<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
INTERVISUAL BOOKS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPY
INTERVISUAL BOOKS, INC.
2716 OCEAN PARK BOULEVARD, SUITE 2020
SANTA MONICA, CALIFORNIA 90405
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 25, 1997
TO THE SHAREHOLDERS OF INTERVISUAL BOOKS, INC.:
The Annual Meeting of Shareholders of Intervisual Books, Inc. (the
"Company") will be held on Wednesday, June 25, 1997, at 10:00 A.M., Pacific
Daylight Savings Time, at the Company's corporate headquarters, located at 2716
Ocean Park, Suite 2020, Santa Monica, California 90405, for the following
purposes:
1. To elect five directors to serve until the next annual meeting of
shareholders and until their successors are chosen;
2. To adopt an amendment to the Company's Bylaws to approve loans to
officers;
3. To ratify the selection of BDO Seidman, LLP as independent
auditors of the Company for 1997; and
4. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only shareholders of record at the close of business on May 23, 1997 shall
be entitled to notice of and to vote at the meeting and any adjournment(s)
thereof.
A proxy solicited by the Company's Board of Directors, together with a
Proxy Statement and a copy of the Company's 1996 Annual Report are enclosed
herewith. Please sign, date and return the proxy promptly in the enclosed reply
envelope. If you attend the meeting and wish to vote in person, you may do so by
withdrawing your proxy prior to the meeting.
By Order of the Board of Directors
GAIL A. THORNHILL
Secretary
Santa Monica, California
May 30, 1997
YOUR VOTE IS IMPORTANT
WHETHER YOU OWN A FEW OR MANY SHARES OF STOCK AND WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, YOU ARE URGED TO DATE, SIGN AND RETURN YOUR PROXY
PROMPTLY SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND IN
ORDER THAT THE PRESENCE OF A QUORUM MAY BE ASSURED.
<PAGE> 3
PRELIMINARY COPY
INTERVISUAL BOOKS, INC.
2716 OCEAN PARK BOULEVARD, SUITE 2020
SANTA MONICA, CALIFORNIA 90405
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Intervisual Books, Inc. (the "Company") for
use at the Annual Meeting of Shareholders of the Company to be held on June 25,
1997, and any adjournment(s) thereof. Shareholders of record as of the close of
business on May 23, 1997 (the "Record Date") are entitled to notice of and to
vote at the meeting. On that date the Company had 4,782,798 shares of Common
Stock, no par value (the "Common Stock"), outstanding and entitled to vote at
the meeting.
Copies of solicitation materials will be furnished to brokerage houses and
other fiduciaries for forwarding to beneficial owners of shares of the Company's
Common Stock. The costs of soliciting proxies related to the Annual Meeting,
including the cost of preparing and mailing this Proxy Statement, will be paid
by the Company. In addition to solicitations by mail, directors and regular
employees of the Company may solicit proxies in person or by telephone or
telegraph without receiving any compensation in addition to their regular
compensation as directors or employees.
Proxies are first being mailed to shareholders on May 30, 1997. Any proxy
which is returned by a shareholder properly completed and which is not revoked
will be voted at the meeting in the manner specified therein. Unless contrary
instructions are given, the persons designated as proxyholders in the
accompanying proxy card(s) (or their substitutes) will vote FOR the election of
the Board of Directors' nominees, FOR Proposals 2 and 3, and in the
proxyholders' discretion with respect to matters incident to the conduct of the
meeting or which might otherwise properly come before the meeting. Any proxy
given pursuant to this solicitation may be revoked prior to the meeting at any
time by delivering an instrument revoking it, or a duly executed proxy bearing a
later date, to the Secretary of the Company. Any proxy given pursuant to this
solicitation may also be revoked by any shareholder who attends the meeting and
gives oral notice of his or her election to vote in person, without compliance
with any other formalities.
The presence at the meeting, in person or by proxy, of a majority of the
shares of Common Stock outstanding on the Record Date will constitute a quorum
at the meeting. Votes cast by proxy or in person at the Annual Meeting will be
counted by the persons appointed by the Company to act as the inspectors of
election for the meeting. Inspectors of election will treat shares represented
by proxies that reflect abstentions or include "broker non-votes" as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions or "broker non-votes" do not constitute a vote "for" or
"against" any matter and thus will be disregarded in any calculation of "votes
cast", except in the case of Proposal 2 where abstention and "broker non-votes"
will be treated as "no" votes. Any unmarked proxies, including those submitted
by brokers or nominees, will be voted in favor of the nominees for the Board of
Directors and the proposals, as indicated in the accompanying proxy card.
