<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO .
Commission File Number: 0-21932
CALIFORNIA CULINARY ACADEMY, INC.
(Exact name of small business issuer in its charter)
California 94-3042862
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
625 Polk Street
San Francisco, CA 94102
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (415) 771-3536
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
--- ---
The number of shares outstanding of the registrant's Common Stock as of
May 1, 1996 was 3,113,600.
<PAGE>
ITEM 1. Financial Statements
CALIFORNIA CULINARY ACADEMY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
March 31,
1996
------------
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents, including restricted cash equivalents of $355,000 $1,674,000
Accounts receivable, net of allowance of $225,000 2,638,000
Inventories 190,000
Prepaid expenses and other assets 324,000
Deferred tax asset 254,000
------------
Total Current Assets 5,080,000
------------
Property and equipment, net of depreciation and amortization 4,243,000
Intangible assets, net of amortization 577,000
Other assets 489,000
------------
TOTAL ASSETS $10,389,000
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of note payable to bank $250,000
Current portion of capital lease obligations 84,000
Accounts payable 510,000
Accrued liabilities 334,000
Student prepayments 270,000
Deferred revenues 3,607,000
------------
Total Current Liabilities 5,055,000
------------
Long-Term Liabilities:
Note payable to bank 104,000
Capital lease obligations 230,000
Other non-current liabilities 72,000
------------
Total Long Term Liabilties 406,000
------------
Total Liabilities 5,461,000
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, no par value, 3,100 shares authorized,
no shares issued or outstanding -
Common stock, no par value, 20,000,000 shares authorized,
3,113,600 issued and outstanding 8,377,000
Retained deficit (3,449,000)
-----------
Total Shareholders' Equity 4,928,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,389,000
-----------
-----------
</TABLE>
See the accompanying condensed notes to financial statements.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Culinary arts education $3,186,000 $3,171,000 $8,756,000 $9,041,000
Restaurants, retail, media and other 812,000 787,000 2,435,000 2,324,000
---------- ---------- ---------- ----------
Total revenues 3,998,000 3,958,000 11,191,000 11,365,000
Costs and expenses:
Operating expenses 2,263,000 2,376,000 6,954,000 6,736,000
Food costs 447,000 408,000 1,290,000 1,195,000
Selling, general and administrative 1,184,000 1,007,000 3,449,000 2,942,000
Interest, net 4,000 2,000 18,000 15,000
---------- ---------- ---------- ----------
Total costs and expenses 3,898,000 3,793,000 11,711,000 10,888,000
Income (loss) before income tax provision 100,000 165,000 (520,000) 477,000
Income tax provision (benefit) 42,000 62,000 (158,000) 205,000
---------- ---------- ---------- ----------
Net income (loss) $58,000 $103,000 ($362,000) $272,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per share $0.02 $0.03 ($0.11) $0.08
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares and equivalents 3,318,958 3,356,156 3,294,630 3,284,515
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See the accompanying condensed notes to financial statements.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
For the Nine Months Ended
March 31, March 31,
1996 1995
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($362,000) $272,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 784,000 638,000
Provision for losses on accounts receivable (48,000) 131,000
Deferred tax assets (158,000) 205,000
Stock issued for services 13,000 -
Changes in assets and liabilities:
Accounts receivable 726,000 1,233,000
Inventories 68,000 (99,000)
Prepaid expenses and other assets (50,000) 199,000
Other assets (204,000) (153,000)
Accounts payable (291,000) (605,000)
Accrued liabilities (115,000) (374,000)
Student prepayments 39,000 (111,000)
Deferred revenues (752,000) (1,018,000)
Other non-current liabilities (15,000) (9,000)
Restructuring reserve - (144,000)
------------ ------------
Net Cash Provided By (Used In) Operating Activities (365,000) 165,000
------------ ------------
Cash Flows From Investing Activities:
Acquisition of property and equipment (158,000) (562,000)
------------ ------------
Net Cash Used In Investing Activities (158,000) (562,000)
------------ ------------
Cash Flows From Financing Activities:
Net borrowings under equipment term loan agreement - 750,000
Principal payments on term loan agreement (188,000) (182,000)
Principal payments on capital lease obligations (57,000) -
Proceeds from exercise of stock options 83,000 189,000
------------ ------------
Net Cash Provided By (Used In) Financing Activities (162,000) 757,000
------------ ------------
Net Increase (Decrease) In Cash and Cash Equivalents (685,000) 360,000
Cash and cash equivalents, beginning of period 2,359,000 2,101,000
------------ ------------
Cash and cash equivalents, end of period $1,674,000 $2,461,000
------------ ------------
------------ ------------
</TABLE>
See the accompanying condensed notes to financial statements.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Academy paid approximately $64,000 and $50,000 in interest for the nine
months ended March 31, 1996 and 1995, respectively.
The Academy paid approximately $9,000 and $7,000 in income taxes for the
nine months ended March 31, 1996 and 1995, respectively.
The Academy entered into capital lease obligations for approximately
$190,000 and $130,000 for the nine months ended March 31, 1996 and 1995,
respectively.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed financial statements and related footnotes have been
prepared in accordance with generally accepted accounting principles. The
balance sheet as of March 31, 1996, the related statements of operations for the
three and nine months ended March 31, 1996 and 1995 and cash flows for the nine
months ended March 31, 1996 and 1995 are unaudited but have been prepared on
substantially the same basis as the annual audited financial statements. In the
opinion of management, the unaudited financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position, operating results and cash flows
for those periods presented. The unaudited results for the three and nine
months ended March 31, 1996 are not necessarily indicative of results to be
expected for the entire year.
The accompanying financial statements should be read in conjunction with the
Academy's annual report on form 10-KSB for the year ended June 30, 1995.
Certain reclassifications have been made to the financial statements in the
prior period to conform to classifications used in the current period.
NOTE 2 - INCOME TAXES
Deferred taxes are recorded based upon differences between financial statement
and tax basis of assets and liabilities and available tax carryforwards. The
principal temporary differences that result in deferred tax assets and
liabilities are certain expenses and losses accrued for financial reporting
purposes not deductible for tax purposes until paid, depreciation for income tax
purposes in excess of depreciation for financial reporting purposes and unused
net operating losses.
As of March 31, 1996, for tax reporting purposes, the Academy has federal and
California net operating loss carryforwards of approximately $1,683,000 and
$724,000 respectively, which are available to offset future taxable income.
NOTE 3 - NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of shares
outstanding during each of the respective periods, including the dilutive
effects of stock options and warrants using the treasury stock method. The
treasury stock method assumes that all dilutive options and warrants are
exercised, the proceeds of which are assumed to be used to repurchase shares of
stock on the open market at the average price of the stock during the period.
The treasury stock method increases outstanding shares by the difference between
the number of shares assumed exercised and the number of shares assumed
repurchased.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 4 - BANK DEBT
As of March 31, 1996, the Academy had available a revolving line of credit and
term loan with a bank. The line of credit provides for borrowings up to
$500,000 with interest at the prime rate of the bank. Any outstanding principal
balance shall be due and payable on February 1, 1997. As of March 31, 1996, the
Academy had no borrowings under the line of credit. The term loan provides for
borrowings up to $750,000 with interest at 1% above the prime rate of the bank,
the proceeds of which financed the purchase of new equipment in July 1994. The
outstanding principal balance of the term loan is to be repaid in 36 monthly
installments of approximately $21,000, which repayment began September 1, 1994.
The revolving line of credit and term loan are collateralized by all of the
Academy's equipment and a certificate of deposit for $355,000.
NOTE 5 - SALE OF SECURITIES
In January 1996, the Board of Directors authorized management to issue up to
$10,000,000 in Convertible Subordinated Promissory Notes ("Notes") which will
convert into (I) Common Stock, at the option of the note holder, or (II)
Preferred Stock, automatically, on the date the Academy becomes legally
authorized to issue a new series of Preferred Stock. The Notes provide for
interest of 7.5%. The Preferred Stock carries a cumulative dividend of 7.5%,
payable quarterly, when and as declared by the Board of Directors. Although the
Preferred Stock is nonvoting, in the event the Academy fails to pay a quarterly
dividend, the holders of the Preferred Stock will be entitled to elect one-third
of the Academy's Board of Directors at the next meeting held for the election of
directors. After six months from the final closing of the offering, the
Preferred Stock will convert automatically to Common Stock at $5.50 per share if
the closing price of the Common Stock equals or exceeds $8.00 for 20 consecutive
trading days. In the event the average closing bid price of the Academy's
common stock for any 30 consecutive trading day period subsequent to the earlier
of I) the public announcement of quarterly or annual financial results, or II)
the date upon which the respective Quarterly Report on Form 10-Q or Form 10-QSB
is less than 80% of the initial conversion price of $5.50 per share, then the
conversion price for such Preferred Stock shall be reduced to a new conversion
price equal to such average closing sale price. In no event, however, shall the
conversion price be less than $3.50 per share. The Preferred Stock also carries
certain registration rights.
On May 10, 1996, the Academy had its first closing of the sale of notes and
received gross proceeds in the amount of $1,400,000. Although additional
closings are anticipated, there is no assurance that additional notes will be
sold.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 6 - REGULATORY COMPLIANCE
The Academy participates in various federal and state financial aid programs.
In order to offer such programs to students to assist them in financing their
education, the Academy must maintain certain financial ratios. For fiscal years
ending after July 1, 1995, the Department of Education requires participating
schools to achieve an acid test ratio of 1 to 1. The Academy believes that as
of June 30, 1996, the date in which compliance is first required, it will meet
or exceed this new financial covenant as well as continuing to adhere to other
standards which remain unchanged. The Department of Education's current
requirement is for a current ratio of 1 to 1, with which the Academy is in
compliance as of March 31, 1996.
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Academy's revenues are derived from culinary arts education and restaurant,
retail and media operations. Culinary arts education primarily consists of the
16-Month A.O.S. Degree Program, the 30-week Baking and Pastry Arts Certificate
Program, and consumer education classes. Consumer education consists of
professional and avocational weekend and evening programs. Restaurant and
retail operations include two restaurants and two private dining rooms open to
the public five days per week, banquet services generally offered seven days per
week and a small on-site retail shop offering student-prepared foods, beverages,
cookbooks and video tapes, kitchen wares and a line of clothing. Media
operations consists of royalties received from the sale of cookbooks,
principally from the sale of the companion cookbook, "Festive Favorites,
Entertaining with the California Culinary Academy" from the newly created
26-part television series "Cooking at the Academy" with the KQED television
station. Certain expenses such as food costs and costs of sales relate to both
culinary education and restaurant operations.
In response to market demands, the Academy has expanded its educational
offerings by adding a professional weekend Baking & Pastry program. The weekend
program, first offered in February 1996, consists of 8 courses of 14 weeks each
ranging from simple breads to the most advanced candies and show work. Students
in the weekend Baking & Pastry courses can articulate into the full time Baking
& Pastry Certificate Program.
In July 1995, the Academy executed a non-binding letter of intent to purchase
all of the outstanding stock of the New York Restaurant School, Inc. ("NYRS"),
which letter of intent expired March 15, 1996. The Academy is in the process of
arranging satisfactory financing necessary to consummate the acquisition. The
letter of intent provided for the Academy and NYRS to execute a definitive Stock
Acquisition Agreement. Although the letter of intent has expired and no
definitive agreement has been executed, the Academy is continuing to pursue
financing, and both the Academy and NYRS continue to negotiate in good faith.
If the transaction is consummated, the Academy is expected to account for the
acquisition using the purchase method of accounting. As of March 31, 1996, the
Academy has capitalized approximately $90,000 which, if the transaction is not
consummated, will be expensed.
In January 1996, the Academy entered into an agreement with a company to serve
as the selling agent for a placement of up to $10,000,000 in Convertible
Subordinated Promissory Notes ("Notes") (see Note 5). The Chairman and
President of the selling agent company serves on the Academy's Board of
Directors. The selling agent company will be entitled to receive a commission
equal to 7% of the gross proceeds sold, a nonaccountable expense allowance of 3%
and warrants to purchase 10% of the number of shares sold in the offering.
<PAGE>
OVERVIEW (CONTINUED)
On May 10, 1996, the Academy had its first closing of the sale of notes and
received gross proceeds in the amount of $1,400,000. Although additional
closings are anticipated, there is no assurance that additional notes will be
sold.
Except for historical information contained herein, this report contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The forward-looking statements contained herein are subject to certain
risks and uncertainties, including those discussed below and in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, that
could cause actual results to differ materially from those projected.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof.
The Academy undertakes no obligation to publicly release the results of any
revision to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
Total revenues for the quarter ("Q3-96") and nine months ended March 31, 1996
were $3,998,000 and $11,191,000, respectively, a 1% increase and a 2% decrease
over total revenues of $3,958,000 and $11,365,000 for the quarter ("Q3-95") and
nine months ended March 31, 1995, respectively. Total revenues have remained
relatively constant for the quarter ended March 31, 1996 compared to the quarter
ended March 31, 1995. For the nine months ended March 31, 1996 and 1995,
there has been a decrease in culinary arts education revenues which was
partially offset by an increase in restaurants, retail, media and other
revenues.
Culinary arts education revenues increased $15,000 or less than 1% from
$3,171,000 for Q3-95 to $3,186,000 for Q3-96. Culinary arts education revenues
decreased $285,000 or 3% from $9,041,000 for the nine months ended March 31,
1995 to $8,756,000 for the nine months ended March 31, 1996. This decrease
reflects a decrease in enrollment and total student population in the A.O.S.
