any basis to believe that any authority may assess any additional
taxes for any period for which Returns have been filed. There is no
dispute or claim concerning any liability for Taxes of Cliffs either (a)
claimed or raised by any authority in writing, or (b) as to which any of
the shareholders, directors, officers and employees responsible for tax
matters of Cliffs has knowledge based on personal contact with any agent
of such authority.
(vii) Cliffs has not filed a consent under Code Section
341(f) concerning collapsible corporations. Cliffs has not made any
payment, nor it is obligated to make payment, nor is it a party to any
agreement which could obligate it to make any payment, that would not be
deductible under Code Section 280G. Cliffs has not been a United States
real property holding corporation within the meaning of Code Section
897(c)(2). Cliffs has not been a member of an affiliated group filing a
consolidated federal income tax return, nor does have Cliffs have any
liability for Taxes of any Person under Treas. Reg. Section 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee
or successor, by contract, or otherwise.
(viii) Schedule 3.23(c)(viii) sets forth, as of the most
recent practicable date, (a) the basis of Cliffs in its assets, and (b)
the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax credit, and excess
charitable contribution of Cliffs.
3.24. SOFTWARE MATTERS. Cliffs has procured all necessary licenses (type
and quantity) to operate and use all of the software and operating systems that
it uses in the operation of the Business, including all necessary end-user
licenses to operate
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<PAGE> 34
such software and systems that are installed on the computers listed on Schedule
3.8(g).
3.25. COMPLIANCE WITH LAWS. Cliffs has complied and is in compliance in
all material respects with all applicable judicial or administrative decisions
known to Cliffs and all federal, state, and local laws, statutes, licensing
requirements, rules, and regulations applicable to the Business, including
zoning laws, rules, and regulations. Cliffs has been granted all licenses,
permits, authorizations, and approvals from federal, state, local, and foreign
governmental authorities necessary to carry on the Business as currently
conducted, all of which are currently valid and in full force and effect. All
such licenses, permits, authorizations, consents and approvals will be effective
as of the Closing, and valid and in full force and effect to the same extent as
if the transactions contemplated hereby had not occurred. There is no order
issued, investigation, or proceeding pending or threatened, with respect to any
violation of or conflict with any law, statute, rule, or regulation by Cliffs
relating to the operation of the Business.
3.26. ENVIRONMENTAL LAWS AND REGULATIONS.
a. HAZARDOUS MATERIALS. Hazardous Materials have not been
generated, used, treated or stored on or released or disposed on any Cliffs'
Real Property, except for such Hazardous Materials that have been used or stored
in the ordinary course of the business of Cliffs and in compliance with all
applicable Environmental Laws.
b. GENERAL COMPLIANCE. Cliffs has complied with and is in
compliance with all Environmental Laws and the requirements of permits issued
under such Environmental Laws with respect to any Cliffs' Real Property.
c. NO CLAIMS. During the period that Cliffs or, to the
Shareholders' Knowledge any of Cliffs' predecessors, have occupied any Cliffs'
Real Property (through and including the Closing), there have been no
Environmental Claims pending or threatened against Cliffs or any Cliffs' Real
Property.
d. NO CIRCUMSTANCES GIVING RISE TO CLAIMS. During the period
that Cliffs, or to the Shareholders' Knowledge any of Cliffs' predecessors, have
occupied Cliffs' Real Property (through and including the Closing), there have
been no facts, circumstances, conditions or occurrences on any Cliffs' Real
Property that could reasonably be anticipated (i) to form the basis of an
Environmental Claim against Cliffs, any Cliffs' Real Property or any assets of
Cliffs, or (ii) to cause such Cliffs' Real Property or assets of Cliffs to be
subject to any restrictions on the ownership, occupancy, use or transferability
of such Cliffs' Real Property under any Environmental Law.
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<PAGE> 35
e. NO TANKS. During the period that Cliffs, or to the
Shareholders' Knowledge any of Cliffs' predecessors, have occupied Cliffs' Real
Property (through and including the Closing), there have been no underground
storage tanks (without respect to the substance stored therein) located on any
Cliffs' Property.
3.27. BANK ACCOUNTS, POWERS OF ATTORNEY. Set forth on Schedule 3.27 is
an accurate and complete list showing (i) the name and address of each bank in
which Cliffs has an account or safe deposit box, the number of any such account
or any such box and the names of all persons authorized to draw thereon or to
have access thereto, and (ii) the names of all persons, if any, holding powers
of attorney from Cliffs.
3.28. BROKER'S OR FINDER'S FEES. Except as set forth in Schedule 3.28,
no agent, broker, person or firm acting on behalf of Cliffs, or the Shareholders
is, or will be, entitled to any commission or broker's or finder's fees from any
of the parties hereto, or from any Person controlling, controlled by or under
common control with any of the parties hereto, in connection with any of the
transactions contemplated by this Agreement.
3.29. ACCURACY OF DISCLOSURE. All of the representations and warranties
in this Agreement, including the Schedules and Exhibits to this Agreement, are
true and accurate in all respects. There is no fact known to any officer,
director or Shareholder of Cliffs which is, or which any officer, director, or
Shareholder of Cliffs has reason to believe could result in, a Material Adverse
Effect, which has not been set forth in this Agreement, or in any Schedule,
Exhibit, or certificate delivered pursuant to this Agreement. Notwithstanding
the foregoing, no representations or warranties are made regarding any
statements contained in any private memoranda or regarding any projections
furnished by Cliffs to IDGB.
ARTICLE 4 REPRESENTATIONS OF THE SHAREHOLDERS.
The Shareholders, each in his or her individual capacity and for his or
her own account, represent and warrant to IDGB as follows:
4.1. OWNERSHIP OF SHARES. The Shareholders, individually, are the sole,
exclusive, direct and lawful owners of the number of Shares listed opposite
their names on Schedule 2.1, free and clear of all Encumbrances. The
Shareholders have the full right, power, and legal authority to execute, deliver
and perform this Agreement. The Shareholders have the full right, power, and
legal authority to sell, assign, transfer, and convey the Shares owned by each
of them pursuant to this Agreement, and the delivery to IDGB of the Shares
pursuant to this Agreement will transfer to IDGB good title to the Shares free
and clear of all Encumbrances. No Shareholder is a party to any option, warrant,
pur-
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<PAGE> 36
chase right, or other contract or commitment that requires such Shareholder to
sell, transfer, or otherwise dispose of any capital stock of Cliffs (other than
this Agreement).
4.2. AUTHORIZATION AND VALIDITY OF AGREEMENT. The Shareholders have the
requisite power and legal authority to execute and deliver, and consummate the
transactions contemplated by, this Agreement. This Agreement has been duly
executed and delivered by the Shareholders and, assuming the due execution of
this Agreement by the other parties hereto, is a valid and binding obligation of
the Shareholders, enforceable against the Shareholders in accordance with its
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights generally and general equitable principles.
4.3. RESTRICTIVE DOCUMENTS. None of the Shareholders is a party or
subject to any agreement, mortgage, lien, or other instrument, or any order,
law, rule, regulation, judgment or decree which would prevent consummation by
any of them of the transactions contemplated by this Agreement. None of the
Shareholders is a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of Cliffs.
4.4. BROKER'S OR FINDER'S FEES. Except as set forth on Schedule 3.28, no
agent, broker, person or firm acting on behalf of Cliffs or the Shareholders is,
or will be, entitled to any commission or broker's or finder's fees from any of
the parties hereto, in connection with any of the transactions contemplated by
this Agreement.
4.5. CONTRACT PAYMENTS. By their execution of this Agreement, each of
Douglas Lincoln and Robert E. Covolik hereby represents, warrants, and agrees,
for his individual account, that (i) Schedule 1.1(t) contains the true and
correct amount of all Contract Payments due or to become due to him, and (ii)
that upon payment of such amount, IDGB's and Cliffs' obligations to him with
regard to severance will be paid, satisfied, and released in full.
4.6. SHAREHOLDER NOTES. By their execution of this Agreement, Cliffs and
the Shareholders hereby represent, warrant, and agree that (i) Schedule 1.1(bv)
is true and correct in all respects, and (ii) upon payment of the amounts set
forth on Schedule 1.1(bv) plus all interest which accrues thereon between the
date hereof and the Closing in accordance with the terms of the Shareholder
Notes, the Shareholder Notes will be, and will be deemed to be, paid and
satisfied in full and the Shareholder Notes will be thereby automatically
cancelled and of no further force or effect.
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ARTICLE 5 REPRESENTATIONS OF IDGB.
IDGB represents and warrants to the Shareholders as follows:
5.1. EXISTENCE AND GOOD STANDING; POWER AND AUTHORITY. IDGB is a
corporation duly incorporated, validly existing, and in good standing under the
laws of the state of Delaware. IDGB has the requisite corporate power and
authority to execute and deliver, and consummate the transactions contemplated
by, this Agreement. This Agreement has been duly authorized and approved by all
necessary corporate action on the part of IDGB and is a valid and binding
obligation of IDGB enforceable against IDGB in accordance with its terms, except
to the extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and general equitable principles.
5.2. RESTRICTIVE DOCUMENTS. IDGB is not a party to or subject to any
agreement, mortgage, lien, or other instrument, or any order, law, rule,
regulation, judgment or decree, which would prevent IDGB's consummation of the
transactions contemplated by this Agreement.
5.3. PURCHASE FOR INVESTMENT. IDGB is acquiring the Shares for its own
account for investment only and not with a view toward any resale or
distribution thereof; provided, that the disposition of the Shares subsequent to
the Closing will at all times remain within the sole control and discretion of
IDGB.
5.4. EXISTENCE OF FINANCING. IDGB has sufficient committed financing to
consummate its purchase of the Shares in accordance with Article 2 herein.
5.5. BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting
on behalf of IDGB is or will be entitled to any commission or broker's or
finder's fees from IDGB in connection with any of the transactions contemplated
by this Agreement.
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<PAGE> 38
ARTICLE 6 TRANSACTIONS PRIOR TO THE CLOSING EFFECTIVE DATE
AND RELATED COVENANTS.
6.1. PRESS RELEASE AND DISCLOSURE. Upon the execution of this Agreement
by the parties hereto, IDGB and Cliffs will jointly prepare, mutually approve,
and issue a press release concerning the general transactions contemplated by
this Agreement. Additionally, in accordance with the rules and regulations of
the Securities and Exchange Commission and such other securities regulatory
agencies to which IDGB is subject, IDGB will be authorized to prepare and make
such filings at any time as are required by such rules and regulations. Except
as otherwise set forth in this Section 6.1, none of the parties hereto, whether
before or after the Closing, will issue any press release, respond to any press
query, or make any other public statement connected with or arising out of this
Agreement or the matters contained herein, without obtaining the prior written
approval of IDGB and Cliffs; provided, however, that the foregoing shall not
prevent or otherwise restrict IDGB from issuing press releases, responding to
press queries, and making other public announcements about Cliffs after the
Closing.
6.2. CONDUCT OF BUSINESS. Prior to the Closing, Cliffs will conduct its
operations in the ordinary course of business consistent with past practices;
use best efforts to preserve intact its business organization, keep available
the services of its officers and employees; and use best efforts consistent with
its operation of the Business in the past to maintain its relationships and
goodwill with authors, licensors, vendors, suppliers, distributors, customers,
landlords, employees, agents, and any other Person having business relationships
with it; pay its debts and Taxes when due; and confer with and timely provide
material information to IDGB concerning the operations and finances of the
Business (including as to any potential Sales Returns Adjustment) and the
transition of the Business as contemplated by this Agreement. Without limitation
to the preceding sentence, prior to the Closing, without IDGB's prior written
consent Cliffs will not:
(i) amend its Articles of Incorporation or By-Laws;
(ii) pay bonuses to or increase any compensation of any
director, officer, or employee;
(iii) hire any employees;
(iv) adopt or increase any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, or grant any severance or other termination
payments except as expressly provided for in this Agreement;
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<PAGE> 39
(v) enter into or amend, outside of the ordinary course
of business, including any Author Agreements under any circumstance, or
otherwise violate the terms of, any contract or commitment, including
any of the Contracts or Leases;
(vi) enter into any agreement pursuant to which any
party is granted marketing, distribution or similar rights of any type
or scope with respect to Cliffs' products;
(vii) increase its indebtedness or otherwise borrow
money, other than for working capital purposes in the ordinary course of
business under Cliffs' existing line of credit;
(viii) declare or pay any dividends in respect of its
capital stock or redeem or otherwise purchase any of its capital stock;
(ix) issue, sell or repurchase any shares of capital
stock or any other securities, or issue any securities convertible into,
or options, warrants or rights to purchase shares of its capital stock
or other securities;
(x) make any change in accounting methods or practices;
(xi) sell, lease or otherwise dispose of any asset,
except for Inventory in the ordinary course of business;
(xii) make any capital expenditure or commitments
therefor;
(xiii) revalue any of its assets, including without
limitation writing down the value of inventory or writing off as
uncollectible any notes or accounts receivable, except in the ordinary
course of business consistent with past practices;
(xiv) exclusive of the claim described in Section 7.19,
pay, discharge or satisfy, in an amount in excess of $5,000, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected
or reserved against in the Audited Statements or Trial Balance Sheet;
(xv) make or change any material election in respect of
Taxes, settle any claim or assessment in respect
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<PAGE> 40
of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(xvi) commence any litigation; or
(xvii) agree in writing to do any of the foregoing.
6.3. EMPLOYEE MATTERS.
a. RESPONSIBILITY FOR EMPLOYEES. Prior to the Closing, Cliffs
shall be solely responsible (financially and otherwise) for the continued
employment and terminations (if any) in the ordinary course of business of the
Employees. After the Closing, IDGB shall be solely responsible (financially and
otherwise) for the continued employment and terminations of the Employees,
including the payment of any wages, commissions, and other monies due to any
Employees upon the termination of their employment.
b. SEVERANCE AMOUNTS ADJUSTMENT.
(i) IDGB will pay the amounts set forth on Schedule
6.3(b) (the "Severance Amounts") allocated for those Employees who (w)
are no longer in Cliffs' or IDGB's employ on the one (1) year
anniversary of the date of Closing, and (y) did not voluntarily resign
their employment positions within such one (1) year period other than
pursuant to separation agreements. For such Employees, the Severance
Amounts shall be payable in two installments (the ratio of which shall
be determined by IDGB in its sole discretion), as follows: (y) at the
time that such individuals, respectively, become no longer employed by
Cliffs, and (z) upon and only upon such Employees who are no longer
employed providing IDGB with a signed and binding release of IDGB and
Cliffs in a form acceptable to IDGB. Nothing in this Agreement shall be
construed as creating any employment contracts or other obligations on
the part of IDGB or Cliffs with the Employees.
(ii) Notwithstanding the provisions of Section
6.3(b)(i), IDGB will be permitted to retain and not pay any portion of
the Severance Amounts by reason of (x) an Employee's failure to provide
the release described in sub-section (i) of this Section 6.3(b), or (y)
an Employee in the course of his or her employment duties committing an
act of gross neglect or intentional wrongdoing, or otherwise taking any
action or making a legal claim, which in IDGB's commercially reasonable
business judgment has damaged or will be reasonably likely to cause
damage, including incurring of attorneys' fees and expenses to defend
any such claim, to Cliffs or IDGB. Additionally, the parties ac-
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<PAGE> 41
knowledge and agree that IDGB may, in its discretion, determine to
retain certain Employees who have Severance Amounts allocated to them on
Schedule 6.3(b) and not retain other Employees (whether or not they are
listed on Schedule 6.3(b)) who do not have Severance Amounts allocated
to them. In such circumstances, IDGB shall be permitted to utilize the
Severance Amounts that are allocated to those Employees who are so
retained, in order to pay severance (determined in the same manner as
the Severance Amounts) to Employees who are not so retained and do not
have Severance Amounts allocated to them. At the end of the fourteen
(14) month period described in Section 6.3(b)(iii), the payments
described in the foregoing sentence shall be "netted out" and IDGB shall
absorb any overage and remit to the Shareholders any excess of the
Severance Amounts so available for this purpose over those amounts
needed to provide severance to such Employees not so retained.
(iii) Subject to the provisions of Section 6.2(b)(ii),
not later than fourteen (14) months after the date of Closing IDGB shall
return to the Shareholders any portions of the Severance Amounts
Adjustment as set forth on Schedule 6.3(b) allocated to those Employees
who are employed by Cliffs on the one (1) year anniversary of the date
of Closing, with interest thereon at six percent (6%) per annum.
c. CONTRACT PAYMENTS. IDGB will make or cause Cliffs to make the
Contract Payments to Messrs. Covolik, Lincoln, and Slotin as and when they come
due after the Closing.
d. COBRA AND INSURANCE MATTERS. IDGB shall take such actions as
are required by law to cause either Cliffs or IDGB, in IDGB's sole and absolute
discretion, to provide COBRA coverage for the Employees. IDGB shall take such
actions as are necessary and appropriate to provide continued medical and health
coverage for the Employees under, in IDGB's sole and absolute discretion,
existing (as of the date hereof or after the Closing) medical and health plans
of either Cliffs or of IDGB as either of such plans may be modified from time to
time. The Shareholders shall have no responsibility for providing COBRA coverage
for any period beginning on or after the Closing.
e. BENEFIT PLANS. Cliffs shall terminate and timely take all
other legal actions that are necessary to lawfully terminate the Employee
Pension Benefit Plans prior to and as a condition to the Closing, including
adopting all necessary corporate resolutions. Cliffs shall timely provide the
beneficiaries thereof with the requisite statutory notices. IDGB shall cause
Cliffs to apply to the IRS for favorable determination letters with respect to
the termination of the Employee Pension Benefit Plans, and shall be responsible
for winding up the affairs of such plans. Except as IDGB specifically agrees
herein as to all
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<PAGE> 42
other Employee Benefit Plans, IDGB shall have no responsibilities with respect
to the Employee Benefit Plans. Without limitation to the foregoing and except
for the Contract Payments, IDGB shall not assume any employment contracts of
whatever nature or any obligations arising out of any employment contracts,
express or implied, oral or written, individual or collective, between Cliffs
and any of Cliffs' employees.
f. NO ASSUMPTION OF AUTO LEASES. Neither Cliffs or IDGB will
assume or have any liability, responsibility or other obligations to make
payments under the automobile leases for Clifton Hillegass or Doug Lincoln.
These leases will be assumed by Messrs. Hillegass and Lincoln personally and
Cliffs shall not have any further obligations or liabilities thereunder not
later than the Closing.
g. INFORMATION TO EMPLOYEES. Cliffs and IDGB agree that they
will cooperate and work together to timely provide the Employees with general
information about IDGB's acquisition of the Business and the transition thereof,
provided, however, that the terms of Section 9.2 shall apply to any such
information. After the Employees are so informed, IDGB's representatives shall
have reasonable access to speak with the Employees on an individual or group
basis during normal working hours as reasonably coordinated with Cliffs.
h. WAIVER BY CERTAIN SHAREHOLDERS OF COBRA BENEFITS. By their
execution of this Agreement, notwithstanding anything to the contrary contained
herein, Clifton Hillegass, Mary Hillegass, and Douglas Lincoln do hereby agree
that upon any termination of Cliffs' current health insurance policy, they will
terminate any COBRA election they may have made, and they hereby waive all
further rights to participate thereafter in any health benefit program of any
kind that may be maintained by IDGB, Cliffs, or any Controlled Group member
(within the meaning of Section 414 of the Internal Revenue Code) of either IDGB
or Cliffs.
6.4. EXCLUSIVE DEALING. After the date hereof and through the Closing
and subject to the termination provisions of this Agreement in Section 12, none
of the Shareholders, Cliffs or any officer or director of Cliffs will take any,
and Cliffs will instruct its directors, officers, investment banker, and other
representatives not to take any, action to directly or indirectly encourage,
initiate or engage in discussions or negotiations with, or provide any
information to, written or otherwise, to any Person, other than IDGB, concerning
any purchase of any capital stock of Cliffs or any merger, sale of substantial
assets, or similar transaction involving Cliffs or the Shares. Cliffs will
immediately notify IDGB of any inquiries or proposals, and the terms thereof, it
receives concerning any merger, sale of substantial assets, or similar proposed
transaction involving Cliffs or the Shares.
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<PAGE> 43
6.5. DUE DILIGENCE EXAMINATION OF CLIFFS. Prior to the Closing, IDGB and
its representatives are and will be authorized to review the properties, books
and records of Cliffs and their financial and legal condition. Cliffs will cause
the officers of Cliffs to furnish IDGB with such financial, legal and operating
data and other information with respect to the Business and properties of Cliffs
as IDGB will from time to time reasonably request. Such examination will not
affect the representations and warranties made by Cliffs or the Shareholders in
this Agreement or the remedies of IDGB for breaches of those representations and
warranties.
6.6. FURTHER ACTIONS AND THIRD PARTY CONSENTS.
a. GENERAL. Each of Cliffs, the Shareholders, and IDGB will
cooperate and use their respective best efforts to take, or cause to be taken,
all appropriate actions, and to make, or cause to be made, all necessary or
appropriate filings under applicable laws and regulations and to obtain, whether
governmental or private, all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to the Contracts, Leases and all other contracts and leases to which
Cliffs is a party or by which it is bound, as are necessary to consummate the
transactions contemplated by the Agreement and preserve for Cliffs and IDGB all
rights of, and benefits thereunder.
b. PRINTING FIRMS. Prior to the Closing commencing immediately
upon execution of this Agreement, Cliffs shall contact each of the firms that
provide printing and related manufacturing services for it and use best efforts
to obtain letters from such firms to the President of Cliffs in substantially
the form attached hereto as Exhibit 6.6(b) and provide IDGB with such letters
upon receipt thereof.
6.7. NOTIFICATION OF CERTAIN MATTERS. IDGB will give prompt notice to
Cliffs, and Cliffs will give prompt notice to IDGB, after obtaining knowledge of
(i) the occurrence, or nonoccurrence, of any event that would be reasonably
likely to cause (x) any representation or warranty contained in this Agreement
and made by it to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Closing Effective Date such that the
conditions set forth in Section 7.4 or 8.1, as the case may be, would not be
satisfied as a result thereof, (ii) any failure of IDGB or Cliffs, as the case
may be, to comply with or satisfy in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement such that the conditions set forth in Section 7.4 or Section 8.1, as
the case may be, would not be satisfied as a result thereof, or (iii) any notice
or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
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<PAGE> 44
contemplated by this Agreement (except as set forth on Schedule 3.21.
Notwithstanding the foregoing but subject to the provisions of Section 12.1(f),
the delivery of any notice pursuant to this Section 6.7 will not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
ARTICLE 7 CONDITIONS PRECEDENT TO IDGB'S OBLIGATIONS.
The obligations of IDGB to purchase the Shares and to otherwise
consummate the transactions contemplated by this Agreement are conditioned upon
the satisfaction, at or prior to the Closing, of the following conditions:
7.1. CLIFFS' BOARD AND SHAREHOLDER APPROVALS. Cliffs' Board of Directors
and Shareholders will have taken all necessary and required corporate actions to
unanimously approve this transaction, consent to the terms, conditions,
covenants and requirements contained in this Agreement, and authorize the
execution, delivery, and performance of the same. Certified copies of the
directors' and Shareholders' resolutions will be delivered to IDGB.
7.2. THIRD PARTY CONSENTS AND APPROVALS. All consents, approvals or
waivers, if any, set forth on Schedules 3.20 and 3.21 or required in connection
with the consummation of the transactions contemplated by this Agreement will
have been obtained except non-material consents expressly noted therein. All of
the consents, approvals, authorizations, exemptions and waivers from
governmental agencies that will be required in order to enable the parties to
consummate the transactions contemplated hereby will have been obtained.
7.3. ABSENCE OF GOVERNMENTAL OR OTHER OBJECTION. No action or
proceedings will have been instituted or threatened before a court or other
governmental body, by any public authority or by any private individual
challenging the transactions contemplated by this Agreement or attempting to
restrain or prohibit any of the transactions contemplated hereby. No injunction
shall have been issued restraining the consummation of the transactions
contemplated hereby.
7.4. TRUTH AND PERFORMANCE OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations and warranties and related Schedules (as updated
after the date hereof by Cliffs and the Shareholders with the express prior
written consent of IDGB and with no obligation to accept any proposed updates),
and agreements of Cliffs and the Shareholders contained in this Agreement will
be true, accurate, and correct on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of such date,
and all obligations required to be performed hereunder will be performed. IDGB
will have received a certificate signed by Cliffs and each of the Shareholders
certifying that (i) all such representations and warranties
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<PAGE> 45
of Cliffs and the Shareholders are true, accurate and correct as of the Closing,
(ii) all obligations of Cliffs and the Shareholders hereunder have been
performed, and (iii) the conditions to Closing set forth in Article 8 have been
fulfilled.
7.5. EVIDENCE OF TITLE. IDGB will have received evidence, at or prior to
the Closing, satisfactory to it of Cliffs' title to all of its assets and
properties, the Shareholders' title to all of the Shares, and of the
Shareholders' rights to fully convey all of the Shares free and clear of all
Encumbrances. The Shareholders will deliver such documentation as IDGB shall
reasonably request to transfer to IDGB, all of the Shareholders' right, title
and interest in and to the Shares.
7.6. APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to IDGB under this Agreement shall be satisfactory to IDGB and its
counsel in all reasonable respects and IDGB shall have received all such
counterpart originals or certified or other copies of such documents as it may
reasonably request.
7.7. LICENSES. IDGB will have received all licenses and permits, if any,
from all appropriate governmental authorities to operate the Business in the
same manner as Cliffs operated the Business prior to the Closing.
7.8. GOOD STANDING AND OTHER CERTIFICATES. IDGB will have received (a)
copies of the Articles of Incorporation of Cliffs, as amended, certified by the
Secretary of State of Nebraska, (b) By-laws of Cliffs, as amended, certified by
the Secretary of Cliffs, (c) a certificate from the Nebraska Secretary of State
to the effect that Cliffs is in good standing as of a date as close to the
Closing as is reasonably practicable, (d) a certificate from the Secretary of
State or other appropriate official in each state in which Cliffs is qualified
to do business to the effect that Cliffs is in good standing in such state as of
a date as close to the Closing as is reasonably practicable, and (e) a
certificate as to the tax status of Cliffs from the appropriate official in the
state of Nebraska and in each state in which Cliffs is qualified to do business
as of a date as close to the Closing as is reasonably practicable.
7.9. OPINION OF COUNSEL. Cliffs will have furnished IDGB with opinions
of counsel, dated as of the date of Closing, in substantially the form of
Exhibit 7.9.
7.10. RESIGNATIONS AND ELECTIONS. All directors and officers of Cliffs
will have submitted their resignations from such positions effective at the
Closing.
7.11. ACTIONS TO TERMINATE BENEFIT PLANS. Cliffs will have taken all
corporate action and timely provided all prior notices
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<PAGE> 46
to participating employees in order to terminate (i) its Money Purchase Plan so
that such termination is effective no later than December 30, 1998, and (ii) its
401(k) Retirement Plan so that such termination is effective prior to the
Closing. Cliffs shall provide IDGB with evidence of such terminations.
7.12. EXCLUDED DEBT, SHAREHOLDER NOTES, AND FOUNDATION PAYMENT. Cliffs
and the Shareholders, as the case may be, will deliver to IDGB the following:
a. EXCLUDED DEBT PAYOFF LETTERS. A payoff letter from each of
Cliffs' note holders and other creditors holding Bank Notes Payable, stating
that upon payment of the amounts set forth therein Cliffs' obligations to such
note holders and creditors will be paid and satisfied in full. As to any Bank
Notes Payable which is secured by the imposition of Encumbrances on Cliffs
assets or properties, the payoff letters must either (i) be accompanied by the
necessary instruments and statements under applicable law (i.e., UCC-2 or UCC-3
Termination Statements) in order to terminate and extinguish such Encumbrances
upon the filing and recording of such instruments, or (ii) include statements
and agreements reasonably satisfactory to IDGB providing that such Encumbrances
will be released upon payment of the Excluded Debt and that such note holders
will provide all documentation (including the UCC-2 or UCC-3 Termination
Statements as applicable).
b. SHAREHOLDER NOTES. The Shareholders shall deliver all of the
Shareholder Notes, marked "paid in full and cancelled."
c. PAYMENT TO FOUNDATION. As of the Closing, Cliffs will have
satisfied any and all obligations to make payments to the Foundation. The
Foundation will have delivered to IDGB the Foundation Assignment, in the form
attached hereto as Exhibit 1.1(ao).
7.13. COVOLIK AGREEMENT. IDGB and Mr. Covolik will have entered into a
one-year employment agreement in the form attached hereto as Exhibit 7.13.
7.14. OFFICE/WAREHOUSE FACILITY LEASE. An amendment to the Lessee Lease
for the premises located at 4851 South 16th Street, Lincoln, Nebraska, in the
form set forth on Exhibit 7.14, will be executed effective as of the Closing
Effective Date. In principle, such amendment will provide for a renewal of such
Lessee Lease from the Closing Effective Date to June 30, 1999, with two
additional three-month renewals at IDGB's option, with triple net rent of
$11,000 per month.
7.15. ESCROW ACCOUNT AND AGREEMENT.
a. GENERAL. IDGB, Cliffs and the Shareholders will
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<PAGE> 47
have established an escrow account ("Escrow Account") with the Escrow Agent, and
will have executed an escrow agreement in the form attached as Exhibit 7.15 (the
"Escrow Agreement"). The Escrow Account will be the depository for the Indemnity
Holdback and the Special Holdback.
b. INDEMNITY HOLDBACK. The Indemnity Holdback will be disbursed
in accordance with the Escrow Agreement.
c. SPECIAL HOLDBACK. The Special Holdback will be disbursed in
accordance with Schedule 7.15(c).
7.16. TERMINATION OF SHAREHOLDERS' AGREEMENT. The Shareholders Agreement
will have been terminated in all respects and be of no further force or effect.
By their execution of this Agreement, Cliffs and the Shareholders do hereby
agree that effective with the Closing the Shareholders' Agreement shall
automatically, without further action or signature on the part of Cliffs, the
Shareholders or otherwise, be terminated and of no further force or effect.
7.17. PERMISSION AND RELEASE FOR USE OF NAME AND LIKENESS. Clifton
Hillegass will have provided IDGB with (i) the executed Permission and Release
in the form attached hereto as Exhibit 7.17, granting the right to Cliffs and
IDGB to use his name, likeness, voice, image, and facsimile signature for
promotional purposes in perpetuity, and (ii) the Hillegass Assignment.
7.18. NO MATERIAL ADVERSE EFFECT. Since the date hereof, there shall
have been no condition, event or occurrence or the absence of a condition, event
or occurrence that has resulted in a Material Adverse Effect on Cliffs, nor to
the Shareholders' Knowledge shall there exist any condition, event or occurrence
that would reasonably be expected to prospectively result in a Material Adverse
Effect on Cliffs, including, without limitation, a deterioration in the
Business, and IDGB shall have received a certificate by the President of Cliffs,
dated the Closing, to such effect.
ARTICLE 8 CONDITIONS PRECEDENT TO CLIFFS' AND THE
SHAREHOLDERS' OBLIGATIONS.
The obligations of Cliffs and the Shareholders to effect the
transactions contemplated by this Agreement at the Closing are conditioned upon
the satisfaction or waiver, at or prior to the Closing, of the following
conditions:
8.1. TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of IDGB contained in this Agreement will be true and correct on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of such date, and IDGB has delivered to the
Shareholders a certificate by the President of IDGB, dated the Clos-
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ing, to such effect.
8.2. THIRD PARTY CONSENTS; GOVERNMENTAL APPROVALS. All consents,
approvals or waivers, if any, required in connection with the consummation of
the transactions contemplated by this Agreement have been received. All of the
consents, approvals, authorizations, exemptions and waivers from government
agencies that will be required in order to permit the consummation of the
transactions contemplated hereby have been obtained. All applicable time periods
under the HSR Act will have expired or have been terminated.
8.3. PERFORMANCE OF AGREEMENTS. All of the agreements of IDGB to be
performed on or prior to the Closing pursuant to the terms of this Agreement has
been duly performed in all material respects, and IDGB will have delivered to
the Shareholders an officer's certificate, dated the Closing, to such effect.
8.4. APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, and other documents delivered or to be delivered to
the Shareholders under this Agreement will be satisfactory to the Shareholders
and their counsel in all reasonable respects and the Shareholders will have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
ARTICLE 9 NOT-TO-COMPETE COVENANT; CONFIDENTIALITY.
9.1. NON-COMPETITION.
a. COVENANT. Each of Clifton Hillegass, Mary Hillegass, J.
Richard Spellman, Linda Hillegass, Robert E. Covolik, Douglas Lincoln, Thelma
Hillegass, and Diane (Hillegass) Nolan agrees that from and after the Closing
Effective Date and until the fifth (5th) anniversary thereof (thirty (30) months
after the date of Closing in the case of Messrs. Lincoln and Covolik), such
Shareholder will not (x) serve as an employee, officer, director or advisor of,
invest in or lend monies to, directly or indirectly engage in, own, manage,
control, operate, or consult with, any Person that publishes or develops
products which directly or indirectly compete with Cliffs' products, including
products that have a similar form of pedagogy, e.g., short reference products
that help the reader learn about other products and whether or not related to
literature, anywhere in the world, except for investments in public companies of
up to 5% of total ownership or (y) offer employment to or otherwise solicit the
services of Employees for so long as they are employed by IDGB or Cliffs.
(i) For purposes of clarity, the parties acknowledge and
agree that (x) Linda Hillegass' business, known as the "J & L Lee
Company", which engages in the publication of books of local (Lincoln),
regional (Midwest), and related
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historical interests, and (y) Diane (Hillegass) Nolan's writing work on
an update of Web-Teaching, A Guide to Designing Interactive Teaching for
the World Wide Web, shall not be a breach of this Section 9.1(a).
(ii) It shall not be a breach of this Section 9.1(a) for
Douglas Lincoln to (x) engage in the business of publishing test
preparation products, or (y) consult with, advise, be employed by, or
provide services to a separate division or line of a business of a
Person that otherwise competes with Cliffs' products provided that (i)
the division or line which Mr. Lincoln consults with, advises, is
employed by, or provides services to does not compete with Cliffs'
products, (ii) Mr. Lincoln is not indirectly advising or working on
behalf of or providing services to the competitive lines or divisions of
the Person, (iii) Mr. Lincoln does not either actively refer business to
the competitive lines or divisions or encourage customers to purchase
products from the competitive lines or divisions, (iv) such Person does
not publicize, promote, or advertise in any way that Mr. Lincoln is the
former President of Cliffs, (v) Mr. Lincoln informs IDGB's Chief
Financial Officer, in writing, of any association such as described
above in this clause (y), and (vi) Mr. Lincoln informs such Person in
writing of the restrictions set forth in this Section 9.1 and provides
IDGB with a copy of such writing.
b. PARTIAL INVALIDITY. In the event that any provision or part
of this Section 9.1 is held by any court or tribunal to be overly broad, the
remaining portions of this Section 9.1 will not be affected or impaired thereby
and will remain in full force and effect to the fullest extent permitted by law.
9.2. CONFIDENTIALITY. The parties agree to maintain the confidentiality
of the terms and provisions of this Agreement, except to the extent required by
law (including the rules and regulations of the Securities and Exchange
Commission). Each Shareholder agrees, covenants and acknowledges that from and
after the Closing, it will not, disclose, give, sell, use or otherwise divulge
any confidential, trade secret, or otherwise proprietary information relating to
Cliffs; provided that if such Shareholder is, based upon the advice of legal
counsel, legally compelled (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or regulatory examination) to disclose any
such information, such Shareholder may so disclose any such information but only
to the limited extent as is required. In such event such Shareholder will give
prior written notice to IDGB so that IDGB may seek any protective order and/or
take any other appropriate action to prevent or otherwise limit the disclosure
thereof.
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<PAGE> 50
ARTICLE 10 TAX MATTERS.
10.1. TAX PERIOD ENDING ON OR BEFORE THE CLOSING EFFECTIVE DATE. The
Shareholders have the exclusive authority and obligation to cause to be prepared
and timely filed all Tax Returns of Cliffs that are due on or prior to the
Closing Effective Date. If Cliffs or IDGB is required to pay any Tax required to
be shown on any such Tax Return following Closing, the Shareholders shall
reimburse IDGB for such payment by IDGB or Cliffs of such Taxes, to the extent
such Taxes are not reflected in a reserve for the same (rather than any reserve
for Taxes established to reflect timing differences between book and tax income)
shown on the Audited Statements.
10.2. TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
EFFECTIVE DATE. IDGB shall cause to be prepared and filed any Returns of Cliffs
for any Tax period which begins before the Closing Effective Date and ends after
the Closing Effective Date. The Shareholders shall pay to IDGB within fifteen
(15) days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
taxable period ending on the Closing Effective Date to the extent such Taxes are
not reflected in the reserve for tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and tax
income) shown on the Audited Statements. At IDGB's discretion, this amount may
be disbursed from the Indemnity Holdback. For purposes of this Section 10.2, in
the case of any Taxes that are imposed on a periodic basis and are payable for a
taxable period that includes (but does not end on) the Closing Effective Date,
the portion of such Tax which relates to the portion of such taxable period on
the Closing Effective Date shall (x) in the case of any Taxes other than Taxes
based upon or related to income or receipts, be deemed to be the amount of such
Taxes for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Closing
Effective Date, and the denominator of which is the number of days in the entire
taxable period, and (y) in the case of any Tax based upon or related to income
or receipts, be deemed equal to the amount which would be payable as though the
relevant taxable period ended on the Closing Effective Date. Any credits
relating to a taxable period that begins before and ends after the Closing
Effective Date shall be taken into account as though the relevant taxable period
ended on the Closing Effective Date.
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<PAGE> 51
10.3. COOPERATION ON TAX MATTERS.
a. TAX RETURNS. IDGB, Cliffs and the Shareholders shall
cooperate fully as and to the extent reasonably requested by the other party in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding. Cliffs and the Shareholders agree (i) to retain
all books and records with respect to tax matters pertinent to Cliffs relating
to any taxable period beginning before the Closing Effective Date until the
expiration of the statute of limitations (and, to the extent notified by IDGB or
the Shareholders, any extension thereof) of the respective taxable periods, and
(ii) to give the other party reasonable written notice prior to transferring or
discarding any such books and records and, if the party so requests, Cliffs or
the Shareholders, as the case may be, shall allow the other party to take
possession of such books and records.
b. GOVERNMENTAL DOCUMENTATION. IDGB and the Shareholders further
agree, upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate the Tax that would be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
10.4. INDEMNIFICATION. The Shareholders, jointly and severally, agree to
indemnify, defend and hold harmless IDGB, its Affiliates (including Cliffs
following the Closing) and the successors to the foregoing (and their respective
shareholders, officers, directors, employees and agents) on an after-tax basis
against (i) all Taxes, losses, claims and expenses resulting from, arising out
of, or incurred with respect to, any claims that may be asserted by any party
based upon, attributable to, or resulting from the failure of any representation
or warranty made pursuant to Section 3.23 to be true and correct, and (ii) all
Taxes imposed on or asserted against Cliffs for which the Shareholders are
responsible under the preceding provisions hereof.
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<PAGE> 52
ARTICLE 11 SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of Cliffs, the Shareholders, and IDGB contained
in this Agreement shall survive the Closing for a period of one (1) year after
the date of Closing, except for (i) the representations and warranties of Cliffs
contained in Sections 3.17, 3.18, and 3.23, which shall survive for the
applicable statutes of limitation, (ii) the indemnity contained in Section 3.26,
which shall survive for a period of two (2) years after the date of Closing, and
(iii) the representations and warranties of Cliffs in Sections 3.1, 3.2, 3.3 and
3.7, and the Shareholders in Article 4, which shall survive indefinitely.
11.2. INDEMNIFICATION.
a. INDEMNIFICATION OF IDGB. Prior to the Closing, Cliffs and the
Shareholders, and after the Closing, the Shareholders, jointly and severally,
agree to indemnify, defend and hold harmless IDGB (and Cliffs after the Closing)
from and against any and all claims, damages, liabilities, losses, costs and
expenses, including, without limitation, reasonable attorneys' fees and costs,
interest, penalties, any and all reasonable expenses incurred in investigating,
preparing and defending against any litigation, commenced or threatened, any
claim whatsoever and any and all amounts paid in settlement of any claim or
litigation (collectively "Damages") incurred or suffered by IDGB, its officers,
directors, employees, or Affiliates (including Cliffs following the Closing
Effective Date) (for purposes of this Section 11.2 only, collectively "IDGB") as
a result of, or arising from the breach of any representation, warranty or
covenant made by Cliffs or the Shareholders in this Agreement. IDGB's right to
indemnity hereunder shall first be satisfied by offsetting any such Damages
against the Indemnity Holdback then remaining in the Escrow Account in
accordance with the terms of the Escrow Agreement and thereafter jointly and
severally by the Shareholders.
b. FURTHER INDEMNIFICATION OF IDGB AND CLIFFS.
(i) Prior to and after the Closing, each of the
Shareholders hereby agrees to indemnify, defend and hold harmless IDGB
for all Damages incurred or suffered by IDGB as a result of, or arising
from, the breach of any representation, warranty or covenant made by
such Shareholder in Article 4 of this Agreement.
(ii) Prior to and after the Closing, each of the
Shareholders, jointly and severally, hereby agrees to indemnify, defend
and hold harmless IDGB, and after the Closing IDGB and Cliffs, for all
Damages incurred or suffered by
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IDGB or Cliffs as a result of, or arising from the Claim in the manner
of and to the extent described on Schedule 7.15(c).