Each share of common stock is entitled to one vote on all matters voted on
at the meeting and, in the election of directors, each shareholder has the right
to cumulate his or her votes and give one nominee a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which his
or her shares are entitled, or to distribute his or her votes on the same
principle among as many nominees as he or she desires, and the nominees
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected. This right to cumulate votes will exist only if the
candidate's name has been placed in nomination prior to the voting and any
shareholder gives notice of that shareholder's intention to cumulate his or her
votes at the meeting prior to the voting.
<PAGE> 4
CERTAIN BENEFICIAL OWNERSHIP
The following table sets forth certain information concerning beneficial
ownership of the Common Stock of the Company by any person who is known by the
Company to be the beneficial owner of more than five (5%) percent of the Common
Stock, by each director of the Company, each nominee for election as a director,
each executive officer named in the Summary Compensation Table, and by all
current directors and officers as a group. Except as otherwise noted, the
following shareholders have sole voting and investment power with respect to the
shares except to the extent that authority is shared by spouses under applicable
law.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OWNERSHIP(1)(2) OF CLASS
---------------------------------------------------------- ----------------- --------
<S> <C> <C>
Waldo H. Hunt/The Hunt Family Trust(3).................... 2,539,917 53.1
2850 Ocean Park Blvd. #225
Santa Monica, CA 90405
The Robertson Stephens Orphan Fund........................ 332,550(4) 7.0
555 California Street, Suite 2600
San Francisco, CA 94104
John J. McNaughton........................................ 33,500 *
Charles E. Gates(5)....................................... 32,500 *
Gordon Hearne............................................. 10,000 *
Peter Seymour............................................. 19,591 *
Nathan N. Sheinman........................................ 0 --
Debra Kosaka(6)........................................... 0 --
All directors and officers as a group (7 persons)......... 2,650,425 54.6
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated in the following footnotes, all such information
is as of May 23, 1997. Information relating to beneficial ownership of
shares of Common Stock is based upon the rules set forth under the
Securities Exchange Act of 1934 (the "Exchange Act"). Under such rules, more
than one person may be deemed to be a beneficial owner of the same
securities.
(2) Includes the following number of shares of Common Stock that may be
purchased upon the exercise of options granted by the Company which are
exercisable on May 23, 1997 or within 60 days thereafter: Mr. McNaughton,
32,500; Mr. Hearne, 10,000; Mr. Seymour, 10,000; and all directors and
executive officers as a group, 67,417.
(3) All such shares are owned of record by Waldo H. Hunt and Patricia E. Hunt,
Trustees of The Hunt Family Trust UTA May 30, 1980 (the "Hunt Trust"), of
which both Trustees have shared voting and investment power.
(4) Based on an amendment to Schedule 13D, dated April 3, 1995, filed with the
Securities and Exchange Commission by The Robertson Stephens Orphan Fund, a
California Limited Partnership (the "Partnership") and related parties,
including Robertson Stephens & Co. L.P. and Bayview Investors, Ltd. The
Partnership and related entities have sole voting and dispositive power over
such shares.
(5) Mr. Gates resigned from the Company effective as of November 15, 1996.
(6) Ms. Kosaka resigned from the Company effective as of October 18, 1996.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
A board of five directors is to be elected at the meeting. Directors are to
be elected by a plurality of the votes cast at the Annual Meeting in person or
by proxy by the holders of shares entitled to vote in the election. The Board of
Directors is informed that all of the nominees are willing to serve as
directors, but if any of them should decline or be unable to act as a director,
the persons designated as proxyholders in the accompanying
2
<PAGE> 5
proxy card(s) (or their substitutes) will vote for such substitute nominee or
nominee(s) as may be designated by the Board of Directors unless the Board
reduces the number of directors accordingly.