Degree Program during Q3-96 as compared to student enrollment and total student
population during Q3-95. The decrease was partially offset by tuition increases
in the A.O.S Degree Program and the 30-week Baking and Pastry Arts Certificate
Program. For the A.O.S. Program, the average time period from initial contact
with prospective students to enrollment is approximately six months with the
strongest enrollment periods during late summer and the fall.
The total student population as of March 31, 1996 was 659 students compared to
694 students as of March 31, 1995. The Academy previously anticipated
enrollments for the April 1996 class at 83 students. Actual enrollment for the
April 1996 class was approximately 60 students. The effect of this lower
enrollment is estimated to decrease anticipated revenues for Q4-96 and for the
year ending June 30, 1997 by approximately $70,000 and $432,000, respectively.
Beginning with the June 1996 class, the Academy will enroll students every two
weeks instead of its current two month enrollment cycle. This shorter
enrollment will allow for guaranteed class sizing with the Academy's option to
delay or accelerate enrollments depending on the number of students entering.
Additionally, this new enrollment method will allow the Academy to change the
order in which students take classes, to ensure better competency testing and
advancement through the entire program. If the Academy should decide to
postpone an enrollment of students for two weeks, idle kitchens will be used to
offer other programs such as contract training with large employers,
teambuilding classes for avocational students, and part-time offerings. While
other programs are being planned, there is no assurance that the Academy will be
successful in marketing or selling these new programs.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
RESULTS OF OPERATIONS (CONTINUED)
The Academy estimates that because of the shift to the new two-week enrollment
method, revenues for fiscal 1997 could be approximately $200,000 less than under
the current two-month enrollment method. This is a temporary revenue delay to
be incurred until the current students enrolled under the two-month method have
graduated from the program. In light of this anticipated decrease in revenues,
the Academy is reducing certain operating costs and expenses, which reductions
will be completed during Q4-96.
Additionally, management has examined what it believes to be the causes of
decreased enrollments and student attrition and is implementing a series of
recruiting and retention strategies. While the Academy is optimistic about the
potential success of those strategies, there is no assurance, however, that
these strategies will be successful or that enrollments or student retention
will increase in the future.
Revenues from restaurant, retail, media and other operations increased 3% or
$25,000, from $787,000 for Q3-95 to $812,000 for Q3-96. For the nine months
ended March 31, 1996, revenues increased 5% or $111,000 compared to the nine
months ended March 31, 1995. The increases in revenues were primarily
attributable to an increase in banquet sales. For the quarter and nine months
ended March 31, 1996, the Academy implemented an aggressive marketing and
promotional strategy for restaurant banquet sales. For the nine months ended
March 31, 1996, these increases were offset by a decrease in cookbook revenue.
In June, 1994, the Academy entered into an agreement with the KQED television
station to produce 26 new episodes of "Cooking at the Academy" and develop a
companion cookbook. For the nine months ended March 31, 1995, the Academy
recognized approximately $115,000 for fees related to the production of the
series and cookbook, and fees related to the solicitation and maintenance of
underwriting accounts.
Operating expenses decreased 5% or $113,000, from $2,376,000 for Q3-95 to
$2,263,000 for Q3-96. Operating expenses were $6,954,000 for the nine months
ended March 31, 1996 compared to $6,736,000 for the nine months ended March 31,
1995 representing an increase of $218,000 or 3%. The increase for the nine
months ended March 31, 1996 was attributable to the addition of personnel to
improve the content and quality of the educational programs and additional
staffing to pursue other business opportunities, including new media venues. The
Academy is now on-line through the World Wide Web at HTTP://WWW.BAYCHEF.COM as
an additional tool to recruit students. The Academy's WEB site, On-line SPICE
(Superior Products In Culinary Education) provides information on the Academy's
cooking programs, admissions procedures, profiles chef instructors, offers
articles and practical cooking techniques for culinary enthusiasts and provides
an interactive culinary help line. In addition the increase in operating
expenses for the quarter and nine months ended March 31, 1996 was attributable
to an increase in occupancy costs, including depreciation, which was incurred
primarily due to the continued upgrade of the Academy's computer systems. For
the quarter ended March 31, 1996, these increases were offset by certain
operational cost containment measures including a decrease in facility costs
through renegotiation of certain maintenance contracts and other strategies.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
RESULTS OF OPERATIONS (CONTINUED)
Food costs were 14% and 13% of education revenues for Q3-96 and Q3-95,
respectively. For the nine months ended March 31, 1996 and 1995, food costs
were 15% and 13%, respectively, of education revenues. Food costs have remained
relatively constant as a percentage of education revenues.
Selling, general and administrative expenses increased $177,000 or 18%, from
$1,007,000 for Q3-95 to $1,184,000 for Q3-96. Selling, general and
administrative expenses were $3,449,000 for the nine months ended March 31, 1996
compared to $2,942,000 for the nine months ended March 31, 1995 representing an
increase of $507,000 or 17%. During the nine months ended March 31, 1996, the
Academy implemented an aggressive television marketing strategy and incurred
consulting and other professional fees in an effort to increase the awareness of
the Academy and boost enrollments. In addition, the Academy continues to expand
the services available to the student population with the addition of a variety
of alumni programs and benefits and other student services.
In September, 1995, the Academy executed a new non-binding letter of intent to
purchase all of the outstanding stock of NYRS, which letter of intent expired
March 15, 1996. The Academy is currently pursuing financing to acquire NYRS and
has chosen to capitalize certain costs incurred. In January 1996, the Academy
entered into an agreement with a company, of which the Chairman and President is
a member of the Academy's Board of Directors, to serve as the selling agent for
a placement of up to $10,000,000 in Notes (see Note 5) to provide funding for
potential acquisitions, working capital and other corporate purposes. For the
six months ended March 31, 1996, the Academy has elected to capitalize offering
costs related to the sale of the Notes (see Note 5).
On May 10, 1996, The Academy had its first closing of the sale of notes and
received gross proceeds in the amount of $1,400,000. Although additional
closings are anticipated, there is no assurance that additional notes will be
sold.
For the quarter and nine months ended March 31, 1996 and 1995, interest expense,
net of interest income remained relatively constant.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Academy financed its growth from the issuance of equity
securities in private and public transactions, borrowings from related parties,
lease and debt financing and through cash flows provided by operations.
Of the $1,674,000 in cash and cash equivalents at March 31, 1996, a $355,000
certificate of deposit was restricted as collateral for the revolving line of
credit and term loan. The certificate of deposit matured in April 1996 and was
subsequently reinvested and will mature in July 1996.
As of March 31, 1996, the Academy had available a revolving line of credit with
advances up to $500,000, at prime interest rate. As of March 31, 1996, there
have been no borrowings under the revolving line of credit. In July 1994, the
Academy borrowed $750,000 on a term loan to finance equipment used in its
expansion and renovation. The first payment of approximately $21,000 of the 36
month repayment term began September 1994.
The Academy's operating activities consumed cash of $365,000 during the nine
months ended March 31, 1996. The increases to cash were a result of a decrease
in accounts receivable of $726,000, a decrease in inventories of $68,000, and an
increase in student prepayments of $39,000. These increases in cash were offset
by the loss for the nine months of $362,000, an increase in prepaid expenses and
other assets of $50,000, an increase in other assets of $204,000, a decrease in
accounts payable and accrued liabilities of $406,000, a decrease of deferred
revenues of $752,000, and a decrease in non-current liabilities of $15,000.
Cash of $158,000 was used for investing activities primarily to upgrade the
existing computer and fire and security systems and facility improvements.
Cash from financing activities was provided from the exercise of stock options
of $83,000 which was offset by principal payments on the term loan agreement of
$188,000 and principal payments on capital lease obligations of $57,000.
For the nine months ended March 31, 1996, cash decreased by $685,000 as a result
of the activities described above.
The Academy had working capital at March 31, 1996 of $25,000 compared with
working capital of $339,000 at June 30, 1995. Working capital has decreased
primarily due to a decrease in cash and cash equivalents and is in turn due to
lower enrollments and student population thus providing less cash from
operations.
The Academy may, from time to time, enter into additional debt or equity
transactions to finance its growth. There is no assurance, however, that debt
or equity transactions can be entered into or that the amounts obtained from
such financing will be adequate for its needs.
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In January 1996, the Academy entered into an agreement with a company, of which
the Chairman and President is a member of the Academy's Board of Directors, to
serve as the selling agent for a placement of up to $10,000,000 in Notes (see
Note 5) to provide funding for potential acquisitions, working capital and other
corporate purposes.
On May 10, 1996, the Academy had its first closing of the sale of notes and
received gross proceeds in the amount of $1,400,000. Although additional
closings are anticipated, there is no assurance that additional notes will be
sold.
The Academy believes that cash and cash equivalents and cash flows from
operations will be sufficient to satisfy its cash requirements for the next
twelve months. The Academy believes that inflation has not had a material effect
on its operations. Additionally, the Academy believes that as of June 30,
1996, the date on which the Department of Education will require
participating schools to achieve an acid test ratio of 1 to 1, that the
Academy will meet or exceed this new financial covenant as well as continuing
to adhere to other standards which remain unchanged (see Note 6).
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None
ITEM 2. CHANGES IN SECURITIES. None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the shareholders' was held on March 2, 1996. Six
directors were elected. The vote was as follows:
Number of shares
------------------------
Authority
Name For Withheld
---------------------- --------- ---------
Theodore G. Crocker 2,856,112 8,600
Alexander M. Hehmeyer 2,856,112 8,600
William G. DeMar 2,856,112 8,600
Robert J. Marani 2,841,112 23,600
Grover T. Wickersham 2,853,012 11,700
W. Bruce C. Bailey 2,812,612 52,100
All directors were elected for one year terms.
(b) The shareholders also ratified the appointment of Arthur Andersen LLP as
the Academy's independent public accountants. The vote was as follows:
Number of Shares
--------------------------------------------
For Against Abstain
---------- -------- --------
2,852,842 8,500 3,370
(c) The shareholders also ratified the proposal amending the Academy's
Incentive Stock Option Plan to increase by 100,000 shares the number of
shares that may be issued upon exercise of options. The vote was as
follows:
Number of Shares
-------------------------------------------------
For Against Abstain
--------------- --------------- ---------------
2,612,260 223,014 29,438
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
PART II. OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description
----------------- --------------------------------
10.1 Amended Financing Agreement with
Wells Fargo Bank dated February 1,
1996
10.2 Agreement with Simon & Schuster,
Inc. dated February 22, 1996
(b) REPORTS ON FORM 8-K None
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
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.
CALIFORNIA CULINARY ACADEMY, INC.
Dated May 15, 1996 By: /s/ Theodore G. Crocker
---------------------------------
Theodore G. Crocker
Chairman of the Board of Directors and
Chief Executive Officer
Dated May 15, 1996 By: /s/ Keith H. Keogh
---------------------------------
Keith H. Keogh
President and Chief Operating Officer
Dated May 15, 1996 By: /s/ Christine E. Munson
---------------------------------
Christine E. Munson
Vice President of Finance, Chief
Financial Officer and Assistant
Secretary
<PAGE>
[WELLS FARGO BANK LETTERHEAD]
February 1, 1996
Christine E. Munson
Vice President of Finance
California Culinary Academy, Inc.
625 Polk Street
San Francisco, CA 94102
Dear Chris:
This letter is to confirm the changes agreed upon between Wells Fargo
Bank, National Association ("Bank") and CALIFORNIA CULINARY ACADEMY, INC.
("Borrower") to the terms and conditions of that certain letter agreement
between Bank and Borrower dated as of February 1, 1995, as amended from time
to time (the "Agreement"). For valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree
that the Agreement shall be amended as follows to reflect said changes.
1. The Agreement is hereby amended by deleting "February 1, 1996" as the
last day on which Bank will made advances under the Line of Credit, and by
substituting for said date "February 1, 1997," with such change to be
effective upon the execution and delivery to Bank of a promissory note
substantially in the form of Exhibit A attached hereto and all other
contracts, instruments and documents required by Bank to evidence such change.
2. The following is hereby added to the Agreement as Paragraph II.4:
"4. UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee
equal to one hundred twenty-five thousandths percent (.125%)
per annum (computed on the basis of a 360-day year, actual
days elapsed) on the average daily unused amount of the Line
of Credit, which fee shall be calculated on a calendar quarter
basis by Bank and shall be due and payable by Borrower in
arrears on the last day of each calendar quarter."
<PAGE>
California Culinary Academy, Inc.
February 1, 1996
Page 2
3. Paragraph V.9.(a) is hereby deleted in its entirety, and the
following substituted therefor:
"(a) Current Ratio not at any time less than 1.0 to 1.0,
with "Current Ratio" defined as total current assets divided
by total current liabilities."
4. Paragraph V.9.(b) is hereby deleted in its entirety, without
substitution.
5. Paragraph V.9.(c) is hereby deleted in its entirety, and the
following substituted therefor:
"(c) Tangible Net Worth not at any time less than
$4,000,000.00, with "Tangible Net Worth" defined as
the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets."