(iii) Prior to and after the Closing, each of the
Shareholders, jointly and severally, hereby agrees to indemnify, defend
and hold harmless IDGB, and after the Closing IDGB and Cliffs, for all
Damages incurred or suffered by IDGB or Cliffs as a result of, or
arising from any of the items described on Schedule 11.2(b)(iii).
c. INDEMNIFICATION OF THE SHAREHOLDERS. IDGB hereby agrees to
indemnify and hold the Shareholders harmless from Damages incurred or suffered
as a result of, or arising from, the breach of any representation, warranty or
covenant of IDGB in this Agreement.
d. FURTHER INDEMNIFICATION OF THE SHAREHOLDERS. Subject to
Cliffs and the Shareholders representations and warranties in Section 3.17, IDGB
hereby agrees to indemnify and hold the Shareholders harmless from all Claims
(if any) arising solely from the termination of the Employees.
e. NOTICE OF CLAIMS. An Indemnified Party (as defined below)
will not be entitled to indemnification pursuant to the terms of this Agreement
if the notice of a Claim (as defined below), whether by the other party or as a
result of a third party Claim, is not delivered to the Indemnifying Party (as
defined below) (i) in the case of Claims between the parties twenty (20) days,
and (ii) in the case of Claims arising from third parties within sixty (60)
days, after the period described in Section 11.1 which sets forth the
survivability of the representation or warranty upon which such Claim is based,
notwithstanding anything contained in this Agreement to the contrary.
f. BASKETS. Notwithstanding anything to the contrary contained
herein, the Shareholders shall not be liable pursuant to Section 11.2(a),
Section 11.2(b)(i), or Section 11.2(b)(iii), and IDGB shall not be liable
pursuant to Section 11.2(c), for Damages incurred by the Indemnified Party, as
follows:
(a) in the case of any single Claim, not until such
Claim exceeds $25,000 in Damages, and then starting with $0 in Damages
without regard to the $25,000 threshold, and
(b) in the case of multiple Claims involving Damages of
less than $25,000, individually, not until the aggregate of such Claims
exceed $100,000, and then starting with $100,001.00 in Damages.
For purposes of clarity, the Shareholders' obligations under
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<PAGE> 54
Sections 10.4 and 11.2(b)(ii) shall not be subject to the provisions of this
Section 11.2(f).
g. NET OF TAXES AND INSURANCE. All Damages which are recoverable
under this Agreement shall be (i) net of any tax benefit realized by the
Indemnified Party (determined on the basis of an effective tax rate of 39%), and
(ii) net of any actual insurance recovery by the Indemnified Party. With regard
to clause (ii) of this Section 11.2(g), the parties agree that (x) if Cliffs or
the Shareholders are the Indemnifying Party, and Cliffs has, or but for IDGB
causing Cliffs to cancel a particular Insurance Policy would have had, an
Insurance Policy in effect or which otherwise provides coverage for the Claim in
question, any Damage recovery by IDGB shall be determined net of such actual
coverage received, and (y) IDGB shall not be required to seek coverage under its
own insurance policies for any Claims of IDGB hereunder.
h. MAXIMUM LIABILITY; NO CONSEQUENTIAL DAMAGES. In no event will
the maximum liability of the Shareholders under the provisions of this Section
11 exceed $7,500,000. In no event, except for a Claim arising by reason of a
breach of the representations and warranties in Section 3.12, will any party
hereto be liable for any special, consequential, indirect or punitive damages.
i. EXCLUSIVE REMEDY. Following the Closing, the indemnification
obligations under this Article 11 shall be the exclusive remedy of the parties
for any breach of a party's representation or warranty in this Agreement.
11.3. INDEMNIFICATION PROCEDURE.
a. CLAIMS BETWEEN THE PARTIES. Any party to this Agreement
seeking indemnification pursuant to this Agreement (the "Indemnified Party")
from any other party to this Agreement (the "Indemnifying Party") with respect
to Damages (the "Claim"), which Claim does not involve a Claim against the
Indemnified Party by a third party, will promptly notify the Indemnifying Party
(and the Escrow Agent if such Claim will be satisfied from the Escrow Account)
of the existence of the Claim, and set forth in reasonable detail the facts and
circumstances pertaining thereto and the basis for the Indemnified Party's right
to indemnification. If within thirty (30) days after receipt of notice of a
Claim the parties are unable to completely resolve such Claim after making all
commercially reasonable good faith efforts to do so, then the parties, may, if
they so mutually agree, either submit the dispute to mediation, binding
arbitration, or litigation. All such dispute resolution techniques shall be
subject to the jurisdiction, choice of law, and venue provisions contained in
Section 13.2.
b. THIRD PARTY CLAIMS. If any third party notifies
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an Indemnified Party of any matter which may give rise to a Claim under this
Agreement, then the Indemnified Party will promptly forward such notice to each
Indemnifying Party; provided, however, that no delay on the part of the
Indemnified Party in forwarding notice to any Indemnifying Party will relieve
the Indemnifying Party from any liability or obligation hereunder unless the
Indemnifying Party is materially prejudiced by such failure to give notice, and
then solely to the extent the Indemnifying Party is so prejudiced by such
failure. In the event that any Indemnifying Party receives notice of a Claim
from an Indemnified Party and agrees to indemnify such Claim and is assuming the
defense thereof then, within thirty (30) days of receipt of such notice, the
Indemnifying Party will in writing acknowledge its obligations hereunder and
identify its choice of counsel that will defend the Indemnified Party against
the Claim, which choice will be reasonably satisfactory to the Indemnified Party
and provided that:
(i) the Indemnified Party may retain separate co-counsel
at its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel (1) to
the extent that the Indemnified Party reasonably concludes based upon
advice of counsel that a conflict of interest exists between the
Indemnified Party and Indemnifying Party or (2) the named parties to any
such action (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and the Indemnified Party
has been advised by counsel that there may be one or more legal defenses
available to the Indemnified Party which are not available to the
Indemnifying Party, or available to the Indemnifying Party but the
assertion of which would be adverse to the interest of the Indemnified
Party);
(ii) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the matter
without the written consent of the Indemnifying Party (not to be
withheld unreasonably); and
(iii) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement which does not
include a provision whereby the plaintiff or claimant in the matter
releases the Indemnified Party from all liability with respect thereto,
without the written consent of the Indemnified Party (not to be withheld
unreasonably).
c. FAILURE TO NOTIFY OF CLAIM. If no Indemnifying Party notifies
the Indemnified Party within thirty (30) days after the Indemnified Party has
given notice of the Claim of an Indemnifying Party'(s) intent to defend such
Claim, then the Indemnified Party may defend against, or enter into any
settlement with respect to the Claim in any manner it reasonably may deem
appropriate, without prejudice to any of its rights hereunder.
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d. REIMBURSEMENT. The Indemnified Party will be entitled to
reimbursement of reasonable expenses, included Damages, with respect to any
Claim (including, without limitation, the cost of defense, preparation and
investigation relating to such Claim) as such expenses are incurred by the
Indemnified Party.
ARTICLE 12 TERMINATION.
12.1. TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
a. MUTUAL AGREEMENT. By the mutual written consent of IDGB,
Cliffs, and the Shareholders.
b. IDGB. By IDGB, if there has been a violation or breach by
Cliffs or the Shareholders of any covenant, representation or warranty contained
in this Agreement or if any condition precedent to the obligations of IDGB
pursuant to Article 7 to close the transactions contemplated by this Agreement
has not been satisfied and such violation, breach, or failure of condition
precedent has not been waived by IDGB.
c. CLIFFS OR THE SHAREHOLDERS. By Cliffs or the Shareholders, if
there has been a violation or breach by IDGB of any covenant, representation or
warranty contained in this Agreement or if any condition to the obligation of
Cliffs or the Shareholders pursuant to Article 8 to close the transactions
contemplated by this Agreement has not been satisfied and such violation,
breach, or failure of condition precedent has not been waived by Cliffs or the
Shareholders.
d. EXPIRATION DATE. By either IDGB, Cliffs or the Shareholders,
if the transactions contemplated hereby have not been consummated by December
18, 1998; provided, however, that (i) neither IDGB nor Cliffs nor the
Shareholders will be entitled to terminate this Agreement pursuant to this
Section 12.1(d) if such party's breach of this Agreement has prevented the
consummation of the transactions contemplated hereby.
e. THIRD PARTY INTERVENTION. By either IDGB, Cliffs or the
Shareholders, if the consummation of the transactions contemplated hereby are
prevented by a permanent injunction or other court order.
f. NO CLAIM FOR BREACH. Subject to the last sentence of Section
12.2, in the event of a breach of any representation, warranty or covenant
herein between the date of this Agreement and the date of Closing, which breach
would entitle the party for whose benefit such representation, warranty or
covenant was made to terminate this Agreement under the provisions of this
Section 12, and such party determines not to terminate this Agreement and to
waive such breach, such party shall not be enti-
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tled, after the Closing, to bring a Claim for Damages against the breaching
party under Section 11 by reason of such breach.
12.2. EFFECT OF TERMINATION. In the event that this Agreement is
terminated under Section 12.1, all further obligations of the parties under this
Agreement (other than pursuant to Section 13.1 which will continue in full force
and effect) will terminate without further liability or obligation of either
party to the other party hereunder. Notwithstanding anything to the contrary
contained herein, no party will be released from liability hereunder if this
Agreement is terminated and the transactions abandoned by reason of (a) willful
failure of such party to have performed its obligations hereunder, or (b) any
knowing misrepresentation or warranty made by such party of any matter set forth
herein.
ARTICLE 13 GENERAL PROVISIONS.
13.1. EXPENSES. IDGB will pay its own expenses relating to the
transactions contemplated by this Agreement, including without limitation the
fees and expenses of its counsel and financial advisors. Cliffs will pay the
first $100,000 (the "Transaction Costs") of its and the Shareholders' expenses
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of Cliffs' and the Shareholders' counsel and
financial advisors. All expenses in excess of the Transaction Costs incurred by
Cliffs or the Shareholders in connection with the transactions contemplated by
this Agreement, including without limitation investment banking fees, will be
paid by the Shareholders (and not Cliffs).
13.2. GOVERNING LAW, ATTORNEYS' FEES. Any and all claims or disputes
arising out of or relating to this Agreement will be governed by and construed
in accordance with California law without regard to conflicts or choice of law
rules or principles. Any litigation or arbitration between the parties that
arises out of or relates to this Agreement will be prosecuted or instituted only
in a court or tribunal situated in San Francisco, California and the parties
hereby consent to such personal jurisdiction and venue. The prevailing party in
any such litigation or arbitration will be entitled to recover his, her or its
reasonable attorneys' fees and costs, in addition to all other recovery and
relief.
13.3. TABLE OF CONTENTS; CAPTIONS. The table of contents and article and
section captions used herein are for reference purposes only, and will not in
any way affect the meaning or interpretation of this Agreement.
13.4. NOTICES. Any notice or other communication required or permitted
under this Agreement will be sufficiently given if (i) delivered in person, (ii)
sent by telecopy, (ii) sent by registered or certified mail, postage prepaid, or
(iv) sent by over-
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night express courier, addressed as follows:
If to IDGB: IDG Books Worldwide, Inc.
919 East Hillsdale Blvd., Suite 400
Foster City, California 94404
Attn: Chief Financial Officer
Telecopier No.: 650-655-3294
with a copy to: Isaacson, Rosenbaum, Woods & Levy, P.C.
633 17th Street, Suite 2200
Denver, Colorado 80202
Attn: Jon R. Tandler
Telecopier No.: 303-292-3152
If to Cliffs: Cliff's Notes, Inc.
4851 South 16th Street, N.E.
Lincoln, Nebraska 68512
Attn: President
Telecopier No.: 402-420-8118
with a copy to: McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
Attn: Neal White
Telecopier No.: 312-984-7700
If to the Shareholders to:
Robert E. Covolik
c/o Cliff's Notes, Inc.
4851 South 16th Street, N.E.
Lincoln, Nebraska 68512
Richard Spellman
2525 Winthrop Road
Lincoln, Nebraska 68502
with a copy to: McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
Attn: Neal White
Telecopier No.: 312-984-7700
or such other address or number as will be furnished in writing by any such
party, and such notice or communication will be deemed to have been given (i) as
of the date so delivered in person, (ii) one (1) day after sending by telecopy
with customary confirmation, (iii) three (3) days after mailing by certified or
registered mail, or (iv) one (1) day after sending via overnight express
courier.
13.5. NO ASSIGNMENT. Except for Affiliates of IDGB, this Agreement may
not be transferred, assigned, pledged or hypothe-
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cated by any party hereto, other than by operation of law. This Agreement will
be binding upon and will inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and assigns.
13.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together will constitute one and the same
instrument.
13.7. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
13.8. AMENDMENTS. This Agreement may not be changed orally, but only by
an agreement in writing signed by IDGB, the Shareholders, and (with respect to
any amendments prior to the Closing) Cliffs.
13.9. SEVERABILITY. In the event that any provision in this Agreement is
held by any court or tribunal to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions hereof will
not in any way be affected or impaired thereby.
13.10. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement will not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto.
By their respective corporate and individual signatures set forth below,
the parties have signed this Agreement on the dates set forth below, to be
effective as of December 7, 1998.
IDG BOOKS WORLDWIDE, INC., a Delaware
corporation
Date: , 1998
--------- ----------------------------------------------
Steven H. Berkowitz, President and Publisher
CLIFF'S NOTES, INC., a Nebraska corporation
Date: , 1998
--------- ----------------------------------------------
Robert E. Covolik, President
- 54 -
<PAGE> 60
SHAREHOLDERS
Date: , 1998
--------- ----------------------------------------------
Clifton Hillegass
Date: , 1998
--------- ----------------------------------------------
Mary Hillegass
Date: , 1998
--------- ----------------------------------------------
J. Richard Spellman
Date: , 1998
--------- ----------------------------------------------
Robert E. Covolik
Date: , 1998
--------- ----------------------------------------------
Sharon L. Spellman
Date: , 1998
--------- ----------------------------------------------
Diane (Hillegass) Nolan
Date: , 1998
--------- ----------------------------------------------
Linda Hillegass
Date: , 1998
--------- ----------------------------------------------
Thelma Hillegass
Date: , 1998
--------- ----------------------------------------------
Douglas Lincoln
Date: , 1998
--------- ----------------------------------------------
Kim (Hillegass) Newton
Date: , 1998
--------- ----------------------------------------------
John Mason
- 55 -
<PAGE> 61
CLOSING AMENDMENT TO SHARE PURCHASE AGREEMENT
This is a Closing Amendment dated December 18, 1998 ("Closing Amendment")
to the Share Purchase Agreement ("Agreement") dated as of December 7, 1998, by
and among IDG Books Worldwide, Inc., a Delaware corporation ("IDGB"), Cliff's
Notes, Inc., a Nebraska corporation ("Cliffs"), and all of the shareholders of
Cliffs (the "Shareholders").
WHEREAS, the parties desire to amend the Agreement in the manner
hereinafter set forth:
NOW THEREFORE, the parties agree as follows:
1. Section 1.1j. of the Agreement is amended to read as follows:
"j. "Cliffs Accounting Principles" or "CAP" means GAAP, except
for (i) the GAAP departures noted in the Reviewed Statements of
Cliffs as of and for the year ending June 30, 1998, (ii) the absence
of a bad debt reserve, (iii) deferred income tax credits (account
186-000-04 in Cliff's books) shall be recorded as $53,750 on the
Closing Date Balance Sheet, (iv) investments -- art and collectibles
(account 180-000-04 in Cliff's books) shall be recorded as $175,000
on the Closing Date Balance Sheet, and (v) other -- miscellaneous
(account 182-000-04 in Cliff's books) shall be recorded as $5,000 on
the Closing Date Balance Sheet."
2. Section 1.1m. of the Agreement is amended to read as follows:
"m. "Closing Date Balance Sheet" means the audited balance sheet
of Cliffs audited by the Accountants pursuant to Section 2.7(a) as of
the Closing Effective Date."
3. Section 1.1 bj. of the Agreement is amended to read as follows:
"bj. "Preliminary Net Book Value Differential" means the
positive amount, if any, by which the Preliminary Net Book Value is
greater than $5,000,000 or the negative amount, if any, by which the
Preliminary Net Book Value is less than $5,000,000. In calculating
the Preliminary Net Book Value Differential, the following items, to
the extent, if at all, they are reflected on the Trial Balance Sheet,
shall be deducted from the liabilities or added to the assets of
Cliffs as is appropriate in accordance with CAP: (i) the Contract
Payments (the payment on account of, or any accrual for which, shall
not be reflected on the Trial Balance Sheet); (ii) the Severance
Amounts (the payment on account of, or any accrual for which, shall
not be reflected on the Trial Balance Sheet); (iii) the Foundation
Payment (which shall be reflected as an asset on the Trial Balance
Sheet); (iv) the Excluded Debt (which shall be deducted from the
liabilities on the Trial Balance Sheet); and (v) the Transaction
Costs (if accrued shall be deducted from the liabilities, and if paid
shall be added to the cash shown, on the Trial Balance Sheet)."
4. Section 2.2 of the Agreement is amended to read as follows:
"2.2. Closing: Exchange and Other Payments; Wiring
Instructions.
a. Exchange. At the Closing, such Shareholder shall deliver or
cause to be delivered share certificates representing the Shares
owned by such Shareholder, duly endorsed and assigned for transfer to
IDGB. IDGB shall deliver to each Shareholder
<PAGE> 62
by wire transfer, the Shareholder's pro-rata share of the Closing
Payment. At the Closing, IDGB will also (i) make the Foundation
Payment and (ii) pay the holders of the Excluded Debt the full
amount thereof.
b. Wire Transfer. Not later than five (5) days prior to
the date of Closing, Cliffs shall provide IDGB with wire transfer
instructions for payments to (i) the Foundation as to the
Foundation Payment, (ii) the holders of the Excluded Debt, and
(iii) the Shareholders."
4. Section 2.3 of the Agreement is amended to read as follows:
"2.3. Determination of Preliminary Net Book Value. Prior to the
Closing, Cliffs will provide to IDGB a Trial Balance Sheet. Based
on the Trial Balance Sheet, the parties will determine the
Preliminary Net Book Value Differential and the Preliminary
Purchase Price. The Preliminary Purchase Price shall equal
$12,663,585, plus the Preliminary Net Book Value Differential."
5. Section 2.4 of the Purchase Agreement is amended to read as
follows:
"2.4. Purchase Price. The total purchase price for the Shares
(the "Purchase Price") shall equal $12,663,585 plus the Closing
Date Net Book Value Differential."
6. Except as amended hereby, the Agreement remains in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Closing Amendment
this 18th day of December, 1998.
IDG BOOKS WORLDWIDE, INC.,
- ---------------------------------------
James A. Doehrman, Vice President
CLIFF'S NOTES, INC., a Nebraska corporation
By:
------------------------------------
Robert E. Covolik, President
SHAREHOLDERS
Clifton K. Hillegass*
Mary D. Hillegass*
- ---------------------------------------
J. Richard Spellman
<PAGE> 63
- ----------------------------------------------------
Robert E. Covolik
Sharon L. Spellman*
Diane E. Nolan*
Linda L. Hillegass*
Thelma R. Hillegass*
Estate of George C. Hillegass
By Thelma R. Hillegass, not individually
but as Personal Representative*
Douglas S. Lincoln*
Kimberly M. Newton*
John C. Mason*
- ----------------------------------------------------
*By Robert E. Covolik as their co-attorney in fact
- ----------------------------------------------------
By J. Richard Spellman as their co-attorney in fact
<PAGE> 1
EXHIBIT 10.16
OFFICE LEASE
BETWEEN
CROSSPOINT SEVEN, LLC
"LANDLORD"
AND
IDG BOOKS WORLDWIDE, INC.
"TENANT"
NOVEMBER 4, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 LEASE OF PREMISES.............................................................. 1
Section 1.01 Lease of Leased Premises......................................... 1
Section 1.02 Basic Lease Provisions........................................... 1
ARTICLE 2 TERM........................................................................... 2
Section 2.01 Term............................................................. 2
Section 2.02 Condition of Premises............................................ 2
Section 2.03 Tenant's Acceptance of the Leased Premises....................... 3
ARTICLE 3 OCCUPANCY AND USE.............................................................. 3
Section 3.01 Occupancy and Use................................................ 3
Section 3.02 Landlord's Rights Regarding Use.................................. 4
Section 3.03 Access to Leased Premises........................................ 4
Section 3.04 Surrender of Leased Premises..................................... 5
Section 3.05 Holding Over..................................................... 5
ARTICLE 4 RENT........................................................................... 5
Section 4.01 Components of Rent............................................... 5
Section 4.02 Basic Annual Rent................................................ 5
Section 4.03 Excess Operating Cost............................................ 5
Section 4.04 Estimated Excess Operating Costs................................. 8
Section 4.05 Tenant's Audit Rights............................................ 8
Section 4.06 Real Estate Taxes................................................ 8
ARTICLE 5 UTILITY AND OTHER BUILDING SERVICES............................................ 9
Section 5.01 Services to be Provided.......................................... 9
Section 5.02 Services......................................................... 10
Section 5.03 Interruption of Services......................................... 10
ARTICLE 6 REPAIRS, MAINTENANCE, ALTERATIONS, IMPROVEMENTS AND FIXTURES................... 11
Section 6.01 Repair and Maintenance of Building............................... 11
Section 6.02 Repair and Maintenance of Leased Premises........................ 11
Section 6.03 Alterations or Improvements...................................... 11
Section 6.04 Trade Fixtures................................................... 11
Section 6.05 Right to Change Public Portions of the Building.................. 11
ARTICLE 7 FIRE OR OTHER CASUALTY; EMINENT DOMAIN......................................... 12
Section 7.01 Substantial Destruction of the Building or the Leased Premises.. 12
Section 7.02 Partial Destruction of the Leased Premises. .................... 12
Section 7.03 Eminent Domain................................................... 12
ARTICLE 8 INSURANCE...................................................................... 13
Section 8.01 Landlord's Insurance............................................. 13
Section 8.02 Landlord's Responsibility........................................ 13
Section 8.03 Tenant's Insurance............................................... 13
Section 8.04 Tenant's Responsibility.......................................... 14
Section 8.05 Waiver of Subrogation............................................ 14
ARTICLE 9 LIENS.......................................................................... 14
Section 9.01 Liens............................................................ 14
ARTICLE 10 RENTAL, PERSONAL PROPERTY AND OTHER TAXES...................................... 15
Section 10.01 Taxes........................................................... 15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 11 ASSIGNMENT AND SUBLETTING..................................................... 15
Section 11.01 Assignment and Subletting by Tenant............................ 15
ARTICLE 12 TRANSFER BY LANDLORD.......................................................... 16
Section 12.01 Sale and Conveyance of the Building............................ 16
Section 12.02 Subordination.................................................. 16
ARTICLE 13 DEFAULTS AND REMEDIES......................................................... 16
Section 13.01 Defaults by Tenant............................................. 16
Section 13.02 Remedies of Landlord........................................... 17
Section 13.07 Default by Landlord and Remedies of Tenant..................... 19
Section 13.08 Definition of Landlord......................................... 19
Section 13.09 Transfer upon Termination...................................... 19
Section 13.10 Waiver......................................................... 20
Section 13.11 Removal of Tenant's Property................................... 20
Section 13.12 Attorney's Fees and Costs...................................... 20
ARTICLE 14 QUIET ENJOYMENT............................................................... 20
ARTICLE 15 NOTICES....................................................................... 20
Section 15.01 Notices........................................................ 20
Section 15.02 Place of Payment............................................... 20
RTICLE 16 MISCELLANEOUS PROVISIONS....................................................... 21
Section 16.01 Condition of Premises......................................... 21
Section 16.02 Common Areas................................................... 21
Section 16.03 Choice of Law.................................................. 21
Section 16.04 Venue.......................................................... 21
Section 16.05 Successors and Assigns......................................... 21
Section 16.06 [Reserved.] ................................................... 21
Section 16.07 Examination of Lease........................................... 21
Section 16.08 Time........................................................... 21
Section 16.09 Defined Terms and Marginal Headings. .......................... 21
Section 16.10 Entire Agreement; Amendments................................... 21
Section 16.11 Payment of and Indemnification for Leasing Commissions......... 22
Section 16.12 Severability of Invalid Provisions. .......................... 22
Section 16.13 Definition of the Relationship between the Parties............. 22
Section 16.14 Estoppel Certificate........................................... 22
Section 16.15 Force Majeure.................................................. 22
Section 16.16 Corporate Tenant............................................... 22
Section 16.17 Memorandum of Lease............................................ 22
Section 16.18 Reciprocal Covenant on Notification of ADA Violations.......... 22
Section 16.19 Sorting and Separation of Refuse and Trash..................... 22
Section 16.20 Hazardous Waste................................................ 23
ARTICLE 17 ADDITIONAL PROVISIONS......................................................... 24
Section 17.01 Option to Extend Lease Term. ................................. 24
Section 17.02 Reimbursement of Moving Expenses............................... 24
Section 17.03 Space Planning................................................. 25
Section 17.04 Existing Rent Obligation....................................... 25
Section 17.05 Expansion Options.............................................. 25
Section 17.06 Right of First Offer........................................... 25
Section 17.07 Signage........................................................ 25
Section 17.08 Guaranty....................................................... 26
</TABLE>
ii
<PAGE> 4
OFFICE LEASE
THIS OFFICE LEASE ("Lease"), made this 4th day of November, 1998, by
and between CROSSPOINT SEVEN, LLC, an Indiana limited liability company
("Landlord"), and IDG BOOKS WORLDWIDE, INC., a Delaware corporation ("Tenant").
W I T N E S S E T H:
ARTICLE 1
LEASE OF PREMISES
SECTION 1.01. LEASE OF LEASED PREMISES. Landlord hereby leases to Tenant
and Tenant hereby leases from Landlord certain office space commonly known as
Suite (TBD), in the Crosspoint Plaza One building, to be located in Hamilton
County, Indiana, and which shall be situated on the tract of land described in
Exhibit A attached hereto (the "Building"), subject to the terms and conditions
herein set forth, for the specific term hereinafter specified. The leased space
in the Building is described in Items A and B, Section 1.02 hereinafter (the
"Leased Premises"). Attached as Exhibit "B" are a schematic illustration and a
floor plan of the Leased Premises and an architectural rendering of the
Building. Elevators within the Building are not part of the Leased Premises and
shall remain in the exclusive control of the Landlord provided Tenant shall have
full use and enjoyment of such elevators for reasonable unrestricted access to
the Leased Premises.
SECTION 1.02. BASIC LEASE PROVISIONS.
(A) BUILDING ADDRESS: 10475 Crosspoint Boulevard
CITY, STATE: Indianapolis, Indiana; ZIP CODE: 46256; Floor area as shown
in Exhibit "B"
(B) LEASED PREMISES RENTABLE AREA: Months 1 through 7: 68,682 square feet
(utilizing BOMA standard of measurement)
Months 8-120: 87,333 square feet (utilizing BOMA standard of
measurement)
BUILDING RENTABLE AREA: approximately 141,047 square feet (utilizing
BOMA standard of measurement)
(C) BUILDING PERCENTAGE: Percentage from time to time calculated in
accordance with Section 2.03.
(D) BASIC ANNUAL RENT: See attached Exhibit E;
(E) MONTHLY RENTAL INSTALLMENTS: See attached Exhibit E;
(F) LANDLORD'S SHARE OF OPERATING COSTS: Operating costs for twelve month
period after the Commencement Date;
(G) ORIGINAL TERM: Ten (10) Years and Zero (0) Months;
(H) TARGET COMMENCEMENT DATE: November 1, 1999;
<PAGE> 5
(I) PLANS AND SPECIFICATIONS APPROVAL DATE: December 1, 1998 for the
Building shell, February 1, 1999 for the Leased Premises and as
reasonably requested by Landlord from time to time for the remaining
portions of the Building;
(J) SECURITY DEPOSIT: Waived;
(K) BROKER: Eaton & Lauth Real Estate Services, Inc. and CB Richard Ellis,
Inc.;
(L) PERMITTED USE: General Office Purposes;
(M) ADDRESS FOR PAYMENTS AND NOTICES AS FOLLOWS:
LANDLORD: Crosspoint Seven, LLC
c/o Eaton & Lauth Real Estate Services, Inc.
12220 N. Meridian Street, P.O. Box 1999
Carmel, IN 46032
Attn: Gregory C. Gurnik
TENANT: Prior to Commencement Date After Commencement Date
IDG Books Worldwide, Inc. IDG Books Worldwide, Inc.
7260 Shadeland Station, Suite 100 10475 Crosspoint Boulevard
Indianapolis, IN 46256 Indianapolis, IN 46256
Attn: Nazan Wolfe Attn: Nazan Wolfe
ARTICLE 2
TERM
SECTION 2.01. TERM. The term of this Lease shall be for the period
specified in Item G of Section 1.02 ("Original Term") (subject to if the
Commencement Date is other than the first day of a calendar month, the
Expiration Date shall occur on the last day of the 120th full calendar month
thereafter) and shall commence on the first to occur of the (i) Target
Commencement Date specified in Item H of Section 1.02, provided that the Leased
Premises are ready for occupancy on the Target Commencement Date; (ii) subject
to the further provisions of Section 2.02 hereof, the day Tenant's personnel
first occupy or take possession of any part of the Leased Premises; or (iii) the
30th day following Landlord's notice to Tenant pursuant to Section 2.02. The
date of commencement defined above ("Commencement Date"), and the Expiration
Date shall be confirmed by Tenant and Landlord as provided in Section 2.03. The
term "Lease Term", when used in this Lease, shall include the Original Term and
any renewal term.
SECTION 2.02. CONDITION OF PREMISES. Landlord shall construct, at its
expense, the Building and the Leased Premises in accordance with plans and
specifications to be agreed upon by Landlord and Tenant and which are consistent
with the plans and specifications which are or shall be attached to the
agreement between Landlord and Tenant attached to this Lease as Exhibit "C"
("Plans and Specifications") (such work and improvements to be completed by
Landlord in order to provide the Leased Premises to Tenant referred to as
"Landlord's Work"). The Landlord's Work will comply with all applicable laws,
ordinances, rules, codes and regulations of governmental authorities. Landlord
agrees to perform Landlord's Work subject to force majeure as defined in Section
16.15 and shall give Tenant thirty (30) days written notice of the day on which
Landlord's Work shall be substantially completed. Tenant shall have the right
and privilege of going onto the Leased Premises to complete interior decoration
work and to prepare the Leased Premises for its occupancy, provided, however,
that its schedule in so doing shall be communicated to Landlord and the approval
of Landlord secured so as not to interfere with other work of Landlord being
carried on at the time; and provided further that Landlord shall have no
responsibility or liability
2
<PAGE> 6
whatsoever for any loss or damage to any of Tenant's leasehold improvements,
fixtures, equipment or any other materials installed or left in the Leased
Premises prior to the Commencement Date except for damage caused solely by the
negligence or intentional misconduct of Landlord or its contractors. All
construction associated with the Landlord's Work will be done in a good
workmanlike manner using materials in accordance with the Plans and
Specifications and will not vary in any substantial manner without Tenant's
prior written consent. Landlord shall commence construction of the Building and
the Leased Premises and completion of the Landlord's Work as soon as practical
following approval of the final Plans and Specifications, which is anticipated
to occur on or before the Plans and Specifications Approval Date, and shall
substantially complete the same with all reasonable dispatch, and in any event
prior to the dates as set forth below. For purposes of this Lease,
"substantially complete" means (i) completing the Landlord's Work so that the
only incomplete items are minor or insubstantial details of construction; (ii)
Tenant, its employees, agents, invitees and contractors have ready access to the
Leased Premises; and (iii) the fixtures and equipment to be installed by
Landlord are installed and in good operating order. If the Landlord's Work is
not completed and a certificate of substantial completion or an equivalent
certificate issued by the architect or general contractor for the Leased
Premises is not obtained on or before December 1, 1999 (the "Penalty Date"), and
such delays are not caused by Tenant or excused by Section 16.15, Tenant will
receive reimbursement of all consequential costs and damages incurred or
sustained by Tenant resulting from such delayed possession (after reducing any
damages by taking into account amounts paid by Landlord under this Lease). If
such costs and damages are not reimbursed by Landlord within sixty (60) days
after receipt by Landlord of a written demand including an accounting of such
costs and damages, Tenant shall have a right to set-off such costs and damages
against Rental. Tenant shall be entitled to terminate this Lease upon written
notice to Landlord if Landlord's Work is not substantially complete by May 1,
2000.
SECTION 2.03. TENANT'S ACCEPTANCE OF THE LEASED PREMISES. Following
substantial completion of the Landlord's Work, the Tenant and Landlord will
inspect the Leased Premises and Landlord's Work for uncompleted aspects of the
Landlord's Work, have all mechanical systems demonstrated, and prepare a punch
list of uncompleted items of the Landlord's Work ("Punch List"). The Punch List
will list (i) incomplete, minor and insubstantial details of construction; (ii)
necessary mechanical adjustments; and (iii) needed finishing touches ("Punch
List Items"). Tenant shall execute an Acceptance Letter, in the form attached
hereto as Appendix "I" acknowledging (i) the Commencement Date and Expiration
Date of this Lease, and (ii) that Tenant has accepted the Leased Premises for
occupancy and that the condition of the Leased Premises, including the Tenant
finish improvements constructed thereon, and the Building was at the time
satisfactory and in conformity with the provisions of this Lease in all
respects, except for (i) any defects as to which Tenant shall give written
notice to Landlord within thirty (30) days after such delivery, (ii) the Punch
List Items and (iii) latent defects. Landlord shall promptly thereafter correct
all such defects as to which Tenant has given written notice to Landlord and
Punch List Items within sixty (60) days after the Punch List is approved subject
to force majeure as defined in Section 16.15. Such Acceptance Letter shall
become a part of this Lease. At the time the Plans and Specifications are
approved, Landlord and Tenant will agree on the initial Building Percentage
which shall be the fraction that the rentable area of the Leased Premises
calculated pursuant to BOMA standards bears to the rentable area of the Building
calculated pursuant to BOMA standards. The Building Percentage (calculated in
the same manner as the initial calculation) shall be increased by Landlord
whenever Tenant occupies more space in the Building.
ARTICLE 3
OCCUPANCY AND USE
SECTION 3.01. OCCUPANCY AND USE. Tenant shall use and occupy the Leased
Premises for the purposes as set out in Item L of Section 1.02, and for no other
purposes except with the prior written consent of the Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed. Tenant shall use the
Leased Premises for no unlawful purpose or act; shall commit or permit no waste
or damage to the Leased Premises; shall comply with and obey all reasonable and
necessary directions of the Landlord, including Rules and Regulations which are
adopted, changed or modified from time to time by Landlord on reasonable notice
to Tenant, all of which are and will be a part of this Lease as Exhibit D
(provided that in the event of a conflict between the provisions of this Lease
3
<PAGE> 7
and the Rules and Regulations, the provisions of this Lease shall prevail and
control); shall not do or permit anything to be done in or about the Leased
Premises which will in any way obstruct or interfere with the rights of the
other tenants or occupants of the Building or injure or annoy them, and shall
not do or permit anything to be done which will increase the rate of fire
insurance upon the Building.
Subject to the further terms and limitations as set forth in this Lease,
Tenant, at its expense, shall comply with all laws, rules, regulations,
ordinances or orders of Federal, State, County and Municipal authorities having
jurisdiction, and with any lawful direction of any public officer or officers,
which shall impose any duty upon Landlord or Tenant with respect to the Leased
Premises, or the use, occupation or alteration thereof, provided such duty
arises from or results from Tenant's failure to comply with Tenant's covenants
in this Lease or from Tenant's negligence or from the use of the Leased Premises
in a manner contrary to the purposes for which the same are leased to Tenant.
Landlord represents and warrants that at the Commencement Date of this Lease the
Building Leased Premises will be in compliance with all applicable laws, rules,
regulations, ordinances, orders and directions.
SECTION 3.02. LANDLORD'S RIGHTS REGARDING USE. In addition to the rights
specified elsewhere in this Lease and subject to the further restrictions and
requirements specified elsewhere in this Lease, Landlord shall have the
following rights regarding the use of the Leased Premises and common areas by
Tenant, its employees, agents, customers and invitees, which may be exercised
without notice or liability to Tenant: to install Tenant identification
information on the directory board; to approve or disapprove of all sign
painting and lettering; to grant any person exclusive right to conduct any
business or render service in the Building, provided that such exclusive right
shall not limit Tenant's use of the Leased Premises as outlined in Item L of
Section 1.02; and to control the common areas in such a manner as the Landlord
deems reasonably necessary and proper and in a manner consistent with comparable
buildings within the Indianapolis metropolitan area including, but not limited
to, requiring all persons entering or leaving the Building to identify
themselves to security guards; excluding or expelling peddlers, solicitors or
loud or unruly persons from the Building; and closing and limiting access to the
Building or other part thereof, including entrances, corridors, doors,
elevators, during times of emergencies, or repairs or after regular business
hours.
SECTION 3.03. ACCESS TO LEASED PREMISES. Landlord reserves the right to
enter the Leased Premises in any emergency or to provide the cleaning and
janitorial services described in Section 5.01(E), and also after advance notice
to inspect the same, to alter, improve, remodel or repair the Leased Premises or
any portion of the Building of which the Leased Premises are a part, driveways,
sidewalks and parking lots without abatement of rent and without incurring any
liability to Tenant therefor. Landlord shall also have the right to enter the
Leased Premises during Tenant's normal business hours with advance notice to
Tenant, and to show the same to prospective purchasers, mortgagees and tenants.
If representatives of Tenant shall not be present to open and permit such entry
to the Leased Premises at any time, and such entry is necessary or permitted
hereunder, Landlord and its employees and agents may enter the Leased Premises
by means of a master or pass key or otherwise. Except for claims for which
Landlord would otherwise be responsible to Tenant under this Lease, Landlord
shall incur no liability to Tenant for such entry, nor shall such entry
constitute an eviction of Tenant or a termination of the Lease, or entitle
Tenant to any abatement of rent therefor provided that any occurrence shall be
subject to the confidentiality provisions in any confidentiality letter executed
between Landlord or Tenant. In addition, during the final six (6) months of this
Lease or any renewal term, Landlord may place on the Leased Premises where
appropriate the usual notices "For Lease" or "For Sale" or other similar notices
which Tenant shall permit to remain without molestation. Tenant may designate
areas in the Leased Premises as secure areas, and except in bona fide
emergencies, Landlord or its personnel shall not enter any secure area without
being accompanied by a designated representative of Tenant. Landlord shall use
all reasonable efforts not to disturb Tenant or Tenant's business while Landlord
is in the Leased Premises. Except as otherwise agreed between Landlord and
Tenant, Landlord shall not be responsible for providing cleaning or janitorial
services or the replacement of lamps, bulbs, starters or ballasts or interior
window washing for such secure areas. Any persons affiliated with Landlord
entering upon the Leased Premises without an escort provided by Tenant must be
clearly identified and possess visible credentials.
4
<PAGE> 8
SECTION 3.04. SURRENDER OF LEASED PREMISES. At the end of the Lease Term
or other sooner termination of this Lease, Tenant will peaceably deliver up to
the Landlord possession of the Leased Premises, together with all improvements
or additions upon or belonging to the same, by whomsoever made, in the same
condition as received, or first installed or as altered with Landlord's consent
pursuant to Section 6.03, ordinary wear and tear and damage by fire, earthquake,
Act of God or the elements alone excepted. Upon the termination of this Lease,
Tenant shall at Tenant's sole cost, remove all counter, trade fixtures, office
furniture and equipment installed by Tenant unless otherwise agreed to in
writing by Landlord. Tenant shall also repair any damage caused by such removal.
SECTION 3.05. HOLDING OVER. In the event Tenant remains in possession of
the Leased Premises or any part thereof without the consent of Landlord after
the expiration or earlier termination of this Lease, Tenant shall be deemed to
hold the Leased Premises as a tenant on a month-to-month basis, subject to all
of the terms, conditions, covenants and provisions of this Lease (which shall be
applicable during the holdover period), except that Tenant shall pay to Landlord
One Hundred Seventy-Five Percent (175%) of the sum of last current Basic Annual
Rent (hereinafter defined) plus Excess Operating Costs (hereinafter defined),
which rent shall be payable to Landlord on demand. Tenant shall vacate and
surrender the Leased Premises to Landlord upon Tenant's receipt of notice from
Landlord to vacate. No holding over by Tenant, whether with or without the
consent of Landlord, shall operate to extend this Lease except as otherwise
expressly provided herein.
ARTICLE 4
RENT
SECTION 4.01. COMPONENTS OF RENT. Tenant hereby agrees to pay to
Landlord as rent for the Leased Premises an amount composed of the aggregate of
the components of rent hereinafter identified and defined as "Basic Annual Rent"
and Tenant's share of "Excess Operating Costs". The aggregate of all such
rentals may be referred to hereinafter as "Rental". The annual Rental shall be
due and payable in twelve (12) equal installments on the first day of each
calendar month during the term of this Lease. Tenant hereby agrees to pay the
monthly Rental installments to Landlord as provided in Item M Section 1.02 of
this Lease or at such other location as Landlord may designate in writing from
time to time, in advance without demand and without any deduction, abatement,
counterclaim or set off except as expressly provided in this Lease. In the event
of a partial month at the beginning of the term of this Lease, the Rental and
any other charges or costs, payable by Tenant shall be prorated on the basis of
a thirty (30) day month. Any portion of the monthly Rental installments not paid
within ten (10) days of when due shall bear a delinquency charge equal to five
percent (5%) of the amount of the Rental due and unpaid multiplied by the number
of months or fraction thereof, during which time such Rental remains overdue.