NOMINEES
The following information has been furnished by the respective nominees for
election as directors.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ------------------------- --- ------------------------------------- --------
<S> <C> <C> <C>
Waldo H. Hunt............ 76 Chairman of the Board, Chief 1975
Executive
Officer and Director
Nathan N. Sheinman....... 47 President, Chief Operating Officer, 1997
and Director
Gordon Hearne............ 73 Director 1996
John J. McNaughton....... 75 Director 1991
Peter Seymour............ 64 Director 1996
</TABLE>
Waldo H. Hunt has been a director and the Chairman of the Board of the
Company since its organization in 1975. In November 1996, he assumed the
additional role of Chief Executive Officer. From 1994 through December 1996, Mr.
Hunt also served as Chairman of The Hunt Group, a company founded by Mr. Hunt
(the "Hunt Group"). Mr. Hunt is the founder of the Company and is considered by
many to be the father of the modern-day pop-up industry.
Nathan N. Sheinman become President and Chief Operating Officer of the
Company in January 27, 1997. Mr. Sheinman joined the Board in March 1997. Prior
to joining the Company, Mr. Sheinman was employed by Penguin USA serving as
Senior Vice President of Special Sales, Publisher of Looney Tunes books and
co-publisher of Penguin USA's Packaging Division from March 1990 to December
1996. From 1986 to February 1990, Mr. Sheinman was Vice President Sales/Special
Markets and Vice President Marketing and Director of Sales, Special Markets for
Penguin Books Canada.
Gordon Hearne joined the Board in February 1996. Mr. Hearne is a principal
of Hearne & Spector, an advertising agency formed in March 1995. Mr. Hearne was
previously employed by the Company as director of its commercial division and
later marketing director of the division from June 1985 to June 1991 when the
commercial division was sold to R.R. Donnelley. After such sale, he continued as
a consultant to an affiliate of R.R. Donnelley until February 1995.
John J. McNaughton has been a director of the Company since September 1991.
Mr. McNaughton is a member of the Board of Directors of National Education
Corporation ("NEC"), a company he founded in 1954. From 1954 to 1984, Mr.
McNaughton was the Chief Executive Officer and from 1954 to 1988 was the
Chairman of the Board of NEC.
Peter Seymour became director of the Company in February of 1996. He was
the Company's Vice President and Editorial Director from January 1991 until his
retirement in June 1995. Mr. Seymour had been employed by the Company since
October 1988 as Editorial Director; and from 1980 to October 1988, he was a
consultant and free-lance editor for the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met 12 times during 1996 to consider matters related
to the Company's business. The Board of Directors has an Audit Committee, a
Compensation Committee and a Strategic Planning Committee. The Company does not
presently have a Nomination Committee. Each director attended more than
seventy-five (75%) of the aggregate of the total number of meetings of the Board
and the committees on which he is a member during 1996.
The Audit Committee reviews significant financial and accounting issues and
the services performed by and the reports of, the Company's independent auditors
and makes recommendations to the Board with respect to these and related
matters. Members of the Audit Committee, which did not meet in 1996, are Messrs.
McNaughton and Seymour.
3
<PAGE> 6
The Compensation Committee makes decisions as to the compensation and
benefits of the Company's officers and key employees. The Compensation Committee
met twice during 1996. The members of the committee are Messrs. Hearne and
McNaughton.
The Strategic Planning Committee is empowered to review and evaluate the
strategic direction of the Company including possible acquisitions, mergers and
other significant transactions and to report back to the entire Board of
Directors. Members of the Strategic Planning Committee, which did not meet in
1996, are Messrs. Hunt, Seymour and Hearne.
COMPENSATION OF OFFICERS AND DIRECTORS
CASH COMPENSATION
The following table sets forth in the prescribed format the compensation
paid to all persons serving as the Company's Chief Executive Officer and the
other executive officers of the Company which received total annual salary and
bonus in excess of $100,000 for services rendered in all capacities during the
Company's last completed fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)(2)
- ----------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt(3)............. 1996 1 0 0 0 0
CEO/President 1995 1 0 0 0 0
1994 136,149 60,000 0 0 7,903
Charles E. Gates(4).......... 1996 219,911 0 18,366 563,113
CEO/President 1995 244,007 0 0 0 93,947
1994 244,007 0 0 0 94,067
Debra Kosaka(5).............. 1996 89,959 0 11,560 5,000 23,784
Vice President, Marketing 1995 102,367 0 10,897 25,000 6,796
and Sales 1994 -- -- -- -- --
</TABLE>
- ---------------
(1) The amount disclosed includes payment for accrued and unused vacation to Mr.