6. Paragraph V.9.(e) is hereby deleted in its entirety, and the following
substituted therefor:
"(e) Net income after taxes not less than $1.00 on a
cumulative quarterly basis, cumulation beginning with
the quarter ended December 31, 1995, determined as of
each fiscal quarter. Cumulative quarterly basis,
cumulation beginning with the quarter ended December 31,
1995 is defined as the quarter ended December 31, 1995
for the period ended December 31, 1995 and March 31, 1996
for the period ended March 31, 1996; the three quarters
ended December 31, 1995, March 31, 1996, and June 30,
1996 for the period ended June 30, 1996.
Net income after taxes not less than $1.00 on a rolling
four quarter basis, determined as of each fiscal quarter
for the quarter ended September 30, 1996 and thereafter."
7. The following is hereby added to the Agreement as new Paragraph V.17:
"17. PLEDGE OF ASSETS. Not mortgage, pledge, grant or permit
to exist a security interest in, or lien upon, all or any portion
<PAGE>
California Culinary Academy, Inc.
February 1, 1996
Page 3
of Borrower's assets now owned or hereafter acquired,
except any of the foregoing in favor of Bank or which are
existing as of, and disclosed to Bank in writing prior to,
the date hereof."
8. Except as specifically provided herein, all terms and conditions of
the Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Agreement shall have the same meaning
when used herein. This letter and the Agreement shall be read together, as
one document.
9. Borrower hereby remakes all representations and warranties contained
in the Agreement and reaffirms all covenants set forth herein. Borrower
further certifies that as of the date of Borrower's acknowledgment set forth
below there exists no default or defined event of default under the Agreement
or any promissory note or other contract, instrument or document executed in
connection therewith, nor any condition, act or event which with the giving
of notice or the passage of time or both would constitute such a default or
defined event of default.
<PAGE>
California Culinary Academy, Inc.
February 1, 1996
Page 4
Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ STEPHANIE ARNOLD
-------------------------------
Stephanie Arnold
Assistant Vice President
Acknowledged and accepted as of Feb. 1, 1996:
CALIFORNIA CULINARY ACADEMY, INC.
By: /s/ CHRISTINE E. MUNSON
------------------------------------
Title: Chief Financial Officer
---------------------------------
By: /s/ ALEXANDER M. HEHMEYER
------------------------------------
Title: President and CEO
---------------------------------
<PAGE>
EXHIBIT A
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$500,000.00 SAN FRANCISCO, CALIFORNIA
FEBRUARY 1, 1996
FOR VALUE RECEIVED, the undersigned CALIFORNIA CULINARY ACADEMY, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at SAN FRANCISCO RCBO, 420 MONTGOMERY
STREET 1ST FLR, SAN FRANCISCO, CA 94163, or at such other place as the holder
hereof may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of $500,000.00, or so much
thereof as may be advanced and be outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement as set forth
herein.
INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest at a rate per annum (computed on the basis of a 360-day year, actual
days elapsed) EQUAL TO the Prime Rate in effect from time to time. The "Prime
Rate" is a base rate that Bank from time to time establishes and which serves
as the basis upon which effective rates of interest are calculated for those
loans making reference thereto. Each change in the rate of interest hereunder
shall become effective on the date each Prime Rate change is announced within
Bank.
(b) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable on
the 1ST day of each MONTH, commencing MARCH 1, 1996.
(c) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note
shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to 4%
above the rate of interest from time to time applicable to this Note.
(d) COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
interest and fees due hereunder by charging Borrower's demand deposit account
number 4018-035501 with Bank, or any other demand deposit account maintained
by any Borrower with Bank, for the full amount thereof. Should there be
insufficient funds in any such demand deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
BORROWING AND REPAYMENT:
(a) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated
above. The unpaid principal balance of this obligation at any time shall be
the total amounts advanced hereunder by the holder hereof less the amount of
principal payments made hereon by or for any Borrower, which balance may be
endorsed hereon from time to time by the holder. The outstanding principal
balance of this Note shall be due and payable in full on FEBRUARY 1, 1997.
(b) ADVANCES. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written request
of (i) ALEXANDER M. HEHMEYER OR CHRISTINE MUNSON, any one acting alone, who
are authorized to request advances and direct the disposition of any advances
until written notice of the revocation of such authority is received by the
holder at the office designated above, or (ii) any person, with respect to
advances deposited to the credit of any account of any Borrower with the
holder, which advances, when so deposited, shall be conclusively presumed to
have been made to or for the benefit of each Borrower regardless of the fact
that persons other than those authorized to request advances may have
authority to draw against such account. The holder shall have no obligation
to determine whether any person requesting an advance is or has been authorized
by any Borrower.
(c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
1. The failure to pay any principal, interest, fees or other charges when
due hereunder or under any contract, instrument or document executed in
connection with this Note.
2. The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner
and/or joint venturer referred to herein as a "Third Party Obligor") under
any provisions of the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time, or under any similar or
other law relating to bankruptcy, insolvency, reorganization or other relief
for debtors; the appointment of a receiver, trustee, custodian or liquidator
of or for any part of the assets or property of any Borrower or Third Party
Obligor; any Borrower or Third Party Obligor becomes insolvent, makes a
general assignment for the benefit of creditors or is generally not paying its
REVOLVING LINE OF CREDIT NOTE, PAGE 1
<PAGE>
debts as they become due; or any attachment or like levy on any property of
any Borrower or Third Party Obligor.
3. The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
4. Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred
any obligation for borrowed money, any purchase obligation, or any other
liability of any kind to any person or entity, including the holder.
5. Any financial statement provided by any Borrower or Third Party Obligor
to Bank proves false.
6. Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary
course of its business.
7. Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust or other document executed in connection
with or securing this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are
expressly waived by each Borrower, and the obligation, if any, of the holder
to extend any further credit hereunder shall immediately cease and terminate.
Each Borrower shall pay to the holder immediately upon demand the full amount
of all payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of
the holder's in-house counsel), incurred by the holder in connection with the
enforcement of the holder's rights and/or the collection of any amounts which
become due to the holder under this Note, and the prosecution or defense of
any action in any way related to this Note, including without limitation, any
action for declaratory relief, and including any of the foregoing incurred in
connection with any bankruptcy proceeding relating to any Borrower.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California, except to the extent
Bank has greater rights or remedies under Federal law, whether as a national
bank or otherwise, in which case such choice of California law shall not be
deemed to deprive Bank of any such rights and remedies as may be available
under Federal law.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
CALIFORNIA CULINARY ACADEMY, INC.
By:
------------------------------------
Tile:
----------------------------------
By:
------------------------------------
Title:
---------------------------------
REVOLVING LINE OF CREDIT NOTE, Page 2
<PAGE>
PUBLISHING AGREEMENT
SIMON & SCHUSTER, INC.
(the "Publisher")
and
CALIFORNIA CULINARY ACADEMY, INC.
(the "Author")
agree:
FIRST: The Author
A. shall deliver to the Publisher FOUR literary works now untitled, but
referred to herein as
CALIFORNIA CULINARY ACADEMY BOOK #1
CALIFORNIA CULINARY ACADEMY BOOK #2
CALIFORNIA CULINARY ACADEMY BOOK #3
CALIFORNIA CULINARY ACADEMY BOOK #4
(herein collectively referred to as the "Literary Work") on or before:
DECEMBER 1, 1996 (BOOK #1) AND MARCH 15, 1997 (BOOK #2), in Final Form on
computer diskette with two double-spaced copies of the corresponding hard
copy. MANUSCRIPT DELIVERY DATES FOR BOOK #3 AND BOOK #4 SHALL BE MUTUALLY
AGREED UPON AT A LATER DATE. Each book comprising the Literary Work shall be
approximately 224 book pages in length and they are described as follows:
BOOK #1 SHALL INVOLVE THE TECHNIQUE OF WRAPPING (DUMPLINGS, WONTONS,
RAVIOLIS, BURRITOS, ETC.), COVERING THE FULL INTERNATIONAL RANGE. BOOK #2
SHALL DESCRIBE LOW-FAT COOKING TECHNIQUES. BOOK #3 SHALL DESCRIBE
CHINESE/EASTERN COOKING TECHNIQUES. BOOK #4 SHALL DESCRIBE VEGETARIAN COOKING
TECHNIQUES. EACH BOOK COMPRISING THE LITERARY WORK SHALL EMPHASIZE
EXPLANATIONS OF THE TECHNIQUES, WITH APPROXIMATELY 100-125 REPRESENTATIVE
RECIPES.
B. makes the warranties and representations set forth in Part Two Paragraphs
36-45 of the Basic Agreement;
C. grants and assigns to the Publisher;
(i) all primary rights, except audio, video, calendar and electronic
rights; and
(ii) the shares provided in THIRD: A of this Publishing Agreement of
the proceeds on disposition of the secondary rights; and
D. INTENTIONALLY DELETED.
<PAGE>
SECOND: The Publisher
A. shall publish the Literary Work in book form within 18 months after
acceptance of the manuscript therefore;
B. shall pay the Author, as an advance against and on account of all monies
accruing to Author under this Agreement, the sum of THREE HUNDRED THOUSAND
DOLLARS ($300,000.00) payable as follows:
$100,000.00 on the signing of this Agreement;
$28,571.43 on the delivery and acceptance of the
manuscript for Book #1, as satisfactory to the Publisher;
$28,571.43 on the delivery and acceptance of a detailed
outline for Book #2, as satisfactory to the Publisher;
$28,571.43 on the delivery and acceptance of the
manuscript for Book #2, as satisfactory to the Publisher;
$28,571.43 on the delivery and acceptance of a detailed
outline for Book #3, as satisfactory to the Publisher;
$28,571.43 on the delivery and acceptance of the
manuscript for Book #3, as satisfactory to the Publisher;
$28,571.43 on the delivery and acceptance of a detailed
outline for Book #4, as satisfactory to the Publisher; and
$28,571.42 on the delivery and acceptance of the
manuscript for Book #4, as satisfactory to the Publisher;
(i) royalties at the following rates, based on the catalog retail
price of every copy sold in the United States, less returns, for
sales of the trade edition, exclusive of sales specified in
subparagraph (iv) below:
8% of catalog retail price on the first 50,000 copies sold; and
10% of catalog retail price on all copies sold thereafter;
(ii) royalties at the following rates, based on the catalog retail
price of every copy sold in the United States, less returns, for
sales of the trade paperback edition, exclusive of sales specified
in subparagraph (iv) below:
6% of catalog retail price on all copies sold; and
7.5% of catalog retail price on all copies sold thereafter;
(iii) 50% of the proceeds on disposition of the other primary rights,
except as otherwise provided herein; and
(iv) in accordance with the provisions in Part Five of the Basic
Agreement, for sales by mail order, at special discount, for
export or outside the United States, as unbound sheets, from
reduced printings, to book clubs, or as excess stock, or for any
[textbook,] large print or hardcover reprint editions, [on calendars
and on Publisher's exercise of commercial rights, on electronic,
audio or video editions] of the Literary Work published by the
Publisher itself under one of its own imprints.
<PAGE>
A. shall share the proceeds on disposition of the secondary rights, except
as otherwise provided herein, as follows:
Dramatic Rights 100% to Author 0% to Publisher
Motion Picture Rights 100% to Author 0% to Publisher
Theme Park Rights 100% to Author 0% to Publisher
Radio Rights 100% to Author 0% to Publisher
Television Rights 100% to Author 0% to Publisher
*First Periodical Rights 90% to Author 10% to Publisher
Commercial Rights 100% to Author 0% to Publisher
*Foreign Language Rights 75% to Author 25% to Publisher
*British Commonwealth Rights 75% to Author 25% to Publisher
Publisher is authorized exclusively on behalf of the Author to dispose
of such secondary rights as are preceded by an asterisk.
B. shall be bound by all of the terms and conditions of the Basic
Agreement which follows and which is made an integral part of this
Publishing Agreement, and
C. agree to the following special provisions, which shall prevail over any
conflicting provisions in the Basic Agreement:
(I) THE PUBLISHER SHALL CONSULT THE AUTHOR WITH RESPECT TO THE COVER
AND INTERIOR DESIGN OF THE LITERARY WORK.
(II) THE PUBLISHER SHALL PAY ANY AND ALL COSTS INCURRED IN CONNECTION
WITH THE ILLUSTRATIONS AND PHOTOGRAPHS TO BE USED WITHIN THE
LITERARY WORK.
(III) THE AUTHOR SHALL ENGAGE A WRITER FOR THE BOOKS COMPRISING THE
LITERARY WORK (THE "WRITER"), AND SUCH WRITER SHALL BE SUBJECT TO
THE MUTUAL AGREEMENT OF THE AUTHOR AND THE PUBLISHER. THE AUTHOR
SHALL ENGAGE SUCH WRITER PURSUANT TO A WRITTEN AGREEMENT AND THE
AUTHOR SHALL BE RESPONSIBLE FOR ANY PAYMENTS DUE TO THE WRITER,
IN ANY EVENT.
AUTHOR SIMON & SCHUSTER, INC.