All Rental and other charges payable by Tenant pursuant to the terms of this
Lease shall be payable without relief from valuation and appraisement laws, and
with reasonable attorneys' fees and costs of collection.
SECTION 4.02. BASIC ANNUAL RENT. Tenant hereby agrees to pay Basic
Annual Rent for Leased Premises in the amount specified in Item D, Section 1.02
of this Lease without a right of set-off, except as expressly provided in this
Lease, payable in advance in equal consecutive monthly installments as specified
in Item E, Section 1.02 of this Lease, on or before the first day of each month
during the Lease Term.
SECTION 4.03. EXCESS OPERATING COST. Tenant shall pay as additional
rental an amount equal to its Building Percentage of the operating costs that
are in excess of Landlord's Share of Operating Costs as specified in Item F,
Section 1.02 of this Lease ("Excess Operating Costs") for the term of this
Lease. "Landlord's Share of Operating Costs", as that term is used herein, shall
consist of all costs and expenses incurred by Landlord to maintain all
facilities used in the operation of the Land and the Building and its environs
as may be determined by Landlord to be necessary during the first twelve (12)
months after the Commencement Date. All operating costs shall be determined in
accordance with generally accepted accounting principles which shall be
consistently applied, and shall be annualized in new or refurbished structures
that commence operation during a calendar year, by dividing the total costs by
the number of months the structure is in operation, and multiplying that result
by twelve (12). Except to the extent herein otherwise provided, the term
operating costs" as used herein shall mean all costs and expenses (but
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not specific costs which are separately billed to and paid or reimbursed by
specific tenants) of every kind and nature which Landlord shall pay, become
obligated to pay, or would have paid or incurred if the Building had been
ninety-five percent (95%) occupied, because of, or in connection with the
ownership and operation of the Building, including, but not limited to, and
subject to the further limitations or exclusions as set forth below, the
following:
(A) Wages, salaries, fringe benefit costs, payroll taxes, unemployment
compensation payments, workmen's compensation insurance premiums and
other related costs of all on-site and off-site employees engaged in the
operation, maintenance and security of the Building; costs of building
employee uniforms and cleaning thereof; the cost of fair rental value of
a Building Management Office in the Building; and the management fees
payable by Landlord (excluding brokerage commission for leasing) for
management of the Building which shall not exceed in any twelve (12)
month period 4% of the gross rentals for the Building.
(B) All labor, supplies and materials used in the operation, cleaning and
maintenance of the Building and the repair and maintenance of all of its
machinery and equipment.
(C) Cost of all utilities, including water, sewer, gas, steam, electricity,
sewer use charges and utility taxes incurred by Landlord during the
operation of the Building.
(D) Cost of all maintenance and service agreements of the Building and the
equipment therein, including, without limitation, alarm service, trash
removal and window cleaning and maintenance.
(E) Accounting costs, including the costs of audits by certified public
accountants, pertaining to the management and operation of the Building.
(F) Cost of all insurance, including without limitation, fire, casualty,
liability and rental abatement insurance applicable to the Building and
Landlord's personal property used in connection with the operation and
maintenance of the Building.
(G) Cost of repairs, replacements and general maintenance of the Building
and each part thereof (excluding repairs, replacements and general
maintenance paid by proceeds of insurance or by Tenant or other third
parties, and alterations attributable solely to other tenants of the
Building).
(H) Snow removal, landscaping and any and all other common area maintenance
costs related to public areas, including sidewalks and landscaping on
the Building site.
(I) Amortization of capital improvements made to the Building subsequent to
the Commencement Date of the Lease which may be required by governmental
authorities, or which may improve the operating efficiency of the
Building from Landlord's efforts to reduce operating costs.
Excluded from the definition of operating costs of the Building are the
following:
(A) Taxes (as hereinafter defined);
(B) Franchise or income taxes imposed upon Landlord;
(C) Mortgage amortization and interest;
(D) Leasing commissions;
(E) The cost of tenant installations and decorations incurred in connection
with preparing space for any Building tenant, including workletters,
concessions and warranty claims;
(F) Ground rent, if any;
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(G) Cost incurred by Landlord associated with Year 2000 compliance.
(H) Wages, salaries and benefits paid to any persons above the grade of
Building Manager;
(I) Legal and accounting fees relating to (i) disputes with tenants,
prospective tenants or other occupants of the Building, (ii) disputes
with purchasers, prospective purchasers, mortgagees or prospective
mortgagees of the Building or the Real Property or any part of either,
or (iii) negotiations of leases, contracts of sale or mortgages;
(J) Costs of services provided to other tenants of the Building on a
"rent-inclusion" basis which are not provided to Tenant on such basis;
(K) Costs that are reimbursed out of insurance, warranty or condemnation
proceeds, or which are reimbursable by Tenant or other tenants other
than pursuant to an expense escalation clause;
(L) Costs in the nature of penalties or fines;
(M) Costs for services, supplies or repairs paid to any related entity in
excess of costs that would be payable in an "arm's length" or unrelated
situation;
(N) Allowances, concessions or other costs and expenses of improving or
decorating any demised or demisable space in the Building;
(O) Appraisal, advertising and promotional expenses in connection with
leasing of the Building;
(P) The costs of installing, operating and maintaining a specialty
improvement, including a cafeteria, lodging or private dining facility,
or an athletic, luncheon or recreational club;
(Q) Any costs or expenses (including fines, interest, penalties and legal
fees) arising out of Landlord's failure to timely pay operating costs or
Taxes;
(R) Costs incurred in connection with the removal, encapsulation or other
treatment of any Hazardous Materials existing in, upon or under the
Land, the Building or the Leased Premises as of the date hereof,
(S) The cost of capital improvements other than those expressly included in
operating costs pursuant to Section 4.03(I) of this Lease,
(T) Political and charitable contributions;
(U) Costs of selling, syndicating, financing or mortgaging the Land and
Building;
(V) Expenses incurred by Landlord for casualties which are insurable under
Section 8.01;
(W) Expenses for replacements under warranty;
(X) The costs of correcting defects in the construction of the Building or
in the Building equipment (including without limitation the HVAC
systems);
(Y) Any penalty or fine incurred for non-compliance with applicable building
or fire codes by Landlord or any other tenant;
(Z) Landlord's general overhead expenses not related to the Building; and
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(AA) Costs incurred in connection with any portion of the Building which is
used for commercial concessions.
SECTION 4.04. ESTIMATED EXCESS OPERATING COSTS. Landlord shall estimate
the Excess Operating Costs annually, and detail itemized written notice thereof
shall be given to Tenant prior to, or within a reasonable time after, the
beginning of each calendar year commencing in 2001. Tenant shall pay its share
of the Estimated Excess Operating Costs in twelve (12) equal monthly
installments payable on the first day of each month as part of the Rental
commencing on January 1, 2001. On the expiration or earlier termination of the
Lease Term, Landlord shall have the right to adjust the Estimated Excess
Operating Cost based on year to date information, with Tenant to pay Landlord,
within thirty (30) days after receipt of notice thereof, any increase in the
estimate attributable to the period before the Lease Term expiration. Within a
reasonable period of time after the end of each calendar year, even in cases
where the Lease terminated in the prior year, Landlord shall render to Tenant a
statement showing the actual Excess Operating Cost for Landlord's operation of
the Building during the prior calendar year, setting forth a computation of
Tenant's share of the Excess Operating Cost for the portion of the year covered
by the Lease Term. Within fifteen (30) days after receipt of said statement,
Tenant shall pay Landlord, or Landlord shall credit to Tenant, as the case may
be, the difference between the actual Excess Operating Costs for the preceding
calendar year and the Estimated Excess Operating Costs paid by Tenant during
such year. If the Lease shall commence, expire, or be terminated on any date
other than the last day of the calendar year, then the Excess Operating Costs
for such partial year shall be prorated on the basis of the number of days
during the year the Lease was in effect in relation to the total number of days
in such year. If Tenant owes Landlord any additional amounts of Excess Operating
Costs as set forth above, then such payment shall be made in a lump sum within
thirty (30) days following Tenant's receipt of the itemized statement. If
Landlord owes Tenant, then Tenant's account shall be credited in the same way
Tenant paid its Estimated Excess Operating Costs, or, following termination or
expiration of the Lease, Landlord shall pay to Tenant any such amounts within
thirty (30) days after the submission of the itemized statement of operating
costs or other payment, at Landlord's sole discretion.
SECTION 4.05. TENANT'S AUDIT RIGHTS. Tenant shall be entitled from time
to time to audit and verify the operations of the Building and/or the related
books and records of Landlord to assure that the operating cost from time to
time reported by Landlord are consistent and in accordance with the provisions
of this Section 4.05. As to any calendar year, any such undertaking by Tenant
must be initiated before the end of the following calendar year and, absent
fraud or gross negligence on Landlord's part, the operating costs as timely
reported by Landlord for such calendar year shall be deemed controlling upon the
expiration of Tenant's audit and verification rights for such calendar year
under this Section 4.05. In the event of any errors, the appropriate party shall
make a correcting payment in full to the other party within thirty (30) days
after the determination and communication to all parties of the amount of such
error. In the event of any errors on the part of Landlord in excess of three
percent (3%) of the total annual amount of Tenant's Excess Operating Costs.
Landlord shall also reimburse Tenant for all costs of such audit and
verification reasonably incurred by Tenant within such thirty (30) day period.
SECTION 4.06 REAL ESTATE TAXES. Tenant shall pay as additional rental
during the term of this Lease its share equal to the Building Percentage of the
Taxes (as hereinafter defined). "Taxes", as that term is used herein, shall
consist of all real estate taxes, assessments, sewer and water rents, rates and
charges and other governmental levies, impositions or charges, whether general,
special, ordinary, extraordinary, foreseen or unforeseen, which are actually
assessed, levied or imposed upon all or any part of the Land and Building,
together with all personal property taxes, assessments, rates and charges and
other governmental levies, impositions or charges, whether general, special,
ordinary, extraordinary, foreseen or unforeseen, which are actually assessed,
levied or imposed upon all or any part of any personal property owned or held by
Landlord and located at or used in connection with the Land and Building, and
all expenses (including reasonable attorneys' fees and disbursements) incurred
in contesting any of the foregoing. Taxes shall not include (i) interest or
penalties incurred by Landlord as a result of Landlord's late payment of Taxes
or (ii) franchise, transfer, inheritance, gift, estate or net income taxes
imposed upon Landlord.
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ARTICLE 5
UTILITY AND OTHER BUILDING SERVICES
SECTION 5.01. SERVICES TO BE PROVIDED. Landlord shall furnish to Tenant
the following utilities and other building services to the extent reasonably
necessary for Tenant's comfortable use and occupancy of the Leased Premises for
general office use or as may be required by law or directed by governmental
authority:
(A) Heating, ventilation and air-conditioning ("HVAC") between the hours of
7:00 a.m. and 7:00 p.m. Monday through Friday and 8:00 a.m. to 2:00 p.m.
on Saturday of each week except on legal holidays. The HVAC system
serving the Leased Premises shall be designed to maintain average
ambient temperatures within the Leased Premises during the hours of 7:00
a.m. to 7:00 p.m. on Monday through Friday 8:00 a.m. to 2:00 p.m. on
Saturdays of (i) not less than 72 degrees Fahrenheit during the heating
system when the outdoor temperature is -3 degrees Fahrenheit or more and
(ii) not more than 74 degrees Fahrenheit during the cooling season, when
the outdoor temperatures are at 91 degrees Fahrenheit, with, in the case
of clauses (i) and (ii), a population load per floor of not more than
one person per 100 square feet of usable area and a total electrical
load, including lighting and power, not exceeding 7 watts per square
foot.;
(B) Subject to interruptions beyond Landlord's control, electrical current
not to exceed seven (7) watts per square foot. At all times Tenant's use
of electric current shall never exceed or place excessive demands on the
capacity of the feeders to the Building or the risers or wiring
installation; Landlord shall have the right to have the Leased Premises
metered separately and the cost of metering shall be paid by Tenant if
Tenant's use is significantly greater than its initial use with an
equitable adjustment in Tenant's share of Excess Operating Costs.
(C) Water in the Common Areas for lavatory and drinking purposes;
(D) Automatic elevator service;
(E) Cleaning and janitorial service in accordance with the standards as set
forth in Exhibit G attached; provided, however, Tenant shall be
responsible for any expenses of carpet cleaning other than routine
vacuuming;
(F) Replacement of all lamps, bulbs, starters and ballasts in Building
standard lighting as required from time to time as a result of normal
usage (nonstandard lighting bulbs will be stocked by Landlord for Tenant
at Tenant's expense);
(G) Cleaning, maintenance and landscaping of the Common Areas, including the
removal of rubbish and snow; and
(H) Repair and maintenance to the extent specified elsewhere in this Lease.
(I) Security for the Building consistent with security provided to
comparable buildings and specifically providing for after hours security
for monitoring the parking lot and common areas of the Building for the
general protection and security of the Building's tenants.
All repairs, including all structural repairs to the Building and the Leased
Premises, the exterior of the Building, and the common areas (including the
parking lot), performed by Landlord shall be completed to the extent practical
in a manner so as not to unreasonably interfere with Tenant's normal business
operations. Landlord shall respond within twenty-four (24) hours to a notice
from Tenant of a repair to the Leased Premises required by this Lease and
proceed diligently to complete such repair.
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SECTION 5.02. SERVICES. If Tenant requests any other utilities or
building services in addition to those identified above or any of the above
utilities or building services in frequency, scope, quality or quantity
substantially greater than those which Landlord reasonably determines are
normally required by other tenants in the Building for general office use, then
Landlord shall use commercially reasonable efforts to attempt to furnish Tenant
with such additional utilities or building services. In the event Landlord is
able to and does furnish such additional utilities or building services, the
reasonable and customary costs thereof actually incurred by Landlord shall be
borne by Tenant, who shall reimburse Landlord monthly for the same as additional
rent at the same time monthly Rental installments and other Rental is due.
If any lights, machines or equipment (including but not limited to
computers) used by Tenant in the Leased Premises that were not expressly
specified by the Plans and Specifications materially affect the temperature
otherwise maintained by the Building's air-conditioning system or generate
substantially more heat in the Leased Premises than that which would normally be
generated by the lights and business machines typically used by other tenants in
the Building or by tenants in comparable office buildings, then Landlord shall
have the right to install any machinery or equipment, which Landlord considers
reasonably necessary, in order to restore the temperature balance between the
Leased Premises and the rest of the Building, including equipment which modifies
the Building's air-conditioning system. All reasonable costs actually expended
by Landlord to install any such machinery and equipment and any additional costs
of operation and maintenance occasioned thereby in excess of the normal costs to
provide HVAC to the Leased Premises as contemplated in Section 5.01 hereof
(which normal costs are an Excess Operating Cost for which Tenant is obligated
to pay its Building Percentage) shall be borne by Tenant, who shall reimburse
Landlord for the same.
If Landlord determines that the electricity used by any equipment
installed or connected by Tenant exceeds the designed load capacity of the
Building's electrical system or is in any way incompatible therewith, then
Landlord shall have the right to make such modifications to the electrical
system or other parts of the Building or Leased Premises, or to require Tenant
to make such modifications to the equipment to be installed or connected, as
Landlord considers to be reasonably necessary before such equipment may be so
installed or connected. The reasonable cost of any such modifications shall be
borne by Tenant, who shall reimburse Landlord for the same (or any portion
thereof actually paid by Landlord).
SECTION 5.03. INTERRUPTION OF SERVICES. Tenant understands, acknowledges
and agrees that any one or more of the utilities or other building services
identified in Section 5.01 may be interrupted by reason of accident, emergency
or other causes beyond Landlord's control, or may be temporarily discontinued or
diminished temporarily by Landlord or other persons until certain repairs,
alterations or improvements can be made; that Landlord does not represent or
warrant that the availability and capacity of such utilities or building
services shall continue uninterrupted and unchanged, and that any such
interruption or change shall not be deemed an eviction or disturbance of
Tenant's right to possession, occupancy and use of the Leased Premises or any
part thereof, or except as provided below render Landlord liable to Tenant for
damages by abatement of rent or otherwise, or relieve Tenant from the obligation
to perform its covenants under this Lease. If any service described in Section
5.01 (A), (B) or (C) is disrupted as a result of an event within Landlord's
control that is not due to an act of Tenant, its employees, agents, invitees or
contractors and the Leased Premises are rendered untenantable (which term
"untenantable" for the purpose of this Lease shall mean the Leased Premises and
reasonable means of access thereto cannot be used by Tenant in substantially the
same manner and at the same time as Tenant has utilized the Leased Premises in
the normal conduct of its business and Tenant cannot and does not occupy the
Leased Premises for a period of three (3) consecutive calendar days, then
commencing from and after said three (3) day period, the amount of Rental that
is allocable for the area of the Leased Premises which is untenantable shall
abate for the duration of such untenantability until the remedy of the condition
which caused the untenantability and the restoration of services necessary to
allow Tenant to resume occupation of the Leased Premises for the normal conduct
of its business.
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ARTICLE 6
REPAIRS, MAINTENANCE, ALTERATIONS,
IMPROVEMENTS AND FIXTURES
SECTION 6.01. REPAIR AND MAINTENANCE OF BUILDING. Subject to Section
6.02 and except for any repairs necessitated by the negligence, misuse, or
default of Tenant, its employees, agents, customers and invitees, Landlord shall
make all necessary repairs to the exterior walls, exterior doors, windows,
corridors and other common areas of the Building (including the parking lot and
landscaping serving the Building), and Landlord shall keep the Building in a
safe, clean and neat condition and use commercially reasonable efforts to keep
all equipment used in common with other tenants such as elevators, plumbing,
heating, air conditioning and similar equipment, in good condition and repair.
Except as provided in Article 7 and Sections 5.01 and 5.03 hereof, there shall
be no abatement of rent and no liability of Landlord by reason of any injury to
or interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Leased
Premises or in or to any fixtures, appurtenances and equipment therein or
thereon.
SECTION 6.02. REPAIR AND MAINTENANCE OF LEASED PREMISES. Landlord shall
keep and maintain the Building, Common Areas, and the Leased Premises in good
order, condition and repair and in a manner consistent with comparable
buildings. In the event of any necessary repair to the Leased Premises, Tenant
shall notify Landlord and Landlord shall immediately dispatch appropriate
contractors or its personnel to repair or replace such articles in order to
return the Leased Premises in good order, condition and repair in substantially
the same condition as of the Commencement Date, ordinary wear and tear excepted.
SECTION 6.03. ALTERATIONS OR IMPROVEMENTS. Upon prior written consent
from Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed, alterations or improvements may be made by Tenant to the Leased
Premises; provided however, such alterations or improvements shall be, at
Tenant's election, either (i) made by Landlord, or contractors selected by
Tenant and approved by Landlord following its receipt of competitive bids from
not less than three (3) qualified contractors, or (ii) made by Tenant or
contractors selected by Tenant and approved by Landlord, which approval shall
not be unreasonably withheld. All costs attributable to said alterations or
improvements shall be borne by Tenant, including, but not limited to all
construction costs, fees, architectural costs, permit fees, and attorney fees.
Any alterations or improvements to the Leased Premises, except movable office
furniture, moveable office walls, panels and partitions, equipment and trade
fixtures, shall become part of the realty Building, and be the property of
Landlord, and shall not be removed by Tenant upon expiration or termination of
the Lease. Any non-structural decorations of the Leased Premises (including
painting, wall papering, picture hanging, etc.) by Tenant shall be permitted and
authorized to be completed by Tenant without the prior approval of or
authorization from Landlord.
SECTION 6.04. TRADE FIXTURES. Any trade fixtures installed on the Leased
Premises by Tenant at its own expense, such as movable partitions, counters,
shelving, filing cabinets, showcases, mirrors, pictures, art work and the like,
may, and, at the request of Landlord, shall be removed on the expiration or
earlier termination of this Lease, provided that Tenant bears the cost of such
removal, and further that Tenant repairs at its own expense any and all damages
to the Leased Premises resulting from such removal.
SECTION 6.05. RIGHT TO CHANGE PUBLIC PORTIONS OF THE BUILDING. At any
time after the completion of the Landlord's Work, Landlord shall have the right
to change the arrangement or location of such of the following as are not
contained within the Leased Premises or any part thereof: entrances, signs,
passageways, doors and doorways, corridors, stairs, toilets and other like
public service portions of the Building; providing, however, that in no event
shall Landlord change the arrangement or location of the elevators serving the
Leased Premises, make any change which shall diminish the area of the Leased
Premises, make any change which shall interfere with the access to the Leased
Premises from and through the Building, or change the character of the Building
from that of a first-class office building.
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ARTICLE 7
FIRE OR OTHER CASUALTY; EMINENT DOMAIN
SECTION 7.01. SUBSTANTIAL DESTRUCTION OF THE BUILDING OR THE LEASED
PREMISES. If either the Building or the Leased Premises should be substantially
destroyed or damaged (which as used herein, means destruction or material damage
to at least 50% of the Building or 50% of the Leased Premises) by fire or other
casualty, then Landlord or Tenant may, at its option, terminate this Lease by
giving written notice of such termination to the other party within thirty (30)
days after the date of such casualty. In such event, Rental shall cease as of
the date of such casualty. If neither party exercises this option, then the
Leased Premises shall be reconstructed and restored, at Landlord's expense, to
substantially the same condition as they were prior to the casualty; provided
however, that Landlord's obligation hereunder shall be limited to the
reconstruction of Landlord's Work; and further provided that if Tenant has made
any additional improvements pursuant to Section 6.03, Tenant shall either
reimburse Landlord for the cost of reconstructing the same or Tenant, at
Tenant's option, shall be responsible for reconstructing or restoring such
improvements or alterations at its sole cost and expense, to which Landlord
grants its prior consent and approval. In the event of such reconstruction, rent
shall be abated from the date of the casualty until substantial completion of
the reconstruction repairs;, and this Lease shall continue in full force and
effect for the balance of the Lease Term.
SECTION 7.02. PARTIAL DESTRUCTION OF THE LEASED PREMISES. If the Leased
Premises should be damaged by fire or other casualty, but not substantially
destroyed or damaged to the extent provided in Section 7.01, then, such damaged
part of the Leased Premises shall be reconstructed and restored, at Landlord's
expense, to substantially the same condition as it was prior to the casualty;
provided however, that Landlord's obligation hereunder shall be limited to the
reconstruction of Landlord's Work; and further provided that if Tenant has made
any additional improvements pursuant to Section 6.03, Tenant shall reimburse
Landlord for the cost of reconstructing the same or Tenant, at Tenant's option,
shall be responsible for reconstructing or restoring such improvements or
alterations at its sole cost and expense, to which Landlord grants its prior
consent and approval. In such event, if the damage is expected to prevent Tenant
from carrying on its business in the Leased Premises to an extent exceeding 20%
of its normal business activity, Rental shall be abated in the proportion which
the approximate area of the damaged part bears to the total area in the Leased
Premises from the date of the casualty until substantial completion of the
reconstruction repairs; and this Lease shall continue in full force and effect
for the balance of the Lease Term. Landlord shall use reasonable diligence in
completing such reconstruction repairs, but in the event Landlord fails to
complete the same within one hundred eighty (180) days from the date of the
casualty, Tenant may, at its option, terminate this Lease by giving Landlord
written notice of such termination, whereupon both parties shall be released
from all further obligations and liability hereunder.
SECTION 7.03. EMINENT DOMAIN. If the whole or any part of the Leased
Premises or Building or Land (including the parking lot) (collectively referred
to as "Property") shall be taken for public or quasi-public use by a
governmental or other authority having the power of eminent domain or shall be
conveyed to such authority in lieu of such taking, and if such taking or
conveyance shall cause the remaining part of the Property to be untenantable and
inadequate for use by Tenant for the purpose for which they were leased, then
either Landlord or Tenant may, at their respective option, terminate this Lease
as of the date Tenant is required to surrender possession of the Property by
giving written notice of such termination to the other party. If a part of the
Property shall be taken or conveyed but the remaining part is tenantable and
adequate for Tenant's use, then this Lease shall be terminated as to the part
taken or conveyed as of the date Tenant surrenders possession; Landlord shall
make such repairs, alterations and improvements as may be necessary to render
the part not taken or conveyed tenantable; and Rental shall be reduced in
proportion to the part of the Leased Premises so taken or conveyed. However, if
the compensation awarded (reduced by any application thereof by Landlord's
mortgagee to its mortgage) is insufficient to restore the Property, Landlord
shall have the option to terminate this Lease as of the date Tenant is required
to surrender possession of the Leased Premises by giving Tenant written notice
of such termination. All compensation awarded for such taking or conveyance
shall be the property of Landlord without any deduction therefrom, for any
present or future estate of Tenant. However, Tenant shall have the right to
recover from such authority, but not from
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Landlord, such compensation as may be awarded to Tenant on account of moving and
relocation expenses and depreciation to and removal of Tenant's property.
ARTICLE 8
INSURANCE
SECTION 8.01. LANDLORD'S INSURANCE. Landlord shall at all times during
the Lease Term carry, at its expense, primary, non-contributory insurance on the
Building against fire and extended coverage or "all risk" insurance, in an
amount equal to at least ninety percent (90%) of the full insurable replacement
value of the Building (exclusive of the costs of excavation, foundations and
footings and such risks as are to be covered by Tenant's insurance), or such
other coverages to prevent Landlord from a co-insured. Additionally, Landlord
shall maintain in effect at all times during the Lease Term comprehensive public
liability insurance, with limits of not less than Two Million and No/100 Dollars
($2,000,000.00) for personal injury, bodily injury, sickness, disease or death
and Five Hundred Thousand and No/100 Dollars ($500,000.00) for damage or injury
to or destruction of property, including loss of use thereof (for any one
occurrence). On request Landlord shall deliver to Tenant appropriate evidence of
such insurance. Provided, however, that Landlord shall not be responsible for,
and shall not be obligated to insure against, any loss of or damage to any
personal property of Tenant or which Tenant may have in the Building or the
Leased Premises or any trade fixtures installed by or paid for by the Tenant on
the Leased Premises or any additional improvements which Tenant may construct on
the Leased Premises, and Landlord shall not be liable for any loss or damage to
such property, regardless of cause, including the negligence of Landlord and its
employees, agents, customer and invitees.
SECTION 8.02. LANDLORD'S RESPONSIBILITY. Landlord shall assume the risk
of, be responsible for, have the obligation to insure against, and indemnify
Tenant and hold it harmless from, any and all liability for any loss of or
damage or injury to person (including death resulting therefrom) or property
(other than Tenant's property as provided in Section 8.01.) occurring in, or
about the Common Areas, including but not limited to loss or damage or injury
resulting from noncompliance with statutes and regulations and the existence of
Hazardous Substances in or under the Building regardless of cause, except for
that caused solely by the negligence of, intentional act or omission or breach
of this Lease by Tenant and its employees, agents, customers and invitees.
Landlord's obligation to indemnify Tenant hereunder shall include the duty to
defend against any claims asserted by reason of such loss, damage or injury and
to pay any judgment, settlements, costs, fees and expenses, including attorneys'
fees, incurred in connection therewith and shall survive termination or
expiration of this Lease.
SECTION 8.03. TENANT'S INSURANCE. Tenant, in order to enable it to meet
its obligation to insure against the liabilities specified in this Lease, shall
at all times during the Lease Term carry, at its own expense, for the protection
of Tenant, Landlord and Landlord's management agent, as their interest may
appear, one or more policies of general public liability and property damage
insurance, issued by one or more insurance companies rated A- or better by A.M.
Best Insurance Ratings Service with the following minimum coverages:
(A) Worker's Compensation - minimum statutory amount.
(B) Comprehensive General Liability Insurance including - Not less than
$1,000,000 Blanket, Contractual Liability, Broad Form Property Combined
Single Damage, Personal Injury, Completed Operations, Limit for both
bodily Products Liability & property damage.
(C) Primary, non-contributory Fire and Extended Coverage, Vandalism and
Malicious Mischief, and Sprinkler Leakage insurance, for the full cost
of replacement of Tenant's property.
(D) Business interruption insurance for a period of at least six (6) months.
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Such insurance policy or policies shall name Landlord and Landlord's
management agent as additional insureds (proceeds of the business interruption
insurance shall not be payable to Landlord or Landlord's management agent) and
shall provide that they may not be canceled on less than thirty (30) days' prior
written notice to Landlord. Tenant shall furnish Landlord with Certificates of
Insurance evidencing such coverage. Should Tenant fail to carry such insurance
and furnish Landlord with such Certificates of Insurance after a written request
to do so and failure for a period of fifteen (15) days thereafter, Landlord
shall have the right to collect the cost thereof from Tenant as additional rent.
SECTION 8.04. TENANT'S RESPONSIBILITY. Tenant shall assume the risk of,
be responsible for, have the obligation to insure against, and indemnify
Landlord and hold it harmless from any and all liability for any loss of or
damage or injury to any person (including death resulting therefrom) or property
occurring in, or about the Leased Premises including but not limited to loss or
damage or injury resulting from its noncompliance with statutes and regulations,
regardless of cause, except for any loss or damage from fire or other casualty
as provided in Section 8.01 and except for that caused by the intentional act or
omission or breach of this Lease by Landlord or by the sole negligence of
Landlord and its employees, agents, customers and invitees. Tenant's obligation
to indemnify Landlord hereunder shall include the duty to defend against any
claims asserted by reason of such loss, damage or injury and to pay any
judgment, settlements, costs, fees and expenses, including attorneys' fees,
incurred in connection therewith and shall survive termination or expiration of
this Lease. Notwithstanding anything herein to the contrary, Tenant shall bear
the risk of any loss or damage to its property as provided in Section 8.01.
SECTION 8.05. WAIVER OF SUBROGATION. Landlord and Tenant hereby release
each other and each other's employees, agents, customers and invitees from any
and all liability for any loss of or damage or injury to person or property
occurring in, on or about or to the Leased Premises, the Building or personal
property within the Building by reason of fire or other casualty which could be
insured against under a standard fire and extended coverage insurance policy,
regardless of cause, including negligence of Landlord or Tenant and their
respective employees, agents, customers and invitees, and agree that such
insurance carried by either of them shall contain a clause whereby the insurer
waives its right of subrogation against the other party. Because the provisions
of this Section 8.05 are intended to preclude the assignment of any claim
mentioned herein by way of subrogation or otherwise to an insurer or any other
person, each party to this Lease shall give to each insurance company which has
issued to it one or more policies of fire and extended coverage insurance notice
of the provisions of this Section 8.05 and have such insurance policies properly
endorsed, if necessary, to prevent the invalidation of such insurance by reason
of the provisions of this Section 8.05.
ARTICLE 9
LIENS
SECTION 9.01. LIENS. If, because of any act or omission of Tenant or any
person claiming by, through, or under Tenant, any mechanic's lien or other lien
shall be filed against the Leased Premises or the Building or against other
property of Landlord (whether or not such lien is valid or enforceable as such),
Tenant shall, at its own expense, cause the same to be discharged of record
within thirty-five (35) days after the date of filing thereof, and shall also
indemnify Landlord and hold it harmless from any and all claims, losses,
damages, judgments, settlements, costs and expenses, including attorneys' fees,
resulting therefrom or by reason thereof. Landlord may, but shall not be
obligated to, pay the claim upon which such lien is based so as to have such
lien released of record; and, if Landlord does so, then Tenant shall pay to
Landlord, as Additional Rent, upon demand, the amount of such claim, plus all
other costs and expenses incurred in connection therewith, plus interest thereon
at the rate of fifteen percent (15%) per annum until paid. Notwithstanding the
foregoing, if Tenant shall, in good faith, contest the validity of any such
lien, claim or demand, then Tenant shall, at its sole cost and expense, defend
and protect itself, the Landlord and the Land and Building against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
because of the enforcement thereof against the Landlord or the Land and
Building. If Landlord shall require, Tenant shall furnish to Landlord a surety
bond reasonably satisfactory to Landlord in an amount equal to one and one-half
(1 1/2) times the amount of such contested lien, claim or demand, indemnifying
Landlord against
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liability for the same, as required by applicable law for the holding of the
Land and Building free from effect of such lien or claim.
ARTICLE 10
RENTAL, PERSONAL PROPERTY AND OTHER TAXES
SECTION 10.01. TAXES. Tenant shall pay, before delinquency, any and all
taxes, assessments, fees or charges, including any sales, gross income, rental,
business occupation or other taxes, levied or imposed upon Tenant's business
operations in the Leased Premises and any personal property or similar taxes
levied or imposed upon Tenant's trade fixtures, leasehold improvements or
personal property located within the Leased Premises. In the event any such
taxes, assessments, fees or charges are charged to the account of, or are levied
or imposed upon the property of Landlord, Tenant shall reimburse Landlord for
the same as additional rent. Notwithstanding the foregoing, Tenant shall have
the right to contest in good faith any such item and to defer payment until
after Tenant's liability therefor is finally determined.
If any tenant finish improvements, trade fixtures, alterations,
improvements or business machines and equipment located in or about the Leased
Premises, regardless of whether they are installed or paid for by Landlord or
Tenant and whether or not they are affixed to and become a part of the realty
Land and the property of Landlord, are assessed for real property tax purposes
at a valuation higher than that at which other such property in other leased
space in the Building is assessed, then Tenant shall reimburse Landlord as
additional rent for the amount of real property taxes shown on the appropriate
county official's records as having been levied upon the Building or other
property of Landlord by reason of such excess assessed valuation.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
SECTION 11.01. ASSIGNMENT AND SUBLETTING BY TENANT. Tenant may not sell,
assign, or mortgage this Lease or sublet the Leased Premises or any part
thereof, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, conditioned or delayed; and any attempted assignment
or subletting without such consent shall be invalid. In the event of a permitted
assignment or subletting, unless expressly otherwise agreed by Landlord, Tenant
shall nevertheless at all times remain fully responsible and liable for the
payment of rent and the performance and observance of all of Tenant's other
obligations under the terms, conditions and covenants of this Lease. No
assignment or subletting of the Leased Premises or any part thereof shall be
binding upon Landlord unless such assignee or subtenant shall deliver to
Landlord an instrument (in recordable form, if requested) containing an
agreement of assumption of all Tenant's obligations under this Lease. Upon the
occurrence of an event of default, if all or any part of the Leased Premises are
then assigned or sublet, Landlord, in addition to any other remedies provided by
this Lease or by law, may, at its option, collect directly from the assignee or
subtenant all rent becoming due to Landlord by reason of the assignment or
subletting. Any collection by Landlord from the assignee or subtenant shall not
be construed to constitute a waiver or release of Tenant from the further
performance of its obligations under this Lease or the making of a new lease
with such assignee or subtenant.
It shall be reasonable for Landlord to refuse, condition or delay to
give its consent if it is based on, among other things, Landlord's determination
that (i) its interest in the Lease or the Leased Premises would be adversely
affected by the financial condition or creditworthiness of the proposed assignee
or business reputation of the proposed assignee or subtenant (ii) a subtenant's
rent is greater than the Rental payable by Tenant, or (iii) the proposed use of
the Leased Premises by, or business of, the proposed assignee or subtenant would
adversely affect the Building.
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Notwithstanding the foregoing, Tenant shall have the right to sublease
all or any part of the Leased Premises, to assign this Lease in whole or in
part, and to otherwise transfer its interest in this Lease and the Leased
Premises to (a) any party who is an "affiliate" of Tenant within the meaning of
the Securities Act of 1933, as amended, and applicable regulations thereunder,
or (b) any successor by merger or consolidation of Tenant.
No assignee, other than such an affiliate or successor by merger or
consolidation, or sublessee shall have any right to expand under Section 17.05
or right to extend under Section 17.01.
ARTICLE 12
TRANSFER BY LANDLORD
SECTION 12.01. SALE AND CONVEYANCE OF THE BUILDING. Landlord shall have
the right to sell and convey the Building at any time during the Lease Term,
subject only to the rights of Tenant hereunder; and such sale and conveyance
shall operate to release Landlord from liability hereunder after the date of
such conveyance as provided in Section 13.08.
SECTION 12.02. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any mortgage presently existing or hereafter placed
upon the Building by so declaring in such mortgage; and the recording of any
such mortgage shall make it prior and superior to this Lease regardless of the
date of execution or recording of either document. Tenant shall, at Landlord's
request, execute and deliver to Landlord, without cost, any instrument which may
be deemed necessary or desirable by Landlord to confirm the subordination of
this Lease. Notwithstanding the foregoing, no default by Landlord under any such
mortgage shall affect Tenant's rights hereunder so long as Tenant is not in
default under this Lease. Tenant shall, in the event any proceedings are brought
for the foreclosure of any such mortgage, attorn to the purchaser upon any such
foreclosure and recognize such purchaser as the Landlord under this Lease.
Notwithstanding any contrary terms contained in this Article 12, Tenant's
subordination of its interest in the Lease is expressly conditioned upon
Tenant's receipt of a duly executed Nondisturbance and Attornment Agreement
containing terms and conditions reasonably acceptable to Landlord, Tenant and
the mortgagee or ground lessor. The Nondisturbance Agreement attached as Exhibit
"H" ("Nondisturbance Agreement") is acceptable to Landlord and Tenant. Tenant's
agreement to subordinate the Lease to any future mortgagees or ground lessors
shall be expressly conditioned upon the compliance with this section and the
execution of such mortgagees and/or ground lessors of the Nondisturbance
Agreement.
ARTICLE 13
DEFAULTS AND REMEDIES
SECTION 13.01. DEFAULTS BY TENANT. Each of the following events shall be
an "Event of Default" hereunder:
(A) Failure of Tenant to pay any installment of rent or any part
thereof (including but not limited to failure to make any deposit
required under the terms of this Lease) or any other payments of
money, costs, or expenses herein agreed to be paid by Tenant
within ten (10) days following written notice to Tenant of such
failure provided, however, if Tenant has failed to pay more than
two installments of Rental during any twelve (12) month period
when due, Tenant shall be in default for any subsequent failure
to pay any installment of Rent or any part thereof within ten
(10) days of when due without any notice to Tenant.
(B) Failure to observe or perform one or more of the other terms,
conditions, covenants, or agreements of this Lease and the
continuance of such failure for a period of thirty (30) days, or
other such period provided in this Lease, after written notice by
Landlord specifying such failure (unless such failure requires
work to be performed, acts to be done, or conditions to be
removed which cannot
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by their nature reasonably be performed, done, or removed, as the
case may be, within such thirty (30) day period or other such
period required in this Lease, in which case no default shall be
deemed to exist so long as Tenant shall have commenced doing the
same within such thirty (30) day or other such period required in
this Lease and shall diligently and continuously prosecute the
same to completion);
(C) The filing of an application by Tenant for, or a consent to the
appointment of, a receiver, trustee, or liquidator of itself or
of all its assets;
(D) The filing by Tenant of a voluntary petition in bankruptcy, or
the filing of a pleading in any court of record admitting in
writing its inability to pay its debts as they become due;
(E) The making by Tenant of a general assignment for the benefit of
creditors;
(F) The filing by Tenant of an answer admitting material allegations
of or consenting to or defaulting in answering in petition filed
against it in any bankruptcy proceedings;
(G) The entry of an order, judgment, or decree by any Court of
competent jurisdiction adjudging Tenant a bankrupt or appointing
a receiver, trustee, or liquidator of it, or all of its assets,
and such order, judgment, or decree continuing unstayed and in
effect for any period of sixty (60) consecutive days;
(H) If this Lease or the estate of Tenant hereunder shall be
transferred to or assigned to or subleased to or shall pass to or
devolve upon any person or party, except in a manner herein
expressly permitted; or
(I) If a levy under execution or attachment shall be made against
Tenant or its property and such execution or attachment shall not
be vacated or removed by court order, bonding, or otherwise
within a period of thirty (30) days.
SECTION 13.02. REMEDIES OF LANDLORD. Upon the occurrence of any event of
default set forth in Section 13.01, Landlord shall have the following rights and
remedies, in addition to those allowed by law, any, or all of which may be
exercised without additional notice or demand upon Tenant, except as may be
required by applicable law:
(a) proceed by appropriate judicial proceedings, either at law or
in equity, to enforce performance or observance by Tenant of the
applicable provisions of this Lease or to recover damages for the breach
thereof; or
(b) by notice to Tenant to terminate Tenant's rights under this
Lease without terminating this Lease, whereupon Tenant's estate and all
right of Tenant to the use of the Leased Premises shall forthwith
terminate, but Tenant shall remain liable as hereinafter provided; and
thereupon Landlord shall have the immediate right of re-entry and
possession of the Leased Premises and Landlord shall have the right to
remove all persons and property therefrom; and Landlord shall have the
right, at Landlord's option, to re-let the Leased Premises or any
portion thereof, upon terms and conditions determined by Landlord in its
sole discretion; and Landlord may thenceforth hold, possess and enjoy
the Leased Premises free from any rights of Tenant any person claiming
through or under Tenant; but Landlord shall, nevertheless, have the
right to recover forthwith from Tenant;
(i) any and all Rental and all other amounts payable by
Tenant hereunder which may then be due and unpaid or which may
then be accrued and unpaid,
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(ii) as liquidated damages for loss of the bargain and not
as a penalty, an amount equal to the excess of the aggregate of
all unpaid Rental which would have been payable if Tenant's
rights under this Lease had not been terminated prior to the end
of the state term hereof over the aggregate fair rental value of
the Leased Premises at the date of termination of Tenant's rights
under this Lease for the period from such Tenant's rights
termination date to the end of the stated term hereof, both
discounted in accordance with accepted financial practice at the
rate of 4% per annum to then present worth, and
(iii) all reasonable fees, costs and expenses incurred by
Landlord in obtaining possession, and in altering, repairing and
putting the Leased Premises or any portion thereof in good order,
including reasonable fees and expenses of attorneys, engineers,
mechanics, and other skilled persons, and other reasonable
expenses and commissions, and, upon the dates when Rental is owed
thereafter until the end of the stated term of this Lease, the
amounts of money herein specified to be payable by Tenant as
Rental hereunder deducting any rent which Landlord shall actually
receive in the meantime from any re-letting of the Leased
Premises or any portion thereof;
(iv) any and all reasonable attorney's fees and expenses
which Landlord shall have sustained by reason of the breach of
any provision of this Lease; or
(c) declare all Rental for the balance of the term of this Lease
then in effect, without any discount therefrom, to be immediately due
and payable, as though expressly made payable in advance prior to the
occurrence of such event of default, in which case Rental so becoming
due and payable in advance may be recovered in any suit, action or other
legal proceeding, provided, that if Landlord shall exercise such remedy
and Tenant shall have paid in full all Rental so declared due and
payable, Tenant thereafter shall have the right to possession of the
Leased Premises for the entire period in respect of which Rental shall
have been so accelerated by Landlord, unless and until a further event
of default.