Gates and Ms. Kosaka.
(2) The amounts disclosed in this column include (i) $84,947 as the dollar value
of insurance premiums paid by the Company with respect to split dollar life
insurance for the benefit of Mr. Gates in 1996, (ii) $250,000 payment to Mr.
Gates pursuant to his severance agreement with the Company, (iii) $223,416
paid or accrued in consulting fees to Mr. Gates subsequent to his
termination, and (iv) $20,833 paid in consulting fees to Ms. Kosaka
subsequent to her termination. All other amounts for 1996 represent
contributions made by the Company to the Company's 401(k) plan.
(3) Mr. Hunt assumed the role of President and CEO upon Mr. Gates' resignation
in November 1996.
(4) Mr. Gates' employment with the Company ceased on November 15, 1996. In
connection with his severance from the Company, Mr. Gates agreed to provide
consulting services through December 31, 2001. See "Agreements -- Severance
Agreements."
(5) Ms. Kosaka was an executive officer of the Company since January 1995, and
accordingly no executive compensation is reported for 1994. Ms. Kosaka's
employment with the Company ceased on October 18, 1996. In connection with
her resignation from the Company, the Company agreed to pay Ms. Kosaka
severance of $10,417 per month through October 1997.
4
<PAGE> 7
STOCK OPTIONS
The following tables set forth certain information in the prescribed
formats with respect to options granted and exercised under the Company's
various stock option plans during the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK
UNDERLYING OPTIONS GRANTED PRICE APPRECIATION
OPTIONS TO EMPLOYEES IN EXERCISE FOR OPTION TERM(1)
GRANTED FISCAL YEAR PRICE EXPIRATION --------------------
NAME (#)(1) (%) ($) DATE 5% 10%
- -------------------------------- --------- --------------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt................... 0 n/a n/a n/a n/a n/a
Charles E. Gates................ 0 n/a n/a n/a n/a n/a
Debra Kosaka.................... 5,000 3.4% $ 2.00 2006 $5,110 $12,949
</TABLE>
- ---------------
(1) The options are exercisable starting 12 months after the grant date, with
33 1/3 percent of the shares covered thereby becoming exercisable at that
time and with an additional 33 1/3 percent of the option shares becoming
exercisable on each successive anniversary date, with full vesting occurring
on the third anniversary date. The options were granted for a term of 10
years, subject to earlier termination in certain events related to
termination of employment. The applicable option plan grants discretionary
power to change or modify the terms of the option grants.
(2) Potential realizable value is based on an assumption that the stock price of
the common stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten year option term. Such
amounts are based on the assumption that the named persons hold the options
for their full term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission (the "SEC") and do not
reflect the Company's estimate of future stock price growth.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FY-END AT FY-END(1)
ACQUIRED VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
ON EXERCISE REALIZED -------------------- --------------------
NAME (#) ($) (#) (#) ($) ($)
- --------------------------- ----------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt.............. None n/a 0 0 0 0
Charles E. Gates........... None n/a 0 0 0 0
Debra Kosaka............... None n/a 23,333 21,667 0 0
</TABLE>
- ---------------
(1) The amounts in this column are calculated using the difference between the
closing market price of the Common Stock at the Company's 1996 fiscal
year-end and the option exercise prices.
AGREEMENTS
Employment Agreements. In January 1997, the Company entered into a
three-year Employment Agreement with Mr. Sheinman employing Mr. Sheinman as the
Company's President and Chief Operating Officer. Under his agreement, Mr.
Sheinman is to receive an initial annual salary of $250,000, an automobile
allowance, relocation assistance and certain other benefits. The Company also
agreed to co-sign a home loan of up to $250,000 for Mr. Sheinman. See "Proposal
2 -- Proposal to Adopt an Amendment to the Company's Bylaws to Approve Loans to
Officers." In connection with his joining the Company, Mr. Sheinman was granted
options to purchase a total of 300,000 shares of the Company's common stock at
an exercise price of $1.375 per share (which price equalled the fair market
value of the Company's common stock on the date of grant). The options vest in
increments over a three-year period.