By /s/ ALEXANDER M. HEHMEYER (L.S.) By
--------------------------------- ------------------------------
President AUTHORIZED SIGNATURE
Tax I.D.# or
Soc. Sec.#: 94-3042862
------------------------------
Citizenship: USA (California Corporation)
-----------------------------
Dated 2/22/96
------------------------------------
3
<PAGE>
BASIC AGREEMENT
Relating to the Publishing Agreement dated January 17, 1996
between Simon & Schuster, Publisher, and California Culinary Academy, Inc.,
Author, for publication of the work now entitled
CALIFORNIA CULINARY ACADEMY BOOK #1
CALIFORNIA CULINARY ACADEMY BOOK #2
CALIFORNIA CULINARY ACADEMY BOOK #3
CALIFORNIA CULINARY ACADEMY BOOK #4
Table of Contents
Page
----
PART ONE
Definition of Terms.............................. 5
PART TWO
Author's Warranties.............................. 10
PART THREE
Extent of Grant.................................. 12
PART FOUR
Copyright........................................ 14
PART FIVE
Royalties and Other Payments..................... 14
PART SIX
Delivery of Manuscript and Correction of Proofs.. 17
PART SEVEN
Delays in Publication............................ 19
PART EIGHT
Disputes......................................... 20
PART NINE
Indemnification and Defense of Litigation........ 20
PART TEN
Infringement by Others........................... 21
PART ELEVEN
Withdrawal from Publication...................... 22
PART TWELVE
Breach by Publisher.............................. 22
PART THIRTEEN
Miscellaneous Provisions......................... 22
<PAGE>
Basic Agreement
PART ONE
Definition of Terms
As used in this Basic Agreement and in the Publishing Agreement:
PRIMARY RIGHTS
1. "Primary rights" shall mean all of the rights defined in Part One
Paragraphs 2 through 14 inclusive. The territory within which such rights are
exercisable is set forth in Part Three Paragraph 46.
TRADE EDITION RIGHTS, TRADE EDITIONS
2. "Trade edition rights" shall mean the exclusive right to publish, or
authorize others to publish, trade editions of the Literary Work referred to
in the Publishing Agreement. "Trade Editions" shall mean the first edition of
the Literary Work in hardcover book form, and all other editions in book form
except those referred to in the following paragraphs.
BOOK CLUB RIGHTS
3. "Book club rights" shall mean the exclusive right to authorize book
clubs to print and sell the Literary Work in book form.
MASS MARKET AND TRADE PAPERBACK RIGHTS
4. (a) "Mass market paperback rights" shall mean the exclusive right,
after the publication of the first trade edition, to authorize others (not
including book clubs) to publish paperback editions of the Literary Work in
formats known in the publishing industry as designed primarily for mass
market distribution through such channels as chain store outlets and news and
magazine wholesalers.
(b) "Trade paperback rights" shall mean the exclusive right to publish,
or authorize others to publish, paperback editions of the Literary Work in
formats known in the publishing industry as designed primarily for
distribution through book trade channels.
CALENDAR RIGHTS
5. "Calendar rights" shall mean the exclusive right to use, or to
authorize others to use, all or any portion of the Literary Work as the basis
for one or more calendars, which may include solely text and/or illustrations
from the Literary Work or which may combine text and/or illustrations from
the Literary Work with text and/or illustrations from other works. CALENDAR
RIGHTS ARE RETAINED BY THE AUTHOR.
TEXTBOOK RIGHTS
6. "Textbook rights" shall mean the exclusive right to publish, or to
authorize others to publish, the Literary Work or any portion thereof in
textbook form for distribution to or use in educational or other similar
institutions. TEXTBOOK RIGHTS ARE RETAINED BY THE AUTHOR.
<PAGE>
PERMISSIONS
7. "Permissions" shall mean the exclusive right, after publication of the
trade edition, to reproduce, or to authorize others to reproduce, portions of
the Literary Work, including, without limitation, selections from, parts of,
and/or photographs, charts, maps, drawings, index, illustrations and other
illustrative or decorative material from the Literary Work, to the extent
that the Publisher deems appropriate. Publisher may authorize copyright and
permissions clearance organizations to act in full or in part on its behalf
and Publisher shall account to the Author for royalties received from such
organizations designated as arising from reproduction of the Literary Work.
ABRIDGMENT OR CONDENSATION RIGHTS
8. "Abridgment or condensation rights" shall mean the exclusive right to
publish, or to authorize others to publish, either as part of a book (as
distinguished from a periodical), or as a separate book publication, an
abbreviated version of the Literary Work, not exceeding two-thirds of the
original version in length, all of which must be (i) in the original text, if
it is an abridgment, or (ii) approved in writing by the Author, if it is a
condensation.
SECOND PERIODICAL RIGHTS
9. "Second periodical rights" shall mean the exclusive right to publish
all or part of the Literary Work in a periodical (including a magazine or
newspaper), serially or in one issue, after publication of the trade edition
of the Literary Work.
TRANSCRIPTION RIGHTS
10. "Transcription rights" shall mean the exclusive right to use the
Literary Work, or any portion thereof, as a basis for phonographic, tape,
wire, magnetic, electronic, light wave amplification, photographic,
microfilm, microfiche, slides, filmstrips, transparencies, programming for
any method of information storage, reproduction or retrieval, and for any
other forms or means of copying, recording, storage or retrieval (now known
or hereafter devised) the text of the Literary Work, including recordings
made for the blind, but excluding any uses encompassed in the electronic
rights.
<PAGE>
ELECTRONIC RIGHTS
11. "Electronic rights" shall mean the sole and exclusive right to use or
adapt, and to authorize others to use or adapt, the Literary Work or
any portion thereof, for one or more "electronic versions." As used herein,
the term "electronic versions" shall mean any and all methods of copying,
recording, storage, retrieval or transmission of all or any portion of the
Literary Work, alone or in combination with other works OR MATERIALS
(INCLUDING STILL PHOTOGRAPHS AND ILLUSTRATIONS, VIDEO FOOTAGE, SOUND AND
ADDITIONAL TEXT), including in any multimedia work or electronic book, by any
electronic, electromagnetic or other means now known or hereafter devised,
including, without limitation, by analog or digital signal, whether in
sequential or non-sequential order, on any and all physical media now known
or hereafter devised including, without limitation, magnetic tape, floppy
disks, interactive CD, CD-ROM, laser disk, optical disk, integrated circuit
card or chip and any other human or machine readable medium, whether or not
permanently affixed in such media, and the broadcast or transmission thereof
by any means now known or hereafter devised, but excluding audio recording
rights, video recording rights and all uses encompassed in the definitions of
motion picture rights and television rights (provided that the exercise of
any of the foregoing rights, if reserved herein by the Author or licensed to
any third party, shall not preclude the exercise of electronic rights).
ELECTRONIC RIGHTS TO THE LITERARY WORK ARE RETAINED BY THE AUTHOR. THE
PUBLISHER ACKNOWLEDGES THAT THE AUTHOR IS USING REASONABLE EFFORTS TO
NEGOTIATE FOR THE PUBLISHER'S ACQUISITION OF SUCH ELECTRONIC RIGHTS. THE
TERMS OF SUCH ACQUISITION, IF COMPLETED, SHALL BE SUBJECT TO A SEPARATE
AGREEMENT BETWEEN THE AUTHOR AND THE PUBLISHER.
AUDIO AND VIDEO RIGHTS
12. (a) "Audio rights" shall mean the exclusive right to use or adapt, and
to authorize others to use or adapt, the Literary Work or any portion thereof
as the basis for one or more non-dramatic audio recordings. AUDIO RIGHTS ARE
RETAINED BY THE AUTHOR.
(b) "Video rights" shall mean the exclusive right to use or adapt, and
to authorize others to use or adapt, the Literary Work or any portion thereof
as the basis for one or more non-dramatic video recordings. VIDEO RIGHTS ARE
RETAINED BY THE AUTHOR.
DIGEST RIGHTS
13. "Digest rights" shall mean the exclusive right to publish, or to
authorize others to publish, in any magazine - whether devoted exclusively to
abbreviated versions, or consisting primarily of other material - an
abbreviated version (abridged or condensed) of the Literary Work, which
version shall be complete in one issue and shall not exceed approximately
30,000 words or one-half of the length of the Literary Work, whichever is
less.
OTHER PUBLISHING RIGHTS
14. "Other publishing rights" shall mean all publishing rights not
specifically enumerated herein, whether now in existence or hereafter coming
into existence.
SECONDARY RIGHTS
15. "Secondary rights" shall mean all the rights defined in Part One
Paragraphs 16 through 23 inclusive. The territory within which such rights
are exercisable is set forth in Part Three Paragraph 47.
DRAMATIC RIGHTS
16. "Dramatic rights" shall mean the exclusive right to use, or to
authorize others to use, the Literary Work, title, plot, episodes, events,
scenes and characters depicted therein, in whose or in part, for (i) writing
a dramatic version thereof, or a drama in any way based thereon and (ii)
producing or performing either of the above on the stage. DRAMATIC RIGHTS ARE
RETAINED BY THE AUTHOR.
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MOTION PICTURE RIGHTS
17. "Motion picture rights" shall mean the exclusive right to use, or to
authorize others to use, the Literary Work, title, plot, episodes, events,
scenes and characters depicted therein, in whole or in part, for the purpose
of making motion pictures primarily for exhibition in regular commercial
channels, and shall include the allied motion picture rights. "Allied motion
picture rights" shall mean (i) the exclusive right to condense, or to
authorize others to condense, the Literary Work, or the commercial motion
picture treatment thereof, into not more than 7,500 words, for the purpose of
promoting motion pictures based on the Literary Work, and (ii) such limited
radio or television rights as are customarily granted for the purpose of
using those mediums to promote motion pictures based on the Literary Work.
MOTION PICTURE RIGHTS ARE RETAINED BY THE AUTHOR.
THEME PARK RIGHTS
18. "Theme park rights" shall mean the exclusive right to use all or any
portion of the Literary Work in and in connection with amusement/tour/theme
parks. Such rights shall include, without limitation, the right to (i)
create, present, stage and/or perform any attraction, presentation, show
and/or ride based upon and/or derived from the Literary Work; (ii) use
"walk-around" performances by actors recreating characters in the Literary
Work; (iii) use the Literary Work in and/or in connection with any such
attraction, presentation, show and/or ride; and (iv) use any of the foregoing
to advertise, exploit and/or promote any such amusement/tour/theme park.
THEME PARK RIGHTS ARE RETAINED BY THE AUTHOR.
RADIO RIGHTS
19. "Radio rights" shall mean the exclusive right to use, or to authorize
others to use, the Literary Work, title, plot, episodes, events, scenes and
characters depicted therein, in whole or in part, for AM, FM or other
broadcasting. RADIO RIGHTS ARE RETAINED BY THE AUTHOR.
TELEVISION RIGHTS
20. "Television rights" shall mean the exclusive right to use, or to
authorize others to use, the Literary Work, title plot, episodes, events,
scenes and characters depicted therein, in whole or in part, for broadcast
performance on television. TELEVISION RIGHTS ARE RETAINED BY THE AUTHOR.
FIRST PERIODICAL RIGHTS
21. "First periodical rights" shall mean the exclusive right to publish,
or authorize others to publish, all or part of the Literary Work in a
periodical (including a magazine or newspaper), serially or in one issue,
before publication of the trade edition of the Literary Work.
COMMERCIAL RIGHTS
22. "Commercial rights" shall mean the exclusive right to use, or to
authorize others to use, in whole or in part, the Literary Work, the title of
the Literary Work, and the names and characterizations of characters created
in the Literary Work, as a basis for (i) trademarks or trade names for other
products, or (ii) toys or games. COMMERCIAL RIGHTS ARE RETAINED BY THE AUTHOR.
FOREIGN LANGUAGE RIGHTS AND BRITISH COMMONWEALTH RIGHTS
23. (a) "Foreign language rights" shall mean the exclusive right to
translate or to authorize others to translate the Literary Work in whole or
in part into one or more foreign languages, and to publish, or to authorize
others to publish, such translations in any part of the world.
(b) "British Commonwealth rights" shall mean the exclusive right to
publish and to authorize others to publish the Literary Work in whole or in
part in the English language in the British Commonwealth as defined by
Publisher at the date of this agreement, excluding Canada and Israel.
<PAGE>
(c) Whichever party controls foreign language or British Commonwealth
rights in the Literary Work shall control all publishing rights thereto as
well as non-publishing primary rights. Non-publishing secondary rights shall
in all instances be controlled by the party who is otherwise authorized to
dispose of such rights pursuant to this agreement.
AUTHOR'S UNSHARED SECONDARY RIGHTS
24. "Author's unshared secondary rights" shall mean all secondary rights as
to which, under Part THIRD: A of the Publishing Agreement, the Author is to
retain all the proceeds from disposition.
SHARED SECONDARY RIGHTS
25. "Shared secondary rights" shall mean all secondary rights as to which,
under Part THIRD: A of the Publishing Agreement, the Author and the Publisher
are to share the proceeds from disposition.
SALE, DISPOSITION OR GRANT OF RIGHTS
26. A "sale," "disposition" or "grant" of rights shall include an
assignment, transfer, bargain or license of the rights referred to or of any
interest or option relating to such rights.
PROCEEDS ON DISPOSITION OF PRIMARY RIGHTS
27. "Proceeds on disposition of the primary rights" shall mean the gross
amount received on the sale or disposition of such primary rights, less any
costs and expenses incurred by the Publisher in connection with or by reason
of such sale or disposition.
PROCEEDS ON DISPOSITION OF SECONDARY RIGHTS
28. "Proceeds on disposition of the secondary rights" shall mean the gross
amount received from the sale or disposition of such secondary rights, less
any third party commission which may be paid for services rendered in
connection with such disposition, either to the Author's agent designated in
the Publishing Agreement or to any agent authorized by the Publisher to
dispose of such secondary rights, PROVIDED THAT THE TOTAL AMOUNT SUBTRACTED
FOR SUCH AGENT'S FEE SHALL NOT EXCEED 20% OF THE GROSS AMOUNT RECEIVED FROM
THE PUBLISHER UPON SUCH DISPOSITION, and less any bank fees or other monetary
transfer charges incurred by the Publisher or Author in connection with or by
reason of such sale or disposition.