Tenant hereby waives to the full extent prohibited by law, any right it
may now or hereafter have to require the sale, in mitigation of damages, of the
Premises or any portion thereof.
Nothing herein contained shall limit or prejudice the right of the
Landlord, in any legal, administrative or other proceedings, to prove for and
obtain as liquidated damages by reason of the termination of Tenant's rights
under this Lease pursuant to Section 13.02(b), an amount equal to the maximum
allowed by such proceedings, or by any statute, regulation or rule governing the
proceedings in which such damages are to be proved, whether or not such amount
shall be greater or less than the amount referred to in Section 13.02(b).
In the event Tenant's rights under this Lease shall have terminated as
provided herein or permitted by law, Landlord shall obtain possession of the
Leased Premises or any portion thereof, Landlord shall have the right, without
notice, to repair or alter the Premises or any portion thereof in such manner as
to Landlord seems appropriate to put the same in good order and to make the same
rentable, and Landlord shall have the right from time to time to begin and
maintain successive legal proceedings against Tenant for the recovery of any
such deficiency or damages, and to recover the same from Tenant which liability
shall survive institution of any action to secure possession of the Leased
Premises or any portion thereof. Nothing herein contained shall require Landlord
to wait to begin such legal proceedings until the end of the stated Term of this
Lease. No such taking of possession of the Leased Premises or any portion
thereof by Landlord shall be construed as an election of Landlord's part to
terminate the term of this Lease unless notice of such intention be given to
Tenant or unless such termination be decreed by a court of competent
jurisdiction.
If Landlord shall be made a party to any litigation commenced against
Tenant, and if Tenant shall not at its expense provide Landlord with counsel
satisfactory to Landlord, Tenant shall pay all reasonable costs and
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attorneys' fees incurred or paid by Landlord in connection with such litigation
unless such inclusion of Landlord in such litigation was solely a result of the
negligent acts or inactions of Landlord.
No right or remedy herein conferred upon or reserved to Landlord its
intended to be exclusive of any other right or remedy, and every right and
remedy shall be cumulative and in addition to any other legal or equitable right
or remedy given hereunder, or now or hereafter existing. The failure of Landlord
to insist upon the strict performance of any provision or to exercise any
option, right, power or remedy contained in this Lease shall not be construed as
a waiver or a relinquishment thereof for the future. Receipt by Landlord of any
Rental with knowledge of the breach of any provision contained in this Lease
shall not constitute a waiver of such breach (other than the prior failure to
any such Rental). The receipt by Landlord of less than the full Rental due shall
not be construed to be other than a payment on account of Rental then due, nor
shall any statement on Tenant's check or any letter accompanying Tenant's check
be deemed an accord and satisfaction, and Landlord may accept such payment
without prejudice to Landlord's right to recover the balance of the rent due or
to pursue any other remedies provided in this Lease. No act or omission by
Landlord or its employees or agents during the Lease Term shall be deemed an
acceptance of a surrender of the Leased Premises, and no agreement to accept
such a surrender shall be valid unless in writing and signed by Landlord.
SECTION 13.07. DEFAULT BY LANDLORD AND REMEDIES OF TENANT. The following
shall be an event of default by Landlord under this Lease ("Landlord Default"):
Landlord fails to comply with any provision of this Lease for a period
of thirty (30) (fifteen (15) days if the failure causes the Leased Premises or a
portion thereof to be untenantable (as defined in Section 5.03 hereof) or more
after Landlord receives written notice from Tenant, except that if compliance
cannot reasonably be achieved within the thirty (30) or fifteen (15) day period,
as applicable, there shall be no Landlord Default by Landlord so long as
Landlord promptly attempts and diligently and continuously pursues actions
intended to bring about compliance.
In the event of a Landlord Default, Tenant (in addition to all other
remedies to which Tenant may be entitled at law or in equity) may cure such
default by Landlord on behalf of, and at the sole reasonable cost and expense
of, Landlord. Landlord shall reimburse Tenant within thirty (30) days after
Tenant's delivery to Landlord of a statement therefor for an amount equal to one
hundred twenty-five percent (125%) of Tenant's costs and expenses in connection
therewith plus the amount of Rental paid by Tenant that is allocable for any
untenantable area of the Leased Premises for the period the area was rendered
untenantable as a result of the Landlord Default .
SECTION 13.08. DEFINITION OF LANDLORD. The references to "Landlord" in
this Lease shall be limited to mean and include only the owner or owners, at the
time, of the fee simple interest in the Land and Building. In the event of a
sale or transfer of such interest (except a mortgage or other transfer as
security for a debt), the "Landlord" named herein, or, in the case of a
subsequent transfer, the transferor, shall, after the date of such transfer, be
automatically released from all personal liability for the performance or
observance of any term, condition, covenant or obligation required to be
performed or observed by Landlord hereunder which shall accrue or relate to the
period following the date of transfer or conveyance; and the transferee shall be
deemed to have assumed all of such terms, conditions, covenants and obligations
following the date of transfer or conveyance.
SECTION 13.09. TRANSFER UPON TERMINATION. In the event of a termination
of this Lease by reason of default or breach by Tenant hereunder: (i) all
unexpired insurance premiums, all deposits theretofore made by Tenant with
utility companies and all rights of Tenant under all insurance policies shall be
deemed to be assigned to and transferred to Landlord; and (ii) Tenant shall
deliver and assign to Landlord all leases of subtenants, and concession,
license, and occupancy agreements and all security deposits and advance rents
then held by Tenant with respect to any and all subleases upon the assumption by
Landlord of the obligation to apply all such security deposits and advance rents
held by Landlord in accordance with such subleases, and concession, license, and
occupancy agreements.
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SECTION 13.10 WAIVER. Landlord and Tenant hereby waive trial by jury in
any action, proceeding or counterclaim brought by either party against the other
on any matters in any way arising out of or connected with this Lease, the
relationship of Landlord and Tenant, and Tenant's use or occupancy of the Leased
Premises, or the enforcement of any remedy under any statute, emergency or
otherwise.
SECTION 13.11. REMOVAL OF TENANT'S PROPERTY. If Tenant shall not remove
all of Tenant's property from the Leased Premises at any expiration or other
termination of this Lease, Landlord shall have the right, at Landlord's
election, to remove all or part of such property in any manner that Landlord
shall choose and store the same without liability to Tenant for loss thereof,
and Tenant shall be liable to Landlord for all expenses incurred in such removal
and also for the cost of storage of such property.
SECTION 13.12. ATTORNEY'S FEES AND COSTS. In the event either party
defaults in the performance or observance of any of the terms, conditions,
covenants or obligations contained in this Lease and the other party employs
attorneys to enforce all or part of this Lease, to collect any rent due or to
become due or recover possession of the Leased Premises, the defaulting party
agrees to reimburse the non-defaulting party for all reasonable attorneys' fees
incurred thereby, whether or not suit has actually been filed. The defaulting
party shall also pay the non-defaulting party all reasonable costs and expenses,
other than attorneys' fees, incurred in the enforcement of any of the terms,
conditions, covenants or obligations contained in this Lease. All the sums paid
or obligations incurred by the non-defaulting party as aforesaid with interest
at the per annum rate equal to 15% and costs shall be paid by the defaulting
party to the non-defaulting party ten (10) days after the rendition of any bill
or statement therefore.
ARTICLE 14
QUIET ENJOYMENT
Tenant, on paying the Rental and keeping and performing the conditions
and covenants herein contained, shall and may peaceably and quietly enjoy the
Leased Premises for the Lease Term and any renewal term, subject to the legal
requirements, applicable insurance requirements and regulations, and the
provisions of this Lease. Landlord shall use reasonable efforts to have other
tenants in the Building comply with their applicable Rules and Regulations. It
is understood and agreed that this covenant and any and all other covenants of
Landlord contained in this Lease shall be binding upon Landlord and its
successors or assigns only with respect to breaches occurring during its and
their respective ownership of the Landlord's interest hereunder.
ARTICLE 15
NOTICES
SECTION 15.01. NOTICES. All notices and demands which may or are
required to be given by either party to the other hereunder shall be in writing
and shall be sent by United States certified or registered mail, postage
prepaid, addressed as specified in Item M, Section 1.02 of this Lease or to such
other firm or to such other place as Landlord or Tenant may from time to time
designate in writing.
SECTION 15.02. PLACE OF PAYMENT. All Rental and other payment required
to be made by Tenant to Landlord shall be delivered, or mailed to Landlord at
the address as specified in Item M, Section 1.02 of this Lease, and such
payments shall be deemed made when received by Landlord.
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ARTICLE 16
MISCELLANEOUS PROVISIONS
SECTION 16.01. CONDITION OF PREMISES. Except as otherwise set forth in
this Lease, Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the Leased Premises or
the Building or with respect to the suitability or condition of any part of the
Building for the conduct of Tenant's business except as provided in this Lease.
SECTION 16.02. COMMON AREAS. The term "Common Areas", as used in this
Lease, refers to the areas of the Building and the land described in Exhibit A
which are designed for use in common by all tenants of the Building and their
respective employees, agents, customers, invitees and others, and includes, by
way of illustration and not limitation, entrances and exits, hallways and
stairwells, elevators, restrooms, sidewalks, driveways, parking areas,
landscaped areas and other areas as may be designated by Landlord as part of the
Common Areas of the building. Tenant shall have the non-exclusive right, in
common with others, to the use of the Common Areas, subject to such
non-discriminatory rules and regulations as may be adopted by Landlord including
those set forth in Section 3.02 and Exhibit D of this Lease. The Common Areas
will include 765 parking spaces and Landlord will not reserve or contractually
provide parking spaces for another tenant in the Building that would prevent the
availability of six (6) free parking spaces per 1,000 square feet leased to
Tenant up to 87,333 square feet of rentable area including ten (10) free
reserved parking stalls designated for use by Tenant's employees or visitors.
SECTION 16.03. CHOICE OF LAW. This Lease shall be governed by and
construed pursuant to the laws of the State of Indiana.
SECTION 16.04. VENUE. Tenant and Landlord each agree that the venue of
any action arising between the parties to this Lease shall be in the County
wherein the Leased Premises are located, and that the federal jurisdiction shall
be in the district wherein the Leased Premises are located, and each of Landlord
and Tenant hereby waive any claims of preferred venue under the Indiana Trial
Rules, or any claim of a more convenient forum.
SECTION 16.05. SUCCESSORS AND ASSIGNS. Except as otherwise provided in
this Lease, all of the covenants, conditions and provisions of this Lease shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
SECTION 16.06. [RESERVED.]
SECTION 16.07. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation of or
option for Lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
SECTION 16.08. TIME. Time is of the essence of this Lease and each and
all of its provisions.
SECTION 16.09. DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord"
and "Tenant" as used herein shall include the plural as well as the singular. If
more than one person is named as Tenant, the obligations of such persons are
joint and several. The marginal headings and titles to the articles of this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation any part hereof.
SECTION 16.10. ENTIRE AGREEMENT; AMENDMENTS. This Lease and the
Acceptance Letter executed pursuant to Section 2.03 hereof, together with all
exhibits, schedules and appendices attached hereto, contain all of the
agreements of the parties hereto with respect to any matter covered or mentioned
in this Lease, and no prior agreement, understanding or representation
pertaining to any such matter shall be effective for any purpose. No provision
of this Lease may be amended or added to except by an agreement in writing
signed by the parties hereto or their respective successors in interest.
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SECTION 16.11. PAYMENT OF AND INDEMNIFICATION FOR LEASING COMMISSIONS.
The parties hereby acknowledge, represent and warrant that the only real estate
broker or brokers involved in the negotiation and execution of this Lease is, or
are, those named in Item K, Section 1.02; that Landlord is obligated to pay to
it or them or for their benefit a leasing commission under its separate Leasing
Agreement with such designated brokers and that no other broker or person is
entitled to any leasing commission or compensation as a result of the
negotiation or execution of this Lease. Each party shall indemnify the other
party and hold it harmless from any and all liability for the breach of any such
representation and warranty on its part and shall pay any compensation to any
other broker or person who may be deemed or held to be entitled thereto.
SECTION 16.12. SEVERABILITY OF INVALID PROVISIONS. If any provisions of
this Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be affected or impaired, and such remaining
provisions shall remain in full force and effect.
SECTION 16.13. DEFINITION OF THE RELATIONSHIP BETWEEN THE PARTIES.
Neither party to this Lease shall, by virtue of the execution of this Lease or
the leasing of the Leased Premises, become or be deemed a partner of or joint
venturer with the other in the conduct of such other party's business on the
Leased Premises or otherwise.
SECTION 16.14. ESTOPPEL CERTIFICATE. Tenant shall, within twenty (20)
days following receipt of a written request from Landlord, execute, acknowledge
and deliver to Landlord or to any lender, purchaser or prospective lender or
purchaser designated by Landlord, a statement in such form as Landlord may
reasonably request, certifying (i) that this Lease is in full force and effect
and unmodified (or, if modified, stating the nature of such modification), (ii)
the date to which rent has been paid, and (iii) that there are not, to Tenant's
knowledge, any uncured defaults (or specifying such defaults if any are
claimed). Any such statement may be relied upon by any prospective purchaser or
mortgagee of all or any part of the Building. Tenant's failure to deliver such
statement within such period shall be conclusive upon Tenant that this Lease is
in full force and effect and unmodified, and that there are no uncured defaults
in Landlord's performance hereunder.
SECTION 16.15. FORCE MAJEURE. Landlord shall be excused for the period
of any delay in the performance of any obligation hereunder when such delay is
occasioned by war, invasion or hostility; work stoppages, boycotts, slowdowns or
strikes; shortages of energy, man-made or natural casualties not caused by
Landlord; unusual weather conditions; acts or omissions of governmental or
political bodies; civil disturbances or riots or any causes beyond Landlord's
control.
SECTION 16.16. CORPORATE TENANT. If Tenant is a corporation,
partnership, or limited liability company, the individual, or individuals
executing this Lease warrant their capacity and authority to execute this Lease
on behalf of said corporation, partnership, or limited liability company.
SECTION 16.17. MEMORANDUM OF LEASE. The parties hereto shall not record
this Lease, but each party shall execute upon the request of the other a
"memorandum of lease" suitable for recording.
SECTION 16.18. RECIPROCAL COVENANT ON NOTIFICATION OF ADA VIOLATIONS.
Within ten (10) days after receipt, Landlord and Tenant shall advise the other
party in writing and provide the other with copies of (as applicable), any
notices alleging violation of the Americans with Disabilities Act of 1990
("ADA") relating to any portion of the Building, Common Areas or the Leased
Premises; any claims made or threatened in writing regarding noncompliance with
the ADA and relating to any portion of the Building, Common Areas or the Leased
Premises; or any governmental or regulatory actions or investigations instituted
or threatened regarding noncompliance with the ADA and relating to any portion
of the Building, Common Areas or the Leased Premises.
SECTION 16.19. SORTING AND SEPARATION OF REFUSE AND TRASH. Tenant
covenants and agrees, as its sole cost and expense, to comply with all present
and future laws, orders and regulations of all state, federal, municipal and
local governments, departments, commissions and boards regarding the collection,
sorting, separation and recycling of waste products, garbage, refuse and trash.
Tenant shall sort and separate waste products, garbage, refuse
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and trash into such categories as provided by law. Each separately sorted
category of waste products, garbage, refuse and trash shall be placed in
separate receptacles reasonably approved by Landlord. Such separate receptacles
may, at Landlord's option, be removed from the Leased Premises in accordance
with a collection schedule prescribed by law.
Landlord reserves the right to refuse to collect or accept from Tenant any waste
products, garbage, refuse or trash that is not separated and sorted as required
by law, and to require that Tenant arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor satisfactory to Landlord. Tenant shall
pay all costs, expenses, fines, penalties or damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with the provisions
of this paragraph and, at Tenant's sole cost and expense, shall indemnify,
defend and hold Landlord harmless (including legal fees and expenses) from and
against any actions, claims and suits arising from such noncompliance, utilizing
counsel reasonably satisfactory to Landlord.
SECTION 16.20. HAZARDOUS WASTE. The term "Hazardous Substances", as used
in this Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or
any other substances, the use and/or the removal of which is required or the use
of which is restricted, prohibited or penalized by any "Environmental Law",
which term shall mean any federal, state or local law, ordinance or other
statute of a governmental or quasi-governmental authority relating to pollution
or protection of the environment. Tenant hereby agrees that (A) no activity will
be conducted on the Leased Premises that will produce any Hazardous Substance,
except for such activities that are part of the ordinary course of Tenant's
business activities (the "Permitted Activities") provided said Permitted
Activities are conducted in accordance with all Environmental Laws and have been
approved in advance in writing by Landlord; Tenant shall be responsible for
obtaining any required permits and paying any fees and providing any testing
required by any governmental agency; (B) the Leased Premises will not be used in
any manner for the storage of any Hazardous Substances except for the temporary
storage of such materials that are used in the ordinary course of Tenant's
business (the "Permitted Materials") provided such Permitted Materials are
properly stored in a manner and location meeting all Environmental Laws and
approved in advance in writing by Landlord; Tenant shall be responsible for
obtaining any required permits and paying any fees and providing any testing
required by any governmental agency; (C) no portion of the Leased Premises will
be used by Tenant its agents or invitees as a landfill or a dump; (D) Tenant
will not install any underground tanks of any type; (E) Tenant will not allow
any surface or subsurface conditions to exist or come into existence that
constitute, or with the passage of time may constitute a public or private
nuisance; (F) Tenant will not permit any Hazardous Substances to be brought onto
the Leased Premises, except for the Permitted Materials described above, and if
so brought or found located thereon, the same shall be immediately removed, with
proper disposal, and all required cleanup procedures shall be diligently
undertaken pursuant to all Environmental Laws. Subject to the restrictions
contained in Section 3.03 hereof, Landlord or Landlord's representative shall
have the right but not the obligation to enter the Leased Premises for the
purpose of inspecting the storage, use and disposal of Permitted Materials to
ensure compliance with all Environmental Laws. Should it be determined, in
Landlord's reasonable opinion, that said Permitted Materials are being
improperly stored, used, or disposed of, then Tenant shall immediately take such
corrective action as reasonably requested by Landlord. Should Tenant fail to
take such corrective action within 72 hours or such shorter period as is
required, Landlord shall have the right to perform such work and Tenant shall
promptly reimburse Landlord for any and all costs actually incurred by Landlord
associated with said work. If at any time during or after the Lease Term, the
Leased Premises are found to be so contaminated or subject to said conditions,
and such condition shall have been caused by Tenant, Tenant shall diligently
institute proper and thorough cleanup procedures at Tenant's sole cost, and
Tenant agrees to indemnify, defend and hold harmless Landlord, its lenders, any
managing agents and leasing agents of the Leased Premises, and their respective
agents, partners, officers, directors and employees, from all claims, demands,
actions, liabilities, costs, expenses, damages (actual or punitive) and
obligations of any nature arising from or as a result of the use of the Leased
Premises by Tenant. The foregoing indemnification and the responsibilities of
Tenant shall survive the termination or expiration of this Lease.
During the Lease Term, each of Landlord and Tenant shall promptly
provide to the other party copies of all summons, citations, directives,
information inquiries or requests, notices of potential responsibility, notices
of violation or deficiency, orders or decrees, claims, complaints,
investigations, judgments, letters, notice of
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environmental liens, and other communications, written or oral, actual or
threatened, from the United States Environmental Protection Agency, Occupational
Safety and Health Administration, the State of Indiana Environmental Protection
Agency or other federal, state, or local agency or authority, or any other
entity or individual, concerning (i) any Hazardous Substance and the Leased
Premises; (ii) the imposition of any lien on the Leased Premises, or (iii) any
alleged violation of or responsibility under any Environmental Law.
ARTICLE 17
ADDITIONAL PROVISIONS
SECTION 17.01. OPTION TO EXTEND LEASE TERM.
A. Provided Tenant is not in default hereunder, Tenant shall have
the option to extend the term of this Lease (hereinafter, the
"Option")) for two (2) consecutive periods of five (5) years each
(each referred to as an "Extended Term") upon the same terms and
conditions, except for Basic Annual Rent and upon the following
further terms and conditions.
B. Tenant shall exercise said Option only by giving written notice
to Landlord not later than twelve (12) months prior to the
Expiration Date ("Option Notice"). Thereafter, Landlord shall
advise Tenant, within ten (10) business days, of the Basic Annual
Rent for the Option Period, and Tenant shall then have ten (10)
business days within which to revoke in writing its exercise of
the Option.
C. Basic Annual Rent shall be 95% of fair rental value, but in no
event less than 1.08 multiplied by the then current Basic Annual
Rent. In the event that the parties cannot agree on what the fair
rental value shall be during the Extended Term within thirty (30)
days following the Option Notice, the matter shall be determined
by arbitration at the election of either Landlord or Tenant. The
arbitration proceedings shall be completed and the determination
of such Basic Annual Rent made not later than thirty (30) days
prior to the commencement of the Extended Term. In the event that
Tenant preliminarily exercises its Option, the costs of the
resulting arbitration shall be shared equally between the
parties. Any arbitration conducted pursuant to the provisions
hereof shall be conducted by an independent appraiser selected by
the parties. If the parties cannot agree on such person, then
each party shall select one appraiser and the two persons so
selected shall appoint a third appraiser. The appraisers shall be
members of the American Institute of Real Estate Appraisers or
its successor organization, or if neither is in existence, then
persons recognized as professional real estate appraisers within
the Indianapolis metropolitan area. The decision of a majority of
such appraisers shall be recognized as the new Basic Annual Rent
associated with the Extended Term, and the parties agree to be
bound by such determination.
D. It is understood and agreed that this Option is personal to
Tenant and is not transferable; in the event of any assignment or
subleasing of any or all of the Leased Premises, said Option
shall be null and void. Notwithstanding the foregoing, in the
event that Tenant subleases or assigns any part of this Lease to
an affiliate of Tenant or to any successor by merger,
consolidation or by operation of law, the Option shall continue
in full force and effect exercisable by any successor sublessor
or assignee under such circumstances.
SECTION 17.02. REIMBURSEMENT OF MOVING EXPENSES. Landlord shall
reimburse Tenant for actual moving expenses and related costs up to One Dollar
($1.00) per rentable square foot of the Leased Premises. Tenant shall submit
copies of all such invoices to Landlord on or after the Commencement Date, upon
which Landlord shall reimburse Tenant within approximately thirty (30) days of
receipt.
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SECTION 17.03. SPACE PLANNING. Landlord shall pay for reasonable space
planning services and disbursements by CSO Architects associated with the Leased
Premises in an amount equal to the lesser of either the actual fees and
disbursements or One Hundred Five Thousand Dollars ($105,000.00) pursuant to an
agreement between Landlord and CSO Architects dated September 17, 1998, as
amended on October 30, 1998 and any amounts in excess of One Hundred Five
Thousand Dollars ($105,,000.00) shall be the responsibility of Tenant.
SECTION 17.04. EXISTING RENT OBLIGATION. Landlord will pay to Tenant
Tenant's existing rent obligation at 7260 Shadeland Station up to $55,500 per
month for the final three (3) months of Tenant's Lease at 7260 Shadeland Station
for a total of $166,500.00 payable as such rent becomes due.
SECTION 17.05. EXPANSION OPTIONS. Tenant shall have four (4), one (1)
time options to lease additional space in the Building in blocks of up to
approximately 15,000 usable square feet or the remaining space in the Building
not leased by Tenant, if less than 15,000 usable square feet. These options
shall be on the fourth, sixth, eighth and tenth anniversary dates of the
Commencement Date. Tenant, in order to exercise said options, must notify
Landlord in writing not later than nine (9) months prior to the respective
anniversary date of the Commencement Date. Landlord shall deliver expansion
space not later than three (3) months after the respective anniversary date.
Basic Annual Rent on a per rentable square foot basis for the expansion areas
shall be calculated by taking the Basic Annual Rent during the first year of the
Lease Term ($15.15 per square foot) minus Landlord's share of Operating Costs
for the twelve (12) month period after the Commencement Date, multiplied by 1.03
per year (compounded annually) to the date of said expansion option and then
adding Landlord's share of Operating Costs for the twelve (12) month period
after the Commencement Date The interior finish allowance for the option
exercisable for the fourth and sixth anniversaries for space that previously has
not been leased shall be the same as the per square foot amount originally
provided by Landlord regarding the Landlord's Work without the upgrades
described as items 3(A), 3(B), 3(D), 3(E), 3(F), 3(I), 3(J) and 3(K) in Exhibit
C-1. The interior finish allowance for the option exercisable for the fourth and
sixth anniversaries for space that previously has been leased, built out and
occupied by a third party shall be $4.00 per usable square foot. The interior
finish allowance regarding the option exercisable for the eighth anniversary
date of the Commencement Date shall be one-half the allowance on a per usable
square foot basis for the options exercised on the fourth and sixth
anniversaries.
If Tenant does not exercise any one of its options to expand within the
time frame stated above, that particular option shall be deemed null and void.
The Lease Term for any expansion area shall be coterminous with the Lease Term
or Extended Term as applicable, and the option exercisable for the tenth
anniversary cannot be exercised unless the term of the Lease is extended.
SECTION 17.06. RIGHT OF FIRST OFFER. If, at the expiration or
termination of a lease to another tenant in the Building, Landlord wants to
relet all or any portion of such space (referred to in this Section 17.06 as
"Additional Space"), Landlord shall notify Tenant in writing of Landlord's
intention to lease the Additional Space, (referred to as "Landlord's Notice").
Provided that Tenant shall not be in default of any of Tenant's obligations
under this Lease as of the date of such Landlord's Notice, Tenant shall have the
right within thirty (30) calendar days following its receipt of Landlord's
Notice to lease the Additional Space at Basic Annual Rent that shall be
calculated on a per rentable square foot basis by multiplying $16.15 minus the
Landlord's share of Operating Costs for the twelve (12) month period after the
Commencement Date by 1.03 per year (compounded annually) for each year after the
Commencement Date to the date the Additional Space will be occupied by Tenant
plus Landlord's share of Operating Costs for the twelve (12) month period after
the Commencement Date If Tenant shall not so elect to lease such Additional
Space within said period, Landlord may then lease such Additional Space to
another tenant.
SECTION 17.07. SIGNAGE. Landlord shall construct a sign on the exterior
of the front (East) of the Building in accordance with the Plans and
Specifications, which shall be included within the scope of the Landlord's Work.
Exterior signage for two other tenants at the Building may be located on each
end of the Building. If and when the Leased Premises constitute seventy-five
percent (75%) of the rentable area of the Building, Tenant shall have a right
either to install at its expense a sign on an end of the Building or a monument
sign behind the Building. Tenant will not attach any additional sign on any part
of the outside of the Building, or any part of the inside of the Building
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that is visible outside the Leased Premises, or without Landlord's prior written
consent which consent shall not be unreasonably withheld, conditioned or delayed
in the halls, lobbies, windows or elevator banks of the Building. Permitted
signs will comply with the requirements of the governmental authorities having
jurisdiction over the Building. If Tenant fails to do so, Landlord may remove
all unpermitted signs following not less than ten (10) days prior written notice
to Tenant, which removal by Landlord shall be at Tenant's expense. Additionally,
Landlord will provide a directory in a conspicuous place in the Building with
names of tenants of the Building. Tenant will provide to Landlord a roster of
its employees which it requests that Landlord include within the Building
directory.
SECTION 17.08. GUARANTY. As a material inducement to Tenant to enter
into this Lease with Landlord, Eaton & Lauth Real Estate Services, Inc. shall
enter into a guaranty agreement in substantially the form of Appendix III
attached hereto unconditionally guarantying Landlord's timely completion of the
Building and Leased Premises pursuant to Section 2.02 and Landlord's performance
of its obligations arising from the date hereof through the Commencement Date,
including without limitation satisfaction of Tenant's remedies under Section
2.02 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first written above.
TENANT: IDG BOOKS WORLDWIDE, INC. LANDLORD: CROSSPOINT SEVEN, LLC
BY: /s/ JOHN P. BALL BY:
----------------------------- ---------------------------
PRINTED: JOHN P. BALL PRINTED:
----------------------------- ---------------------------
TITLE: EXECUTIVE VICE PRESIDENT TITLE:
----------------------------- ---------------------------
APPENDIX I: Form of Acceptance Letter
APPENDIX II: Form of Nondisturbance Agreement
APPENDIX III: Form of Guaranty
EXHIBITS: A: Legal Description of Land
B: Schematic Illustration of Leased Premises, Floor Plan of
Leased Premises and Architectural Rendering of Building
C: Landlord's and Tenant's Work
C-1: Tenant Improvements
D: Office Rules and Regulations
E: Basic Annual Rent Schedule
F: Intentionally Omitted
G: Cleaning Standards
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APPENDIX I
ACCEPTANCE LETTER
(Date)
(Notice Address of Landlord):
Dear (Landlord):
IDG Books Worldwide, Inc. hereby acknowledges that the Commencement Date of the
Lease dated ________________ by and between Crosspoint Seven, LLC ("Landlord")
and IDG Books Worldwide, Inc. ("Tenant") in the Crosspoint Plaza One Building in
Indianapolis, IN is ____________________ and the Expiration Date is
________________. IDG Books Worldwide, Inc. has accepted the Leased Premises for
occupancy and the condition of the Leased Premises, including the tenant finish
improvements constructed thereon, and the Building, is satisfactory and in
conformity of the provisions of the Lease in all respects, except for any
defects as to which we shall give written notice to you within thirty (30) days
after such delivery and the punchlist items.
This letter shall become a part of the Lease.
Very truly yours,
(Tenant)
<PAGE> 31
APPENDIX II TO OFFICE LEASE
NONDISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made and entered into as of this ___ day of ________,
_____, by and among CROSSPOINT SEVEN, LLC, an Indiana limited liability company
(hereinafter referred to as "Landlord"), IDG BOOKS WORLDWIDE, INC., a Delaware
corporation (hereinafter referred to as "Tenant") and
_______________________________, a(n) _________________________ with offices at
___________________________________ (hereinafter referred to as "Lender").
W I T N E S S E T H :
WHEREAS, Lender has become the owner and holder of a note secured by a
___________________________ dated _____________ ___, 199__ and recorded [in Deed
Book ____ beginning at Page ____,] [as Instrument #____] in the office of the
Recorder of _____________ County, Indiana (hereinafter referred to as the
"Mortgage"), constituting a first lien upon real property described therein
(hereinafter referred to as the "Real Property"); and
WHEREAS, Landlord and Tenant have entered into that certain Office Lease
(hereinafter referred to as the "Lease"), dated November ___, 1998, with respect
to certain premises which are part of the Real Property (hereinafter referred to
as the "Premises"), all as more particularly set forth in said Lease, a copy of
which is attached hereto as Exhibit "A" and by reference made a part hereof for
all purposes; and
WHEREAS, subject to the further terms as contained in this Agreement,
the Lease is or may become subordinate to the Mortgage and to the right, title
and interests of Lender thereto and thereunder; and
WHEREAS, Tenant wishes to obtain from Lender certain assurances that
Tenant's possession of the Premises will not, subject to the terms and
conditions of this Agreement, be disturbed by reason of a foreclosure of the
lien of the Mortgage on the Real Property; and
WHEREAS, Lender is willing to provide such assurances to Tenant upon and
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties hereto, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto do mutually
covenant and agree as follows:
1. The Lease shall at all times continue to be subject and subordinate
in all respects to the Mortgage and to all renewals, modifications and
extensions thereof, subject to the terms and conditions of this Agreement.
2. So long as Tenant is not in default in the payment of rent,
additional rent or other charges or in the performance of any of the other
terms, covenants or conditions of the Lease, Tenant shall not be disturbed by
Lender in Tenant's possession, enjoyment, use and occupancy of the Premises
during the original or any renewal term of the Lease or any extension thereof.
3. No person or entity who exercises a right, arising under the Mortgage
or any assignment of the Lease, to receive the rents payable by Tenant under the
Lease shall thereby become obligated to Tenant for the performance of any of the
terms, covenants, conditions and agreements of Landlord under the Lease unless
by express assumption thereof. Landlord and Tenant agree that Tenant shall make
all payments to be made by Tenant under the Lease to such person or entity upon
receipt of written notice of the exercise of such rights, and Tenant agrees not
to prepay any sums payable by Tenant under the Lease more than thirty (30) days
in advance. Such
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receipt of rent by any other party shall not relieve Landlord of its obligations
under the Lease, and Tenant shall continue to look to Landlord only for
performance thereof, except such obligations as are expressly assumed by Lender
or some other their party.
4. If the interest of Landlord shall be acquired by Lender by reasons of
foreclosure of the Mortgage or other proceedings brought to enforce the rights
of the holder thereof, by deed in lieu of foreclosure or by any other method,
and Lender succeeds to the interest of Landlord under the Lease, the Lease and
the rights of Tenant thereunder shall continue in full force and effect and
shall not be terminated or disturbed except in accordance with the terms of the
Lease, and Tenant shall be bound to Lender under all of the terms, covenants and
conditions of the Lease for the balance of the term thereof remaining, and any
extensions or renewals thereof which may be effected in accordance with any
option therefor contained in the Lease, with the same force and effect as if
Lender were the landlord under the Lease and Tenant agrees to attorn and does
hereby attorn to Lender as its Landlord, said attornment to be effective and
self-operative without the execution of any other instruments by either party
hereto immediately upon Lender's succeeding to the interest of Landlord under
the Lease, and Tenant hereby agrees that Lender shall not be responsible or
liable in any way for any default under the Lease occurring prior to the time
Lender obtains title to the Real Property and is entitled to actual,
unrestricted possession of the Premises.
5. In addition to and not in lieu of all the provisions of this
Agreement, Lender shall not in any way or to any extent be:
(a) liable for any act or omission of any landlord (including
Landlord) unless expressly assumed by Landlord; or
(b) bound by any rent or additional rent which Tenant might
have paid for more than thirty (30) days in advance to any
prior landlord (including Landlord); or
(c) bound by any agreement or modification of the Lease made
without Lender's consent; or
(d) in any way responsible for any deposit or security which
was delivered to Landlord but which was not subsequently
delivered to Lender.
6. Tenant, in order to induce Lender to enter into this Agreement,
hereby affirms that:
(a) Exhibit "A" is a full, true and complete copy of the
Lease;
(b) the Lease is in full force and effect and has not been
modified or amended;
(c) Tenant has accepted the Premises and is in occupancy
thereof;
(d) the term of the Lease has commenced, Tenant is now
obligated to pay all rent and perform all covenants to be
performed by Tenant under the Lease and rent has been paid
for, but not beyond, the period ending ___________ ___,
________;
(e) to the best of the knowledge and belief of the
undersigned, Landlord is not in default under any of
Landlord's obligations under the Lease; and
(f) Tenant has no present right of offset against any rent due
or to become due under the Lease.
7. This Agreement shall be binding upon and inure to the parties, their
respective heirs, successors and assigns.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CROSSPOINT SEVEN, LLC
("Landlord")
By:
-------------------------------
Printed:
-------------------------------
Title:
-------------------------------
----------------------------------------
("Lender")
By:
-------------------------------
Printed:
-------------------------------
Title:
-------------------------------
IDG BOOKS WORLDWIDE, INC.
("Tenant")
By:
-------------------------------
Printed:
-------------------------------
Title:
-------------------------------
[INCLUDE NOTARIAL JURATS IF AGREEMENT IS TO BE RECORDED]
29
<PAGE> 34
APPENDIX III TO OFFICE LEASE
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to
IDG BOOKS WORLDWIDE, INC., as Tenant, to enter into that certain Office Lease
dated as of the date hereof (the "Lease"), with CROSSPOINT SEVEN, LLC, as
Landlord, the undersigned hereby absolutely and unconditionally guarantees to
Tenant, its successors and assigns, the full performance and observance by
Landlord of all the other terms, covenants, conditions and agreements therein
provided to be performed and observed by Landlord through the Commencement Date
(as such term is defined in the Lease), including without limitation, and
subject to the further provisions and limitations as set forth in the Lease, the
timely completion of the Landlord's Work (as defined in the Lease), together
with the payment of any penalties and other remedies which may be available to
Tenant under the Lease resulting from Landlord's failure to timely complete the
Landlord's Work, for which the undersigned shall be jointly and severally liable
with Landlord. The undersigned agrees that in the event of a default by Landlord
under the Lease, Tenant may proceed against the undersigned before, after or
simultaneously with proceeding against Landlord. This Guaranty shall not be
terminated, affected, or impaired in any manner by reason of: (1) the assertion
by Tenant against Landlord of any of the rights or remedies reserved to Tenant
pursuant to the provisions of the Lease; (2) the commencement of summary or
other proceedings against Landlord; (3) the failure of Tenant to enforce any of
its rights against Landlord; or (4) the granting by Tenant of any extensions of
time to Landlord. The undersigned further covenants and agrees that this
Guaranty shall be absolute and unconditional and shall be in full force and
effect with respect to any amendment, addition, assignment, transfer or other
modification of the Lease, whether or not the undersigned shall have knowledge
or have been notified of or agreed or consented thereto. If Tenant at any time
is compelled to take action, by legal proceedings or otherwise, to enforce or
compel compliance with the terms of this Guaranty, the undersigned shall, in
addition to any other rights or remedies to which Tenant may be entitled
hereunder or as a matter of law or in equity, pay to Tenant all costs, including
reasonable attorneys' fees, incurred or expended by Tenant in connection
therewith. All duties and obligations of the undersigned pursuant to this
Guaranty shall be binding upon the successors and assigns of the undersigned.
For purposes of this Guaranty, the word "Landlord" shall include the successors
and assigns of the undersigned. This Guaranty shall be governed by and construed
in accordance with the laws of the State of Indiana.
Dated:_____________ ___, 1998.
EATON & LAUTH REAL ESTATE SERVICES, INC.
By:
-------------------------------
Printed:
-------------------------------
Title:
-------------------------------
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EXHIBIT A
LEGAL DESCRIPTION OF LAND
Commencing at the Southwest corner of Section 12, Township 17 North, Range
04 East; thence on the West line of said Section, North 00 (degrees) 07'30" West
(Bearing per Unrecorded Final Development Plan for Crosspoint); a distance of
175.36 feet; thence North 89 (degrees) 82'30" East 16.50 feet to the
intersection of the original East right-of-way line of Hague Road with the
northern boundary of 96th Street, thence on said East right-of-way line, North
00 (degrees) 07'30" West 1723.17 feet to the southeastern right-of-way line of
the Norfolk and Western Railway Company; thence on said southeastern line North
27 (degrees) 25'18" East 3385.61 feet to the northwesterly corner of a legal
drain easement as shown on the Final Development Plan - Phase I for Crosspoint,
as prepared by Clyde E. Williams & Associates - (Unrecorded); thence on the
North line of said legal drain easement the following two courses: 1) South 74
(degrees) 50'33" East 447.84 feet to the Point of Curvature of a curve concave
southwesterly, having a central angle of 23 (degrees) 44'27" and a radius of
180.00 feet; 2) southeasterly on said curve an arc distance of 74.58 feet (said
arc being subtended by a chord which bears South 62 (degrees) 58'19" East 74.05
feet to the Point of Beginning of the herein described real estate; thence North
56 (degrees) 21'25" East 175.05 feet; thence North 88 (degrees) 28'53" East
599.05, feet thence South 50 (degrees) 35'28" East 158.10 feet to a point on the
westerly right-of-way line of Crosspoint Boulevard, said point being on a
non-tangent curve, concave westerly, having a central angle of 25 (degrees)
48'58" and a radius of 537.96 feet; thence on said right-of-way line the
following four courses: 1) southerly and southwesterly on said curve an arc
distance of 242.07 feet (said arc being subtended by a chord which bears South
24 (degrees) 15'10" West 240.03 feet); 2) South 37 (degrees) 08'41" West 364.66
feet to the Point of Curvature of a curve concave southeasterly, having a
central angle of 07 (degrees) 59'20" and a radius of 1487.35 feet; 3)
southwesterly on said curve an arc distance of 204.80 feet, (said arc being
subtended by a chord which bears South 33" (degrees) 9'01" West 204.43 feet); 4)
South 29 (degrees) 09'21" West 174.05 feet to the most easterly corner of said
legal drain easement; thence on the North line of said legal drain easement the
following five courses: 1) North 37 (degrees) 20'33" West 250.00 feet to the
Point of Curvature of a curve concave northeasterly, having a central angle of
37 (degrees) 00'00" and a radius of 75.00 feet; 2) northwesterly on said curve
an arc distance of 48.44 feet (said arc being subtended by a chord which bears
North 18 (degrees) 50'33" West 47.80 feet); 3) North 00 (degrees) 20'33" West
145.00 feet; 4) North 19 (degrees) 50'33" West 374.64 feet to the Point of
Curvature of a curve concave southwesterly, having a central angle of 31
(degrees) 15'33" and a radius of 180.00 feet; 5) northwesterly and westerly on
said curve an arc distance of 98.20 feet, (said arc being subtended by a chord
which bears North 35 (degrees) 28'19" West 95.99 feet) to the Point of
Beginning, containing 10.280 acres, more or less; subject to rights-of-way,
easements and restrictions.