5
<PAGE> 8
In January 1997, the Company also entered into a three-year Employment
Agreement with Neil Stuart employing Mr. Stuart as the Company's Executive Vice
President and Creative Director. Under his agreement, Mr. Stuart is to receive
an initial annual salary of $175,000 per year, an automobile allowance,
relocation assistance and certain other benefits. The Company also agreed to
guarantee a home loan of up to $75,000 for Mr. Stuart. See "Proposal
2 -- Proposal to Adopt an Amendment to the Company's Bylaws to Approve Loans to
Officers." In connection with his joining the Company, Mr. Stuart was granted
options to purchase a total of 125,000 shares of the Company's common stock at
an exercise price of $1.375 per share (which price equalled the fair market
value of the Company's common stock on the date of grant). The options vest in
increments over a three-year period.
In January 1997, the Company entered into an Employment Agreement with
Laurie Sale employing Ms. Sale as the Company's Vice president, Publishing
Operations, for an initial term of two years at an initial salary of $100,000.
Hunt Agreement. In May 1994, the Company and Mr. Hunt entered into an
agreement whereby Mr. Hunt was to be paid $1 per year and was to be deemed a
Company employee entitling Mr. Hunt to continue to receive health insurance
benefits for himself and his dependents. In connection with the agreement, the
Company agreed to subsidize the Hunt Group and to pay the Hunt Group royalties.
See "Certain Relationships and Related Transactions" below.
Severance Agreements. Until his resignation in November 1996, the Company
employed Mr. Gates as its President and Chief Executive Officer pursuant to an
Employment Agreement. In connection with Mr. Gates' cessation of employment with
the Company, Mr. Gates and the Company entered into a severance agreement
whereby options held by Mr. Gates from the Company and the Hunt Family Trust
were cancelled, certain insurance arrangements terminated, Mr. Gates was paid
$250,000 and Mr. Gates agreed to provide consulting services to the Company
through December 31, 2001. In exchange for such services, the Company agreed to
pay Mr. Gates consulting fees of $12,500 per month through December 31, 1999 and
$10,000 per month commencing January 1, 2000 and continuing through December 31,
2001.
Until her cessation of employment in October 1996, Ms. Kosaka was employed
as the Company's Vice President, Marketing and Sales pursuant to an Employment
Agreement. In connection with Ms. Kosaka's cessation of employment, the Company
agreed to pay Ms. Kosaka severance of $10,417 per month through October, 1997.
DIRECTOR COMPENSATION
Each director who is not an employee receives a $5,000 annual retainer,
$1,000 for each Board meeting attended in person, $500 for each meeting of a
committee of the Board which is separate from a Board meeting attended in
person, and $250 for each Board or Committee meeting attended by telephone. Fees
for attending executive committee meetings were $3,000 per meeting during 1996.
Under the Company's Non-employee Director Stock Option Plan, non-employee
directors receive an initial option grant to purchase 30,000 shares of common
stock when such person is first elected or appointed as a Company director and
thereafter, on the date of each annual meeting of the Company's shareholders, an
additional grant to purchase 2,500 shares of common stock (other than to
directors who receive an initial grant during the calendar year in which the
annual meeting is held), provided that such non-employee director continues in
office after the annual meeting. In November 1996, options to purchase 25,000
shares of the Company's common stock previously granted from the 1991 and 1993
Non-qualified Stock Option Plans to Mr. McNaughton were cancelled and regranted
with an exercise price of $1.375 per share, which price was equal to the closing
price of the Company's common stock on the date of grant. In 1996, consulting
fees of $3,000 were paid to Mr. McNaughton and approximately $17,000 in
consulting fees were paid to a former director.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1994, the Company and Mr. Hunt entered into a letter agreement
pursuant to which Mr. Hunt formed the Hunt Group. Under the agreement, the
Company has a right of first refusal on products developed by Mr. Hunt or the
Hunt Group. The Hunt Group is to receive a commission on sales of such products.
If the
6
<PAGE> 9
Company declines a product, the Hunt Group is free to develop the product itself
at the Hunt Group's own expense. In this event, the Company is entitled to a
royalty on the sale of the product by the Hunt Group. Under this agreement, the
Company agreed to subsidize the Hunt Group $400,000 in each of 1995 and 1996. As
of December 31, 1996, the Company had paid $247,000 to the Hunt Group as
advances against royalties.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Although the Company has a Compensation Committee, in 1996 decisions on
executive compensation for the Company were made by the Board of Directors. As
of December 31, 1996, the Board was composed of Messrs. Hunt, Hearne, McNaughton
and Seymour. Mr. Sheinman joined the Board in March 1997.