FINAL FORM
29. "Final Form" shall mean a complete, legible, typewritten manuscript of
the Literary Work (including photographs, charts, maps, drawings or index, if
any of these are required), or, if Publisher requests, diskettes or other
electronic format specified by Publisher containing the Literary Work,
acceptable to the Publisher in content and form.
AGREED PUBLICATION DATE
30. "Agreed publication date" shall mean the date on which the Publisher
has agreed in the Publishing Agreement to publish the Literary Work.
ACTUAL PUBLICATION DATE
31. "Actual publication date" shall mean the date of the first sale and
shipment of the Literary Work.
<PAGE>
BASE ROYALTY RATE
32. "Base royalty rate" shall mean the royalty rates provided in Part
SECOND: B(i) and (ii) of the Publishing Agreement.
MAIL ORDER SALES
33. "Mail order sales" shall mean sales of the Literary Work directly to
the consumer through mail order coupon advertising, direct-by-mail
solicitation, or other direct response sales employing the mails.
SPECIAL DISCOUNT SALES
34. "Special discount sales" shall mean sales made in the United States
outside regular trade channels at a discount of more than 50% from the
catalog retail price. Sales to book clubs shall not be included under special
discount sales.
AGREEMENT
35. "Agreement" (or "this agreement") shall mean the Publishing Agreement
and this Basic Agreement.
PART TWO
Author's Warranties
The Author warrants and represents that:
SOLE AUTHOR AND PROPRIETOR
36. Author is the sole author and proprietor of the Literary Work.
AUTHORITY TO GRANT
37. Author has full power and authority to make this agreement and to
grant the rights granted hereunder, and Author has not previously assigned,
transferred or otherwise encumbered the same; and Author has no prior
agreement, commitment, or other arrangement, oral or written, to write or
participate in writing any other book-length work and will enter into no such
agreement, commitment, or other agreement until after delivery of the
manuscript of the Literary Work in Final Form, EXCEPT FOR AGREEMENTS OR
COMMITMENTS PROVIDING FOR PUBLICATIONS BY THE AUTHOR INTENDED AS COMPANION
BOOKS FOR A TELEVISION SERIES.
NOT PREVIOUSLY PUBLISHED, NOT IN PUBLIC DOMAIN
38. The Literary Work is wholly original, has not been previously
published, and is not in the public domain.
NO INFRINGEMENT
39. The Literary Work does not infringe any statutory or common law
copyright or any proprietary right of any third party.
<PAGE>
NOT LIBELOUS
40. The Literary Work does not invade the right of privacy of any third
person, or contain any matter libelous or otherwise in contravention of the
rights of any third person, and, if the Literary Work is not a work of
fiction, all statements in the Literary Work asserted as facts are true or
are based upon reasonable research for accuracy.
NOT UNLAWFUL
41. (a) The Literary Work contains no matter which is obscene or matter
the publication or sale whereof otherwise violates any federal or state
statute or regulation, nor does Author's entering into this agreement
violate any such statute or regulation, nor is the Literary Work in any other
manner unlawful.
NOT INJURIOUS
(b) Nothing contained in the Literary Work shall be injurious to the
health of the user.
PERMISSIONS
(c) If the Author incorporates in the Literary Work any writings,
[drawings, photographs or other material] either previously published or not,
either by the Author or another artist or writer, Author shall, prior to
delivery of the Literary Work in Final Form obtain and, whenever requested by
Publisher, deliver to the Publisher proper and complete written permission
and authorization from the owner of the common law or statutory copyright or
other right to use the same in the Literary Work and for the purpose of
promotion or advertising the Literary Work throughout the world.
NEXT WORK
42. The Literary Work will be the Author's next four books (whether under
the Author's own name or otherwise), that he or she will not undertake to
write any other work for publication in book form before delivery to the
Publisher of the manuscripts for the Literary Work in Final Form, and that in
no event will he or she publish or authorize publication of any other
book-length work of which he or she is an author or co-author until six
months after publication of the Literary Work, OR WITHIN EIGHTEEN MONTHS OF
DELIVERY OF THE FINAL MANUSCRIPT FOR THE LITERARY WORK, WHICHEVER SHALL BE
EARLIER, PROVIDED THAT THE TERMS OF THIS PARAGRAPH SHALL NOT APPLY TO
PUBLICATIONS BY THE AUTHOR INTENDED AS COMPANION BOOKS FOR A TELEVISION
SERIES.
INVESTIGATION BY PUBLISHER
43. The Publisher shall be under no obligation to make an independent
investigation to determine whether the foregoing warranties and
representations are true and correct; and any independent investigation by or
for the Publisher, or its failure to investigate, shall not constitute a
defense to the Author in any action based upon a breach of any of the
foregoing warranties.
EFFECT OF WARRANTIES AND REPRESENTATIONS
44. The warranties and representations of Author hereunder are true on the
date of the execution of this agreement and shall be true on the date of the
actual publication of the Literary Work, and at all intervening times. The
Publisher may rely on the truth of the warranties and representations herein
in dealings with any third party in connection with the exercise or
disposition of any rights in the Literary Work.
WARRANTIES TO SURVIVE TERMINATION
45. Each of the foregoing warranties and representations shall survive the
termination of this agreement.
<PAGE>
PART THREE
Extent of Grant
TERRITORIAL EXTENT OF PRIMARY RIGHTS
46. Under the grant of primary rights, the Publisher and its grantees
shall have the exclusive right of publication throughout the world in the
English language, the Spanish language and all other languages under its own
name and under various trade names and imprints.
TERRITORIAL EXTENT OF SECONDARY RIGHTS
47. The secondary rights are world-wide rights, and all provisions as to
the disposition of such secondary rights and the sharing of the proceeds thereof
shall apply equally in all countries of the world.
DURATION OF GRANT
48. All rights granted under this agreement are, except where expressly
subject to earlier termination, to continue in effect during the full term of
the copyright of the Literary Work in the United States under the laws of the
United States.
AUTHOR'S RIGHTS
49. All rights not expressly granted by the Author to the publisher are
reserved by the Author. The Author shall not exercise or dispose of any
reserved rights in such a way as substantially to destroy, detract from,
impair or frustrate the value of any rights granted herein to the Publisher,
nor shall the Author publish or permit to be published during the term of
this agreement any book or other writing based substantially on subject
matter, material, characters or incidents in the Literary Work without the
written consent of the Publisher. The Author has not granted and will not
grant to any person (except to the Publisher), permission, authority, right
or license for publication or distribution of the Literary Work in the open
English language market, in a mass-market or trade paperback edition, sooner
than the latter of one year following the publication of any British
hardcover edition or three months following publication of the first United
States mass market paperback edition. The Author shall not submit any
full-length work or proposal therefor in any form to the Publisher or to any
third party until he or she has delivered to the Publisher the complete
manuscript of the Literacy Work in Final Form.
DISPOSITION OR EXERCISE BY PUBLISHER OF PRIMARY RIGHTS
50. The Publisher shall have the exclusive right, but shall not be
obligated, to dispose of or exercise any or all of the primary rights in the
Literary Work. During the Author's lifetime, however, such right shall be
subject to the Author's consent in case of disposition of mass market
paperback rights, such consent not unreasonably to be withheld or delayed.
The Publisher shall notify the Author promptly after each disposition of
primary rights, but inadvertent failure to do so will not be deemed a breach
of this agreement.
DISPOSITION OF AUTHOR'S UNSHARED SECONDARY RIGHTS
51. The Author shall have the exclusive right to dispose of the Author's
unshared secondary rights, and shall notify the Publisher promptly after each
such disposition.
FLOW-THROUGH TO PUBLISHER
52. [Until the Author's advance has earned out (after a reasonable reserve
for returns), the Author shall be obligated to pay the Publisher all proceeds
(less the agent's commission) resulting from the disposition of first
periodical rights, foreign language rights and British Commonwealth rights,
and such
<PAGE>
sums paid to the Publisher shall be credited in reduction of any unearned
portion of the advance paid to the Author hereunder. The Publisher shall have
the right to approve any disposition of such rights made before the Author's
advance has earned out, such approval not unreasonably to be withheld. The
Author's agent is hereby directed to make payments to the Publisher in
accordance with this paragraph within 30 days after Author's agent's receipt
thereof.]
DISPOSITION BY PUBLISHER OF SHARED SECONDARY RIGHTS
53. The Publisher shall have the exclusive right, but shall not be
obligated, as agent of the Author to dispose of the shared secondary rights
as to which it has authority from the Author. The Publisher may appoint an
agent to dispose of any rights of which the Publisher is authorized to
dispose, PROVIDED THAT THE TOTAL AMOUNT SUBTRACTED FOR SUCH AGENT'S FEE SHALL
NOT EXCEED 20% OF THE GROSS AMOUNT RECEIVED FROM THE PUBLISHER UPON SUCH
DISPOSITION. When Publisher is specifically authorized to dispose of rights
such authorization shall be deemed an agency coupled with an interest.
APPROVALS, SALES TO AFFILIATES
54. Neither the Publisher nor the Author shall unreasonably withhold
consent where such consent is requested in connection with the disposition or
exercise of rights under this agreement. The Author and the Publisher shall
each have the right to receive copies of any contracts made with respect to
said rights on request therefor. The Publisher may sell copies of the
Literary Work and license primary and secondary rights granted to
Publisher in the Literary Work to Publisher's parent, subsidiaries,
affiliates and divisions, provided that the terms for such sale or license
shall be no less favorable to the Author than the terms which Publisher in
its reasonable judgment would accept from an unrelated third party.
AUTHOR'S CONSENT
55. When the Author's written consent or approval is requested under this
agreement, if the Author, or Author's agent or estate does not answer the
Publisher's request for such consent or approval within a reasonable time, or
if after reasonable diligence the Publisher has not succeeded in informing
the Author or Author's agent or estate that such consent or approval is
desired, the Author shall be deemed to have given his or her consent.
AUTHOR'S NAME AND LIKENESS
56. The Publisher may use the name, TRADEMARK, LOGO [and photograph] or
other likeness of the Author on the cover and jacket and generally in
connection with the advertising and promotion of the Literary Work, SUBJECT
TO THE AUTHOR'S APPROVAL, SUCH APPROVAL NOT TO BE UNREASONABLY WITHHELD.
AUTHOR AND PUBLISHER TO EXECUTE DOCUMENTS
57. The Author shall, when requested by the Publisher, execute all
documents which may be reasonably necessary or appropriate to enable the
Publisher to exercise or deal with any of the rights granted hereunder.
Author hereby appoints Publisher to be Author's attorney-in-fact to execute
in Author's name and to file any and all documents necessary to record in the
Copyright Office the assignment of exclusive rights made to Publisher
hereunder.
LICENSE WITHOUT FEE
58. The Publisher is authorized to license publication of the Literary
Work in Braille or large type editions for sale to the physically
handicapped and is authorized to license publication of extracts of the
Literary Work containing not more than approximately 500 words, or 10,000
words in connection with motion picture licenses, without compensation
therefor. In the event compensation is received it shall be shared as
provided in Part SECOND: B(iii) of the Publishing Agreement.
<PAGE>
PART FOUR
Copyright
COPYRIGHT IN THE UNITED STATES
59. The Publisher shall identify the Author as the owner of the copyright
in the Literary Work and shall register such copyright in the United States
in the name of the Author.
NOTICE
60. The Publisher shall print in each copy of the Literary Work published
by it any notice required to comply with the applicable copyright laws of the
United States and the provisions of the Universal Copyright Convention and
the Berne Copyright Convention.
PROTECTION OF COPYRIGHT IN DISPOSITION OF RIGHTS
61. Any agreement made by the Author or by the Publisher to dispose of any
rights in and to the Literary Work shall require the licensee or grantee to
take all necessary and appropriate steps to protect the copyright in the
Literary Work.
FOREIGN COPYRIGHT
62. The Publisher may take such steps as it deems appropriate to copyright
the Literary Work in countries other than the United States, but the
Publisher shall be under no obligation to procure copyright in any such
countries, and shall not be liable to the Author for any acts or omissions
by it in connection therewith. The Author may copyright the Literary Work in
any foreign country if the Publisher fails to take steps to obtain such a
copyright within 30 days after receiving a written request from the Author to
do so.
PART FIVE
Royalties and Other Payments
COMPUTATION OF ROYALTIES GENERALLY
63. When royalties are based on the catalog retail price they shall be
computed on the basis of the number of copies actually sold by the Publisher,
less returns. No royalties shall be computed on copies given away for review
or promotion, nor on copies given to the Author.
ON MAIL ORDERS AND SPECIAL DISCOUNTS
64. On mail order sales made by parties other than the Publisher and
special discount sales the royalty shall be 5% of the net amount actually
received from such sales. In no event shall sales made through traditional
trade accounts, including price clubs, be considered special sales for the
purposes of this paragraph.