<PAGE> 36
EXHIBIT B
BUILDING RENDERING
[DRAWING]
<PAGE> 37
EXHIBIT B
SITE PLAN
[DRAWING]
<PAGE> 38
EXHIBIT B
SCHEMATIC ILLUSTRATION OF LEASED PREMISES
FIRST FLOOR PLAN
[DRAWING]
<PAGE> 39
EXHIBIT B
SCHEMATIC ILLUSTRATION OF LEASED PREMISES
THIRD FLOOR PLAN
[DRAWING]
<PAGE> 40
EXHIBIT B
SCHEMATIC ILLUSTRATION OF LEASED PREMISES
FOURTH FLOOR PLAN
[DRAWING]
<PAGE> 41
EXHIBIT C
LANDLORD'S AND TENANT'S WORK
In addition to the mutual covenants contained in the Lease to which this
Exhibit C is a part, Landlord and Tenant further mutually agree as follows:
1. PLANS AND SPECIFICATIONS FOR THE LEASED PREMISES
(A) Tenant agrees to cooperate with Landlord's architects, including CSO
Architects, and engineers who shall prepare at Landlord's expense detailed Plans
and Specifications for tenant finish improvements for the Leased Premises which
shall include, but not be limited to, locations of doors, partitioning,
reflected ceiling, electrical fixtures, outlets and switches, telephone outlets,
plumbing fixtures, extraordinary floor loads, and other special requirements,
and Tenant shall approve such Plans and Specifications in writing, on or before
the Plans and Specifications Approval Date set forth in this Lease. All Plans
and Specifications shall be prepared by Landlord's architects and engineers,
which Plans and Specifications shall include architectural, mechanical,
electrical and structural engineering drawings for Building Standard Work as
described in paragraph 2 hereof at Landlord's expense.
(B) Tenant may require additional work in addition to the improvements
identified in the Plans and Specifications (hereinafter referred to as "Building
Non-Standard Work") different from or in addition to Building Standard Work as
described in paragraph 2 hereof. In such event, any architectural, mechanical,
electrical and structural engineering drawings, plans and specifications
required shall be prepared by Landlord's architects or engineers at Tenant's
expense and shall be subject to the approval of Landlord which approval shall
not be withheld unreasonably.
(C) If Tenant selects interior finish items, such as wall paint,
fixtures and carpeting from Building Standard Work, Tenant shall notify Landlord
of all such selections in writing within or before ten (10) days prior to the
Plans and Specifications Approval Date. All interior decorating items and
services selected by Tenant in excess of Building Standard Work shall be
provided by Tenant at Tenant's sole cost and expense.
(D) All plans and specifications referred to hereinabove in
subparagraphs (A) and (B) of this paragraph are subject to Landlord's approval,
which approval shall not be unreasonably withheld.
(E) Landlord warrants that (i) the Plans and Specifications shall not be
in conflict with local building codes or with applicable insurance regulations
for a fire resistant building, and (ii) all Plans and Specifications shall be in
a form satisfactory for filing with appropriate governmental authorities for
permits and licenses required for construction.
(F) The extent to which any Tenant's requirements are Building
Non-Standard Work or otherwise exceed Building Standard Work shall be determined
the Architect, which determination shall be subject to review and approval by
Tenant.
2. BUILDING STANDARD WORK AT LANDLORD'S COST AND EXPENSE
Landlord agrees, at its sole cost and expense, to furnish and install
all of the Building Standard Work specified in the Plans and Specifications and
as otherwise identified in the attached Exhibit C-1 limited to the quantities
contained therein and as indicated on Tenant's final approved Plans and
Specifications (which, for purposes of this Lease, shall be referred to as
"Building Standard Work").
33
<PAGE> 42
3. BUILDING NON-STANDARD WORK AT TENANT'S COST AND EXPENSE
Landlord shall cause the Building Non-Standard Work to be installed by
Landlord's contractor, but at Tenant's sole cost and expense, subject to any
credits as otherwise provided herein. Prior to commencing any such Building
Non-Standard Work, Landlord shall submit to Tenant a written estimate of the
cost thereof. If Tenant approves such estimate, it shall notify Landlord in
writing within seven (7) calendar days, and Landlord's contractor shall proceed
with such work. If Tenant shall fail to approve any such estimate in writing
within seven (7) calendar days after submission thereof, such failure shall be
deemed a disapproval thereof, and Landlord's contractor shall not proceed with
such Building Non-Standard Work or the Building Standard Work affected thereby.
It is understood that Tenant shall thereupon be liable for the delay and
increased cost, if any, in completing the affected Building Standard Work.
Tenant shall also be responsible for the design, function and maintenance of
such special improvements, whether or not installed by Landlord at Tenant's
request.
Tenant agrees to pay Landlord or its contractor, promptly upon receipt
of bills therefore from Landlord or its contractor, the cost of all such
Building Non-Standard Work, less any credits to which Tenant may be then
entitled associated with change orders or adjustments to the Building Standard
Work as contemplated in paragraph 4 hereof.
4. SUBSTITUTIONS AND CREDITS
Tenant may select different new materials (except exterior window
draperies) in place of Building Standard materials which would otherwise be
initially furnished and installed by Landlord in the interior of the Leased
Premises under the provisions of this Exhibit C provided such selection is
indicated on the Plans and Specifications or Exhibit C-1 attached. If Tenant
shall make any such selection and if the cost of such different new materials of
Tenant's selection shall exceed Landlord's cost of Building Standard Work
materials thereby replaced, Tenant shall pay to Landlord, as provided herein,
the difference between the cost of such different new materials and the credit
given by Landlord for the materials thereby replaced.
No such different new materials shall be furnished and installed in
replacement for any Building Standard materials until Landlord has submitted an
estimate to Tenant in writing of the increased cost thereof and Landlord and
Tenant have agreed in writing on the increased cost of such different new
materials and installation in excess of the cost of Building Standard Work. If
Tenant approves such estimate, it shall notify Landlord in writing within seven
(7) calendar days and Landlord's contractor shall proceed with such work. If
Tenant shall fail to approve such estimate within seven (7) calendar days after
the submission thereof, such failure is to be deemed a disapproval thereof, and
Landlord's contractor shall proceed with the Building Standard Work in lieu of
the proposed substituted work.
All amounts payable by Tenant to Landlord pursuant to this paragraph 4
shall be paid by Tenant pursuant to the terms of paragraph 3 hereof. Any such
different new materials which become a permanent part of the Leased Premises
shall be surrendered by Tenant to Landlord at the end of the Lease Term or any
Renewal Term of the Lease. For any materials deleted by Tenant from the Plans
and Specifications, credit shall be granted at the time the deleted Building
Standard Work would have been completed for other Building Standard Work or
Building NonStandard Work specified by Tenant.
5. COMPLETION AND TARGET COMMENCEMENT DATE
If the Target Commencement Date is delayed by any of the following
reasons in this paragraph 5, Tenant shall incur a charge equivalent to one day's
Rental for each such day of delay in lieu of the payment of Rental:
(A) Tenant's failure to approve or furnish Plans and Specifications in
accordance with the date specified in paragraph 1 hereof; or
34
<PAGE> 43
(B) Tenant's requests for materials, finishes, or installations other
than that covered by the Plans and Specifications; or
(C) Tenant's changes in said Plans and Specifications after the approval
or submission thereof to Landlord in accordance with date specified in paragraph
1 hereof; or
(D) A delay in performance of Building Standard Work as a result of
Tenant's failure to approve written estimates of the costs of Building
Non-Standard Work or materials in accordance with paragraph 3 or 4 hereof.
35
<PAGE> 44
[LOGO]
EXHIBIT C-1
IDG BOOKS WORLDWIDE
TENANT IMPROVEMENTS
The Landlord will construct the IDG Books Worldwide tenant space based on 87,333
square feet of rentable area as noted below:
1. The IDG Books Worldwide tenant finish estimate is based on the CSO Proposed
Space Plan drawings dated October 6, 1998 and the CSO Instructions for
Preliminary Pricing dated October 12, 1998 and as attached. The construction
costs included within the construction of the IDG Books Worldwide tenant
space are representative of the quantities within the CSO documents as
indicated within the depicted 68,682 rentable square feet area. That square
footage and quantities were prorated to a 87,333 rentable square feet area in
providing a full 87,333 rentable square foot estimate.
2. The IDG Books Worldwide tenant finish estimate is based on construction
within the new 145,000 gross square foot building in Fishers, Indiana
referred to The Crosspoint Office Building. The shell building shall be
constructed consistent with the attached Scope of Work for The Crosspoint
Office Building dated September 3, 1998.
3. IDG Books Worldwide tenant finish upgrades allowances that are included are
as follows:
<TABLE>
<S> <C>
A. COMPUTER ROOM UPGRADE ALLOWANCE including fire-rated walls and doors, access flooring, and
HVAC, FM200 fire suppression, UPS, and emergency generator systems, etc.: $150,000
B. CONFERENCE ROOM AND A/V UPGRADE ALLOWANCE including ceiling, lighting, flooring, wallcovering,
millwork, cabinetry, partitions, clerestory glass upgrades, and A/V equipment, etc. in the
Conference and Training rooms: $ 50,000
C. VOICE/DATA WIRING ALLOWANCE including voice and data wiring, and support devices and hardware, etc.: $140,000
D. LOBBY UPGRADE ALLOWANCE including ceiling, lighting, flooring, wallcovering, millwork, cabinetry,
entry door upgrades, etc. in the Lobby (excluding elevator lobbies), Reception, and Training
"break-out" areas: $ 40,000
E. IDG BOOKS WORLDWIDE RECEPTION DESK ALLOWANCE including underslab electrical/data/telephone utilities
and connections, lighting upgardes, etc.: $ 15,000
F. BREAK AREAS ALLOWANCE including ceiling, lighting, flooring, wallcovering, millwork, cabinetry upgrades,
appliances, equipment, and electrical and plumbing, etc. in the Break and Dining areas: $ 40,000
</TABLE>
<PAGE> 45
G. TENANT SPACE CARD KEY ACCESS ALLOWANCE including
eight (8) each proximity card readers that integrate
with shell building systems. Also included is door
preparation, hardware, and electrical and control
wiring, etc.: Included
H. FILTERED DRINKING WATER (BY REVERSE OSMOSIS)
ALLOWANCE including plumbing and electrical,
equipment, and fixtures, for drinking fountains and
breakroom sinks: Included
I. UPGRADED WALL COVERING, WOOD BASE AND CROWN MOLDING
ALLOWANCE including blocking and cant strips,
pre-machined and pre-finished millwork, and
wallcoverings other than type I vinyl in any area (See
item 4Nv.): $40,000
J. WOOD PANELING ALLOWANCE including blocking,
pre-machined and pre-finished millwork in any area
(See item 5F): $20,000
K. LIGHTING ALLOWANCE including L4, L5, L6, L7 light
fixtures, drywall coves for L7, and electrical
hook-up in any area. $26,000
4. The following tenant finish building standards were incorporated within the
IDG Books Worldwide tenant finish estimate except as noted within the
following sections:
A. Tenant Entry Door: 3'0" x 8'0" x 1 3/4" solid core birch stained
veneer wood door with hollow metal knock down frame with sidelight
and two (2) pair butt hinges, one (1) door stop, four (4) silencers
and one (1) lockable passage set.
B. Tenant Interior Doors: 3'0" x 8'-0" x 1 3/4" solid core birch
stained veneer wood doors with hollow metal knock down frames and
two (2) pair butt hinges, one (1) door stop, four (4) silencers, one
(1) levered passage set per door, and lockset upgrades on designated
Conference and Office doors.
C. Tenant to Tenant Demising Wall: 5/8" gypsum drywall both sides on 3
5/8" metal studs to the underside of the deck with sound insulation
within the entire wall.
D. Interior Tenant Partition Walls: 1/2" gypsum drywall both sides on 2
1/2" metal studs to the underside of the ceiling (9'-0" high).
E. Tenant Area Ceiling: Standard white ceiling grid with 2'-0" x 4'-0"
fissured acoustical ceiling tiles equal to Armstrong No. 756 ceiling
tiles.
F. Carpet: 28 ounce building standard carpet except the designated
areas of vinyl tile flooring. Four inch (4") vinyl base shall be
provided at all carpet and vinyl tile floor areas. Reference item
N2.
G. Window Blinds: One inch (1") aluminum slat mini-blinds at all
exterior windows and interior sidelights.
<PAGE> 46
H. HVAC System: Year round water source heat pump heating and air conditioning
system including ducted supply and plenum return distribution system above
the ceiling providing conditioned air to all Tenant areas and offices. Slot
diffusers at all Tenant perimeter offices and standard 2' x 2' square
diffusers in all other Tenant areas. Maximum size of any individual heat pump
will be four (4) tons with the average heat pump zone size less than 1,000
square feet with no single heat pump zone exceeding 1,200 square feet. All
heatpump units will separately controlled.
I. Fire Protection System: Sprinkler heads located per the space plans.
J. Signage: One (1) 9" x 12" suite entrance sign and standard directory
including Tenant identification lettering per floor.
K. Lighting: 2' x 4' fluorescent fixtures with four (4) tube cool white lamps
and 18 cell parabolic lenses.
L. Light Switches: Per space plan with dimmer switches on designated
incandescent lights and split switching on florescent lighting within
training rooms.
M. Duplex Electrical Wall Outlets: Per space plan.
N. Telephone/Data Wall Boxes: Per space plan. Wiring and outlet for the
telephone/data system in accordance with the "Voice/data wiring allowance".
O. Firehorn/Speaker Strobe Combination/Exit Lighting/Emergency Lighting: Per
code.
5. The following tenant finish Preliminary Specification and General Notes from
the CSO Instructions for Preliminary Pricing documents have been included
except as noted:
A. Division 0. Contract Conditions: No exceptions.
B. Division 1. General Requirements: No exceptions.
C. Division 5. Metal Fabrications: No exceptions.
D. Division 6. Wood and Plastic: No exceptions.
E. Division 7. Joint Sealers: No exceptions.
F. Division 8. Doors and Windows:
i. Contractor maintains the option to use Timely (steel) or painted
conventional hollow metal frames in consideration of sidelights.
ii. Birch doors in accordance with item 3B are included in lieu of Cherry,
plain sliced veneer doors.
iii. Contractor maintains the option to use laminated safety glass or
tempered glass.
<PAGE> 47
G. Division 9. Finishes:
i. Sprinkler heads will be centered with an allowable plus or minus 2"
variance in any direction.
ii. Surface variations in the floor will be maintained at 1/4" in 10
feet, but not guaranteed to be non-cumulative.
iii. Carpet specifications will be in accordance with the carpets once
selected.
iv. No carpet tiles have been identified.
H. Division 10, Specialties:
i. Fire extinguishers will be included per code.
I. Division 11. Equipment:
i. No Boardroom was indicated within the space plans. One projection
screen has been included.
J. Division 15/16. Mechanical and Electrical: No exceptions.
K. Division GN. General Notes:
i. No appliances were indicated within the space plans. Would be
considered within the "Break areas allowance".
L. Millwork Schedule:
i. M1: Millwork within the Kitchen area has been considered to be within
the "Break areas allowance", all other M1 millwork is included.
ii. M2: No M2 millwork was not indicated within the space plans. None has
been included.
iii. M3: Millwork within the Lobby and Training "break-out" areas has been
considered to be within the "Lobby upgrade allowance".
iv. M4: Lockers have been included as metal lockers.
v. M5: Millwork within the Conference rooms and Lobby has been
considered to be within the "Conference room and A/V upgrade
allowance" and the "Lobby upgrade allowance".
vi. M6: Drywall ceilings were not indicated within the space plans, but
have been included within the Reception (main) and the Board rooms.
vii. M7: Reception desk has been considered to be within the "Reception
desk allowance".
viii. M8: Moveable folding partitions within the Training and Conference
rooms are included.
ix. M9: Plastic laminate worksurfaces and cabinets have been included.
<PAGE> 48
x. M10: Built-in bench seating within the Dining area has been considered
to be within the "Break areas allowance".
xi. M11: Closet rod and shelves have been included.
M. Electrical & Lighting Schedule:
i. L1 Acrylic lens 2x4 lighting is included as indicated.
ii. L2 Parabolic lens 2x4 lighting is included as indicated.
iii. L3 Peerless indirect lighting has not been included. Parabolic lens
2x4 lighting is included in lieu of indirect lighting.
iv. L4 Can lights within Reception, Training "break-out", Dining, Lobby
areas have been considered to be within the "Lobby upgrade
allowance", "Break areas allowance".
v. L5 Pendant fixtures within Conference and Lobby areas have been
considered to be within the "Lobby upgrade allowance", "Conference
room and A/V upgrade allowance", and "Lighting allowance".
vi. L6 Sconce fixtures within the Training "break-out", and Dining areas
have been considered to be within the "Break areas allowance",
"Lobby upgrade allowance", and Lighting allowance".
vii. L7 Continual Cove Lighting within Conference, Lobby, Reception, and
Training "break-out", and Dining have been considered with the
"Break areas allowance", "Lobby upgrade allowance", "Conference room
and A/V upgrade allowance", and "Lighting allowance".
N. Finish Schedule:
i. C1, C2, C3 carpets have all been included as a $18.00/sy allowance.
Carpet to be selected.
ii. T1 ceramic tile has been included as a $18.00/sy carpet allowance.
Consideration for change to be determined.
iii. VCT vinyl tile has been included as indicated.
iv. P1 paint has been included in all areas indicated with the exception
of walls. 10% of all walls within the space have been included as
painted.
v. W1, W2, W3 wallcoverings have been included as Type 1 vinyl
wallcovering. 90% of all walls within the space have been included as
Type 1 vinyl wallcovering. See item 2I.
vi. B2, B2a wood base and crown within the Reception, Library, Training,
Conference, Executive Office, and Lobby areas have been considered to
be within the "Conference room and A/V allowance", "Lobby upgrade
allowance", and "Upgraded wallcovering, wood base and crown molding
allowance".
vii. 145 each (2' wide x 7' tall) glass sidelights have been included.
<PAGE> 49
O. GENERAL NOTES.
i. Appliances: See item 4Ki.
ii. 4' Fire-rated door for the computer room, not indicated within space
plans, has been included. Sidelight not included.
iii. Cherry wood doors: See item 4Fii.
iv. Clerestory glass: Clerestory within the Conference rooms have been
considered within the "Conference room and A/V upgrade allowance".
201f of clerestory within the Boardroom only has been included.
v. Insulated walls to deck: Full-height walls have insulation included
in all VP offices, conference rooms, HR offices and exercise room.
vi. Insulated office walls: Office walls do not have insulation included.
vii. Cherry doors and sidelights: See item 4Fii for doors. See item 4Nvii
for sidelights.
viii. Exterior window blinds: See item 3G.
ix. Herculite entry doors: Herculite entry doors at Reception area have
been included.
x. Kitchen Cafeteria allowance: Cafeteria allowance outside of the
"Cafeteria utilities" expenses and the "Break areas allowance" has
not been included.
xi. Computer room allowance: See item 2A.
xii. Outdoor dining accommodations: Concrete pad provided with two picnic
tables.
xiii. Reception desk allowance: See item 2E.
xiv. Filtered water allowance: See item 2H.
6. The following tenant finish Proposed Space Plan items are as noted:
A. Furnishings and office systems furniture shown through-out the plans
have not been included.
B. Full-height mirrored wall has been included.
C. Partition power and phone/data feeds (refr. item 2B) have been
included.
D. Cafeteria utilities are included as follows:
i. 200lf of 1" water line to kitchen area.
ii. 6 each standard-duty floor drains within the immediate kitchen area.
iii. 1 each 200amp electrical panel at the kitchen area.
iv. 200lf of 12" vent duct from the kitchen area.
<PAGE> 50
v. each (750-900cfm) roof-mounted vent fan.
vi. 1 each additional heat pump (3 ton) within the immediate kitchen
area.
vii. 200lf of 1 1/2" gas line to the kitchen area.
viii. 1 lump sum amount for blocking, supports, and penetration costs.
E. Pricing for raising the first floor ceiling height from 9' to 10' has not
been included.
F. Cherry wood paneling as indicated within the space plan has not been
included. See item 2J.
G. Drywall bulkheads within Conference, Lobby, Reception, and Training
"break-out", Dining areas were considered to be in the same allowances
as light fixture L7. See item 4Mviii.
H. Two (2) showers, not indicated within space plan, have been included
provided that their locations are within 20' of shell building water
and sanitary branch lines, and shall have adequate ventilation.
7. Summary of work as noted in above:
A. Rough Carpentry:
i. Wood blocking for cabinetry, trim, accessories.
ii. Cant strips for crown molding (see item 21).
iii. Plywood backing panels.
B. Finish Carpentry:
i. Custom plastic laminate base/wall cabinets w/ adjustable shelves in
Work rooms and Mail room. See item 4Li for some of these cabinets
included within the allowances.
ii. Custom plastic laminate worksurface within base cabinets in Work
rooms, Exercise, restrooms, and Mailroom.
iii. Closet rods and shelving in closets.
C. Joint Sealants:
i. Fixture to counter sealant.
ii. Unlike adjoining surfaces.
D. Doors, Frames and Hardware:
i. Hollow metal frames as indicated within. See item 4Fi.
ii. Wood doors, frames and hardware in accordance with items 3A and 3B.
<PAGE> 51
E. Glass and Glazing:
i. Sidelights (2') adjacent doors. See item 4Fiii for glass. Hollow
metal integral with door frames.
ii. Full-height mirror in the Exercise room.
F. Finishes:
i. Demising and Full-height walls are in accordance with item 3C.
ii. Interior ceilings are in accordance with item 3D.
iii. Acoustical ceilings are in accordance with item 3E.
iv. Carpet, VCT and base are in accordance with item 3F. See items
4Ni,ii,iii.
v. Paint and Wallcovering: 90% of walls vinyl, 10% of walls paint.
See item 4Niv,V.
vi. Paint door frames.
G. Specialties:
i. Suite signage, see item 3J.
H. Equipment:
i. Automatic projection screed, see item 4Li.
I. Furnishings:
i. Window blinds in accordance with item 3G.
J. Plumbing:
i. Design/build plumbing systems.
ii. Exercise area restrooms.
iii. Cafeteria utilities in accordance with items 5Di,ii,vii.
K. HVAC:
i. Design/build HVAC systems.
ii. HVAC systems in accordance with item 3H.
iii. Cafeteria utilities in accordance with items 5Div,v,vi.
L. Fire Protection:
i. Design/build fire protection systems.
ii. Sprinkler head adjustments to shell building grid in accordance
with the space plan.
<PAGE> 52
M. Electrical:
i. Design/build electrical systems.
ii. Electrical panels, circuitry, wiring, devices to accommodate the
space plan.
iii. Cafeteria utilities electric panel. See item 5Diii.
iv. Lighting in accordance with 4Mi, ii, iii, iv, v, vi, vii.
<PAGE> 53
EXHIBIT D
OFFICE RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or used for any purpose
other than ingress and egress. Smoking shall be prohibited in any areas of the
Building (including exterior areas at Building entrances) except tenant outside
smoking areas, as approved by Landlord.
2. No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with, any window or door of the Leased
Premises other than Landlord standard blinds without Landlord's prior written
approval. All electric ceiling fixtures hung in offices or spaces along the
perimeter of the Building must be fluorescent, of a quality, type, design and
bulb color approved by Landlord. Neither the interior nor the exterior of any
windows shall be coated or otherwise sunscreened without written consent of
Landlord.
3. No sign, advertisement, notice or handbill shall be exhibited,
distributed, painted or affixed by any tenant on, about or from any part of the
Building outside of and viewable from the Leased Premises without the prior
written consent of Landlord. In the event of the violation of the foregoing by
any tenant, Landlord may remove or stop same without any liability, and may
charge the expense incurred in such removal or stopping to the tenant. Standard
interior signs on doors and directory tablet shall be inscribed, painted or
affixed for each tenant by Landlord, at the expense of Landlord, and shall be of
a size, color and style acceptable to Landlord. The directory tablet will be
provided exclusively for the display of the name and location of tenants only,
and Landlord reserves the right to exclude any other names therefrom. Nothing
may be placed on the exterior of corridor walls or corridor doors other than
Landlord's standard lettering.
4. The sashes, sash doors, windows, and doors that reflect or admit
light and air into halls, passageways or other public places in the Building
shall not be covered or obstructed by any tenant, nor shall any bottles, parcels
or other articles be placed on the window sills.
5. The water and wash closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures by tenant or its employees or
invitees shall be borne by the tenant who, or whose subtenants, assignees or any
of their servants, employees, agents, visitors or licensees, shall have caused
the same.
6. Except for decorative pictures and shelves and except as permitted
in accordance with the provisions and requirements of the Lease, no tenant shall
mark, paint, drill into, or in any way deface any part of the Leased Premises or
the Building. No boring, cutting or stringing of wires or laying of linoleum or
other similar floor coverings shall be permitted, except with the prior written
consent of Landlord and as Landlord may direct.
7. No bicycles, vehicles, birds or animals of any kind shall be brought
into or kept in or about the Leased Premises, and no cooking shall be done or
permitted in the Leased Premises, except cooking for tenants and their employees
shall be permitted in the area designed as a kitchen provided power shall not
exceed that amount which can be provided by a 30 amp circuit. No tenant shall
cause or permit any unusual or objectionable odors to dust, gas, smoke or fumes
be produced or permeate the Leased Premises. Use of a microwave will be
permitted.
8. The Leased Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the permitted
use of the Leased Premises. No tenant shall occupy or permit any portion of the
Leased Premises to be occupied as an office for the manufacture or sale of
liquor, narcotics, or tobacco in any form, or as a barber or manicure shop, or
as an employment bureau without the express written consent of Landlord. The
Leased Premises shall not be used for lodging or sleeping or for any immoral or
illegal
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<PAGE> 54
purpose. No part of the Leased Premises, Building or Common Areas shall be used
for any purpose or business which is considered dangerous or unsafe.
9. No tenant shall make, or permit to be made any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the use of
any musical instrument, radio, phonograph, unusual noise, or in any other way.
No tenant shall throw anything out of doors, windows or down the passageways.
10. No tenant, subtenant or assignee nor any of its servants, employees
agents, visitors or licensees, shall at any time bring or keep upon the Leased
Premises any flammable, combustible or explosive fluid, chemical or substance.
11. Tenant shall provide Landlord with a method of operating any lock
installed by Tenant in order to give Landlord access to the Leased Premises as
provided in the Lease. Each tenant must upon the termination of his tenancy,
restore to Landlord all keys of stores, offices, and toilet rooms, either
furnished to, or otherwise procured by, such tenant and in the event of the loss
of keys so furnished, such tenant shall pay to Landlord the cost of replacing
the same or of changing the lock or locks opened by such lost key if Landlord
shall deem it necessary to make such changes.
12. Except for deliveries and removals utilizing the freight elevator
with the Building, all removals or the carrying in or out of any safes, freight,
furniture, or bulky matter of any description must take place during the hours
which Landlord shall reasonably determine from time to time. The moving of safes
or other fixtures or bulky matter of any kind must be done upon previous notice
to the superintendent of the Building and under his supervision, and the persons
employed by any tenant for such work must be acceptable to Landlord. Landlord
reserves the right to inspect all safes, freight or other bulky articles to be
brought into the Building and to exclude from the Building all safes, freight or
other bulky articles which violate any of these Rules and Regulations or the
Lease of which these Rules and Regulations are a part. Landlord reserves the
right to prescribe the weight and position of all safes, which must be placed
upon supports approved by Landlord to distribute the weight.
13. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's commercially reasonable opinion tends to impair the
reputation of the Building or its desirability as an office location, and upon
written notice from Landlord any tenant shall refrain from or discontinue such
advertising.
14. Landlord reserves the right to exclude from the Building between
the hours of 7:00 p.m. and 7:00 a.m. on Monday through Saturday and at all hours
on Sunday and legal holidays all persons who do not present a pass to the
Building approved by Landlord. Landlord will furnish passes to persons for whom
any tenant requests the same in writing. Each tenant shall be responsible for
all persons for whom he requests passes and shall be liable to Landlord for all
acts of such persons. In case of an invasion, mob riot, public excitement or
other circumstances rendering such action advisable in Landlord's opinion,
Landlord reserves the right without any abatement of rent to require all persons
to vacate the Building and to prevent access to the Building during the
continuance of the same for the safety of the tenants and the protection of the
Building and the property in the Building.
15. Any persons employed by any tenant to do work shall, while in the
Building and outside of the Leased Premises, be subject to and under the control
and direction of the superintendent of the Building (but not as an agent or
servant of said superintendent or of the Landlord), and Tenant shall be
responsible for all acts of such persons.
16. All doors opening onto public corridors shall be kept closed,
except when in use for ingress and egress.
17. Canvassing, soliciting and peddling in the Building are prohibited,
and each tenant shall report and otherwise cooperate to prevent the same.
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18. All heavy office equipment such as fire proof vaults and special
filing systems shall be placed by Tenant in the Leased Premises in settings
approved by Landlord, and no office equipment shall create an unacceptable
vibration, noise or annoyance.
19. No air conditioning unit, space heater or other similar apparatus
shall be installed or used by any tenant without the written consent of
Landlord.
20. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or others, any hand trucks except those equipped
with rubber tires and rubber side guards.
21. The scheduling of Tenant move-ins shall be subject to the
reasonable discretion of Landlord. Prior to Tenant moving in or out of the
Leased Premises, Tenant will notify Landlord of its intent and receive approval
thereof.
22. Tenant and its employees, agents, customers and invitees shall not
park on public streets outside of the Building and Common Area.
23. No exterior antennas, towers or aerials, including radio or
television transmission or receiving antennas, shall be erected, placed or
maintained in any part of the Building or Common Areas without Landlord's prior
written consent. Tenant shall have the right to locate a satellite dish on the
roof of the Building at its sole cost and risk subject to Landlord's reasonable
approval on the location and size of the satellite dish and applicable
governmental requirements. Landlord shall not be obligated to insure or maintain
any satellite dish installed by Tenant.
24. These Rules and Regulations are in addition to and shall not be
construed in any way to modify or amend the terms, covenants, agreements and
conditions of any lease of Leased Premises in the Building.
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<PAGE> 56
EXHIBIT E
BASIC ANNUAL RENT:
<TABLE>
<CAPTION>
BASIC
ANNUAL MONTHLY BASIC
BASE RENT RENT ANNUAL
(PER RENTABLE RENTABLE (PRORATED AS RENT RENTAL
MONTHS SQUARE FOOT) AREA APPLICABLE) INSTALLMENTS
<S> <C> <C> <C> <C>
1-7 $15.15 68,682 $1,040,532 $ 86,711
8-12 $15.15 87,333 $1,323,095 $110,258
13-24 $15.15 87,333 $1,323,095 $110,258
25-36 $15.15 87,333 $1,323,095 $110,258
37-48 $15.15 87,333 $1,323,095 $110,258
49-60 $15.15 87,333 $1,323,095 $110,258
61-72 $16.49 87,333 $1,440,121 $120,010
73-84 $16.49 87,333 $1,440,121 $120,010
85-96 $16.49 87,333 $1,440,121 $120,010
97-108 $16.49 87,333 $1,440,121 $120,010
109-120 $16.49 87,333 $1,440,121 $120,010
</TABLE>
<PAGE> 57
EXHIBIT G
CLEANING SPECIFICATIONS
GENERAL CLEANING
NIGHTLY
General Offices:
1. All hard surfaced flooring to be swept and mopped using approved
dustdown preparation.
2. Carpet sweep all carpets, moving only light furniture (desks, file
cabinets, etc. not to be moved) and vacuum all carpets and rugs in
common areas, including lobbies, corridors, conference rooms, and work
areas.
3. Hand dust and wipe clean all furniture, fixtures and window sills.
4. Empty all waste receptacles and remove wastepaper. Empty all paper
recycling receptacles into designated collection station receptacles.
5. Wash, clean and disinfect all water fountains, coolers, sinks and sink
areas.
6. Sweep all private stairways.
7. Replenish all paper towel and soap dispensers in the Tenant
work/kitchen areas.
Lavatories:
1. Sweep and wash all floors, using proper disinfectants.
2. Wash and polish all mirrors, shelves, bright work and enameled
surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Wash all toilet seats.
5. Hand dust and clean all partitions, tile walls, dispensers and
receptacles in lavatories and restrooms.
6. Empty paper receptacles, fill receptacles and remove wastepaper.
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7. Fill toilet tissue holders.
8. Empty and clean sanitary disposal receptacles.
WEEKLY
1. Vacuum all private office carpeting and rugs.
2. Dust all door louvers and other ventilating louvers within a person's
normal reach.
3. Wipe clean all brass and other bright work.
MONTHLY
1. Clean out refrigerators and freezers designated for use by Tenant's
employees within the Leased Premises.
QUARTERLY
High dust Leased Premises complete including the following:
1. Dust all pictures, frames, charts, graphs and similar wall hangings
not reached in nightly cleaning.
2. Dust all vertical surfaces, such as walls, partitions, doors, bucks
and other surfaces not reached in nightly cleaning.
3. Dust all venetian blinds.
4. Wash all external windows.
5. Wash all hard surface flooring.
ANNUALLY
1. Carpet cleaning in common areas of Leased Premises.
2. Wash all interior windows.
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<PAGE> 59
MAJOR TENANT: IDG BOOKS WORLDWIDE
CONCEPTUAL SCOPE OF WORK FOR
CROSSPOINT OFFICE BUILDING
EATON & LAUTH REAL ESTATE SERVICES, INC.
NEW 145,000 SF BUILDING
FISHERS, INDIANA
SEPTEMBER 3, 1998
PROPOSED BUILDING SIZE: Total of 145,000 gross s.f. on four (4) floors.
BUILDING DIMENSIONS: Building dimensions are approximately 90' deep x
402' wide.
TYPE OF BUILDING: Building is a four (4) story, conventional steel frame,
with a combination of architectural brick, glass,
Exterior Insulation Finish System skin and/or precast.
The roof will be a ballasted membrane roof. The final
design and color template will be mutually acceptable.
SITEWORK CONSTRUCTION
ASSUMPTIONS:
1. Site work is based on the layout from Simmons & Associates Architects.
2. The selected (plus or minus)11 acre site located on Crosspoint Boulevard in
Crosspoint Business Park is gently rolling and is covered with minimal
vegetation and few trees.
EARTHWORK:
Earthwork includes clearing and grubbing of the site, stripping of 6" of
topsoil, mass excavation of 1' over the site, fine grading of the building pad
and parking lot areas and replacement of topsoil for seeding and landscaping.
ASPHALT PAVEMENT:
Asphalt pavement includes heavy-duty pavement (8-3-1) in the R.O.W. of the two
(2) entrance drives and standard duty (6-2-1) in the parking lot area. The
parking lot is designed to accommodate 765 vehicles.
SITE CONCRETE:
A 5' wide combination curb faced sidewalk is included along the front and rear
of the building as shown on the drawings. We have concrete curbs at the
entrances into the property, at all parking lot islands and the perimeter of
the parking lot. Also included are the concrete patios and
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sidewalks, six inch (6") concrete paving at the dock area and six inch (6")
concrete paving at the dumpster enclosure as shown on the drawings.
SITE WATER:
A new 8" ductile pipe water service will be provided for this facility. It will
be brought to a point inside the building and turned up in the riser room. A new
yard main with a fire hydrant with auxiliary gate valve and box is included.
This system meets guidelines as mandated by the Indiana State Fire Marshall and
it will require their final approval before occupancy.
STORM SEWER:
We would propose to utilize internal roof drains tied into the storm sewer
system and piped to the detention area. We have included a system of catch
basins and reinforced concrete piping to collect and discharge the parking lot
storm water to the detention pond.
SANITARY SEWER:
The sanitary sewer will be 6" PVC stubbed out of the building and connected to
the city sewer at Crosspoint Boulevard.
TELEPHONE SERVICE:
Telephone Service includes two (2) four inch (4") telephone conduits to the
Electrical/Telephone Room on the first floor.
LANDSCAPING:
Landscaping includes an allowance of $100,000 for plantings, seeding, irrigation
system.
BUILDING CONSTRUCTION
ASSUMPTIONS:
1. Building constructed by standard building techniques.
2. This building design is based on the following criteria:
Dead load 61 p.s.f.
Live load 60 p.s.f.
Partitions 20 p.s.f.
3. Additional building loads not defined at this time are not included in our
proposal.
GENERAL CONDITIONS:
General conditions are included for the entire project. They include local and
state building permit, on site supervision, printing, postage, building layout,
concrete testing, soil testing, steel inspections, office trailer, portable
toilets, temporary electric, temporary heat, temporary access, telephone,
project sign, trash dumpsters, final cleaning of facility and builders risk
insurance.
BUILDING CONCRETE:
Building concrete consists of a continuous perimeter footing, concrete
foundation pads, perimeter foundation insulation, four-inch (4") stone sub-base
and four-inch (4") concrete floors.
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STRUCTURAL STEEL:
Structural Steel will consist of beams, columns, channels, joists, joist
girders, 2" 22ga composite floor deck and 1.5"22ga painted roof deck.
LT. GAUGE METAL FRAMING:
Lt. Gauge Metal Framing will consist of a framing system for the face brick at
the first floor and EIFS at the soffit, second, third and fourth floors and the
penthouse.
MISCELLANEOUS METAL:
Miscellaneous metals include three (3) stair towers, two (2) roof hatches with
roof access ladders and elevator pit ladders.
ROUGH CARPENTRY:
We include all wood blocking necessary for the roof copings, miscellaneous
accessories, etc.
EXTERIOR INSULATING COATING SYSTEM:
Exterior Insulating Coating System will consist of styrofoam panels applied at
the exterior soffit, the facade of the second, third and fourth floors, and the
penthouse.
ROOFING:
Roofing will consist of a ballasted EPDM membrane roof with R-16.7 roof
insulation. The warranty will consist of twenty (20) year membrane warranty and
a ten (10) year systems warranty.
JOINT SEALANTS AND FIREPROOFING:
Joint sealants are figured at the exterior doors, exterior sidewalks, masonry
face brick and EIFS panels.
DOORS, FRAMES AND HARDWARE:
Doors, Frames and Hardware for the building include 3'x8' hollow metal frames,
wood doors, hardware (closer and panic devices) and installation.
GLASS & GLAZING:
We have included a glazing system that includes a combination of strip and
aluminum storefront windows at each floor of the building. Also included are
eight (8) 3' x 7' aluminum entrance doors and curtain wall at the main entrance
as shown on the elevation. Glass will consist of one inch (1") insulated (dual
pane), tinted, performance glass panels consistent with Class A Office Building
Standards and which color shall be mutually acceptable.
INTERIOR FINISH:
Interior Finish will include metal stud and gypboard construction of the
stairwell, elevator shafts and core restrooms, 2x4 ceilings in the public
areas, 2x2 ceiling in the lobby, ceramic wall tile on the restroom wet walls,
painting, fabric wallcovering in the main lobby, vinyl wallcovering in the
restrooms and 1" mini-blinds at exterior windows and interior sidelights.
Flooring will consist of
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VCT in stairwell floor landings and janitor closets, ceramic floor tile in
restrooms and in the main lobby.
INTERIOR TENANT FINISH CONSTRUCTION:
See Tenant Finish Building Standards.
TOILET ROOM PARTITIONS & ACCESSORIES:
Toilet Room Partitions & Accessories will consist of toilet partitions, urinal
screens, paper towel dispensers, soap dispensers, coat hooks, toilet paper
dispensers, sanitary seat covers & dispensers, sanitary napkin disposal in each
female stall, mirrors and grab bars.
SPECIALTIES:
Specialties will include an allowance of $2,500 for the building directory and
an allowance of $5,000 for the interior code required signage and exterior
building identification signage. Also included are an entrance mat in the
vestibule, two (2) building mailboxes, express mail service locations and
window blinds.
ELEVATORS:
Elevators will include two (2) 4,000 lbs., 350 fpm passenger traction
elevators. Cabs will have eight-foot six-inch (8'-6") ceiling height, stainless
steel front return, door and fixtures and will have digital position indicators
and a $5,000 cab allowance for each passenger elevator. Doors will be 3'6" x
8'0" center opening. Also included is one (1) 4,000 lb. hydraulic freight
elevator.
FIRE PROTECTION:
Fire protection is designed as a fully automatic wet pipe fire sprinkler
configured in a grid and standpipe system. Sprinklers are designed to FM data
sheets 2-2 for ESFR design. The computer room shall have a separate system as
part of the computer room allowance. This will be a wet pipe system, Light
Hazard Occupancy, designed to provide a density of a .1/1,500 s.f. spaced at 144
s.f.