EXECUTIVE COMPENSATION PHILOSOPHY
In designing its compensation programs, the Board of Directors believes
that compensation should reflect the value created for shareholders while
supporting the business strategies and long-range plans of the Company. The
Board reviews and determines the compensation of the executive officers of the
Company with this philosophy on compensation as its basis. The Board of
Directors also takes into account individual performance, performance of the
operations directed by such individual, and the overall corporate performance of
the Company.
EXECUTIVE COMPENSATION COMPONENTS
The Company's executive compensation is based on the following components:
Base Salary. Base salary is intended to be set at a level which is
competitive to amounts paid to executive officers of similar business
structure, size and marketplace orientation.
Annual Incentives and Bonuses. Annual bonuses are granted upon the
achievement by the executive officers of annual financial criteria and
specific performance goals. Based upon the Company's revenues and net
income for 1996, no bonuses were awarded to any Company employee for the
Company's 1996 fiscal year.
Stock Options. Executive officers are eligible to receive grants of
stock options pursuant to the Company's 1991 and 1993 Incentive Stock
Option Plans and the Company's 1991 and 1993 Non-Qualified Stock Option
Plans. The awards are intended to retain key employees and motivate such
employees to improve long-term stock market performance. Awards are granted
at the fair market value of the underlying common stock at the date of
grant. Stock options vest in installments as determined by the Board of
Directors or Compensation Committee.
In light of the fact that the Company did not pay any annual incentive
payments or bonuses based upon the Company's 1996 fiscal year and in an effort
to align the interests of the Company's employees with the interests of the
Company's shareholders by affording such employees the opportunity of realizing
the potential financial benefit if their efforts result in stock price
appreciation, the Compensation Committee together with the Company's Board of
Directors granted stock options to purchase an aggregate of 234,250 shares of
Common Stock to 45 different employees and outside consultants. In addition, in
1996 options to purchase 226,250 shares of the Company's common stock previously
granted under the Company's stock option plans were surrendered by the optionees
and cancelled by the Company and replaced with options with an exercise price of
$1.375 per share, which price was equal to the closing price of the Company's
common stock on the date of grant. No options were granted to Messrs. Gates or
Hunt.
CHIEF EXECUTIVE OFFICER COMPENSATION
Until his resignation from the Company in November 1996, Mr. Gates was
employed pursuant to an Employment Agreement with the Company. In connection
with Mr. Gates' cessation of employment with the Company, Mr. Gates and the
Company entered into a severance arrangement.
7
<PAGE> 10
In November 1996, Mr. Hunt assumed the role of President and CEO during
which time Mr. Hunt received a salary of $1.00. The Company is in the process of
negotiating with Mr. Hunt an employment agreement pursuant to which Mr. Hunt
will be employed as the Company's Chairman of the Board and Chief Executive
Officer at an estimated annual salary of $240,000, plus certain other benefits
and payments.
OTHER MATTERS
The Omnibus Reconciliation Act of 1993 (OBRA) limited deductible senior
officer annual compensation to $1,000,000, unless the compensation qualifies as
"performance-based" compensation under Internal Revenue Code Section 162(m)
("Code Section 162(m)"). In general, the Company does not believe the
compensation payable to the Company's senior officers will exceed $1,000,000,
however, the Company will continue to evaluate the requirements of the Code
Section 162(m) and seek to maximize the deductibility of senior officer
compensation.
Waldo H. Hunt
Gordon Hearne
John J. McNaughton
Peter Seymour
8
<PAGE> 11
PERFORMANCE GRAPH
The following graph shows a comparison of total return to shareholders for
the Company, the NASDAQ Market Index and the Company's SIC Code (book
publishing) for the Company's last five fiscal years.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG INTERVISUAL BOOKS, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INTERVISUAL INDUSTRY NASDAQ MARKET
(FISCAL YEAR COVERED) BOOKS, INC. INDEX INDEX
<S> <C> <C> <C>
1991 100 100 100
1992 77.78 127.60 100.98
1993 53.33 169.79 121.13
1994 42.22 202.31 127.17
1995 41.11 307.23 164.96
1996 28.89 319.18 204.98
</TABLE>
- ---------------
The cumulative total return calculation assumes $100 invested on January 1, 1992
and dividend reinvestments. The graph above is calculated through the fiscal
year ended December 31, 1996.