ON SHEET AND EXPORT
65. On copies sold for export to third parties or outside the United States
by Publisher or its affiliates, and on unbound sheet sales, royalties shall
be calculated at the applicable rate in paragraph SECOND B(i) and (ii) on the
net amount actually received from such sales. No royalty will be payable to
the Author with respect to any unbound sheet sales or full copy sales for
export where such copies are furnished to a foreign licensee at the
Publisher's cost plus a handling charge for such sheets and/or copies.
<PAGE>
ON SALES FROM REDUCED PRINTINGS
66. On sales made out of any new printings or bindings of 2,500 copies or
less, made more than two years after publication date, royalties shall be
computed at one-half the applicable rate in paragraph SECOND B(i) and (ii).
ROYALTY STATEMENTS AND PAYMENTS
67. The Publisher shall render royalty statements and make accounting and
royalty and other payments to the Author (a) in February for the preceding
period April 1 to September 30, and (b) in August for the preceding period
October 1 to March 31. Publisher may from time to time change such accounting
periods provided no longer than six months elapses between any two
accountings to the Author. If for any royalty period the current period total
activity in the Author's account for the Literary Work is less than $100,
then the Publisher may defer the rendering of a statement and payment until
such royalty period as the cumulative activity since the last statement
exceeds such amount. THE FOUR TITLES COMPRISING THE LITERARY WORK SHALL BE
JOINTLY ACCOUNTED BY THE PUBLISHER, PROVIDED, HOWEVER, THAT NO ADVANCE
PAYMENT DUE THE AUTHOR PURSUANT TO SECOND: B OF THIS AGREEMENT SHALL BE USED
BY THE PUBLISHER TO RECOUP PRIOR ADVANCES MADE.
DETAILS TO BE SHOWN
68. Royalty statements shall state the number of copies sold and returned
during the period covered and the reserve for returns being held by the
Publisher. If Author so requests in writing, the Publisher shall, within 60
days after its receipt of such request, advise the Author in available
detail of the number of copies printed, sold, and given away during the
current period covered by the last royalty statement rendered to the Author,
as well as the approximate number of salable copies on hand at the end of
said period.
BOOK CLUB SALES
69. On sales to book clubs, the amount allocated as royalty or other
compensation to the Publisher shall be divided equally between the Author and
the Publisher. No royalty will be payable to the Author on unbound sheet
sales or full copy sales to book clubs where such copies are furnished at the
Publisher's cost plus a handling charge for such sheets and/or copies.
CERTAIN PRIMARY RIGHTS EXERCISED BY PUBLISHER
70. (a) [On the exercise of textbook rights by publication under one of
its own imprints royalties (but no further advance) shall be paid to the
Author at the following rates: (i) 6% of the catalog retail price on the
first 25,000 copies sold within the United States, exclusive of sales
specified in subparagraph (iii) below; and (ii) 7 1/2% of the catalog retail
price on all copies sold within the United States thereafter, exclusive of
the sales specified in subparagraph (iii) below; and (iii) 5% of the net
amount actually received on mail order sales, on all copies sold for export
or outside the United States and on special discount sales.]
(b) On Publisher's publication of a large print edition, or a
hardcover reprint edition, [or a calendar] based upon the Literary Work under
one of its own imprints, royalties (but no further advance) shall be paid to
the Author at the following rates: (i) 10% of the net amount received by
Publisher on all copies sold within the United States, exclusive of sales
specified in subparagraph (ii) below, and (ii) 5% of the net amount received
on mail order sales, on all copies sold for export or outside the United
States and on special discount sales. [If the Literary Work is combined with
another work or works in a calendar, the Author's royalty on such calendar
shall be a pro rata share of the total royalty payable for such calendar,
based on the proportion material from the Literary Work bears to the calendar
as a whole.]
(c) [On Publisher's exercise of commercial rights royalties (but no
further advance) shall be paid to the Author at the following rates: (i) 10%
of the net amount received by Publisher on all copies or units sold within
the United States, exclusive of sales specified in subparagraph (ii) below,
and (ii) 5% of the net amount received on mail order sales, on all copies
sold for export or outside the United States and on special discount sales.]
<PAGE>
(d) [On the exercise of electronic rights under one of its own or its
affiliated imprints royalties (but no further advance) shall be paid to the
Author on electronic versions at the prevailing rate paid for similar uses.
If the Literary Work is combined with another work or works in an electronic
version, the Author's royalty on such electronic version shall be a pro rata
share of the total royalty payable for such electronic version, based on the
proportion material from the Literary Work bears to the electronic version as
a whole.]
(e) [On the exercise of audio or video rights by publication under
one of its own imprints royalties (but no further advance) shall be paid to
the Author at the following rates: (i) 5% of the catalog retail price on the
first 10,000 copies sold within the United States, exclusive of sales
specified in subparagraphs (iv) and (v) below; (ii) 6% of the catalog retail
price on the next 10,000 copies sold within the United States, exclusive of
sales specified in subparagraphs (iv) and (v) below; and (iii) 7% of the
catalog retail price on all copies sold within the United States thereafter,
exclusive of the sales specified in subparagraphs (iv) and (v) below; and
(iv) one half of the then applicable royalty rate of any monies actually
received by Publisher on copies sold by mail order, for export or outside the
United States, for audio/book clubs and at special discounts (defined for
purposes of this subparagraph as sales at discount of more than 55% from the
catalog retail price); and (v) 50% of the net proceeds received on the
disposition of any primary or secondary rights in the audio or video edition
of the Literary Work.
REMAINDER AND SALVAGE SALES
71. When the Publisher in its sole discretion determines that copies of
the Literary Work are not readily salable at regular prices within a
reasonable time, the Publisher may remainder copies of the Literary Work (but
not earlier than 12 months from the actual publication date) or dispose of
such copies as surplus at the best price obtainable. Notwithstanding anything
set forth in this agreement, no royalty shall be payable on copies of the
Literary Work sold at a discount of 85% or more from the catalog retail
price. Publisher shall make no remainder sale without first offering copies
to the Author at the estimated remainder price, provided, however, that
inadvertent failure to offer such copies to the Author will not be deemed a
material breach of this agreement.
PAYMENT OF ADVANCES
72. The payment of advances to the Author, including such payment
following delivery of the manuscript, shall not be deemed to be evidence
either that the manuscript of the Literary Work is acceptable to the
Publisher, or that the Author has complied with Author's warranties or other
agreements hereunder.
OFFSET
73. Any advance royalties or other sums paid to or on behalf of the Author
under this agreement [or otherwise], and any amounts due from the Author to
the Publisher, may be applied in reduction of any amounts payable to the
Author under this agreement. In the event of any overpayment by the Publisher
to the Author, the Publisher may, in addition to any other remedies available
to it, recoup such overpayment by deducting it from any amount payable to the
Author under this agreement [or any other agreement] between the Author and
the Publisher. THE FOUR TITLES COMPRISING THE LITERARY WORK SHALL BE JOINTLY
ACCOUNTED BY THE PUBLISHER, PROVIDED, HOWEVER, THAT NO ADVANCE PAYMENT DUE
THE AUTHOR PURSUANT TO SECOND: B OF THIS AGREEMENT SHALL BE USED BY THE
PUBLISHER TO RECOUP PRIOR ADVANCES MADE.
FREIGHT PASS-THROUGH
74. In some instances Publisher prints on the jackets and/or covers of its
books a suggested cover price that is higher than its catalog retail price.
In such instances, where the royalty is based on the retail price, the
catalog retail price, not the suggested cover price shall be the basis for
the computation, PROVIDED, HOWEVER, THAT THE SUGGESTED COVER PRICE IS NO MORE
THAN FIVE CENTS ($0.05) HIGHER THAN THE CATALOG RETAIL PRICE. The difference
between the two prices enables the retailer to recoup its freight costs.
RESERVE FOR RETURNS
75. Any amounts payable to the Author hereunder shall be subject to such
reasonable reserve for returns of copies of the Literary Work as the
Publisher shall establish in its reasonable discretion. FOLLOWING
<PAGE>
THE THIRD FULL ACCOUNTING PERIOD AFTER PUBLICATION OF EACH BOOK COMPRISING
THE LITERARY WORK, THE LEVEL OF RESERVE FOR RETURNS SHALL BE REEVALUATED BY
THE PUBLISHER, BASED ON THE PREVIOUS SALES OF SUCH BOOK.
AUTHOR'S RIGHT TO EXAMINE BOOKS OF ACCOUNT
76. The Author or the Author's representative may, upon written request,
conduct a reasonable examination of the books and records of the Publisher
insofar as they relate to the Literary Work for the period of two years
immediately preceding such examination. Such examination shall be on
Publisher's premises at a time convenient to Publisher, but no later than 90
days after Author's request for such examination. Statements rendered
hereunder shall be final and binding upon the Author unless objected to in
writing, setting forth the specific objections thereto and the basis for such
objections, within two years after the date of the statement.
AUTHOR'S AGENT
77. [If the Author has an agent, as indicated by the inclusion of an
agent's name and address in the Publishing Agreement, until receipt by the
Publisher of notice signed by the Author canceling the agent's authority
hereunder, all payments accruing to the Author under this agreement shall be
made to such Author's agent, and the receipt by the Author's agent shall
constitute a full and valid discharge of the Publisher's obligations for such
payments under this agreement. Author's agent is fully authorized to do and
perform all acts on behalf of the Author in all matters arising out of or
under this agreement, and the Publisher may conclusively rely upon such
authority until actual receipt by Publisher of written notice, signed by the
Author, canceling or limiting such authority. No such revocation or
limitation shall affect the validity of any act of the agent prior to receipt
of such notice by the Publisher to the extent that the Publisher has relied
thereon.]
PART SIX
Delivery of Manuscript and Correction of Proofs
FAILURE OF AUTHOR TO DELIVER WORK IN FINAL FORM
78. (a) Timely delivery of the Literary Work in Final Form is essential
to the Publisher and is of the essence of this agreement. Any extension of
the delivery date must be in writing signed by the Publisher. If the Author
fails to deliver the Literary Work in Final Form within the time specified,
the Publisher shall have the option to give the Author a notice in writing
terminating this agreement, and in such event the Publisher may then recover
and the Author shall repay on demand all amounts advanced to the Author. In
the event that the Author completes a manuscript for the Literary Work after
termination of this agreement pursuant to the preceding sentence, then the
Publisher shall have the option, exercisable within 30 days after receipt of
said manuscript, to acquire the Literary Work on the same terms and
conditions as provided in this agreement.
(b) The Publisher shall not be obligated to accept or publish the
Literary Work if in its sole judgment such work is not acceptable to it. If
the Author delivers a manuscript of the Literary Work within the time
specified, in what the Author represents to be Final Form, the Literary Work
shall be deemed to be acceptable to the Publisher unless, within 90 days
after receipt thereof by the Publisher, the Publisher [(1) notifies the Author
in writing that in its editorial judgment the Literary Work is not acceptable
to it, in which case the Author shall repay on demand all amounts advanced to
the Author and upon such repayment this agreement shall terminate; or (2)]
notifies the Author in writing of the reasons why the submitted manuscript is
unacceptable (including, without limitation, reservations or questions of the
Publisher concerning matters within any of the warranties, representations
and agreements contained in Paragraphs 36-42), in which case the Author shall
have a period of 60 days to respond to the satisfaction of the Publisher in
respect to all subject matter of such notice, provided however that if the
Publisher in its sole discretion determines to submit the manuscript to a
legal review, the Author shall cooperate with Publisher or Publisher's
counsel in such review and the time for Publisher to accept or reject the
Literary Work shall be extended to 30 days after completion of the legal
review. IF AFTER RESUBMITTING THE MANUSCRIPT, THE PUBLISHER NOTIFIES THE
AUTHOR IN WRITING THAT IN ITS EDITORIAL JUDGMENT THE MANUSCRIPT IS STILL
UNACCEPTABLE, THE AUTHOR SHALL REPAY AMOUNTS ADVANCED TO THE AUTHOR PURSUANT
TO PARAGRAPH 78(C) BELOW, AND UPON SUCH REPAYMENT THIS AGREEMENT SHALL
TERMINATE.