PLUMBING:
Plumbing will consist of internal roof drains, complete sanitary waste and vent
system with interior drain and vent stacks at wet columns, floor drains at
penthouse mechanical room, complete domestic water system with hot water
heaters and piping serving only core restrooms and two (2) cold water risers at
wet stacks on each floor. Also included are the code required restroom fixtures
in the core restrooms.
HEATING VENTILATION AND AIR CONDITIONING:
HVAC will consist of a water source heat pump system installed above the
ceiling grid on each floor. Maximum size of any individual heat pump will be
four (4) ton. Average zone size will be less than 1,000 s.f. with no single
zone to exceed 1,200 s.f.
ELECTRICAL:
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Electrical will consist of service/distribution, parking lot lighting, interior
lighting, general power, HVAC power and fire alarm. Also included is temporary
power and lighting for construction, front and rear canopy lighting and bollard
lighting.
5
<PAGE> 64
[CSO INTERIORS LOGO]
IDG BOOKS WORLDWIDE
INSTRUCTIONS FOR PRELIMINARY PRICING
October 12, 1998
CSO Project No. 98398
Submitted by the IDG Books Team of:
Lynn Hynes Foster, IIDA
Michele Meregaglia, AIA, IIDA
Nancy Wiersma Wright, IIDA
CSO INTERIORS
9100 Keystone Crossing, Suite 200 Indianapolis, IN 46240 Telephone
317.848.7800 Fax 317.571.7623
<PAGE> 65
[LOGO]
IDG BOOKS WORLDWIDE
TABLE OF CONTENTS
OCTOBER 12, 1998
CSO PROJECT NO. 98398
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Instructions for Preliminary Pricing
2. Preliminary Specifications and General Notes
A. Contract Conditions
B. General Requirements
C. Metal Fabrications
D. Wood & Plastic
E. Joint Sealers
F. Doors and Windows
G. Finishes
H. Specialties
I. Equipment
J. Mechanical and Electrical
K. General Notes
3. Schedules
A. Millwork Schedule
B. Electrical Schedule
C. Lighting Schedule
D. Finish Schedule
4. Attachments
A. Millwork Plans, 1,3,4
B. Electrical/Data Location Plans 1,3,4
C. Lighting Plans 1,3,4
D. Finish Plans 1,3,4
5. General Notes
</TABLE>
- -------------------------------------------------------------------------------
CSO Architects Engineers & Interiors
9100 Keystone Crossing, Suite 200 - Indianapolis, IN 46240 - 317.848.7800
FAX 317.574.0957
<PAGE> 66
INSTRUCTIONS FOR PRELIMINARY PRICING
TIME AND LOCATION OF PRELIMINARY PRICING SUBMITTAL
Preliminary Pricing will be received and opened privately;
For: IDG Books Worldwide
By: The Owner
METHOD OF PRICING
Preliminary Pricing shall be based on a single unified prime contract
"stipulated sum" basis, which includes all General Construction, Mechanical and
Electrical work in full accordance with Preliminary Pricing Documents prepared
by CSO Architects Engineers & Interiors, Indianapolis, Indiana, and IDG Books
Worldwide.
1. Mechanical and Electrical Subcontracts are to be on a "Design/Build" basis.
PRELIMINARY PRICING DOCUMENTS
The Preliminary Pricing Documents are the Specifications and General Notes,
attached schedules, typical details in 8-1/2" x 11" format and the floor plans.
SUBMITTAL OF PRELIMINARY PRICING
Format of Preliminary Pricing is to be determined by the Contractor. Proposals
shall be sealed in an opaque envelope marked with "Eaton & Lauth" and business
address and bearing the following caption:
<TABLE>
<CAPTION>
<S> <C> <C>
1. Preliminary Pricing for: IDG Books Worldwide
Indianapolis, Indiana
2. Preliminary Pricing shall be addressed to: IDG Books Worldwide
Indianapolis, Indiana
3. Preliminary Pricing shall be delivered to: CSO Architects Engineers & Interiors
Indianapolis, Indiana
</TABLE>
MECHANICAL AND ELECTRICAL SUBMITTALS
With Preliminary Pricing, submit cut sheets showing mechanical and electrical
fixtures and devices which will be exposed to view. Also, describe basis for
mechanical and electrical design in a manner which will allow the Owner to judge
the level of quality anticipated for the proposed design.
1. Include mechanical diffuser types, limitations on use of flex duct,
information on return and controls and proposed balance sub-contractor.
2. Include number and type of electrical lighting fixtures, power and data
outlets proposed according to type of space (office, corridor, upgrade
areas, etc.) indicate number of dedicated circuits.
<PAGE> 67
MODIFICATIONS DURING PRELIMINARY PRICING
Any modifications during preliminary pricing will be issued in writing by Eaton
& Lauth who is providing preliminary pricing.
1. No oral or telephone instructions will be binding unless confirmed in
writing.
SUBSTITUTIONS DURING PRELIMINARY PRICING
It is not the intent of the Architect to entertain requests for substitutions
during preliminary pricing.
TIME OF COMPLETION
Contractors shall state their estimated completion time in calendar days, along
with their Preliminary Pricing when meeting on October 12, 1998, 11:00 a.m. at
the offices of IDG Books Worldwide.
END OF SECTION
<PAGE> 68
PRELIMINARY SPECIFICATIONS AND GENERAL NOTES
0. CONTRACT CONDITIONS
0.1 THE GENERAL CONDITIONS SHALL BE AIA DOCUMENT A201 - 1987 EDITION. ENTITLED
"GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION". THIS DOCUMENT
MAY BE OBSERVED IN THE OFFICE OF THE ARCHITECT. INCLUDED IN THE
GENERAL CONDITIONS ARE RESPONSIBILITIES OF THE CONTRACTOR WHICH MAY BE
PARAPHRASED AS FOLLOWS:
3.3 SUPERVISE, DIRECT AND COORDINATE THE WORK, WITH SOLE RESPONSIBILITY
AND CONTROL OVER CONSTRUCTION MEANS, METHODS, TECHNIQUES, SEQUENCES
AND PROCEDURES.
3.7 OBTAIN AND PAY FOR THE BUILDING PERMIT AND NECESSARY GOVERNMENTAL
FEES, LICENSES AND INSPECTIONS.
3.14 CUT AND PATCH EXISTING SURFACES TO MATCH EXISTING ADJACENT SURFACES,
USING EQUAL QUALITY MATERIALS AND WORKMANSHIP.
10.1 INITIATE, MAINTAIN AND SUPERVISE PROJECT SAFETY PRECAUTIONS AND
PROGRAMS, WHICH ARE SOLELY THE CONTRACTOR'S RESPONSIBILITY.
0.2 WORK MUST COMPLY WITH APPLICABLE LAWS, CODES, ORDINANCES, RULES AND
REGULATIONS.
0.3 ALL MATERIALS AND EQUIPMENT SHALL BE OF INDUSTRY STANDARD QUALITY, WHETHER
SPECIFIED OR NOT, AND WITHIN THE LIMITATIONS OF THE CONTRACT
DOCUMENTS, TO CAUSE THE INSTALLATION TO FUNCTION IN ACCORDANCE WITH
THE INTENTION AND OBJECTIVE OF THE FINISHED PROJECT.
0.4 WHEN NOT INDICATED IN THE CONTRACT DOCUMENTS, PROVIDE THE SIZING OF
INTERCONNECTING FACILITIES, SUCH AS PIPING, DUCTS AND WIRING, BETWEEN
PIECES OF EQUIPMENT IN ORDER TO UTILIZE THE SPECIFIED CAPACITIES OF
THE EQUIPMENT.
0.5 WHEN NOT INDICATED IN THE CONTRACT DOCUMENTS, THE STANDARDS ESTABLISHED BY
THE RECOGNIZED TRADE ASSOCIATION HAVING JURISDICTION FOR THE PRODUCT
INCLUDED IN THE PROJECT SHALL GOVERN THE WORK.
0.6 INSTALL EQUIPMENT AND MATERIALS IN ACCORDANCE WITH MANUFACTURER'S
RECOMMENDATIONS.
1 GENERAL REQUIREMENTS
1.1 WORK SHALL BE PERFORMED DURING REGULAR BUSINESS HOURS WHENEVER POSSIBLE.
WORK INVOLVING OVERTIME, NON-REGULAR BUSINESS HOURS SHALL BE COORDINATED
WITH BUILDING MANAGEMENT.
1.2 THE CONTRACTOR SHALL COORDINATE AND SCHEDULE WORK BY OTHERS INCLUDING BUT
NOT LIMITED TO TELEPHONE/DATA, SECURITY, FURNITURE AND "FURNISHED
AND/OR INSTALLED" ITEMS. CONTRACTOR SHALL COORDINATE EXACT LOCATIONS
AND SHALL DO THE CUTTING, FITTING, AND PATCHING THAT MAY BE REQUIRED
TO MAKE THE PARTS OF THE WORK WHICH WILL RECEIVE THE WORK OF OTHERS AS
SHOWN OR REASONABLY IMPLIED BY THE DRAWINGS AND SPECIFICATIONS.
1.3 CUTTING OF EXISTING SURFACES SHALL BE PATCHED TO MATCH EXISTING ADJACENT
SURFACES, INCLUDING WITH REGARD TO MATERIALS AND WORKMANSHIP.
<PAGE> 69
1.4 SHOP DRAWINGS WILL BE REQUIRED AS INDICATED BY THE ARCHITECT ON THE FINAL
CONSTRUCTION DOCUMENTS.
1.5 TEMPORARY UTILITIES, INCLUDING WATER, SANITARY FACILITIES, ELEVATORS,
TEMPORARY ENCLOSURES, FIRE PROTECTION, HEAT AND POWER WILL BE PROVIDED
BY THE OWNER, SUBJECT TO THE OWNER OR THE OWNER'S AGENT'S DIRECTION.
COMPLY WITH SPECIFIC BUILDING CONSTRUCTION RULES PUBLISHED BY THE OWNER
OR THE OWNER'S AGENT.
1.6 THE CONTRACTOR SHALL MAINTAIN FOR THE ENTIRE LENGTH OF HIS CONTRACT EXITS,
EXIT LIGHTING, FIRE PROTECTIVE DEVICES AND ALARMS TO CONFORM TO LOCAL
BUILDING CODE REQUIREMENTS.
1.7 SUBSTITUTION FOR NAMED PRODUCTS WILL NOT BE ALLOWED WITHOUT PRIOR APPROVAL
OF THE ARCHITECT. IF A SUBSTITUTION IS PROPOSED, SUBMIT THE FOLLOWING
INFORMATION:
1.8 THE CONTRACTOR SHALL INCLUDE IN HIS BID AND SHALL ARRANGE FOR HOISTING,
CARTING, ELEVATOR SERVICE, STANDARD AND OVERTIME SERVICES BY THE
BUILDING MANAGEMENT AND OVERTIME CHARGES AND EXPENSES WHEN REQUIRED
DUE TO BUILDING MANAGEMENT REQUIREMENTS.
1.9 PERFORM FINAL CLEANING, EMPLOYING EXPERIENCED PROFESSIONAL CLEANERS. CLEAN
EACH SURFACE OR UNIT OF WORK TO THE CONDITION EXPECTED FROM A
COMMERCIAL BUILDING CLEANING AND MAINTENANCE PROGRAM IN ACCORDANCE WITH THE
MANUFACTURER'S INSTRUCTIONS.
1.10 PROVIDE OPERATING AND MAINTENANCE MANUALS WITH INFORMATION NECESSARY FOR
THE SAFE AND EFFICIENT OPERATION AND MAINTENANCE OF EQUIPMENT AND
OPERATING SYSTEMS CALLED FOR IN THE CONTRACT DOCUMENTS, AND
INFORMATION RELATIVE TO THE INSPECTION, CARE AND MAINTENANCE OR REPAIR
OF ARCHITECTURAL PRODUCTS AND FINISHES WHICH ARE OTHER THAN BUILDING
STANDARD.
5 METAL FABRICATIONS
5.1 PROVIDE STEEL FRAMING AND SUPPORTS FOR APPLICATIONS INDICATED OR WHICH ARE
NOT A PART OF STRUCTURAL STEEL FRAMEWORK, AS REQUIRED TO COMPLETE WORK.
6 WOOD AND PLASTIC
6.1 CONCEALED ROUGH FRAMING AND BLOCKING: PROVIDE "CONSTRUCTION GRADE" LUMBER
OF ANY SPECIES WITH MAXIMUM 19% MOISTURE CONTENT.
6.2 PLYWOOD BACKING PANELS: FOR MOUNTING ELECTRICAL OR TELEPHONE EQUIPMENT,
PROVIDE FIRE-RETARDANT TREATED PLYWOOD PANELS, APA C-D PLUGGED INT WITH
EXTERIOR GLUE, NOT LESS THAN 15/32".
6.3 FIRE-RETARDANT TREATMENT: PRESSURE IMPREGNATE LUMBER AND PLYWOOD WITH
FIRE-RETARDANT CHEMICALS TO COMPLY WITH AWPA C20 AND C27,
RESPECTIVELY, AND IDENTIFY LUMBER WITH CLASSIFICATION MARKING
ACCEPTABLE TO AUTHORITIES HAVE JURISDICTION.
6.4 FINISH CARPENTRY AND MILLWORK: COMPLY WITH "PREMIUM GRADE" AWI STANDARDS.
6.5 COUNTERS: HIGH PRESSURE DECORATIVE LAMINATE COMPLYING WITH NEMA LD 3 AND
GP-50 (0.050" NOMINAL THICKNESS).
<PAGE> 70
6.6 CABINETS: COMPLY WITH AWI SECTION 400 AND ITS DIVISION 400B FOR PREMIUM
GRADE NEMA LD3 LAMINATE CLAD CABINETS.
.1 EXPOSED SURFACES: HORIZONTAL SURFACES OTHER THAN TOPS: GP-50
(0.050" NOMINAL THICKNESS); VERTICAL SURFACES: GP-28 (0.028"
NOMINAL THICKNESS); EDGES: GP-28 (0.028" NOMINAL THICKNESS).
.2 SEMI-EXPOSED SURFACES: HIGH PRESSURE LAMINATE, GP-28.
.3 CABINET HARDWARE SCHEDULE:
.1 HINGES: FULLY CONCEALED, SELF-CLOSING "1000 SERIES" BY GRASS
OR EQUAL.
.2 PULLS: WIRE PROJECTING TYPE, DRILLING 4" ON CENTER, #4483 OR
EQUAL AS MANUFACTURED BY STANLEY.
.3 CABINET CATCHES: ADJUSTABLE MAGNETIC CATCHES WITH MINIMUM
8 LBS. PULL; # SP 45 OR SP 46 OR EQUAL AS MANUFACTURED BY
STANLEY.
.4 DRAWER GLIDES: SIDE AND BOTTOM MOUNTED SLIDES WITH POSITIVE
STOP AND LOCKOUT POSITION, WITH HEAVY-DUTY FULL EXTENSION;
#1429 OR EQUAL AS MANUFACTURED BY KNAPE & VOGT.
.5 SHELF SUPPORTS AND STANDARDS: ADJUSTABLE SHELF SUPPORTS
CONSTRUCTED OF HIGH IMPACT INJECTION MOLDED NYLON AND WITH
HEAVY DUTY TWIN SLOTTED SHELVING STANDARDS AS PRODUCED BY
KNAPE & VOGT OR EQUAL.
6.7 INSTALL CASEWORK AND FINISH CARPENTRY PLUMB, LEVEL, TRUE AND STRAIGHT
WITH NO DISTORTIONS.
6.8 JOINTS BETWEEN MILLWORK DRAWERS, DOORS, ETC., TO BE OF UNIFORM WIDTH NOT
TO EXCEED 1/8 U.O.N.
6.9 GROMMETS ARE TO BE FIELD CUT FOR COORDINATION WITH ELECTRICAL OUTLETS.
6.10 SEE ATTACHMENT, "MILLWORK SCHEDULE", RELATING TO ITEMS SHOWN ON THE
FLOOR PLAN.
7 JOINT SEALERS
7.1 ONE-PART MILDEW-RESISTANT SILICONE SEALANT - AT COUNTERS, FIXTURES AND
JOINTS IN TOILET ROOMS:
.1 "DOW CORNING 786"; DOW CORNING CORP.
.2 "SCS 1702 SANITARY"; GENERAL ELECTRIC CO.
.3 "863 #345 WHITE"; PECORA CORP.
.4 "PROGLAZE WHITE"; TREMCO CORP.
.5 "OMNIPLUS"; SONNEBORN BUILDING PRODUCTS
7.2 ACRYLIC-EMULSION SEALANT - AT INTERIOR UNLIKE ADJOINING SURFACES:
.1 "CHEM-CALK 600"; BOSTIK CONSTRUCTION PRODUCTS DIV.
.2 "AC-20"; PECORA CORP.
.3 "SONOLAC"; SONNEBORN BUILDING PRODUCTS
.4 "TREMCO ACRYLIC LATEX 834"; TREMCO, INC.
<PAGE> 71
<TABLE>
<S> <C>
8 DOORS AND WINDOWS
8.1 INTERIOR DOOR FRAMES: PROVIDE BUILDING STANDARD SNAP-ON TYPE STEEL (ALUMINUM) FRAMES UNLESS NOTED OTHERWISE. COLOR TO BE
SELECTED BY INTERIOR DESIGNER FROM STANDARD COLORS.
.1 TIMELY (STEEL)
8.2 INTERIOR DOORS - WOOD VENEER FACES: CHERRY, PLAIN SLICED. AWI SECTION 1300 "PREMIUM GRADE" PRE-MACHINED 5-PLY PC-5 PARTICLE
BOARD SOLID CORE.
8.3 DOOR HARDWARE: BUILDING STANDARD WITH ADA LEVER HANDLE LATCH AND LOCKSETS.
8.4 GLASS: MEET ASTM C1036 REQUIREMENTS FOR GLASS AND ASTM C1048 REQUIREMENTS FOR HEAT-STRENGTHENED GLASS.
9 FINISHES
9.1 GYPSUM BOARD WALL FRAMING: COMPLY WITH ASTM C645.
.1 INSTALL "ELIMINATOR" TYPE HEAD TRACK AT WALLS TERMINATING AT CEILING. USE PREFORMED OUTSIDE CORNERS.
9.2 GYPSUM BOARD: PROVIDE 1/2" THICK REGULAR AND 5/8" TYPE "X" TAPERED EDGE GYPSUM BOARD WITH GALVANIZED STEEL TRIM ACCESSORIES
AND JOINT COMPOUND COMPLYING WITH ASTM C475. FINISH IN ACCORDANCE WITH ASTM C840 TO THE HIGHEST QUALITY STANDARDS.
.1 DRYWALL FINISHING: COMPLY WITH MANUFACTURER'S PRINTED INSTRUCTIONS AND SPECIFICATIONS. EXCEPTION: COMPLY WITH MORE
STRINGENT REQUIREMENTS OF GYPSUM ASSOCIATION GA-216 RECOMMENDED SPECIFICATION FOR THE APPLICATION AND FINISHING OF
GYPSUM BOARD.
9.3 CERAMIC TILE: INSTALL TILE IN ACCORDANCE WITH TILE COUNCIL OF AMERICA GUIDELINES.
.1 PROVIDE FACTORY-MADE CORNER AND TRIM SHAPES. MAKE INSIDE CORNERS SQUARE WITH FULL OR CUT FIELD TILES; OUTSIDE CORNERS
WITH CORNER SHAPES; WALL-TO-FLOOR CORNERS WITH COVE SHAPES, JOINTS TO MATCH UP.
9.4 CEILINGS: FINISHED CEILING SHALL BE LEVEL, TRUE AND FREE FROM DAMAGED OR SOILED TILES.
.1 COORDINATE PLACEMENT OF MECHANICAL AND ELECTRICAL ITEMS IN CEILING. WHERE CONFLICTS OCCUR, THE ARCHITECTURAL REFLECTED
CEILING PLAN SHALL GOVERN.
.2 CENTER CEILING ELEMENTS IN CEILING TILE, INCLUDING DOWN LIGHTS, SMOKE DETECTORS, SPRINKLER HEADS AND EXIT SIGNS UNLESS
NOTED OTHERWISE.
</TABLE>
<PAGE> 72
9.5 INSTALL FLOOR FINISH TRANSITION STRIP AT CENTERLINE OF DOOR OR CASED
OPENING UNLESS NOTED OTHERWISE.
.1 INSTALL JOHNSONITE TRIM STRIPS AT DOOR WHERE CARPET MEETS
RESILIENT TILE WITH TRIM STRIP COLOR TO MATCH CARPET.
9.6 RESILIENT FLOORING:
.1 UNLESS OTHERWISE NOTED, LAY TILE FROM CENTER MARKS ESTABLISHED
WITH PRINCIPAL WALLS, SO THAT TILE AT OPPOSITES EDGES OF THE
ROOM ARE EQUAL WIDTH. ADJUST TO AVOID USE OF CUT WIDTHS LESS
THAN 3" AT ROOM PERIMETER.
.2 BASE: FIT JOINTS TIGHT AND VERTICAL ON CONTINUOUS SOLID BACKING.
INSTALL BASE IN LONGEST PRACTICAL LENGTHS, USING ROLL STOCK.
SCRIBE TO VERTICAL OBSTRUCTIONS.
9.7 USE AN APPROVED CEMENTITIOUS FILLER TO PATCH CRACKS, SMALL HOLES AND
LEVELING. ENSURE THAT FLOORS ARE LEVEL WITH MAXIMUM SURFACE VARIATION OF
4/4" IN 10 FEET, NON-CUMULATIVE.
9.8 CARPET: INSTALL CARPETING WHICH MEETS THE FOLLOWING STANDARDS:
FLAMMABILITY: ASTM 2859
SURFACE BURNING: ASTM E84
SMOKE DENSITY: ASTM E662
SOUND ABSORPTION: ASTM C423
FADE RESISTANCE: AATCC 16E
STATIC RESISTANCE: AATCC 134
WARRANTY: 10 YEARS
.1 INSTALL BROADLOOM CARPET BY DIRECT GLUE.
.2 INSTALL CARPET TILES USING 1/4 TURN METHOD.
9.9 PAINT: USE PRIMER COMPATIBLE WITH SUBSTRATE. REMOVE OR PROTECT HARDWARE,
PLATES AND SIMILAR TRIM. AFTER PAINT IS DRY, REINSTALL SUCH ITEMS.
.1 INTERIOR PAINT SCHEDULE: PROVIDE THE FOLLOWING PAINT SYSTEMS
BASED ON DEVOE TO ESTABLISH QUALITY STANDARD FOR THE VARIOUS
SUBSTRATES, AS INDICATED.
1. FERROUS METAL:
A. ACRYLIC SEMI-GLOSS ENAMEL FINISH:
1. PRIMER: 1-COAT #41702 METALCLAD ACRYLIC LATEX
PRIMER.
2. FINISH: 2 COATS #83XX MIRROLAC-WB ACRYLIC
SEMI-GLOSS ENAMEL.
2. NON-FERROUS METAL:
A. ACRYLIC SEMI-GLOSS ENAMEL FINISH:
1. PRIMER: 1 COAT #41702 METALCLAD ACRYLIC LATEX
PRIMER.
2. FINISH: 2 COATS #83XX MIRROLACE-WB ACRYLIC
SEMI-GLOSS FINISH.
<PAGE> 73
3. WOOD:
A. ACRYLIC LATEX SEMI-GLOSS ENAMEL FINISH:
1. PRIMER: 1 COAT #51701 WONDER-PRIME LATEX
PRIMER-SEALER.
2. FINISH: 2 COATS #83XX MIRROLAC-WB ACRYLIC
SEMI-GLOSS ENAMEL.
B. STAIN-VARNISH RUBBED FINISH:
1. FILLER: 1 COAT #4800 WONDER WOODSTAIN PASTE WOOD
FILLER (OPEN GRAIN WOODS).
2. STAIN: 1 COAT #95XX WONDER WOODSTAIN ALKYD STAIN.
3. SEALER: 1 COAT #4900 WONDER WOODSEALER QUICK DRY
SEALER.
4. FINISH: 2 COATS #4600 WONDER WOODSTAIN ALKYD
SATIN VARNISH.
4. GYPSUM WALLBOARD:
A. ACRYLIC LATEX SATIN ENAMEL FINISH:
1. PRIMER: 1 COAT #50801 WONDER TONES LATEX
PRIMER-SEALER.
2. FINISH: 2 COATS #35XX WONDER TONE ACRYLIC LATEX
SATIN ENAMEL.
9.10 WALLCOVERING: APPLY WALLCOVERING SECURE, SMOOTH, CLEAN AND WITHOUT
WRINKLES, GAPS OR OVERLAPS.
.1 KEEP SEAMS TO A MINIMUM. HORIZONTAL SEAMS ARE NOT ACCEPTABLE.
.2 SEAMS MUST BE AT LEAST 2" FROM INSIDE CORNERS AND 6" FROM
OUTSIDE CORNERS.
9.11 SEE ATTACHMENT, "ROOM FINISH SCHEDULE" FOR TYPICAL AND SPECIAL AREAS
SHOWN ON THE FLOOR PLAN.
9.12 SEE ATTACHMENT, "PARTITION TYPES SCHEDULE" FOR TYPICAL AND SPECIAL
WALL TYPES SHOWN ON THE FLOOR PLAN.
10 SPECIALTIES
10.1 FIRE EXTINGUISHERS AND CABINETS: BUILDING STANDARD, OR IF NO BUILDING
STANDARD, PROVIDE JL INDUSTRIES "AMBASSADOR" SERIES, SEMI RECESSED,
DUO-PANEL, FIELD PAINTED.
11 EQUIPMENT
11.1 PROJECTION SCREENS: MOTOR-IN-ROLLER-OPERATED SCREENS WITH AUTOMATIC
CEILING CLOSURE:
.1 BOARDROOM: DA-LITE SCREEN CO., INC.
.2 ENVOY: DRAPER SHADE & SCREEN, INC.
<PAGE> 74
<TABLE>
<S> <C>
15/15 MECHANICAL AND ELECTRICAL
15/16.1 MECHANICAL (INCLUDING PLUMBING, FIRE PROTECTION AND HVAC) AND ELECTRICAL SYSTEMS ARE TO BE DESIGNED AND CONSTRUCTED BY
THE RESPECTIVE DESIGN/BUILD CONTRACTORS OR SUBCONTRACTORS ACCORDING TO CRITERIA DEFINED BY THE TENANT AND AESTHETIC
CRITERIA (ONLY) DEFINED BY THE ARCHITECT. THE CONTRACTOR SHALL BEAR FULL RESPONSIBILITY FOR ALL DESIGN, PERFORMANCE,
INSTALLATION AND INTER-SYSTEM COORDINATION OF MECHANICAL AND ELECTRICAL SYSTEMS.
15/16.2 GENERAL CONTRACTOR IS TO PROVIDE A COMPLETE PACKAGE OF DESIGN/BUILD DRAWINGS FOR FIRE PROTECTION, MECHANICAL, AND
PLUMBING, SIGNED AND STAMPED FOR STATE FILING PROCESS BY A CERTIFIED ENGINEER.
15/16.3 IN CASE OF CONFLICT BETWEEN ARCHITECT'S AND ENGINEER'S DRAWINGS IN LOCATION OF TERMINAL MATERIALS/EQUIPMENT, SUCH AS
DIFFUSERS, GRILLES, LIGHTS (IF SHOWN ON REFLECTED CEILING PLAN) AND SURFACE MOUNTED ELECTRICAL DEVICES, THE
ARCHITECTURAL DRAWINGS SHALL GOVERN. NOTIFY ARCHITECT OF DISCREPANCIES AND OBTAIN WRITTEN CLARIFICATION PRIOR TO
PROCEEDING WITH WORK.
15/16.4 SUBMIT FIRE SPRINKLER LAYOUT FOR COORDINATION/APPROVAL BY THE OWNER OR THE OWNER'S AGENT. PATTERN OF SPRINKLER LAYOUT
SHALL COORDINATE WITH PATTERN OF LIGHTING LAYOUT AND SHALL COORDINATE WITH OTHER CEILING COMPONENTS.
16/16.5 DESIGN/BUILD MECHANICAL CONTRACTOR SHALL PROVIDE DRAWINGS SHOWING THERMOSTAT LOCATION FOR REVIEW BY THE OWNER OR OWNER'S
AGENT.
16/16.6 OUTLET/JUNCTION BOX MOUNTING HEIGHTS SHALL BE COORDINATED WITH THE EQUIPMENT/APPLIANCE FOR WHICH IT WAS DESIGNATED.
VERIFY EQUIPMENT MOUNTING REQUIREMENTS FOR SCHEDULED EQUIPMENT.
15/16.7 SWITCHES SHALL BE GANGED UNDER ONE PLATE. DIMMERS SHALL BE GANGED UNLESS OTHERWISE NOTED BY MANUFACTURER.
15/16.8 DATA AND COMMUNICATION CABLES ARE PROVIDED BY OTHERS AND INSTALLED BY OTHERS UNLESS OTHERWISE NOTED. CONTRACTOR SHALL
COORDINATE AT THE BEGINNING OF THE PROJECT WITH THE TENANT AND TENANT'S VENDORS TO DETERMINE THE PHASE DURING WHICH THE
INSTALLATION SHALL OCCUR.
15/16.9 ALL SWITCHES AND SWITCHPLATES SHALL BE BUILDING STANDARD COLOR UNLESS NOTED OTHERWISE. IF NO BUILDING STANDARD, PROVIDE
IVORY.
15/16.10 WHERE FLOOR MONUMENTS ARE SHOWN NEXT TO EACH OTHER, THEY SHALL BE LOCATED AS CLOSE TOGETHER AS POSSIBLE, WHILE STILL
PROVIDING PROPER ACCESS TO RECEPTACLES.
15/16.11 IF ADDITIONAL OUTLETS REQUIRED, COORDINATE WITH ARCHITECTURAL FOR SPECIFIC LOCATION.
15/16.12 CONTRACTOR SHALL MARK ALL POWER AND COMMUNICATION OUTLET LOCATIONS ON SLAB AND PROVIDE ACCESS TO SITE FOR ARCHITECT TO
OBSERVE PRIOR TO ANY COMMENCEMENT OF "ROUGH-IN" CONSTRUCTION.
15/16.13 SEE ATTACHMENT, "ELECTRICAL SCHEDULE" FOR TYPICAL AND SPECIAL ELECTRICAL ITEMS SHOWN ON THE FLOOR PLAN.
GN GENERAL NOTES
GN.1 SEE WALL LEGEND ON THE FLOOR PLAN FOR COLORS OR DESIGNATIONS RELATED TO WALL CONSTRUCTION AND WALL TYPES.
GN.2 SCALE PRELIMINARY DRAWINGS. THERE ARE NO WRITTEN DIMENSIONS.
</TABLE>
<PAGE> 75
GN.3 SOUND INSULATED AND FIRE RATED PARTITIONING SHALL BE CAULKED AT
PERIMETER WITH ACOUSTICAL OR FIRE RATED SEALANT AS APPLICABLE. PLACE
SEALANT BETWEEN GYPSUM BOARD AND ADJACENT SUBSTRATE. PROVIDE WITH SOUND
ATTENUATING INSULATION SECURELY FASTENED TO STUD FRAMING. AT THESE
PARTITIONS, BACK TO BACK ELECTRICAL JUNCTION BOXES ARE NOT PERMITTED.
GN.4 ALL APPLIANCES NOTED ON ELEVATIONS SHALL BE SUPPLIED BY CONTRACTOR.
<PAGE> 76
[CSO ARCHITECTS ENGINEERS & INTERIORS LETTERHEAD]
IDG BOOKS WORLDWIDE
Millwork Schedule
October 12, 1998
CSO Project No. 98398
- --------------------------------------------------------------------------------
M1 Provide custom plastic laminate base and wall cabinets with (2)
adjustable shelves.
M2 Provide built-in wood storage cabinets with touch latch doors.
M3 Built-in phone booths with wood worksurface.
M4 (5) lockers (12"w x 60"h) with finished base.
M5 Provide built-in wood storage base with marble top.
M6 Provide drywall ceilings with linear slot diffusers.
M7 Provide custom wood reception desk/allow $15,000.00.
M8 Provide moveable folding partition (structural supports as required).
M9 Provide custom plastic laminate worksurface with cabinets below.
M10 Provide built-in bench seating area.
M11 Closet rod and shelf.
<PAGE> 77
[CSO ARCHITECTS ENGINEERS & INTERIORS LETTERHEAD]
IDG BOOKS WORLDWIDE
Electrical & Lighting Schedule
October 12, 1998
CSO Project No. 98398
- -------------------------------------------------------------------------------
Electrical Notes:
Where open office workstations are indicated, electrical contractor shall
provide electrical hookup. Where no wall or column is adjacent to workstations,
flush-mounted floor electrical/data boxes are to be provided.
L1 Building standard 2' x 4' fixture with acrylic lens.
L2 2' x 4' parabolic light fixture.
L3 Peerless, indirect "Light Screen" at 18" from ceiling.
L4 Can lights.
L5 Pendant fixture similar to 29" d, SP1, "Options".
L6 Sconce fixture similar to 20" w, SP1, "Options".
L7 Drywall bulkhead with continual lighting cove.
<PAGE> 78
[CSO ARCHITECTS ENGINEERS & INTERIORS LETTERHEAD]
IDG BOOKS WORLDWIDE
Finish Schedule
October 12, 1998
CSO Project No. 98398
- --------------------------------------------------------------------------------
C1 General Carpet:
Mfg.: Atlas
Style: Serif
Color: To Be Determined
C2 Office Carpet:
Mfg.: Mannington
Style: Belvedere II
Color: To Be Determined
C3 Conference Room Carpet:
Mfg.: Atlas
Style: Aguarelle
Color: To Be Determined
T1 Tile
Mfg.: Granirex
Style: 12" x 12", LTD - SO - 14
Color: To Be Determined
VCT Vinyl Composition Tile
4 color design
P1 Paint
5 colors to be used throughout
W1 Vinyl Wallcovering
Type 1
3 colors to be used
Allow for $0.90 sq. ft. installed
W2 Fabric Wallcovering/Executive Offices:
Mfg.: Knoll
Style: Criss Cross, W305-4
Color: To Be Determined
Width: 66"
<PAGE> 79
W3 Fabric Wallcovering
Mfg.: Knoll
Style: Backdrop, W302-9
Width: 66"
B1 Vinyl Base throughout U.O.N.
2 colors to be used
B2 6" Wood Base/Cherry Shop Finished
B2a 6" Wood Base and 9" Crown/Cherry Shop Finished
Note: All offices and conference rooms to have a 3' glass sidelight in a
metal frame with 1" mini blinds.
<PAGE> 80
[CSO ARCHITECTS ENGINEERS & INTERIORS LETTERHEAD]
IDG BOOKS WORLDWIDE
General Notes
October 12, 1998
CSO Project No. 98398
- -------------------------------------------------------------------------------
1. General contractor to provide appliances such as refrigerators, icemakers,
etc.
2. 1st floor computer room to have a 4'-0" wood door with 4' sidelight.
3. All standard doors to be 3' x 8' cherry wood doors. IDG Books Worldwide to
select cherry finish.
4. All conference rooms to have clerestory glass from 7'-0" to ceiling.
5. Areas with walls to deck and sound insulation in walls:
Training Rooms, Conference Rooms, Dining/Kitchen, Restrooms, Exercise
Room, Computer Room.
6. All office walls to have wall insulation and 2' sound batts on either side
of walls over ceiling tiles.
7. All offices to have 3' x 8' cherry doors and a 3' sidelight with 1"
mini blinds.
8. All exterior windows to have 1" mini blinds.
9. Entry doors on 1st floor to be a pair of 3' x 8' Herculite doors.
10. Allow $300,000.00 for Kitchen Cafeteria allowance.
11. Computer room allowance is as follows:
a. Back-up power $357,000.00.
b. Low destruction fire suppression $429,000.00.
12. Outdoor dining accommodations for site to be clarified by IDG Books
Worldwide.
13. Allow $15,000.00 for 1st floor reception desk.
14. Filtered water allowance $10,000.00.
<PAGE> 1
COVER COPY:
REVOLUTIONIZING LEARNING
BUILDING DOMINANT BRANDS
INFORMING THE INTERNET ECONOMY
1998 ANNUAL REPORT
IDG BOOKS WORLDWIDE, INC.
<PAGE> 2
INSIDE FRONT COVER:
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
- --------------------------------------------- ---------------- ---------------------- ---------------------
<S> <C> <C> <C>
NET REVENUE $97,847 $120,688 $141,525
- --------------------------------------------- ---------------- ---------------------- ---------------------
NET INCOME 6,488 7,035 10,183
- --------------------------------------------- ---------------- ---------------------- ---------------------
EBITDA1 12,351 13,586 20,677
- --------------------------------------------- ---------------- ---------------------- ---------------------
EARNINGS PER SHARE $0.58 $0.63 $0.87
- --------------------------------------------- ---------------- ---------------------- ---------------------
PRO FORMA EARNINGS PER SHARE2 $0.47 $0.51 $0.73
- --------------------------------------------- ---------------- ---------------------- ---------------------
</TABLE>
EARNINGS PER SHARE
[GRAPH VISUAL]
NET REVENUE ($ IN MILLIONS)
[GRAPH VISUAL]
1. "EBITDA" IS DEFINED AS INCOME BEFORE PROVISION FOR INCOME TAXES, INTEREST
EXPENSE, DEPRECIATION AND AMORTIZATION. EBITDA IS NOT INTENDED TO REPRESENT CASH
FLOWS FROM OPERATIONS AND SHOULD NOT BE CONSIDERED AS AN ALTERNATIVE TO NET
INCOME AS AN INDICATOR OF THE COMPANY'S OPERATING PERFORMANCE OR TO CASH FLOWS
AS A MEASURE OF LIQUIDITY.
2. THE PRO FORMA EARNINGS PER SHARE AMOUNTS SHOW THE PRO FORMA DILUTIVE EFFECT
OF THE NUMBER OF SHARES WHICH WERE REQUIRED TO BE SOLD IN THE COMPANY'S INITIAL
PUBLIC OFFERING TO REPAY THE NOTE PAYABLE ISSUED TO IDG, THE PARENT COMPANY, AS
A PRE-OFFERING DIVIDEND.
<PAGE> 3
INVESTED IN KNOWLEDGE
THE NEW INTERNET ECONOMY IS TRANSFORMING OUR LIVES: HOW WE WORK, ACQUIRE AND USE
INFORMATION, AND COMMUNICATE WITH THE WORLD AROUND US. THE NEED FOR QUALITY
TRAINING AND ON-THE-FLY SOLUTIONS IS BECOMING ONE OF THE MOST PRESSING BUSINESS
ISSUES TODAY. AS WE MOVE INTO THE 21ST CENTURY, WE WILL LOOK BEYOND TRADITIONAL
TRAINING ENVIRONMENTS SUCH AS THE CLASSROOM AND BECOME LIFELONG LEARNERS,
SEEKING QUICK ACCESS TO USEFUL INFORMATION THAT WILL HELP US TO LEAD MORE
PRODUCTIVE, REWARDING LIVES.
AT IDG BOOKS WORLDWIDE, INC., WE BELIEVE IN THE LIMITLESS POWER OF KNOWLEDGE TO
EXPAND HORIZONS, DELIVER COMPETITIVE ADVANTAGE, AND EMPOWER LIVES. FOUNDED IN
1990, WE'RE A LEADING GLOBAL KNOWLEDGE COMPANY WHOSE BEST-SELLING TECHNOLOGY,
BUSINESS, AND SELF-HELP PRODUCTS ARE DESIGNED TO MAKE LEARNING EASY, ACCESSIBLE,
AND FUN. WE'VE SUCCEEDED BY BUILDING STRONG BRANDS ACROSS CATEGORIES--A NEW
CONCEPT IN THE PUBLISHING INDUSTRY--AND SUPPORTING THEM WITH TARGETED CONTENT
AND EFFICIENT BUSINESS STRATEGIES.
INTELLECTUAL CURIOSITY, THE HUNGER FOR KNOWLEDGE, AND THE DRIVE TO EXCEL ARE
FUNDAMENTAL TO HUMAN NATURE. THEY ARE INCREASINGLY IMPORTANT IN THE KNOWLEDGE
ECONOMY, WHERE LEARNING TAKES PLACE CONTINUOUSLY. IDG BOOKS WORLDWIDE HAS BECOME
AN INDUSTRY PHENOMENON BY ANTICIPATING WHAT PEOPLE WANT TO KNOW NOW-AND WHAT
THEY NEED TO KNOW NEXT-AND DELIVERING RELIABLE CONTENT TARGETED TO DIVERSE
LEARNING STYLES.
FOR THE MILLIONS OF PEOPLE LOOKING TO ENHANCE THEIR SKILLS, IMPROVE THEIR
PRODUCTIVITY, AND SEEK PERSONAL ENRICHMENT, WE'LL PROVIDE EXCITING, FULFILLING
WAYS TO HELP THEM REALIZE THOSE GOALS.
<PAGE> 4
LETTER TO THE STOCKHOLDERS
TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES:
WELCOME TO OUR FIRST ANNUAL REPORT.
IN JUST EIGHT YEARS, IDG BOOKS WORLDWIDE HAS BECOME ONE OF THE MOST SUCCESSFUL
AND INNOVATIVE PUBLISHERS AND MASS MARKETERS OF THE DECADE. GREAT IDEAS,
NURTURED BY TALENTED PEOPLE, ARE THE FUELS THAT POWER OUR ENTERPRISE.