<PAGE>
(C) IN THE EVENT OF TERMINATION OF THIS AGREEMENT BECAUSE A COMPLETE
MANUSCRIPT OR REVISED COMPLETE MANUSCRIPT IS UNACCEPTABLE AS PROVIDED IN
SUBPARAGRAPH (B) ABOVE, THE AUTHOR OR THE AUTHOR'S DULY AUTHORIZED
REPRESENTATIVE SHALL MAKE EVERY EFFORT TO SELL THE REMAINING UNPUBLISHED
PORTIONS OF THE LITERARY WORK ELSEWHERE, AND THE AUTHOR SHALL BE OBLIGATED TO
REPAY PORTIONS OF THE ADVANCES HEREUNDER (AS SET FORTH BELOW); BUT SUCH
OBLIGATION SHALL BE LIMITED TO REPAYMENT FROM (I) THE FIRST (AND ALL)
PROCEEDS OF ANY CONTRACTS WITH OTHERS CONCERNING THE LITERARY WORK OR ANY
RIGHTS THERETO, INCLUDING, WITHOUT LIMITATION, RIGHTS LISTED IN PART ONE OF
THE BASIC AGREEMENT AND (II) ANY PAYMENTS DUE AUTHOR FROM PUBLISHER FOR ANY
REASON. AUTHOR HEREBY TRANSFERS AND ASSIGNS TO PUBLISHER, AS SECURITY FOR THE
REPAYMENT OF ANY ADVANCES WHICH MAY BECOME REPAYABLE PURSUANT TO THIS
PARAGRAPH, MONIES WHICH MAY HEREAFTER BECOME DUE OR OWING TO AUTHOR FROM
OTHER PERSONS OR ENTITIES AS A RESULT OF AUTHOR'S RIGHTS WITH RESPECT TO THE
LITERARY WORK, AND AUTHOR HEREBY AUTHORIZES PUBLISHER TO APPLY SUCH MONIES AS
AND WHEN RECEIVED IN LIQUIDATION OF AUTHOR'S OBLIGATION TO REPAY SUCH
ADVANCES, UNTIL SUCH OBLIGATION SHALL HAVE BEEN FULLY PAID. AUTHOR HEREBY
AUTHORIZES SUCH OTHER PERSON OR ENTITY TO GIVE FULL FORCE AND EFFECT TO THIS
ASSIGNMENT, AND HEREBY RELEASES AND DISCHARGES SUCH OTHER PERSON OR ENTITY
FROM ANY AND ALL LIABILITY TO AUTHOR FOR ANY AND ALL PAYMENT OR PAYMENTS MADE
TO PUBLISHER PURSUANT TO THIS PARAGRAPH. IF THE MANUSCRIPT FOR BOOK #1 IS
DEEMED UNACCEPTABLE BY THE PUBLISHER PURSUANT TO THE TERMS SET FORTH IN
PARAGRAPH 78(B), THE AUTHOR'S REPAYMENT OF ADVANCE MONIES HEREUNDER SHALL NOT
EXCEED 50% OF THE TOTAL ADVANCES THERETOFORE MADE TO THE AUTHOR UNDER THIS
AGREEMENT. IF THE MANUSCRIPT FOR BOOK #2 IS DEEMED UNACCEPTABLE BY THE
PUBLISHER PURSUANT TO THE TERMS SET FORTH IN PARAGRAPH 78(B), THE AUTHOR'S
REPAYMENT OF ADVANCE MONIES HEREUNDER SHALL NOT EXCEED 25% OF THE TOTAL
ADVANCES THERETOFORE MADE TO THE AUTHOR UNDER THIS AGREEMENT. NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IF THE MANUSCRIPT FOR BOOK #3 OR
BOOK #4 IS DEEMED UNACCEPTABLE BY THE PUBLISHER PURSUANT TO THE TERMS SET
FORTH IN PARAGRAPH 78(B), THE AUTHOR SHALL HAVE NO OBLIGATION TO REPAY TO THE
PUBLISHER ADVANCE MONIES THERETOFORE MADE TO THE AUTHOR.
DELAY FOR AUTHOR'S ILLNESS
79. If because of illness or any other factor beyond his or her control,
the Author is unable to deliver the Literary Work by the date provided in the
Publishing Agreement, the date for such delivery shall be extended for a
reasonable time. If after the elapse of such reasonable time the Author
continues to be unable to deliver the Literary Work or to satisfy the
Publisher's request for changes or substantiation, then the Publisher may
give written notice of termination, effective at the expiration of 60 days or
such longer period as the Publisher may specify in such notice, and if the
Author shall fail to deliver the manuscript in Final Form within such period
then this agreement shall terminate and the Author shall repay on demand all
amounts advanced to Author. If the Author dies prior to acceptance by the
Publisher, whether or not following delivery of the manuscript in Final Form,
the Publisher, in its sole discretion, may terminate this agreement upon
giving a written notice of termination to the Author's personal
representatives within 90 days of receipt by Publisher of notice of Author's
death. In such event the Publisher may then recover from such personal
representatives all amounts previously advanced hereunder.
FAILURE TO DELIVER PHOTOS, CHARTS, ETC.; CARE OF PROPERTY
80. (a) If the Author fails to deliver
[photographs, charts, maps, drawings, or] the index, in cases where any of
these are required by Publisher for the Literary Work, the Publisher shall
have the right (but not the obligation) to cause the same to be prepared, and
in such event the cost of such preparation shall be borne by the Author as
follows:
[(i) Author shall pay such costs upon receipt of an invoice from the Publisher;
(ii) Publisher may withhold a portion of any advances payable to the Author
under this agreement and deduct such costs from said advances; or (iii) at
Publisher's option], Publisher may charge such cost to Author's royalty
account, provided however that such cost shall not exceed One Thousand Dollars
($1,000.00). [if the advance payable to Author under this agreement is unearned
one year after publication of the Literary Work, then Author will reimburse
Publisher for such costs upon receipt of an invoice from Publisher.]
(b) Publisher shall be responsible for only the same care of any
property of Author in its hands as it takes of its own. Except in the case of
Publisher's gross negligence, Publisher shall not be responsible for loss or
damage to any property furnished by Author while in Publisher's custody or in
the custody of anyone to whom delivery of such property is necessary in
connection with the production of the Literary Work or is otherwise made with
Author's consent. Author shall retain copies of any such property and, in the
case of photographs, the negative for each photograph furnished.
<PAGE>
CORRECTION OF PROOFS
81. The Publisher shall supply the Author with one set of galley proofs
and, at its option, page proofs, and the Author shall return each set of
proofs with his or her corrections to the Publisher within 21 days of receipt
thereof. The Publisher also shall proofread the proofs. If the Author shall
fail to return the corrected proofs within the 21-day period herein
specified, the Publisher may publish the Literary Work without the Author's
approval of the proofs - provided, however, that if, because of illness or any
other factor beyond his or her control, the Author informs the Publisher that
he or she is unable so to retain the corrected proofs, his or her time for
correcting such proofs shall be extended for another 21-day period, and after
that period the Publisher may publish the Literary Work without the Author's
approval of the proofs.
COST OF AUTHOR'S ALTERNATIONS
82. If, in the correction of galley and page proofs, the Author requests
changes from the text of the manuscript, the Author shall bear the cost of
such changes over 15% of the original cost of composition, as follows: (i)
Author shall pay such costs upon receipt of an invoice from the Publisher;
(ii) Publisher may withhold a portion of any advances payable to the Author
under this agreement and deduct such costs from said advances; or (iii) at
Publisher's option, Publisher may charge such cost to Author's royalty
account, provided however that if the advance payable to the Author under
this agreement is unearned one year after publication of the Literary Work,
then the Author will reimburse Publisher for such costs upon receipt of an
invoice from Publisher. At Author's request Publisher shall submit an
itemized statement of such charges and shall make available corrected proofs
for the Author's inspection at the Publisher's office.
NO OBLIGATION TO PUBLISH
83. (a) Notwithstanding anything contained herein to the contrary, the
Publisher shall not be obligated to publish the Literary Work if, in its sole
and absolute judgment, whether before or after acceptance thereof, the
Literary Work contains libelous or obscene material, or its publication would
violate the right of privacy, common law or statutory copyright, or any other
right of any person. In such event, Publisher shall be entitled on demand to
the return of all monies advanced to the Author hereunder, and to terminate
this agreement. Notwithstanding any request by Publisher for change or
substantiation, nothing in this agreement shall be deemed to impose upon the
Publisher any duty of independent investigation or to relieve the Author of
any of the obligations assumed by Author hereunder, including, without
limitation, the ongoing validity of Author's warranties and representations.
(b) Notwithstanding anything contained herein to the contrary, the
Publisher shall not be obligated to publish the Literary Work if, in its sole
and absolute judgment, whether before or after acceptance thereof,
supervening events or circumstances since the date of this agreement have, in
the sole judgment of the Publisher, materially adversely changed the economic
expectations of the Publisher in respect to the Literary Work at the time of
the making of this agreement, and in such event all of the Publisher's rights
in and to the Literary Work shall terminate and revert to the Author on the
giving by the Publisher to the Author of notice of its decision, or, if the
Publisher fails to do so, by the Author pursuant to Paragraph 84, and in any
such event, except as provided in Paragraph 79, the Author shall be entitled
as liquidated damages and in lieu of all damages and remedies, legal or
equitable, to retain all payments theretofore made and one-half of the
remaining payments due to the Author under this agreement.
PART SEVEN
Delays in Publication
DELAYS DUE TO PUBLISHER'S FAULT
84. The Publisher, in its sole and absolute discretion, shall have the
right to reschedule publication of the Literary Work beyond the agreed
publication date for a reasonable time. If publication of the Literary Work
is delayed in the absence of excusable circumstances the Author's sole and
exclusive remedy shall be to give the Publisher a notice in writing, stating
that if the Publisher fails to publish the Literary Work within 60 days after
the date of such notice, then all of the Publisher's rights in and to the
Literary Work shall terminate at the end of such 60-day period; and if, in
such event, the Publisher shall fail to publish the Literary Work within such
60-day period, all of the Publisher's rights in and to the Literary Work shall
<PAGE>
terminate and revert to the Author, and the Author shall be entitled, as
liquidated damages and in lieu of all damages and remedies, legal or
equitable, to retain all payments theretofore made to Author under this
agreement.
DELAYS NOT DUE TO PUBLISHER'S FAULT
85. If publication is delayed beyond the agreed publication date because
of acts or conditions beyond the control of the Publisher or its suppliers or
contractors, including (by way of illustration and not by way of limitation)
war, shortages of material, strikes, riots, civil commotions, fire or flood,
the agreed publication date shall be extended for A PERIOD EQUAL TO THAT OF
THE DELAY, following removal of the cause of the delay.
PART EIGHT
Disputes Between Parties
DISPUTES BETWEEN PARTIES
86. IF A DISPUTE ARISES OUT OF OR RELATES TO THIS AGREEMENT, OR THE BREACH
THEREOF, AND IF SUCH DISPUTE CANNOT BE SETTLED THROUGH DIRECT DISCUSSIONS
BETWEEN THE PARTIES, THE PARTIES AGREE FIRST TO TRY IN GOOD FAITH TO SETTLE
THE DISPUTE IN AN AMICABLE MANNER BY MEDIATION ADMINISTERED IN THE CITY,
COUNTY AND STATE OF NEW YORK BY THE AMERICAN ARBITRATION ASSOCIATION UNDER
ITS COMMERCIAL MEDIATION RULES BEFORE RESORTING TO LITIGATION, OR ANY OTHER
DISPUTE RESOLUTION PROCEDURE. THEREAFTER OR IN THE EVENT A PARTY DESIRES
EQUITABLE RELIEF PRIOR TO THE COMPLETION OF THE MEDIATION PROCESS, EXCLUSIVE
JURISDICTION FOR THE DETERMINATION OF ANY SUCH DISPUTE (OR THE PROVISION OF
ANY SUCH RELIEF) is hereby vested in the Supreme Court, New York County, or,
at the election of either party if the jurisdictional prerequisites at the
time exist, in the United States District Court for the Southern District of
New York, and each party hereto shall submit to the jurisdiction of either
such court in the City and State of New York for the determination of any
such dispute and hereby consents (in addition to service of process by any
other means provided at the time by law) to service of process on him, her or
it, as the case may be, by registered mail, first class postage prepaid,
return receipt requested, addressed to the party named in such process at
the address to which notices may be given pursuant to Paragraph 106 of this
agreement. Such notice by mail so given shall confer jurisdiction upon such
court.
PART NINE
Indemnification and Defense of Litigation
INDEMNIFICATION BY AUTHOR
87. The Author shall indemnify and hold the Publisher harmless against any
loss, liability, damage, cost or expense (including reasonable attorneys'
fees) arising out of or for the purpose of avoiding any suit, proceeding,
claim or demand or the settlement thereof, which may be brought or made
against the Publisher by reason of the publication, sale, or distribution of,
or disposition of rights in respect to the Literary Work, based on the
contents of the Literary Work, except in connection with matters involving
solely controversies arising out of or based on commercial transactions
between the Publisher and its customers.
NOTICE OF SUITS BROUGHT
88. Prompt notice of any suit, proceeding, claim or demand brought or made
against the Publisher or Author shall be given to the Author or Publisher
respectively.
<PAGE>
COST OF DEFENDING SUITS
89. If any suit, claim or demand is brought or made, other than as
excepted in Paragraph 87, the Publisher may elect (i) to undertake the
defense thereof, or (ii) to notify the Author to undertake the defense. If
the Publisher does so notify the Author, the Author shall undertake such
defense; and in such cases the Publisher may, at its option, join in the
defense. In all the foregoing events the cost and expense of any defense
shall be borne by the Author, unless the Author has, pursuant to notification
from the Publisher, undertaken the defense and the Publisher at its option
elects to join with the Author in the defense, in which case the total cost
and expense (including reasonable attorneys' fees) shall be shared equally by
the Publisher and Author.
LIMITATION ON LIABILITY
90. Whenever any non-excepted suit, claim or demand is instituted, the
Publisher may withhold payments due to the Author under this agreement
between the Author and the Publisher. If a final adverse judgment is rendered
in such a suit and is not discharged by the Author, the Publisher may apply
the payments so withheld to its expenses and to the satisfaction and
discharge of such judgment. Author shall be insured under the Publisher's
liability policy which covers claims for libel and other forms of defamation,
invasion of privacy or publicity and infringement of copyright or trademark
arising from publication of the Literary Work, to the extent such policy is
valid and collectible. In connection with such coverage and notwithstanding
the other provisions of this Part Nine, with respect to all judgments,
settlements and costs of defense, including attorneys' fees and other costs
of claims covered by the policy, the Publisher and the Author shall share
equally the first $100,000 of all such costs; thereafter the Author's
liability shall be limited to 10% of all such costs up to the limits of the
policy. Publisher shall retain counsel to represent Publisher and Author in
any proceeding brought with respect to all such claims and shall control the
defense of such claims, and Author shall cooperate fully with Publisher and
said counsel in such defense. Notwithstanding the foregoing, Author shall be
solely responsible for the cost of counsel separately retained by the Author
for any reason and for judgments, settlements and costs of defense, including
all attorneys' fees, attributable to a willful or reckless breach of this
agreement by Author, and for any uninsured amount upon the finding of any
copyright infringement. ANY SUMS WITHHELD PURSUANT TO THIS PARAGRAPH SHALL BE
PLACED IN AN INTEREST BEARING ACCOUNT AND IF THE SUMS SO WITHHELD ARE PAID TO
THE AUTHOR, THE AUTHOR WILL BE ENTITLED TO THE INTEREST EARNED ON THE PORTION
OF THE SUMS PAID TO THE AUTHOR. IF A CLAIM DOES NOT RESULT IN COMMENCEMENT OF
A LAW SUIT OR PROCEEDING WITHIN ONE YEAR AFTER IT IS FIRST ASSERTED,
PUBLISHER SHALL RELEASE THE WITHHELD FUNDS, LESS ANY COSTS PUBLISHER MAY HAVE
INCURRED THEREFOR, PROVIDED THAT PUBLISHER MAY AGAIN COMMENCE WITHHOLDING
FUNDS SHOULD A SUIT OR PROCEEDING BE COMMENCED AFTER ANY RELEASE OF WITHHELD
FUNDS.
PART TEN
Infringement by Others
SUITS, BY PUBLISHER OR AUTHOR
91. If during the existence of this agreement the copyright, or any other
right in respect to the Literary Work, is infringed upon or violated, the
Publisher may, at its own cost and expense, take such legal action, in the
Author's name if necessary, as may be required to restrain such infringement
and to seek damages therefor. The Publisher shall not be liable to the Author
for the Publisher's failure to take such legal steps. If the Publisher does
not bring such an action, the Author may do so in his or her own name and at
his or her own cost and expense. Money damages recovered for an infringement
shall be applied first toward the repayment of the expense of bringing and
maintaining the action, and thereafter the balance shall be divided equally
between the Author and Publisher.
<PAGE>
PART ELEVEN
Withdrawal From Publication
IF DISCONTINUED OR OUT OF PRINT
92. If, at any time after the expiration of two years from the actual
publication date, the Publisher allows all of its editions of the Literary
Work to go out of print and such status continues in effect for six months
after the Author has made a written request for Publisher to put the Literary
Work back into print, and if there is no English language or foreign language
reprint edition authorized by Publisher available or contracted for, then the
Author may by a notice in writing terminate this agreement subject to any
licenses previously granted by Publisher (and any renewals or extensions
thereof) and Publisher's right to continue to share in the proceeds
therefrom. In the event of such termination the Author shall have the right
to purchase any available plates or film of the Literary Work at cost, and/or
any remaining copies or sheets of the Literary Work at cost. If the Author
does not purchase such plates, film, copies or sheets, then the Publisher may
dispose of them at any price and retain the proceeds of such sale. The
Publisher is under no obligation to retain any such plates, film, copies or
sheets. The Literary Work shall not be deemed out of print as long as it is
(a) available in any edition, [including electronic editions], in Publisher's
inventory; or (b) offered for sale by Publisher in its catalog or order form.
[or (c) electronically stored and available to the consumer for retrieval.]
PART TWELVE
Breach by Publisher
TERMINATION FOR MATERIAL BREACH
93. Except as otherwise specifically provided in this agreement, if the
Publisher shall commit a material breach of this agreement and shall fail to
remedy the breach within 60 days after receiving a written notice from the
Author requesting the Publisher to remedy such breach, the Author may by a
notice in writing (a) revoke the Publisher's right to publish the Literary
Work, if it has not been published at such time; (b) require the Publisher to
cease further publication of the Literary Work, if it has been published at
such time, but in such event the Publisher shall be permitted to sell all
copies of those editions of the Literary Work which have already been printed
or are in the process of being printed; (c) revoke the grant to the Publisher
of such of the other primary rights as the Publisher has not already
exercised or disposed of; (d) revoke any power given to the Publisher to
dispose of such secondary rights as have not already been disposed of; and
(e) revoke any grant of the rights made to the Publisher in the Publishing
Agreement to share in the proceeds on disposition of such secondary rights as
have not already disposed of. In such event the Author shall have the right
to purchase any available plates or film of the Literary Work at cost, and/or
remaining copies or sheets of the Literary Work already printed at the
Publisher's manufacturing cost. If the Author does not purchase such plates,
film copies or sheets, the Publisher may dispose of them at any price and
retain the proceeds of such sale. The Publisher is under no obligation to
retain any such plates, film, copies or sheets. Any right of the Author
pursuant to Paragraph 76 shall survive such termination.
PART THIRTEEN
Miscellaneous Provisions
PUBLISHER SHALL DETERMINE STYLE, ETC.
94. The format, imprint, style of printing and binding, and all matters
relating to the manufacture, sale, distribution and promotion of the Literary
Work shall be determined at the sole discretion of the Publisher. The
Publisher shall pay any and all costs incurred in connection with the
illustrations and photographs to be used within the Literary Work. The
Publisher acknowledges its intention to publish the Literary Work with an 8"
X 10" trim size and approximately 130 four-color photographs throughout the
Literary Work. The Publisher reserves the right to alter such specifications
due to an
<PAGE>
increase in paper price, but such alteration shall be subject to the Author's
approval, such approval not to be unreasonably withheld.
TITLE CHANGES
95. The title of the Literary Work as set forth in the Publishing
Agreement may be changed by mutual agreement of the Author and the Publisher.
SINGLE AUTHOR TO REPRESENT
96. When there is more than one author, any one may be designated in
writing to act on behalf of all the authors jointly, and the Publisher may
rely on the acts of the author so designated as representative of and binding
upon all authors; and in the absence of such designation, the Publisher may
deal with any one of the authors as the agent and representative of all, and
may rely on the acts of such author-representative as binding on all the
authors. When there is more than one author, unless the Publishing Agreement
specifies otherwise or until receipt by the Publisher of contrary
instructions, the Publisher may assume that all authors share equally in
proceeds payable hereunder and may either issue separate checks in equal
amounts payable to each author severally or single checks payable jointly to
all authors.
FREE COPIES FOR AUTHOR, PURCHASES BY AUTHOR
97. The Publisher shall present the Author with ten free copies of each
edition of the Literary Work published by the Publisher, upon publication.
THE AUTHOR SHALL HAVE THE RIGHT TO PURCHASE ADDITIONAL COPIES FOR HIS OR HER
OWN USE, AND NOT FOR RESALE, AT A 40% DISCOUNT FROM THE CATALOG RETAIL PRICE.
THE AUTHOR SHALL HAVE THE RIGHT TO PURCHASE COPIES OF THE LITERARY WORK FROM
THE PUBLISHER, SUBJECT TO AVAILABILITY OF STOCK THEREOF, FOR RESALE OR OTHER
DISTRIBUTION OUTSIDE THE PUBLISHER'S REGULAR TRADE CHANNELS. THE PUBLISHER
SHALL SELL SUCH COPIES AT THE FOLLOWING DISCOUNTS FROM THE SUGGESTED CATALOG
RETAIL PRICE, FOB PUBLISHER'S WAREHOUSE: 1-999 COPIES PER ORDER: 55% OFF;
1000-4,999 COPIES PER ORDER: 57.5% OFF; 5,000-9,999 COPIES PER ORDER; 62.5%
OFF; AND 10,000 COPIES OR MORE PER ORDER, 67.5% OFF. PAYMENT FOR ALL SUCH
PURCHASES SHALL BE MADE AS FOLLOWS:
50% ON OR ABOUT THE TIME OF CONFIRMATION OF THE ORDER,
UPON NOTICE TO THE AUTHOR FROM THE PUBLISHER THAT SUCH
PAYMENT IS DUE; AND
50% SIXTY DAYS AFTER DELIVERY OF THE FIRST SHIPMENT OF
BOOKS TO THE AUTHOR, PROVIDED THE AUTHOR PROVIDES THE
PUBLISHER WITH SATISFACTORY REFERENCES TO ESTABLISH
CREDIT TO CARRY SAID BALANCE. IN THE EVENT AUTHOR IS
UNABLE TO PROVIDE SUCH SATISFACTORY REFERENCES, THEN
SAID BALANCE SHALL BE PAID IN FULL PRIOR TO SHIPMENT OF
BOOKS TO THE AUTHOR.
ALL COPIES PURCHASED BY THE AUTHOR HEREUNDER ARE NON-RETURNABLE, AND NO
ROYALTY SHALL BE PAID TO THE AUTHOR ON COPIES PURCHASED AT DISCOUNTS OF
GREATER THAN 40% OFF.
REVISIONS
98. (a) Author shall revise the first and subsequent editions of the
Literary Work at the request of Publisher and supply any new matter necessary
from time to time to keep the Literary Work up to date. THE TERMS FOR SUCH
REVISIONS SHALL BE MUTUALLY AGREED UPON IN GOOD FAITH BY THE AUTHOR AND THE
PUBLISHER. If Author shall neglect, be incapable, be unwilling or, in
Publisher's judgment, will not be able to revise or supply new matter at a
time and in a form satisfactory to Publisher, then Publisher shall have the
right to engage some other person(s) to do so. When such revisions are not
made by Author, Publisher may cause such fact to be evidenced in the revised
edition. Publisher shall have all rights in connection with all subsequent
editions which Publisher has in the original Literary Work.
(b) [All royalties payable to the Author on each subsequent edition
will be computed separately from the number of copies sold of prior editions.
If individuals other than Author revise any editions of the Literary Work,
then Author shall receive as royalties on he first such revised edition 50%
of the royalties otherwise due hereunder. Thereafter, with respect to any
subsequent edition to which the Author does not contribute, the royalty shall
equal 50% less than Author received on the prior edition, through and
including the third such revision, and on any revision subsequent thereto
Author will not receive any royalties.]
<PAGE>
PUBLISHER TO EXECUTE DOCUMENTS
99. If any of the rights granted at the Publisher revert to the Author,
the Publisher shall execute all documents which may be necessary or
appropriate to revert all such rights in the Author.
ACCEPTANCE OF AGREEMENT
100. This agreement shall be binding on the Publisher only when it has
been signed by an authorized officer of the Publisher.
LAWS APPLICABLE TO AGREEMENT
101. This agreement shall be construed in accordance with the laws of the
State of New York applicable to agreements made and performed therein.
AGREEMENT ON BINDING ON SUCCESSORS IN INTEREST
102. This agreement shall be binding upon and inure to the benefit of the
executors, administrators and assigns of the Author, and upon and to the
successors and assigns of the Publisher.
MODIFICATION OF AGREEMENT
103. This agreement may not be modified, altered or changed except by an
instrument in writing signed by BOTH PARTIES.
WAIVERS ARE NOT CUMULATIVE
104. No waiver of any term or condition of this agreement, or of any
breach of this agreement or of any part thereof, shall be deemed a waiver of
any other term or condition of this agreement or of any later breach or of
any part thereof, nor shall publication or continued publication or payment
by the Publisher following notice or claim of facts which, if true, would
constitute a breach of warranty, representation or agreement of the Author,
constitute or imply any waiver by the Publisher of any defenses, rights or
remedies of the Publisher. No failure by either party to assert any right
under this agreement shall preclude any later assertion of such right.
VALIDITY AND ENFORCEABILITY
105. The invalidity or unenforceability of any provision of this agreement
shall not affect the validity or enforceability of any other provision
hereof, and any such invalid or unenforceable provision shall be deemed to be
severable.
NOTICES
106. All notices to be given hereunder by either party shall be in writing
and shall be sent to the other party at the respective addresses as they are
given in the Publishing Agreement, unless said addresses are changed by
either party by a notice in writing to the other party. All notices shall be
sent by registered mail or other form of receipted or acknowledged delivery,
INCLUDING, BUT NOT LIMITED TO NEXT DAY DELIVERY, including a fax transmission
acknowledged as received by the party to which it is sent. A COPY OF ALL
NOTICES TO BE GIVEN HEREUNDER BY EITHER PARTY SHALL ALSO BE SENT TO: CARL
DESANTIS, ATTORNEY AT LAW, 11 EAST 44TH STREET, NEW YORK, NEW YORK 10017.
<PAGE>
SINGULAR SHALL INCLUDE PLURAL
107. Whenever required by the context in this agreement, the singular
shall include the plural, and the masculine shall include the feminine and
the neuter. The term "Author" shall include the "Authors" if there are more
than one.
CAPTIONS, TABLE OF CONTENTS, ETC.
108. Captions or printed marginal notes, and the table of contents of
this agreement are for convenience only, and are not to be deemed part of
this agreement.
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
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<SECURITIES> 0
<RECEIVABLES> 2,638
<ALLOWANCES> 0
<INVENTORY> 190
<CURRENT-ASSETS> 5,080
<PP&E> 4,243
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<TOTAL-ASSETS> 10,389
<CURRENT-LIABILITIES> 5,055
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0
0
<COMMON> 8,377
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<TOTAL-LIABILITY-AND-EQUITY> 10,389
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<TOTAL-REVENUES> 11,191
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<INCOME-PRETAX> (520)
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</TABLE>