IN 1998 WE LAUNCHED 342 TITLES, INCLUDING THE LATEST RELEASE OF THE BEST-SELLING
COMPUTER BOOK EVER PUBLISHED: WINDOWS 98 FOR DUMMIES(R). IN FACT, IDGB PUBLISHED
THE TOP SIX BEST-SELLING WINDOWS 95 AND WINDOWS 98-RELATED TITLES, ACCORDING TO
THE RECENT OCTOBER 26, 1998 PUBLISHERS WEEKLY COMPUTER BEST-SELLER LIST; OTHER
IDGB TITLES EARNED THE #1 SLOT IN ALL REMAINING TECHNOLOGY CATEGORIES PUBLISHERS
WEEKLY TRACKS.
OUR FORMULA FOR CREATING A STRING OF BEST-SELLERS OVER THE YEARS IS SIMPLE: WE
HAVE CONSISTENTLY IDENTIFIED KEY TECHNOLOGY TRENDS AND DELIVERED PRODUCTS THAT
ENABLE CUSTOMERS TO QUICKLY GAIN COMPETITIVE ADVANTAGES AND INCREASE THEIR
SKILLS. WE'VE DELIVERED THOSE PRODUCTS THROUGH 18 BRANDED SERIES--INCLUDING OUR
FLAGSHIP ...FOR DUMMIES(R) BRAND, 3-D VISUAL(R), BIBLE, ...SECRETS(R), NOVELL
PRESS(TM), AND VARIOUS MICROSOFT CERTIFICATION SERIES--AND OUR THREE WEB SITES:
WWW.IDGBOOKS.COM, WWW.DUMMIES.COM, AND WWW.CLIFFS.COM. THIS DIVERSE RANGE OF
OFFERINGS AND CLEAR BRAND IDENTITY KEEP OUR CUSTOMERS COMING BACK FOR MORE.
FROM THE START, IDGB HAS SUCCESSFULLY BROUGHT BRANDING TO AN INDUSTRY THAT
TRADITIONALLY PUBLISHED "BOOK BY BOOK." THE BEST EXAMPLE OF THIS STRATEGIC FOCUS
OCCURRED IN NOVEMBER 1991 WHEN WE DEFIED CONVENTIONAL WISDOM AND LAUNCHED THE
REVOLUTIONARY KNOWLEDGE BRAND, ...FOR DUMMIES. WE HAVE GROWN THIS BRAND
RELENTLESSLY AND ARE PROUD TO HAVE FINISHED 1998 WITH MORE THAN 60 MILLION
COPIES IN PRINT IN THE ENGLISH LANGUAGE. IN ADDITION, WE HAVE TRANSLATIONS IN
MORE THAN 30 LANGUAGES.
IDGB HAS SUCCESSFULLY EXTENDED THE ...FOR DUMMIES BRAND BEYOND ITS ORIGINAL
TECHNOLOGY FOCUS INTO SUCH AREAS AS PERSONAL FINANCE, BUSINESS, REAL ESTATE,
COOKING, GARDENING, SPORTS AND FITNESS, TEST PREPARATION, MUSIC, AND MORE. THIS
YEAR, WE LAUNCHED 49 CONSUMER TITLES, WITH NEW ENTRIES IN THE CATEGORIES OF
SELF-HELP, SMALL BUSINESS, HOME IMPROVEMENT, AUTOMOTIVE REPAIR, PHOTOGRAPHY, AND
PERSONAL RELATIONSHIPS. BECAUSE OUR CORE MISSION IS TO MAKE LEARNING EASY AND
ACCESSIBLE WHATEVER THE TOPIC, WE BELIEVE OUR CONSUMER PUBLISHING OPPORTUNITIES
ARE LIMITLESS.
<PAGE> 5
We have identified several key growth initiatives that will drive us in 1999 and
beyond:
Increase Strategic Partnerships
We are already working with several customers to create custom products, and we
see this as an important growth area. Lotus, Siemens, and other companies have
contracted with us to provide printed product documentation and electronic
versions of our product. America Online, Excite, and Novell have also selected
IDGB to create exciting co-branded products.
Acquire Complementary Brands
The acquisition of Cliffs Notes(R) in December 1998 exemplifies our strategy to
extend our product portfolio with high-profile yet underdeveloped knowledge
brands with loyal repeat buyers and the potential for product expansion. We will
leverage these brands through our strong global sales, marketing, and
distribution network.
Launch New Products and Line Extensions
We see many growth opportunities for product launches into new markets such as
certification. In 1997, Microsoft reported that the Microsoft Certified Systems
Engineer and Microsoft Certified Solution Developer certifications saw growth of
over 250 percent in the prior year. The number of certified individuals doubled.
New software releases such as Microsoft Office 2000 give us the opportunity to
introduce a multitude of new titles and revisions of proven best-sellers. We
will have powerful promotional strategies, marketing programs, and retailer and
consumer incentives in place for the launch of these major software upgrades.
In 1999, we will also aggressively publish in the popular health category with
...For Dummies topics such as family health, alternative medicine, dieting, back
pain remedies, and stress management.
Expand Our Distribution Network
We see continued expansion in all our channels. Analysts are forecasting strong
growth for book superstores for 1999. In addition, many computer, membership
club, and office superstore chains are planning aggressive expansions. Our
sell-through efficiency, branding strategy, and solid relationships with the
market leaders will position us to capitalize on this growth.
We expect our growth from electronic commerce to continue to soar. Our 1998
sales through Amazon.com increased more than tenfold. Web-based sales are still
only a small percentage of our total business, so the impact of growth in this
channel will be significant.
International channels continue to be a source of growth potential. Currently,
14 percent of our revenues are from international business and we see
significant opportunity, especially as we launch local publishing ventures
around the world.
In our quest for the next big idea, we will focus on new platforms such as
electronic books, intranets, electronic downloads, and e-commerce as valuable
drivers of our business.
We are grateful to our talented staff, authors, customers, strategic partners
and, most importantly, to the tens of millions of IDGB consumers who continually
inspire us to innovate and grow. We are determined to build a diverse portfolio
of knowledge brands to help companies, students, families, and individuals
around the world learn, excel, compete, and improve the quality of their lives.
In short, we will continue to champion our core mission: helping people turn "I
can't" into "I can." By empowering our customers, we are fueling our future.
John J. Kilcullen
Steven H. Berkowitz
<PAGE> 6
RECOGNIZED BY READERS...
READER QUOTES:
RESUMES FOR DUMMIES(R), 2ND EDITION
"RESUMES FOR DUMMIES IS THE BEST RESUME BOOK I'VE EVER READ. THE INFORMATION IS
DOOR-OPENING AND THE PRESENTATION IS ENTERTAINING."
--JENNY LUKE, READER, OCEANSIDE, CA
WINDOWS(R) 95 SIMPLIFIED(R)
"THE BEST COMPUTER BOOK I'VE EVER READ; KEEP MAKING MORE!"
--GINA M. BELLAFORE, ASSOCIATE
FILM PRODUCER, BROOKLYN, NY
AUTOCAD(R) BIBLE
"CONGRATULATIONS ON WRITING THE BEST AUTOCAD REFERENCE/MANUAL THAT I'VE EVER
SEEN. I'VE BEEN AN AUTOCAD USER SINCE R10 AND I'VE SEEN AND USED MANY, MANY
AUTOCAD BOOKS. AUTOCAD 14 BIBLE IS AN EXCEPTIONAL WORK. IN ENGINEERING WE ARE
INFORMATION JUNKIES BY NECESSITY. THANK YOU FOR PROVIDING SUCH A COMPLETE
RESOURCE."
--MIKE CAULEY, MECHANICAL
DESIGNER, MONTEREY, CA
MCSE FOR DUMMIES(R)
"I RECENTLY FINISHED REVIEWING YOUR
NEW SET OF MCSE FOR DUMMIES BOOKS
AND WAS LEFT VERY IMPRESSED WITH
THE CONTENT. REGARDLESS OF WHAT THE TERM `DUMMIES' MEANS TO US, I THINK THAT
ANYONE WHO DOESN'T PICK UP A SET OF THESE FOR THEIR CERTIFICATION IS THE REAL
FOOL.
"I AM AN MCSE INSTRUCTOR FOR SENTO CORPORATION IN UTAH.
WE HELP STUDENTS BECOME CERTIFIED BY SHARING INFORMATION
WE HAVE DEVELOPED AND RESEARCHED. WITH ALL OF THE INFORMATION AVAILABLE TO ME, I
FEEL THAT THE MCSE DUMMIES BOOKS THAT I READ WERE BY FAR THE MOST FOCUSED ON
PASSING ALL OF THE EXAMS. I PARTICULARLY LIKE THE FORMAT OF THE BOOKS; THEY ARE
NOT ONLY EASY TO READ, BUT I WAS ABLE TO QUICKLY FIND THE EXACT INFORMATION ON
ANY TOPIC I NEEDED. I WOULD JUST LIKE TO COMPLIMENT YOUR ENTIRE MCSE TEAM FOR
TURNING OUT SUCH A BENEFICIAL AND USEFUL PRODUCT THAT IS WELL WORTH THE READ."
--PAUL T. BUNKER, MCSE, SENIOR SENTO INSTRUCTOR,
SENTO CORPORATION
<PAGE> 7
...AND THE MEDIA
GOURMET COOKING FOR DUMMIES(R)
"INFORMATION IS PACKED TIGHTER THAN 5 POUNDS OF MEAT LOAF IN A 3-POUND PATE
MOLD. SERIOUSLY, GOURMET COOKING FOR DUMMIES IS AN EASY-TO-FOLLOW BOOK THAT IS
CHOCK-A-BLOCK WITH USEFUL INFORMATION AND RECIPES."
--CHICAGO SUN-TIMES, OCTOBER 29, 1997
COOL CAREERS FOR DUMMIES(R)
"...THIS BOOK IS FULL OF SMART ADVICE DESIGNED TO SIMPLIFY JOB HUNTING."
--USA TODAY, SEPTEMBER 29, 1998
TAXES FOR DUMMIES(R), 1997 EDITION
"WITTY, DOWN-TO-EARTH WRITING THAT MIXES LINE-BY-LINE GUIDANCE ON YOUR TAX
RETURN WITH GENERAL ADVICE."
--U.S. NEWS & WORLD REPORT, MARCH 9, 1998
PHOTOSHOP 4(R) STUDIO SECRETS(TM)
"THE BOOK IS COPIOUSLY ILLUSTRATED WITH FULL-COLOR REPRODUCTIONS AND SCREEN
GRABS THROUGHOUT. INSTRUCTIONS ARE CLEAR AND, SINCE THEY ARE ALWAYS GROUNDED IN
REAL-WORLD ASSIGNMENTS AND APPLICATIONS, EASY TO FOLLOW."
--COMMUNICATIONS ARTS, SEPT/OCT 1998
WINDOWS(R) 98 FOR DUMMIES(R)
"THE DUMMIES SERIES LONG AGO PROVED ITSELF AN EXCELLENT MEANS OF EXPLAINING THE
ELEMENTARY ASPECTS OF OPERATING SYSTEMS TO NEW USERS. WINDOWS 98 FOR DUMMIES
CONTINUES THE TRADITION WITH ITS COVERAGE OF MICROSOFT'S LATEST CONSUMER
OPERATING SYSTEM."
--WWW.AMAZON.COM, JUNE 10, 1998
<PAGE> 8
POWERED BY PEOPLE
IT CAN START with a brainstorming session in an IDG Books Worldwide strategic
planning meeting. Or with new developments in technology or business that
require timely explanations--like the release of new software or hardware, or
the impending Year 2000 challenge. Or with an author's desire to share expertise
with readers.
Whatever its origin, every IDG Books Worldwide publication is a team effort from
start to finish.
Our authors are key partners in every publication. They include media
celebrities such as Gary McCord, author of the best-selling Golf For Dummies(R);
respected USA Today and Business Week best-selling author Eric Tyson, author of
eight ...For Dummies(R) titles on business, real estate and personal finance;
and computer and Internet gurus such as Brian Livingston, author of five
best-selling ...Secrets(R) titles on Windows. Each author brings a wealth of
practical experience and a compelling point of view to his or her subject.
Behind every new launch are the talents of more than 400 employees in four U.S.
offices. An idea for a new consumer title or series might come out of a planning
session in Chicago or New York, then be developed by the editorial group in
Indianapolis. The marketing staff in the San Francisco Bay Area plans public
relations and packaging strategies while teams in both the Bay Area and
Indianapolis coordinate production.
<PAGE> 9
POWERED BY PEOPLE, CON'T
From content acquisitions through editorial management, from design through
manufacturing, from sales through distribution, each stage is managed by
skilled, energetic professionals with a shared vision and a passion for high
quality.
When a book finally reaches the reader, it's a satisfying moment--but not the
end of the process. Our readers provide continuous feedback through our Web
sites, industry events, and our customer service and technical support hotlines.
Their active involvement keeps us continually searching for new areas to explore
and new ways to deliver knowledge that will make their lives easier and more
rewarding.
<PAGE> 10
BUILDING DOMINANT BRANDS
WHAT MAKES SOME BOOKS STAND OUT
amid in-store and online clutter? A strategic brand identity, superior content,
and targeted marketing that delivers repeat traffic and positive word-of-mouth.
That's the perfect definition of Cliffs Notes, the newest member of the IDG
Books Worldwide's family of knowledge products.
Founded in 1958 in Lincoln, Nebraska, Cliffs Notes has helped generations of
students study for courses, prepare for exams, and better understand literature.
The company currently publishes about 300 reference titles, including the
familiar Cliffs Notes. Each Cliffs Notes study guide is written by a teacher who
provides commentary and analysis of classic works. Other Cliffs Notes products
include: Cliffs Quick Review(R) for high school and college courses, Test
Preparation guides, Advanced Placement guides, and Test Preparation software.
Cliffs Notes' Web site, www.cliffs.com, launched in July 1998, sells electronic
downloadable products 24 hours a day at a premium price--a savvy strategy that
provides immediate value to students with pressing needs to obtain information
after bookstores and libraries are closed.
Until our December 1998 acquisition of Cliffs Notes, IDG Books Worldwide's
primary market was adults. With Cliffs Notes, we are able to reach a new
audience: brand-loyal, intellectually curious students aged 12 to 24. We look
forward to introducing these new customers to our other highly acclaimed
knowledge brands. In addition, we are excited about the opportunity to bring
former Cliffs Notes enthusiasts--now in their 30s, 40s, and beyond--back into
the fold with titles aimed at their current post-school needs and interests such
as technology and business.
<PAGE> 11
BUILDING DOMINANT BRANDS, CON'T
Cliffs Notes, like the ...For Dummies(R) series, has long been identified by its
trademarked yellow-and-black cover design. As the new parent of Cliffs Notes,
IDG Books Worldwide is proud to extend a yellow-and-black welcome to one of the
most venerable and successful knowledge brands in American history. We look
forward to revolutionizing learning together in the 21st century.
<PAGE> 12
MAKING IT FUN AND EASY!
IN THE PAST, learning a new subject was too often a matter of trial and error.
Now learning almost anything you're interested in can be fun and easy, thanks to
our ...For Dummies(R) product line, one of the most widely recognized self-help
brands in the United States and the world.
The Dummies promise is simple: to help our customers conquer the frustration
that often accompanies learning a new skill. Each book takes a challenging
topic--whether computers, cooking, the Internet, or investing--and makes it easy
for customers to quickly feel confident.
A few statistics convey the scope of the Dummies success. Approximately 60
million ...For Dummies titles are in print in the English language. The product
line includes more than 380 titles on technology and general-interest topics and
has translations in more than 30 languages. And in October 1998, 15 ...For
Dummies titles appeared on the Publishers Weekly top 40 Computer Book
Best-sellers list.
But numbers tell only a fraction of the story. The key to the Dummies phenomenon
is our expanding franchise of loyal customers who turn to us time and again to
solve problems and get up to speed quickly on important subjects that affect
their personal or professional lives.
The first step in making learning fun and easy for our customers is making our
books easy to find. We strive to have our Dummies products in as many shopping
outlets as possible. Dummies books enjoy a strong presence in large bookstore
chains such as Barnes & Noble, Borders, Walden, and B. Dalton and other channels
such as Price Costco, Sams, Staples, Office Max, and Office Depot. We've also
had remarkable success promoting the Dummies brand in the dynamic online
marketplace, with exceptional growth rates on Amazon. com, America Online,
barnesandnoble.com, and other e-commerce partners.
Through innovative licensing and expansion strategies, the Dummies brand extends
far beyond
<PAGE> 13
MAKING IT FUN AND EASY!, CON'T
books and booksellers. Created in partnership with PC World Online,
dummiesdaily.com, a daily online newletter, has over 15 million deliveries each
month. Subscribers receive daily tips in 19 subject areas, including online pop
quizzes for the new MCSE study guide field--the perfect daily preparation for
anyone preparing for a Microsoft certification exam.
Offline, our licensing accomplishments have been just as notable. In a June 1998
agreement with Pressman Toys, maker of such popular games as Othello and
MasterMind, we introduced three board games: Trivia For Dummies(TM), Charades
For Dummies(TM), and Crosswords For Dummies(TM). The games were promoted in
national television ads during the 1998 holiday season. Ongoing licensing
partnerships include Angel/EMI for classical music CDs; Harper Audio for a line
of acclaimed audio-cassette books; and Andrews-McMeel for day-to-day calendars.
<PAGE> 14
ANTICIPATING CUSTOMER NEEDS
COMPUTER NOVICE? Corporate manager? Software developer? The IDG Books Worldwide
Technology Group creates products for every experience level and every learning
style. Each series has a distinctive format that remains consistent from title
to title; as consumers progress through a series, they can rely on a product
that feels comfortable and accessible no matter how unfamiliar the content.
Because we specialize in anticipating market demands and trends, whether it's an
unfamiliar topic or new features of a subject, we continue to meet the needs of
our customers. On the day new software such as Microsoft Windows 98 is released,
a full array of IDG Books Worldwide technology titles hits the shelves. This
past June we debuted 17 Windows 98 titles, including eight ...For Dummies books,
concurrent with Microsoft's new product introduction. Just four months later, we
were proud to announce that six of our Windows 95 and Windows 98-related titles
held the top spots on the Publishers Weekly Computer Books Best-sellers list.
When we recognize a hot or emerging topic such as the LINUX operating system,
e-commerce, or Year 2000 solutions, our expert authors get to work on books that
demystify the subjects-and our sales, licensing, and marketing teams coordinate
efforts to ensure effective market penetration.
We also continually develop new products that appeal to untapped or underserved
markets. The certification-training market--worth an estimated $1.3 billion in
1997, according to Computerworld magazine, and growing exponentially--is an
increasingly important focus of our technology
<PAGE> 15
ANTICIPATING CUSTOMER NEEDS, CON'T
groups. We offer a range of options for information professionals preparing for
certification. In September 1998 we launched Ace It!(TM), written by Microsoft
exam experts, to complement our successful MCSE (Microsoft Certified Systems
Engineer) Study Guides.
Our best-selling and fastest growing line after ...For Dummies(R),
3-D Visual(R) comprises three reference/tutorial series: ...Simplified(TM),
Teach Yourself VISUALLY(TM), and Master VISUALLY(TM). All of the books use a
unique, award-winning visual format built around colorful graphics, with each
series addressing a different consumer level and learning style, from beginning
through advanced. The most sophisticated reference, Master VISUALLY(TM),
includes shareware as well as a CD-ROM with a searchable electronic version of
the book.
In December 1997 we acquired MIS: Press and M&T Books(TM) from
New York-based Henry Holt publishers, adding 80 new titles and five key brands
to our technology publishing program, including the original Teach Yourself(R)
series.
In 1999, we will introduce the redesigned Teach Yourself series. The new product
blends a text and visual approach to learning that lends itself to self-paced
instruction and instructor-led classes. Another new series, One Step at a
Time(TM), provides instant on-the-job training for busy professionals. This
combination book/CD-ROM creates a virtual classroom with On Demand software,
which turns the user's document into a personalized tutorial. Readers actually
learn new skills and get their work done at the same time.
<PAGE> 16
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the IDG
Books Worldwide, Inc. Financial Statements, including the related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, (1)
--------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(dollars in thousands except per share data)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net revenue .................................. $141,525 $120,688 $ 97,847 $ 72,523 $ 49,218
Operating income ............................. 17,260 11,923 10,996 10,888 10,798
Net income ................................... 10,183 7,035 6,488 6,366 6,497
Net income per share (2)
Basic .................................... $ .88 $ .63 $ .58 $ .57 $ .59
Diluted .................................. $ .87 $ .63 $ .58 $ .57 $ .59
Weighted average common shares outstanding (2)
Basic .................................... 11,633 11,100 11,100 11,100 11,100
Diluted .................................. 11,701 11,100 11,100 11,100 11,100
Pro forma basic and diluted net income per
share(3) ..................................... $ .73 $ .51
Pro forma weighted average common shares
outstanding (3)
Basic .................................... 13,941 13,873
Diluted .................................. 14,009 13,873
BALANCE SHEET AND OTHER DATA:
Cash ......................................... $ 15,466 $ 74 $ 83 $ 44 $ 86
Working capital .............................. 32,207 18,708 18,778 13,662 5,377
Total assets ................................. 88,254 57,163 43,636 39,101 20,199
Stockholders' equity ......................... 46,590 26,443 23,991 16,889 7,457
EBITDA (4) ................................... 20,677 13,586 12,351 11,270 10,978
</TABLE>
- ----------
(1) The Company's fiscal year ends on the last Saturday in September. Fiscal
years 1996, 1997 and 1998 ended on September 28, 1996, September 27, 1997,
and September 26, 1998, respectively. For convenience, fiscal year-ends are
denoted as September 30.
(2) See Note 2 of Notes to Financial Statements for an explanation of shares
used to compute basic and diluted net income per share.
(3) In May 1998, the Company paid a $38.4 million dividend by issuance of a
note payable to IDG. The Company paid the note using a portion of the
proceeds from its initial public offering. Unaudited pro forma basic and
diluted net income per share amounts are calculated using common shares
outstanding plus the number of shares whose proceeds were required to be
used to pay such note.
(4) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and amortization. EBITDA is not intended to represent
cash flows from operations and should not be considered as an alternative
to net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. The Company believes that EBITDA is a
standard measure commonly reported and widely used by analysts, investors
and other interested parties in the publishing and media industries,
however, EBITDA as presented herein may not be comparable to similarly
titled measures reported by other companies.
<PAGE> 17
FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those reflected in such forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's opinion only as of the date hereof. The Company undertakes no
obligation to revise or publicly release the results of any revision to these
forward-looking statements. Potential risks and uncertainties include, among
others, those set forth under "Overview" and "Factor Affecting Future Operating
Results" included in this Management's Discussion and Analysis. The following
discussion also should be read in conjunction with the Financial Statements and
related Notes included in this Annual Report.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
IDG Books Worldwide, Inc. is a leading global knowledge company featuring a
diverse portfolio of technology, business and self-help books and computer based
learning tools. The Company publishes and markets 18 book series under
well-known brand names, including its popular "...For Dummies(R)" series. These
books have created widespread recognition of the Company's brands by consumers
enabling it to successfully publish across a variety of categories in
technology, business and self-help. The Company's portfolio of brand names
includes more than 780 active titles. The Company has approximately 75 million
English-language books in print and has translated its books into 36 languages.
The Company believes that its readers value and trust its products and brands to
help obtain computer proficiency and professional certification, general
business know-how, career growth and personal enrichment.
Sales of technology-related books account for a substantial majority of the
Company's net revenue. In this regard, sales of books devoted to the use of
software products sold by Microsoft, including its Windows operating system,
accounted for approximately one-half of the Company's net revenue for year ended
September 30, 1998. The Company expects to continue to depend upon sales of
technology books, particularly those related to Microsoft products, for a
substantial majority of the Company's net revenue for the foreseeable future.
<PAGE> 18
As of September 30, 1998 there were no significant modifications required for
our previously printed and sold Windows 98 books as a result of the federal
regulators request for an injunction relating to Windows 98 in its current form.
In December 1998, the Company purchased all of the capital stock of Cliffs
Notes, Inc., a privately held publisher of the popular literary study guides.
Cliffs Notes currently publishes approximately 300 titles including its original
Notes plus Quick Reviews of high school and college courses, test preparation
guides, advanced placement study aids and test preparation software.
The Company's customers consist principally of national retail chain
booksellers, wholesale distributors, office superstores, membership clubs and
computer/electronic superstores located primarily in the United States and
Canada. Over the last several years, there has been significant consolidation in
the distribution channels for books, including retail outlets, although
alternative distribution channels have emerged. As a result, the Company expects
that this trend will lead to increased concentration within each distribution
channel. During the year ended September 30, 1998, the Company's top three
customers accounted for approximately 39.4% of the Company's net revenue as
compared to 38.6% in 1997, and the Company's top ten customers accounted for
approximately 64.1% of the Company's net revenue in 1998 as compared to 62.5% in
1997.
The Company's fiscal year ends on the last Saturday in September. Fiscal
years 1996, 1997 and 1998 ended on September 28, 1996, September 27, 1997 and
September 26, 1998, respectively and consisted of 52 weeks. For convenience,
throughout this Management's Discussion and Analysis of Financial Condition and
Results of Operations, the fiscal year-ends are denoted as September 30.
<PAGE> 19
RESULTS OF OPERATIONS
The following table summarizes the results of operations as a percentage of net
revenue for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Revenue:
"...For Dummies(R)"................................ 63.1% 68.1% 69.9%
IDB Books Technology............................... 36.9 31.9 30.1
------- ------- -------
Total net revenue.................................. 100.0% 100.0% 100.0%
======= ======= =======
Cost of sales...................................... 52.3 52.3 56.9
Selling, general and administrative expenses....... 34.5 34.8 29.0
Parent corporate services fee...................... 1.0 3.0 2.8
------- ------- -------
Income before provision for income taxes........... 12.2 9.9 11.2
------- ------- -------
Net income......................................... 7.2% 5.8% 6.6%
======= ======= =======
</TABLE>
<PAGE> 20
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Net Revenue. Net revenue increased $20.8 million, or 17.3%, to $141.5
million for the fiscal year ended September 30, 1998 from $120.7 million for the
fiscal year ended September 30, 1997. This increase was primarily the result of
an increase in net revenues of $7.6 million, or 9.3%, for the "...For
Dummies(R)" Group and $13.2 million, or 33.8%, for the IDGB Technology Group. Of
the Company's net revenue for the fiscal year ended September 30, 1998, $56.7
million was attributable to sales of titles (including new editions) first
published during that period, as compared to $55.0 million for titles (including
new editions) first published during the same period for 1997.
Cost of Sales. Cost of sales increased $10.9 million, or 17.3%, to $74.0
million for the fiscal year 1998 from $63.1 million for the fiscal year 1997.
Cost of sales as a percentage of net revenue was 52.3% for 1998 and 1997.
Product costs, including paper, printing and binding expenses, royalty expense
and inventory obsolescence expense increased as a percentage of net revenue to
32.2% for the fiscal year 1998 from 31.6% for the fiscal year 1997 as a result
of a small change in product mix. Product development costs increased as a
percentage of net revenue to 12.1% for the fiscal year 1998 from 11.3% for the
fiscal year 1997, reflecting the Company's planned increase in title output for
1998. Fulfillment and distribution expense decreased as a percentage of net
revenue to 8.0% for the fiscal year 1998 from 9.3% for the fiscal year 1997 as a
result of efficiencies achieved in the Company's distribution facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.9 million, or 16.2%, to $48.9 million for
the fiscal year 1998 from $42.0 million for the fiscal year 1997. Approximately
38.2% or $2.6 million of this increase was attributable to increased selling and
marketing expenses including increases as a result of the implementation of a
new retail marketing incentive program and expenses for other marketing programs
where costs increase as net revenues increase. A significant portion of the
increase was also attributed to a $2.4 million increase in general and
administrative expenses, including costs assumed by the Company and previously
charged as parent corporate services fee, and costs incurred relating to the
upgrade of computer systems. The remainder of the increase was due to an
increase in depreciation and amortization of $1.8 million relating to a larger
depreciable asset base and amortization of publishing rights. Selling, general
and administrative expenses decreased as a percentage of net revenue to 34.5%
for the fiscal year 1998 from 34.8% for the fiscal year 1997. The Company's
selling and marketing costs as a percentage of net revenue decreased to 19.3%
for the fiscal year 1998 from 20.5% for the fiscal year 1997.
Parent Corporate Services Fee. Parent corporate services fee decreased $2.2
million, or 60.3%, to $1.5 million for the fiscal year 1998 from $3.7 million
for the fiscal year 1997. Effective January 1, 1998, the Company assumed
responsibility for certain corporate administrative functions, as well as for
its own strategic marketing and brand-building, the costs for which had
constituted a significant portion of the parent corporate services fee. For the
fiscal year ended September 30, 1998, these costs were included with selling,
general and administrative expenses.
<PAGE> 21
Income before provision for income taxes. Income before provision for
income taxes increased $5.4 million, or 44.8%, to $17.3 million for the fiscal
1998 from $11.9 million for the fiscal year 1997. Income before provision for
income taxes increased as a percentage of net revenue to 12.2% for the fiscal
year 1998 from 9.9% for the same period the prior year due to an increase in
sales, a decrease in selling, general and administrative expenses as a
percentage of net revenue and a decrease in parent corporate service fees which
were included in selling, general and administrative expenses as described
above.
Net Income. Net income of $10.2 million for the fiscal year 1998 increased
$3.2 million, or 44.7%, from net income of $7.0 million for the fiscal year
1997. This increase was primarily the result of an increase in sales, a decrease
in selling, general and administrative expenses as a percentage of net revenue
and a decrease in parent corporate service fees, which were included in selling,
general, and administrative expenses as described above.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Net Revenue. Net revenue increased $22.8 million, or 23.3%, to $120.7
million for the fiscal year ended September 30, 1997 from $97.8 million for the
fiscal year ended September 30, 1996. This increase was primarily the result of
an increase in net sales of $14.7 million, or 22.9%, for the "...For Dummies(R)"
Group and an increase of $8.4 million, or 28.6%, for the IDGB Technology Group.
Of the Company's net revenue for the fiscal year ended September 30, 1997, $55.0
million was attributable to sales of titles (including new editions) first
published during that period, as compared to $48.5 million for titles (including
new editions) first published during the same period for 1996.
Cost of Sales. Cost of sales increased $7.4 million, or 13.2%, to $63.1
million for the fiscal year 1997 from $55.7 million for the fiscal year 1996.
Cost of sales as a percentage of net revenue was 52.3% and 56.9% for the fiscal
years ended September 30, 1997 and 1996, respectively. Cost of sales as a
percentage of net revenue decreased primarily because paper costs, fulfillment
expenses and inventory obsolescence all decreased as a percentage of net
revenue, though royalty expenses and, to a lesser extent, product development
costs increased as a percentage of net revenue. Product costs, including paper
and printing costs as a percentage of net revenue decreased to 31.6% for the
fiscal year 1997 from 35.1% for the fiscal year 1996 due to lower paper costs
and better printing rates resulting from higher volumes. Product development
costs increased as a percentage of net revenue to 11.3% for the fiscal year 1997
from 11.2% for the fiscal year 1996. Fulfillment and distribution expense
decreased as a percentage of net revenue to 9.3% for the fiscal year 1997 from
10.7% for the fiscal year 1996 as a result of efficiencies achieved in the
distribution, including increased shipments in carton quantities, a renegotiated
fulfillment contract with a third party vendor and lower returns and related
handling fees. Inventory obsolescence decreased to 4.3% of net revenue for the
fiscal year 1997 from 6.9% for the fiscal year 1996.
<PAGE> 22
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $13.6 million, or 48.2%, to $42.0 million
for the fiscal year 1997 from $28.4 million for the fiscal year 1996. This
increase was attributable to increased selling expenses of approximately $9.3
million, resulting primarily from more aggressive customer incentive programs,
and increased general and administrative expenses of approximately $4.3 million,
which reflected increased investments in infrastructure (salaries and bonuses
for additional headcount, occupancy and depreciation). Selling, general and
administrative expenses as a percentage of net revenue increased to 34.8% for
the fiscal year 1997 from 29.0% for the fiscal year 1996. Selling expenses
increased as a percentage of net revenue to 20.5% for the fiscal year 1997 from
15.7% for the fiscal year ended 1996, and general and administrative expenses
increased to 14.3% of net revenue for the fiscal year 1997 from 13.3% for the
fiscal year 1996.
Parent Corporate Services Fee. Parent corporate services fee increased $.9
million, or 32.0% to $3.7 million for the fiscal year 1997 from $2.8 million for
the fiscal year 1996, primarily as a result of the increase in net sales.
Income before provision for income taxes. Income before provision for
income taxes increased $.9 million, or 8.4%, to $11.9 million for the fiscal
year 1997 from $11.0 million for the fiscal year 1996. Income before provision
for income taxes decreased as a percentage of net revenue to 9.9% from 11.2% for
the same periods due to an increase in sales more than offset by higher selling,
general and administrative expenses.
Net Income. Net income of $7.0 million for the fiscal year 1997 increased
$.5 million, or 8.4%, from net income of $6.5 million for the fiscal year 1996.
This increase was primarily the result of increased sales partially offset by
increased selling, general and administrative expenses as described above.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
In May 1998, the Company paid a $38.4 million dividend to IDG, the Parent,
in the form of a promissory note. This dividend represented substantially all of
the Company's retained earnings through April 1998. On July 31, 1998, the
Company completed its initial public offering of Class A common stock. The net
proceeds to the Company from its initial public offering, after deducting
expenses and underwriting discounts and commissions of $5.3 million, were $44.0
million. The Company used $38.4 million of the net proceeds from the offering
for the repayment of indebtedness owed to IDG pursuant to the May promissory
note. The Company used the remaining $5.6 million of net proceeds for general
corporate purposes.
<PAGE> 23
Historically, the financing requirements of the Company were funded through
intercompany advances from IDG, its parent, while excess cash generated by the
Company was remitted to IDG. Accordingly, the Company maintained minimal cash
balances. In addition, balances owed to or due from IDG were non-interest
bearing and periodic settlements of the net amounts were not made. Accordingly,
such amounts were reflected as a component of stockholders' equity as of
September 30, 1997. As of June 22, 1998, IDG suspended the cash sweep process
allowing cash receipts and cash generated by the Company to be retained by the
Company. During the Company's fiscal fourth quarter ending September 30, 1998
the advances due to (from) Parent account balance was paid by IDG and reduced to
zero.
As of September 30, 1998 the Company's working capital increased $13.5
million to $32.2 million from $18.7 million at September 30, 1997. The increase
in working capital at September 30, 1998 reflected a $15.4 million increase in
cash which included initial public offering proceeds of $5.6 million, a $2.4
million increase in net inventory, a $3.3 million increase in deferred tax
assets, a $2.4 million increase in other current assets and a $.9 million
increase in accounts receivable, offset by a $9.5 million increase in accrued
liabilities and a $1.4 million increase in accounts payable. The activity
relating to the increase in accrued liabilities consisted of accruals previously
accounted for in the advances due to (from) Parent account. As of September 30,
1998 the increase in accrued liabilities was primarily due a $2.4 million
increase in accrued marketing for the new retail marketing incentive program
which did not exist in the prior year, a $2.1 million increase in other accrued
liabilities and other general and administrative expenses, $2.1 million increase
in accrued royalties, a $1.7 million accrual for ESOP (Employee Stock Ownership
Plan), and a $1.2 million increase in accrued compensation.
The Company's net cash provided by operations was $12.8 million for fiscal
1998 compared to $7.8 million for fiscal 1997. The $5.0 million increase in cash
provided by operations was primarily due to increased net income ($3.1 million),
an increase in depreciation and amortization ($1.8 million), a smaller increase
in accounts receivable ($3.8 million) and deferred taxes ($.7 million), and a
larger increase in accounts payable ($.9 million) for the year ended September
30, 1998 compared to the year ended September 30, 1997. This was partially
offset by an increase in a related party receivable ($1.5 million) over the
prior year, an increase in other current assets ($.9 million) for twelve months
ended September 30, 1998 compared to a decrease ($.4 million) in the prior year,
a larger increase in royalty advances ($.8 million) and a smaller increase in
accrued liabilities ($1.5 million) for the year ended September 30, 1998
compared to the year ended September 30, 1997. The Company's net cash provided
by operations increased $6.0 million for fiscal 1997 to $7.8 million from $1.8
million for fiscal 1996. This increase was primarily due to an increase in
accrued liabilities partially offset by increases in inventory, accounts
receivable and deferred taxes.
The Company's net cash used in investing activities for the twelve months
ended September 30, 1998 was $7.4 million and included $3.4 million used to
acquire certain
<PAGE> 24
publishing rights and $4.0 million used for capital expenditures, including
purchases of computer equipment and software and leasehold improvements. The
Company's net cash used in investing activities for the twelve months ended
September 30, 1997 and 1996 was $3.2 million and $2.4 million, respectively, and
included capital expenditures for computer equipment and software and leasehold
improvements.
The Company's net cash flow provided from financing activities for the
twelve months ended September 30, 1998 was $10.0 million and included net
proceeds of $44.0 million from the initial public offering. Aggregate initial
offering proceeds of $49.3 million were reduced by offering expenses of $5.3
million including underwriters' discounts and commissions of $3.5 million and
other expenses of $1.8 million. On July 31, 1998 the Company repaid the $38.4
million principal amount of the note owed to the Parent from the initial public
offering proceeds. The remainder of the financing activity for fiscal year 1998
related to $4.3 million in net intercompany advances from IDG or excess cash
generated by the Company and retained by IDG. The Company's net cash provided
(used) by financing activities was ($4.6 million) and $.6 million for the fiscal
years ended September 30, 1997 and 1996, respectively, and related solely to
changes in the net amount of intercompany advances from IDG or excess cash
generated by the Company and retained by IDG.
The Company entered into a credit agreement on August 27, 1998 with a bank
regarding a revolving credit facility in an amount of up to $20.0 million, which
would be available to the Company for seasonal working capital requirements and
general corporate purposes. As of September 30, 1998 the credit facility had not
been used.
The Company had $15.0 million in cash invested in short-term financial
instruments as of September 30, 1998. In December 1998, the Company purchased
all of the stock of Cliffs Notes, Inc. for $14.2 million plus approximately $3.3
million for net tangible assets delivered at closing. The purchase was funded
with cash and borrowings. The Company believes that its remaining borrowing
capacity, together with any cash generated from operations and any funds
available under any future credit facilities, will be sufficient to meet the
liquidity requirements of the Company for the foreseeable future. The Company's
future capital requirements will depend on many factors, including, but not
limited to, the levels at which the Company maintains inventory, the market
acceptance of the Company's products, the levels of promotional activities and
advertising required to launch the Company's products and any future
acquisitions. To the extent that the available cash, together with existing
resources and future earnings, are insufficient to fund the Company's future
activities, the Company may need to raise additional funds through public or
private financing. No assurance can be given that any such additional funding
will be available or that, if available, it can be obtained on terms favorable
to the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 2 of Notes to Financial Statements, for a discussion of the impact
of new accounting pronouncements.
<PAGE> 25
FACTORS AFFECTING FUTURE OPERATING RESULTS
Dependence on the Computer Industry. The Company writes many of its books
for users of information technology, particularly personal computers and
software. Technology-related books accounted for a substantial majority of the
Company's net revenue in fiscal 1998, and it is expected that technology books
will continue to account for a substantial majority of the Company's book sales
for the foreseeable future. As a result, the Company's future success depends on
the growth and development of the market for personal computers and related
applications. If this grows at a rate less than expected, or if consumer demand
for technology-related books declines for any reason, the Company's future
financial results could be adversely affected.
Dependence on Microsoft Products and Competition with Microsoft Press.
Sales of books devoted to the use of software products sold by Microsoft
Corporation ("Microsoft"), including its Windows operating system, accounted for
approximately half of the Company's net revenue in fiscal 1998. As a result,
future financial results will depend in large part on continued consumer demand
for Microsoft products. A decline in the use of Microsoft products would likely
result in decreased demand for the Company's books and could adversely affect
future financial results.
In addition to relying on the sales of books devoted to Microsoft products,
the Company competes with Microsoft's publishing division, Microsoft Press, for
readers of computer-related books, including books covering Microsoft products.
Microsoft Press has substantially greater financial resources than the Company
and, because it is owned by Microsoft, may have better access to planned and new
Microsoft products. As a result, Microsoft Press may have a competitive
advantage over the Company in providing books devoted to the use of software
products sold by Microsoft.
Dependence on " . . . For Dummies(R)" Publications. The Company derives a
substantial proportion of its net revenue from the sale of the " . . . For
Dummies(R)" family of books. In addition, the Company has devoted substantial
resources to the publication of these books and the development of the " . . .
For Dummies(R)" brand name. As a result, any change in reader preferences
leading to a decline in demand for the " . . . For Dummies(R)" books would
likely have a material adverse effect on future financial results.
Risks of New Product Introductions. Generally as a particular book gets
older, the Company sells fewer copies of that book. Consequently, the Company's
future success depends on its ability to identify trends in the technology and
business and self-help markets and to offer new titles, as well as other
products and services, that address the changing needs of the target audiences.
To establish market acceptance of a new publication, the Company must dedicate
significant resources to research and editorial development, production and
sales and marketing. The Company incurs significant costs in developing,
publishing and selling a new book, which often significantly precede meaningful
revenues from its sale. Consequently, new publications can require significant
time and investment to achieve profitability. Investors should note, however,
that there can be no assurance that the Company's efforts to introduce new
publications or other products or services will be successful or profitable.
<PAGE> 26
The Company records as an expense the costs related to the development of
new publications and products, other than author advances, as they are incurred.
As a result, the Company's profitability from quarter-to-quarter and from
year-to-year may be adversely affected by the number and timing of new
publications and product launches in any period and the level of acceptance
gained by such publications and products.
Risks Associated with Fluctuations in Paper Costs; Dependence on a
Significant Supplier. Paper is the principal raw material used in the Company's
business. The Company generally purchases paper from merchants representing the
paper mills. The Company does not have long-term paper supply contracts with
these paper merchants. The arrangements with merchants are negotiated each year
and provide for quarterly price adjustments. Paper prices have been volatile
over the past several years and are affected by many factors, including demand,
mill capacity, pulp supply, energy costs and general economic conditions.
Consequently, the Company's cost of paper, relative to our net revenue, can vary
from period-to-period. In the past, paper has also been difficult to obtain due
to industry-wide shortages. Significant paper price increases, sustained over a
period of time, could adversely affect the Company's future financial condition
or operating results.
The Company relies on a number of printing companies to print its books.
The Company's largest printing supplier accounted for approximately 25% of its
total printing and binding purchases in fiscal 1998. If the relationship with
this vendor were to be interrupted, or service from this or any other
significant supplier were to be delayed for any reason, the Company's future
financial or operating results could be adversely affected.
Fluctuations in Quarterly Results and Cyclicality of Revenue. The Company's
operating expenses, which include product development costs and selling, general
and administrative expenses, are relatively fixed in the short-term and are
based on our long-term revenue expectations. If the Company sells fewer books or
otherwise has lower revenue than expected, the Company may not be able to
quickly reduce its spending. Any shortfall in the Company's revenue would have a
direct impact on its results of operations, and fluctuations in quarterly
results could affect the market price of its Class A common stock in a manner
unrelated to the Company's long-term operating performance. The Company
typically sells more books during the first and second quarters because of
increased sales during the Christmas season. In addition, the Company sells more
books in quarters in which software manufacturers release new or updated
versions of popular software products. Because a substantial portion of the
Company's selling, general and administrative expenses are incurred evenly
throughout the year, the Company generally experiences relatively lower net
profit during quarters not impacted by increases in net revenue due to seasonal
or other factors discussed above.
In addition, the Company typically publishes books relating to new trends
and technologies. Accordingly, if general economic conditions worsen, people may
defer spending on these new trends and technologies, which could reduce the
number of books sold.
<PAGE> 27
Risks Associated with Product Distribution Channels; Risk of Product
Returns. The Company sells its books primarily to large retail chains, large
wholesalers, warehouse clubs, office superstores and computer and electronics
superstores. In fiscal 1998, the Company's three largest customers, Barnes &
Noble, Inc., Ingram Book Company and Borders, Inc., accounted for approximately
14%, 13% and 12% of net revenue, respectively. The Company's future financial
results depend in large part on its relationships with its customers. Any
disruption in relationships with its customers could adversely affect financial
performance.
The Company's sales policy generally permits book customers to return any
unsold or damaged books for full credit. The Company records as revenue all
books sold to its customers in a particular quarter and, at the same time,
records a provision for estimated returns. During fiscal year 1998, the Company
recorded a provision for returns of approximately 22% of its gross sales. If,
during any period, customers return more books than previously estimated, the
Company's financial results in that period would be adversely affected.
Competition. The Company faces competition directly from other book
publishers and indirectly from non-print media. Competition in book publishing
stems mainly from editorial quality, timely introduction of new titles, product
positioning, pricing and brand name recognition. In addition to the Company,
Simon & Schuster, Microsoft Press and McGraw-Hill all have a strong market
presence in the United States and internationally in technology publishing. The
principal competitors for the Company's business and self-help titles include
Random House, Simon & Schuster and HarperCollins. Each of these competitors has
substantially greater financial resources than the Company.
Non-print media, such as the Internet and CD-ROMs, may also present
substantial competition. If computer users increase their reliance on
instruction and other information disseminated on-line, the Company's business
could be adversely affected.
Potential Competition with IDG. IDG publishes magazines and on-line services
and, to a lesser extent, books that may be competitive with the Company's
publications. Certain of IDG's current publications and products compete with
our books. As a result, the Company may compete with IDG for certain readers.
IDG has substantially greater resources the Company. Any increased competition
from IDG for readers could have an adverse impact on the Company's business and
operating results.
Control by IDG; Potential Conflicts of Interests; Benefits to IDG. IDG owns all
of the shares of the Class B common stock, each share of which is entitled to
ten votes per share on most stockholder actions, and has approximately 77.77% of
the combined voting power of both classes of common stock as of September 30,
1998. The remaining holders of the shares of Class A common stock are entitled
to one vote per share and have approximately 22.23% of the combined voting
power. IDG has two representatives on the Company's Board of Directors and has
enough votes to elect all members of the Board of Directors.
<PAGE> 28
As a result of its stock ownership, IDG is in a position, without the approval
of the Company's public stockholders, to: amend the Company's charter or approve
a merger, sale of assets or other major corporate transaction; defeat any
non-negotiated takeover attempt that might otherwise benefit the public
stockholders; determine the amount and timing of dividends paid to itself and to
the Company's public stockholders; and otherwise control the Company's
management and operations and the outcome of all matters submitted for a
stockholder vote that could conflict with the interests of its public
stockholders.
Dependence on Key Personnel. The Company relies, and will continue to rely,
on its senior executive officers and other key management personnel. If any of
these people leaves the Company, the relationships that these people have with
the Company's authors, customers or manufacturers could be lost, and the Company
would need to find people that could develop new relationships. In addition, the
Company expects that it will need to hire additional employees, including senior
executive officers for marketing, worldwide sales and information systems. The
competition for employees at all levels of the book publishing industry is
intense and is increasing. In our Northern California operations, in particular,
the Company has experienced increased turnover of employees and are experiencing
difficulty in attracting new employees. If the Company does not succeed in
attracting new employees or retaining and motivating current employees, the
Company's business could suffer significantly.
Transition to New Computer System and New Distribution Service. The Company
is in the process of upgrading its existing computer system. The Company expects
the total cost for this upgrade to be $3.6 million, of which $2.2 million had
been spent through September 30, 1998. The Company outsources distribution and
fulfillment functions to retail and wholesale customers through two vendors. The
contracts with these vendors expire in September 1999. One of these vendors
accounted for more than 60% of our distribution and order fulfillment costs in
each of fiscal 1996, 1997 and 1998. The Company expects to select a
single-source vendor for distribution and fulfillment, but has not done so at
this time. Any difficulties in implementing the new computer system or
transitioning to a new distribution vendor could adversely impact day-to-day
operating performance and future financial results.
Risks Associated with Acquisitions. As part of the Company's growth
strategy, it may buy, or make significant investments in, complementary
companies, publications or products. The Company recently completed the
acquisition of the Cliffs Notes, Inc. This acquisition as well as any future
acquisition will be accompanied by the risks commonly encountered in making
acquisitions of products, companies and technologies.
<PAGE> 29
For example, it could have difficulty assimilating the personnel and operations
of the acquired company. This could cause a disruption of its ongoing business,
distraction of management and other resources, and difficulty in maintaining
uniform standards, controls and procedures. There can be no assurance that the
Company would succeed in overcoming these risks or any other problems
encountered in connection with any acquisitions it may make. In addition, the
Company may be required to incur debt or issue equity to pay for any future
acquisitions.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in 2000, these
date code fields will need to accept four-digit entries in order to distinguish
21st century dates from 20th century dates. As a result, the computer systems
and/or software used by many companies will need to be upgraded to comply with
"Year 2000" requirements by the end of 1999. Significant uncertainty exists in
the software industry concerning the potential effects associated with such
compliance issues.
The Company has essentially completed the review of its computer systems to
determine the extent and impact of the Year 2000 issues. The Company uses and is
installing a number of computer software programs and operating systems,
including applications for its internal electronic communications network and
for various administrative and billing functions. The Company has begun testing
its systems for compliance in preparation for implementing the needed changes.
Many of the Company's systems are new and were designed to accommodate the Year
2000 issue when originally installed. The Company currently anticipates
completing corrective measures to its systems by mid-year of calendar 1999. The
Company has assessed the scope of its risks related to problems its computer
systems may have related to the Year 2000 issue and believes such risks are not
material. The estimated costs to modify or replace these applications are
included in the Company's cost for its computer system upgrade. The Company
currently does not have a contingency plan in the event that it is unable to
make its systems Year 2000 compliant. There can be no assurance, however, that
the Company's systems will be fully Year 2000 compliant in a timely manner, and
a failure by the Company to make its internal systems Year 2000 compliant could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company is in the process of communicating with its customers, suppliers and
business partners in an effort to assess how they intend to resolve their Year
2000 issues. The Company at this time is not able to form an opinion as to
whether its customers or suppliers will be able to resolve their Year 2000
issues in a satisfactory and timely manner, or the magnitude of the adverse
impact it would have on the Company's operations, if they fail to do so. No
assurance can be given that all of these
<PAGE> 30
third party systems will be Year 2000 compliant. Any failure of the Company's
customers, suppliers or business partners to satisfactorily address their Year
2000 problems could have a material adverse effect on the Company's business,
financial condition and results of operations.
FINANCIAL MARKET RISKS
The Company is exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. The Company has not used derivative
financial instruments to hedge such risks, or for speculative or trading
purposes. At September 30, 1998, substantially all the Company's cash
equivalents were invested in overnight repurchase agreements. If market rates
were to increase immediately by 10 percent from levels at September 30, 1998,
the fair value of this investment portfolio would decline by an immaterial
amount. The Company also receives certain payments from foreign distributors and
licensees (principally in Canada and Europe) which are calculated based on
foreign currency exchanges rates. The Company believes that a hypothetical 10
percent appreciation from September 30, 1998 in the U.S. Dollar relative to such
currencies would not have a material effect on net income or cash flows.
<PAGE> 31
IDG BOOKS WORLDWIDE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1997
-------- ------
<S> <C> <C>
Current Assets:
Cash............................................................. $ 15,466 $ 74
Accounts receivable - net........................................ 27,477 26,561
Inventory - net.................................................. 10,367 7,927
Receivable from parent........................................... 1,514 0
Other current assets............................................. 903 6
Deferred tax assets.............................................. 18,144 14,860
-------- -------
Total current assets..................................... 73,871 49,428
Royalty advances - net................................................ 5,195 3,078
Property and equipment - net.......................................... 5,605 4,657
Publishing rights - net............................................... 3,583 --
-------- -------
TOTAL.................................................... $ 88,254 $57,163
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................. $ 5,885 $4,504
Accrued liabilities.............................................. 35,779 26,216
-------- -------
Total current liabilities................................ 41,664 30,720
-------- -------
Stockholders' Equity:
Preferred stock, $.001 par value; authorized:
5,000,000 shares; issued and outstanding: 0 shares............
Common stock, $.001 par value; authorized: 25,000,000 Class A
shares and 400,000 Class B shares; issued and outstanding:
1998 - 14,080,000 Class A shares and 200,000
Class B shares........................................ 14 --
1997 - 11,100,000 shares, undesignated........................ -- 11
Additional Paid-in-Capital............................................ 44,029 --
Retained Earnings..................................................... 2,547 30,764
Advances due to (from) Parent......................................... -- (4,332)
-------- -------
Total stockholders' equity............................... 46,590 26,443
-------- -------
TOTAL.................................................... $88,254 $57,163
======= =======
</TABLE>
See notes to financial statements
<PAGE> 32
IDG BOOKS WORLDWIDE, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Net sales............................................ $ 136,650 $ 116,488 $ 93,435
Licensing revenues and other......................... 4,875 4,200 4,412
---------- ---------- ----------
Net revenue........................................ 141,525 120,688 97,847
Operating Costs and Expenses:
Cost of sales........................................ 73,952 63,064 55,703
Selling, general and administrative.................. 48,856 42,032 28,369
Parent corporate services fee........................ 1,457 3,669 2,779
---------- ---------- ----------
Total operating costs and expenses............. 124,265 108,765 86,851
---------- ---------- ----------
Income Before Provision for Income Taxes.................. 17,260 11,923 10,996
Provision for Income Taxes................................ 7,077 4,888 4,508
---------- ---------- ----------
Net Income................................................ $ 10,183 $ 7,035 $ 6,488
========== ========== ==========
Basic and Diluted Net Income per Share:
- Basic............................................. $ 0.88 $ 0.63 $ 0.58
========== ========== ==========
- Diluted........................................... $ 0.87 $ 0.63 $ 0.58
========== ========== ==========
Pro Forma Net Income per Share (Note 2):
- Basic............................................. $ 0.73 $ 0.51
========== ==========
- Diluted........................................... $ 0.73 $ 0.51
========== ==========
Shares Used in per Share Calculations:
- Basic net income.................................. 11,633 11,100 11,100
========== ========= ==========
- Diluted net income................................ 11,701 11,100 11,100
========== ========= ==========
Shares Used in Pro Forma per Share Calculations:
- Pro forma basic net income........................ 13,941 13,873
========== =========
- Pro forma diluted net income...................... 14,009 13,873
========== =========
</TABLE>
See notes to financial statements
<PAGE> 33
IDG BOOKS WORLDWIDE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADVANCES
COMMON STOCK ADDITIONAL DUE
-------------------- PAID-IN RETAINED TO (FROM)
SHARES AMOUNT CAPITAL EARNINGS PARENT TOTAL
-------- ---------- ----------- --------- -------- ---------
<S> <C>
Balance, September 30, 1995..... 11,100 $ 11 $ -- $ 17,241 $ (363) $ 16,889
Net income................... 6,488 6,488
Changes in Advances due to
(from) Parent............... 614 614
-------- ---------- ----------- --------- -------- ---------
Balance, September 30, 1996..... 11,100 11 -- 23,729 251 23,991
Net income................... 7,035 7,035
Changes in Advances due to
(from) Parent............... (4,583) (4,583)
-------- ---------- ----------- --------- -------- ---------
Balance, September 30, 1997..... 11,100 11 -- 30,764 (4,332) 26,443
Net income................... 10,183 10,183
Proceeds from sale of Common
Stock, net of offering costs 3,180 3 44,029 44,032
Dividend to Parent........... (38,400) (38,400)
Changes in Advances due to
(from) Parent............... 4,332 4,332
-------- ---------- ----------- --------- -------- --------
Balance, September 30, 1998..... 14,280 $ 14 $ 44,029 $ 2,547 $ -- $ 46,590
======== ========== =========== ========= ======== ========
</TABLE>
See notes to financial statements
<PAGE> 34
IDG BOOKS WORLDWIDE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income..................................................... $ 10,183 $ 7,035 $ 6,488
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................ 3,415 1,663 1,355
Deferred income taxes.................................... (3,284) (4,000) (2,017)
Changes in operating assets and liabilities:
Receivable........................................... (1,866) (5,646) (3,460)
Receivable from Parent............................... (1,514) -- --
Inventory............................................ (1,940) (1,808) 3,378
Royalty advances..................................... (1,717) (939) (910)
Other current assets................................. (897) 440 (412)
Accounts payable..................................... 1,381 475 (6)
Accrued liabilities.................................. 9,052 10,600 (2,561)
-------- -------- --------
Net cash provided by operating activities............ 12,813 7,820 1,855
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures.......................................... (3,946) (3,246) (2,430)
Acquisition of publishing rights and related assets........... (3,439) -- --
-------- -------- --------
Net cash used by investing activities................ (7,385) (3,246) (2,430)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from Initial Public Offering.......................... 44,032 -- --
Payment of note to Parent...................................... (38,400) -- --
Advances due to (from) Parent -- net change.................... 4,332 (4,583) 614
-------- -------- --------
Net cash provided (used) by financing activities..... 9,964 (4,583) 614
-------- -------- --------
Increase (Decrease) in Cash and Equivalents........................ 15,392 (9) 39
Cash and Equivalents, Beginning of Period.......................... 74 83 44
-------- -------- --------
Cash and Equivalents, End of Period................................ $ 15,466 $ 74 $ 83
-------- -------- --------
Noncash Investing Activity:
Acquisition of publishing rights and related assets (Note 9):
Current assets........................................... $ 1,400
Publishing rights........................................ 4,000
Less cash paid........................................... (3,439)
--------
Liabilities assumed...................................... $ 1,961
--------
</TABLE>
See notes to financial statements
<PAGE> 35
IDG BOOKS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Organization and Description of Business -- IDG Books Worldwide, Inc., a
Massachusetts company, ("the Company"), was founded in 1990 as a wholly-owned
subsidiary (through intermediate companies) of International Data Group, Inc.
("Parent"). On March 24, 1998 the Company was reincorporated in Delaware. On
July 31, 1998, the Company consummated its initial public offering (the
"Offering") of 3,180,000 shares of Class A common stock at an offering price of
$15.50 per share pursuant to a Registration Statement declared effective by the
SEC on July 27, 1998. After deducting expense, the net proceeds to the Company
from the Offering were $44,032,000. The Company used $38,400,000 of the net
proceeds of the Offering to repay indebtedness owed to the Parent.
The Company is a leading global knowledge company with best-selling
technology, business and self-help books and computer-based training tools
designed to make learning accessible and fun. The Company publishes and markets
its books under brand names, including the ". . . For Dummies("series.
Basis of Presentation and Transactions with Parent -- The Company had
historically depended on the Parent (or affiliates thereof) for corporate
administrative functions, as well as for strategic marketing and brand-building,
financing, cash management, tax and payroll administration, property/casualty
insurance, employee benefits administration, and certain other services. The
fees for these services have been charged to the Company, and reflected in the
accompanying financial statements, through a parent corporate services fee based
on a percentage of budgeted net sales plus a fixed charge which is consistent
with the method that the Parent charges its other controlled subsidiaries.
Effective January 1, 1998, the Company assumed responsibility for certain
corporate administrative functions, as well as for the Company's strategic
marketing and brand-building, the costs for which had constituted a significant
portion of the parent corporate services fee. Accordingly, effective January
1998, the Parent corporate services fee decreased to approximately $150,000 per
quarter. In the opinion of management, the Parent corporate services fees
included in the accompanying financial statements reflect a reasonable amount
for the services received; however, such amounts were not established on an
arm's-length basis and may not be the same as would have been incurred had the
Company operated independent of its Parent. Nevertheless, management does not
believe the Company would have incurred materially different operating expenses
as an independent company.
Reclassifications -- Certain amounts in prior years' financial statements
and related notes have been reclassified to conform to the fiscal 1998
presentation.
<PAGE> 36
2. SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year -- The Company's fiscal year ends on the last Saturday of each
September. Fiscal years 1996, 1997 and 1998 ended on September 28, 1996,
September 27, 1997 and September 26, 1998, respectively and consisted of 52
weeks. For convenience, fiscal year-ends are denoted in the accompanying
financial statements as September 30.
Revenue Recognition -- Sales are recorded upon shipment of products, net of
provisions for estimated returns and allowances, which are estimated based on
historical experience by type of book. For the years ended September 30, 1996,
1997 and 1998, the provision for returns and allowances represented
approximately 22.3%, 20.9% and 21.9% of gross sales for the respective period.
The accompanying income statements do not reflect any material adjustments for
actual returns and allowances as compared to amounts estimated in prior periods.
Revenue from the licensing of titles, editorial content and design are
recognized when received.
Concentrations of Credit Risk -- Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily of
accounts receivable. The Company's customers consist principally of retail chain
booksellers, wholesale distributors, office superstores, membership clubs and
computer/electronic superstores located primarily in the United States and
Canada. Certain customers account for over 10% of sales (Note 10). The Company
performs ongoing credit evaluations its customers and maintains allowances for
estimated probable credit losses.
Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires the use of estimates. The
primary estimates underlying the Company's financial statements include
allowances for sales returns, doubtful accounts, inventory obsolescence,
reserves for royalty advances and recoverability of deferred tax assets. Actual
results could differ from those estimates.
Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months or less to be
cash equivalents.
Inventory -- Inventory is stated at lower of cost or market. Cost is
determined using the first-in, first-out method.
Royalty Advances -- Royalty advances are recorded as cash is advanced to
authors and are expensed as earned by authors or reserved when future recovery
appears doubtful. Royalty advances are reported net of reserves of $1,999,000
and $3,262,000 at September 30, 1997 and 1998, respectively.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided using the straight- line method over the estimated
useful lives of the assets ranging from three to five years. Leasehold
improvements are amortized over the shorter of the lease term or the remaining
useful life of the related assets. The Company capitalizes internal-use software
in accordance with AICPA Statement of
<PAGE> 37
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Such costs are amortized over a useful life of five
years.
Long-Lived Assets -- Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. For purposes of evaluating the recoverability of
long-lived assets, the Company evaluates the carrying value of its long-lived
assets on an ongoing basis and recognizes an impairment when the estimated
future undiscounted cash flows from operations are less than the carrying value
of the related assets.
Advances due to (from) Parent are included as a component of stockholders'
equity at September 30, 1997, as no interest was charged for such balances and
there was no scheduled repayment. As of June 22, 1998, the Parent suspended the
cash sweep process allowing cash receipts and cash generated by the Company to
be retained by the Company.
Income Taxes -- The Company's taxable income has been included in the
Parent's consolidated tax returns for 1996, 1997 and through the Offering
completion date of July 31, 1998. Subsequent to July 31, 1998, the Company will
file its own federal returns and most state returns. The Company may still be
required, or may find it advantageous, to file consolidated state returns and
other returns in certain states where combined or unitary tax returns are
available. The accompanying financial statements for 1997 include taxes paid
which approximates the current income tax provision, as if the Company were a
separate taxpayer. The Company accounts for deferred income taxes in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, which requires
that deferred tax assets and liabilities are recognized for the expected future
tax consequences of temporary differences between the financial statement
carrying amount and the tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts, more likely than not, to be realized.
Net Income Per Share -- Net income per share is computed using the basic
and diluted weighted average number of common shares outstanding during the year
in accordance with SFAS No. 128, Earnings Per Share. Basic net income per share
excludes dilution and is computed using the weighted average number of common
shares outstanding for the period. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (stock options) were exercised or converted into common stock. On
May 6, 1998 the Company granted options to purchase shares of Class A common
stock. For the year ended September 30, 1998, 68,000 shares, reflecting the
dilutive effects of outstanding stock options, were included in computing
diluted net income per share. See Note 8 for discussion of stock options.
<PAGE> 38
Unaudited Pro Forma Earnings Per Share -- Unaudited pro forma basic net
income per share amounts were calculated using common shares outstanding plus
the number of shares (2,773,000) whose proceeds were used to repay a $38.4
million note payable (issued as a pre-offering dividend), at the $15.50 initial
public offering price reduced by per share offering costs. The pro forma diluted
net income per share amounts also reflect the dilutive effect of outstanding
stock options.
Stock-Based Compensation is accounted for using the intrinsic value method
in accordance with the provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees, as allowed by SFAS No. 123, Accounting for Stock-Based
Compensation.
New Accounting Pronouncements -- In June 1997, the Financial Accounting
Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, which establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas, and major customers. Management has
not yet determined its SFAS 131 reporting segments. This Statement will not
affect the Company's financial position, results of operations or cash flows.
This statement is effective for the Company in fiscal year 1999, with earlier
application permitted.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Accounts receivable.................... $ 53,922 $ 47,859
Allowance for doubtful accounts........ (4,555) (3,465)
Allowance for sales returns............ (21,890) (17,833)
----------- -----------
Total.......................... $ 27,477 $ 26,561
=========== ===========
</TABLE>
4. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Books (finished goods)................. $ 22,185 $ 17,038
Paper.................................. 2,560 2,823
----------- -----------
Total Inventory................ 24,745 19,861
Reserve for obsolescence............... (14,378) (11,934)
----------- -----------
Net Inventory.................. $ 10,367 $ 7,927
=========== ===========
</TABLE>
<PAGE> 39
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Computers and equipment................ $ 6,762 $ 5,094
Furniture and fixtures................. 1,343 1,334
Leasehold improvements................. 2,368 1,286
Internal-use software.................. 1,824 635
----------- -----------
Total.......................... 12,297 8,349
Less accumulated depreciation
and amortization..................... (6,692) (3,692)
----------- -----------
Property and equipment - net... $ 5,605 $ 4,657
=========== ===========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Accrued royalties...................... $ 11,545 $ 9,403
Accrued compensation and benefits...... 9,315 6,389
Accrued promotion...................... 9,923 7,518
Other accrued liabilities.............. 4,996 2,906
----------- -----------
Total $ 35,779 $ 26,216
=========== ===========
</TABLE>
7. INCOME TAXES
The provision for federal, state and foreign taxes consisted of the following
for the years ended September 30 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal ............................... $ 8,150 $ 7,200 $ 5,325
State ................................. 2,003 1,539 1,048
Foreign ............................... 208 149 152
--------- --------- ---------
Total current ......................... 10,361 8,888 6,525
--------- --------- ---------
Deferred:
Federal ............................... (2,508) (3,227) (1,662)
State ................................. (776) (773) (355)
--------- --------- ---------
Total deferred ........................ (3,284) (4,000) (2,017)
--------- --------- ---------
Total ......................... $ 7,077 $ 4,888 $ 4,508
========= ========= =========
</TABLE>
Federal and state income tax expense was allocated to the Company by the Parent
through the Advances due to (from) Parent account for 1996, 1997 and through
July 1998. During the remainder of 1998 these tax expenses were recorded by the
Company through its Accrued liabilities account.
<PAGE> 40
Deferred tax assets were comprised of the following at September 30 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Reserve for returns ....................... $ 8,134 $ 6,842
Reserve for obsolescence................... 5,628 4,558
Loss accruals.............................. 2,802 2,221
Uniform capitalization..................... 855 582
Other...................................... 725 657
---------- ----------
Deferred tax assets........................ $ 18,144 $ 14,860
========== ==========
</TABLE>
The differences between the effective income tax rate and the statutory federal
tax rate were as follows for the years ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal tax rate ................ 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit ... 4.6 4.2 4.1
Other ..................................... 1.4 1.8 1.9
--------- --------- ---------
Effective tax rate ........................ 41.0% 41.0% 41.0%
========= ========= =========
</TABLE>
8. STOCKHOLDERS' EQUITY
Common Stock
The Company is authorized to issue 25,400,000 shares of common stock,
consisting of 25,000,000 shares of Class A common stock and 400,000 shares of
Class B common stock, $.001 par value per share, of which a total of 14,080,000
Class A shares and 200,000 Class B shares were outstanding at September 30,
1998. Shares outstanding at September 30, 1997 consisted of 11,100,000 shares
which were undesignated as to class. In July 1998, the Company completed its
initial public offering of 3,180,000 shares of Class A common stock, raising net
proceeds of approximately $44,032,000.
Each outstanding share of Class A common stock is entitled to one vote and
each outstanding share of Class B common stock is entitled to ten votes. Holders
of Class A common stock and Class B common stock are entitled to receive
dividends at the same rate and in such amounts as the Board of Directors may
from time to time determine.
Class A common stock is not convertible. Class B common stock is
convertible at any time into Class A common stock on a share-for-share basis and
will automatically convert upon the transfer by the holder thereof.
<PAGE> 41
Stock Option Plan
Effective May 6, 1998, the Company's Board of Directors approved a stock
option plan under which 2,850,000 shares of common stock are reserved for
issuance to employees, consultants and directors. Under the plan, both incentive
and nonstatutory stock options may be granted to purchase common stock at not
less than the fair market value of the common stock at the date of grant. On May
6, 1998, the Company granted options to purchase 1,500,900 shares of Class A
common stock at an exercise price of $11.88 per share and on July 27, 1998 the
Company granted options to purchase 49,500 shares of Class A common stock at an
exercise price of $15.50. Options generally vest over 4 years and expire ten
years after date of grant. As of September 30, 1998 options to purchase
1,477,800 shares of Class A common stock at a weighted average exercise price of
$12.00 were outstanding and options to purchase 1,372,200 shares were available
for future grants.
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
------------- ------------------
<S> <C> <C>
Balance, September 30, 1997 0 $ 0.00
Granted (weighted average
fair value of $3.16) 1,550,400 12.00
Exercised 0 0.00
Cancelled (72,600) 11.88
------------- ------------------
Balance, September 30, 1998 1,477,800 $ 12.00
============= ==================
</TABLE>
Additional information regarding options as of September 30, 1998 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Excercisable Price
- ---------------- ----------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$11.88 - $15.50 1,477,800 9.59 $12.00 6,667 $15.50
================ =========== ============ ========= ============ =========
</TABLE>
<PAGE> 42
Employee Stock Ownership Plan
Prior to May 6, 1998 the Company's employees participated in the Parent's
unleveraged ESOP ("ESOP-P") and, as discussed in Note 11, the Company has
recorded the applicable plan contribution expense in its financial statements.
As of May 6, 1998, the Company adopted a new ESOP ("Books ESOP"). In connection
therewith, the accounts of the Company employees, and the shares of common stock
of the Parent attributable to such accounts, were transferred from ESOP-P to
Books ESOP. Such Parent common shares received by Books ESOP were tendered on
May 21, 1998 to the Parent in exchange for 394,251 shares of Company Class B
common stock, based on an exchange ratio determined by an independent valuation
firm of the relative fair value of one Company Class B common share to one
Parent common share. The shares of Class B common stock owned by Books ESOP were
transferred to an affiliate of the Parent in exchange for 394,251 shares of
Class A common stock in connection with the Company's initial public offering.
Effective May 6, 1998, employees of the Company participate in the Books ESOP
and no longer participate in ESOP-P.
Stock Based Compensation
As permitted under Statement of Financial Accounting Standards Board No.
123, Accounting for Stock-Based Compensation (SFAS No. 123), and as discussed in
Note 2, the Company uses the intrinsic value method specified by APB Opinion No.
25 to calculate compensation expense associated with issuing stock options.
Accordingly, the Company has not recognized any compensation expense with
respect to such awards, since the exercise price of the stock options awarded
has been equal to the fair market value of the underlying security at the date
of grant.
<PAGE> 43
SFAS No. 123 requires the disclosure of pro forma net income and earnings
per share had the Company adopted the fair value method as prescribed by SFAS
123. Under SFAS No. 123, the fair value of the stock-based awards to employees
is calculated through the use of the minimum value method for all periods prior
to the initial public offering, and subsequently through the use of options
pricing models. The Company's stock option calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 12 months following vesting; stock volatility, 50%
subsequent to the initial public offering; risk-free interest rates, 5.82% in
1998; and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach and forfeitures are recognized as
they occur. If the computed fair values of the stock-based awards had been
amortized to expense over the vesting period of the awards, net income would
have been $9,417,000 ($.80 per share) for the year ended September 30, 1998.
However, because options vest over several years, the pro forma adjustments for
the year ended September 30, 1998 are not indicative of future period pro forma
adjustments, assuming grants are made in those years, when the calculation will
apply to all applicable stock options.
9. PUBLISHING RIGHTS
On December 1, 1997, the Company acquired from Henry Holt and Company the
publishing rights for the books published under the names "MIS:Press" and "M&T
Books," and the related inventory and other assets, for $5,400,000 in cash and
assumed liabilities. The cost of this acquisition was allocated to the assets
acquired, including $4,000,000 allocated to publishing rights which is being
amortized over eight years.
<PAGE> 44
10. MAJOR CUSTOMERS AND INTERNATIONAL SALES OPERATIONS
Net sales to individual customers representing greater than 10% of the
Company's net sales were as follows for the years ended September 30 (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Company A ............................. $19,306 $14,942 $11,854
Company B ............................. 17,644 17,805 10,876
Company C ............................. 16,970 12,204 10,303
</TABLE>
The Company operates in one business segment, namely publishing, and
develops, publishes and markets products including professional and reference
works, consumer books, for the educational, technical, professional and trade
markets around the world.
Net sales to unaffiliated international customers were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Canada ................................ $ 7,409 $ 5,813 $ 5,481
Europe ................................ 7,026 5,191 3,965
Other ................................. 4,800 4,418 3,734
--------- --------- ---------
Total ................................. $19,325 $15,422 $13,180
========= ========= =========
</TABLE>
<PAGE> 45
11. RELATED PARTY TRANSACTIONS
Net revenue from affiliated customers amounted to approximately $188,000,
$700,000 and $1,275,00 in 1996, 1997, and 1998, respectively. Operating expenses
allocated from the Parent for 1996, 1997 and for the first 10 months of 1998
from the Parent consist of (1) Parent Corporate Services Fee (Note 1), (2)
Employee Stock Ownership Plan expenses, which are based on the applicable ESOP
contribution rate applied to Company salaries, and (3) income tax provisions,
which are calculated as though the Company were a separate taxpayer. Neither
party pays interest on intercompany balances, and, accordingly, no such interest
income or expense has been recorded in the accompanying financial statements.
A summary of activity in the Advances due to (from) Parent is as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period........... $ (4,332) $ 251 $ (363)
Parent corporate services fee............ 971 3,669 2,779
Expense related to parent ESOP........... 0 1,811 1,307
Total current federal and state
income tax provision................... 11,027 8,739 6,373
Cash collections less trade disbursements,
transferred to Parent ................. (6,777) (20,719) (10,861)
Employee Benefits........................ 2,092 1,980 1,379
Other, primarily transactions with
affiliates, net........................ (2,981) (63) (363)
--------- --------- ---------
Balance at end of period................. $ 0 $ (4,332) $ 251
========= ========= =========
</TABLE>
<PAGE> 46
Effective October 1, 1997, no further contributions were made to the
Parent's ESOP with respect to Company employees. For the year ended September
30, 1998, the Company accrued $1,700,000 of contributions to be made to the
newly established Books ESOP as described in Note 8.
As of September 30, 1998, a $1.6 million receivable was due from the Parent
related to estimated tax payments made by the Company to the Parent during 1998.
The receivable is to be collected in full during 1999. As a separate taxpayer
the Company now pays its tax liabilities directly to the taxing authority (see
Note 2).
Subsequent to the initial public offering in July 1998, the Advances due to
(from) Parent account included the parent corporate services fee, ESOP expense,
federal and state income tax provisions, employee benefits and other
transactions with affiliates and was paid by the Parent based on the outstanding
balance at that time. As of September 30, 1998, these expenses are accounted for
in the Accrued Liabilities account.
In connection with the Company's initial public offering, the Parent agreed
to transfer to the Company certain trademarks owned by the Parent that relate to
publications and products of the Company. The Company agreed to pay all costs,
consisting primarily of required filing fees, in connection with such transfer.
<PAGE> 47
12. COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases equipment and facilities under operating
leases which expire at various dates through January 2000. Total rental expense
for operating leases amounted to approximately $1,861,000, $2,212,000 and
$3,154,000 in 1996, 1997 and 1998, respectively. At September 30, 1998, the
aggregate minimum rental commitments under noncancelable operating leases in
excess of one year were as follows (in thousands):
Years ending September 30,
--------------------------
1999 $2,432
2000 331
Total $2,763
The Company is subject to various legal actions and claims which have
arisen in the ordinary course of business. In the opinion of management and
counsel, the ultimate resolution of such legal proceedings and claims will not
have a material effect on the financial position or results of operations of the
Company.
13. CREDIT AGREEMENT
The Company has a $20.0 million line of credit agreement with a bank. The
facility is secured by the Company's accounts receivable, inventory and general
intangibles (excluding intellectual property rights which are subject to a
negative pledge); and borrowings are limited to the balance of eligible or net
accounts receivable. Based on the eligible accounts receivable at September 30,
1998, $19.2 million was available for borrowing. At September 30, 1998 there
were no outstanding borrowings under this agreement. The credit agreement bears
interest at the banks prime rate, or, for borrowings made longer than 30 days,
at LIBOR plus 1.5% and expires on March 31, 2000.
<PAGE> 48
14. QUARTERLY INFORMATION (UNAUDITED)
The summarized quarterly financial data presented below reflect all
adjustments which, in the opinion of management, are of a normal and recurring
nature necessary to present fairly the results of operations for the periods
presented (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------s-----
Sept. 30 June 30 Mar. 31 Dec. 31
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
Net revenue $ 35,317 $ 34,292 $ 38,945 $ 32,971
Net income 1,371 1,942 4,335 2,535
Net income per share:
Basic 0.10 0.17 0.38 0.23
Diluted 0.10 0.17 0.38 0.23
Pro forma net income per share:
Basic 0.10 0.14 0.31 0.18
Diluted 0.10 0.14 0.31 0.18
---------- ---------- ---------- ----------
1997
Net revenue $ 32,014 $ 26,210 $ 35,788 $ 26,676
Net income 882 1,166 3,451 1,536
Net income per share:
Basic 0.08 0.11 0.31 0.14
Diluted 0.08 0.11 0.31 0.14
Pro forma net income per share:
Basic 0.06 0.08 0.25 0.11
Diluted 0.06 0.08 0.25 0.11
---------- ---------- ---------- ----------
</TABLE>
<PAGE> 49
15. SUBSEQUENT EVENTS
On November 4, 1998, the Company signed a 10-year lease agreement for a new
Indianapolis office facility. The planned commencement date is November 1, 1999.
The annual basic rent payments range from $1.2 million to $1.4 million over the
term of the lease.
On December 7, 1998 the Company signed a stock purchase agreement to
acquire all of the stock of Cliffs Notes, Inc., a privately-held publisher of
the popular literary study guides. Closing occurred on December 18, 1998. The
acquisition price was approximately $14.2 million, plus adjustments totaling
approximately $3.3 million for net tangible assets delivered at closing. Cliffs
Notes currently publishes approximately 300 reference titles including its
original Notes plus Quick Reviews of high school and college courses, test
preparation guides, advanced placement guides and test preparation software. Net
revenue for Cliffs fiscal year ended June 30, 1998 was approximately $12
million.
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
IDG Books Worldwide, Inc.:
We have audited the accompanying balance sheets of IDG Books Worldwide,
Inc., Inc., as of September 30, 1998 and 1997 and the related statements of
income, stockholders' equity, and cash flows for each of the three fiscal years
in the period ended September 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of IDG Books Worldwide, Inc. as of September
30, 1998 and 1997, and the results of its operations and its cash flows for each
of the three fiscal years in the period ended September 30, 1998, in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
San Jose, California
November 9, 1998 (December 18, 1998 as to Note 15)
<PAGE> 51
INSIDE BACK COVER
Board of Directors
John J. Kilcullen
Chairman of the Board of Directors
and Chief Executive Officer
Patrick J. McGovern
Founder and Chairman of the Board
International Data Group, Inc.
James A. Casella
Chief Operating Officer
International Data Group, Inc.
Jack A. Hoeft
Member of Supervisory Board
Random House, Inc.
Lawrence B. Levy
Executive Vice President
and Chief Financial Officer
Pixar
Officers
John J. Kilcullen
Chairman of the Board of Directors
and Chief Executive Officer
Steven H. Berkowitz
President and Publisher
John P. Ball
Executive Vice President, Operations
and Administration, and Secretary
Brenda L. McLaughlin
Senior Vice President and
Group Publisher
James A. Doehrman
Vice President and Chief Financial Officer
Executive Offices
IDG Books Worldwide, Inc.
919 East Hillsdale Blvd., Suite 400
Foster City, CA 94404
(650) 655-3000
Independent Auditors
Deloitte & Touche LLP
60 South Market Street, Suite 800
San Jose, CA 95113-2303
<PAGE> 52
Transfer Agent and Registrar
Boston EquiServe L.P.
c/o Bank Boston, NA
150 Royall Street
Canton, MA 02021
(781) 575-3400
Annual Meeting
The 1999 Annual Meeting of Stockholders will be held on February 9, 1999. A
notice of the meeting, together with the proxy statement and a form of proxy,
were mailed to stockholders with this annual report.
Stock Exchange Listing
IDG Books Worldwide Common Stock is traded on the NASDAQ National Market under
the symbol IDGB.
Investor Inquiries and Form 10-K
A copy of the Company's Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended September 30, 1998, is available without
charge upon request. Please direct shareholder inquiries to:
Investor Relations Department
IDG Books Worldwide
919 E. Hillsdale Blvd., Suite 400
Foster City, CA 94404
(650) 655-3000
Internet Address
http://www.idgbooks.com
http://www.dummies.com
http://www.cliffs.com
IDG Books Worldwide, Inc. Trading Information as reported on the Nasdaq National
market under the trading symbol "IDGB" since July 28, 1998.
Low High
------- -------
1998 Fourth Quarter $10.38 $16.42
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-67977 of IDG Books Worldwide, Inc. on Form S-8 of our reports dated November
9, 1998 (December 18, 1998 as to Note 15), appearing and incorporated by
reference in this Annual Report on Form 10-K of IDG Books Worldwide, Inc. for
the year ended September 30, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
San Jose, California
December 28, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
IDG Books Worldwide, Inc.:
We have audited the financial statements of IDG Books Worldwide, Inc. as of
September 30, 1998 and 1997, and for each of the three years in the period ended
September 30, 1998, and have issued our report thereon dated November 9, 1998
(December 18, 1998 as to Note 15); such financial statements and report are
included in your 1998 Annual Report to Stockholders and are incorporated herein
by reference. Our audits also included the financial statement schedule of IDG
Books Worldwide, Inc. listed on Item 14(a)(2). The financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
San Jose, California
November 9, 1998 (December 18, 1998 as to Note 15 to the Financial Statements)
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<FISCAL-YEAR-END> SEP-26-1998 SEP-27-1997
<PERIOD-START> SEP-28-1997 SEP-28-1997
<PERIOD-END> SEP-26-1998 JUN-27-1998
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