9
<PAGE> 12
PROPOSAL NO. 2
PROPOSAL TO ADOPT AMENDMENT TO THE COMPANY'S BYLAWS
TO APPROVE LOANS TO OFFICERS
The Company's Board of Directors has approved and authorized an amendment
to the Company's Bylaws to allow the Company, upon approval of the Board of
Directors, to make loans of money or property to, or guarantee the obligations
of, officers of the Company, without further shareholder approval.
LOANS TO OFFICERS
Section 315 of the California General Corporation Law (the "GCL") permits a
corporation with 100 or more shareholders of record to make loans to, or
guarantee the obligations of, a corporate officer, or implement an employee
benefit plan authorizing such a loan or guarantee to an officer, upon approval
by the corporation's Board of Directors alone after the Board determines that
such a loan or guarantee or plan may reasonably be expected to benefit the
corporation. Before the Company may act pursuant to this law, a Bylaw
authorizing this action by the Board of Directors must be approved by the
shareholders.
Under the GCL, without this amendment to the Bylaws any such loan,
guarantee or plan involving an officer of a corporation requires shareholder
approval to be obtained in each case.
It is proposed that the following provision be added to Article V of the
Company's Bylaws:
SECTION 11. Approval of Loans to Officers. The corporation may, upon
the approval of the Board of Directors alone, guarantee the obligations of
any officer of the corporation or its parent or subsidiary, whether or not
a director, or adopt an employee benefit plan or plans authorizing such
loans or guarantees provided that (i) the Board of Directors determines
that such a loan or guarantee or plan may reasonably be expected to benefit
the corporation, (ii) the corporation has outstanding shares held of record
by 100 or more persons (determined as provided in Section 605 of the
California Corporations Code) on the date of approval by the Board of
Directors, and (iii) the approval of the Board of Directors is by a vote
sufficient without counting the vote of any interested director or
directors.
The amendment to the Bylaws will permit the Board of Directors, upon its
approval alone, to authorize the execution of loans to, or the guarantee of the
obligations of, officers of the Company without the delay and expense of having
to seek the approval of the shareholders in each case. If the amendment is
approved, the Board of Directors will have the power, without shareholder
approval, to authorize such loans or guarantees, or to authorize and implement
employee benefit plans providing for such loans or guarantees, after the Board
has determined that such loans, guarantees or plans may reasonably be expected
to benefit the Company. The Company believes that this Bylaw will give the Board
powers that are consistent with those of many other public companies.
Subject to the approval by the Company's shareholders of this proposed
amendment, in connection with their respective employment agreements the Company
agreed to co-sign a home loan for Mr. Sheinman and to provide a guarantee of a
home loan for Mr. Stuart. Under Mr. Sheinman's arrangement, the Company agreed
to co-sign a loan of up to $250,000 to permit Mr. Sheinman to purchase a
permanent residence in Southern California. In the case of Mr. Stuart, the
Company agreed to guarantee up to $75,000 of a home loan obtained by Mr. Stuart
to purchase a permanent residence in Southern California. Both arrangements are
subject to shareholder approval of this proposal. Messrs. Sheinman and Stuart
agreed to obtain a release of the Company of its obligations upon the occurrence
of certain events, including the termination of their employment and the sale of
their homes on the east coast, but in no event after December 31, 1997 for Mr.
Sheinman and three years from the date of the guarantee for Mr. Stuart. The
Company took these actions to induce Mr. Sheinman and Mr. Stuart to relocate to
Southern California and the Board of Directors believes such actions are
reasonably likely to benefit the Company and are in the best interests of the
Company.
If the proposed amendment is not approved, loans or guarantees to officers
will require approval of the Company's shareholders and the Company will not be
able to make the anticipated loan to Mr. Sheinman and
10
<PAGE> 13
the anticipated guarantee on behalf of Mr. Stuart absent shareholder approval.
Loans or guarantees to employees who are not officers or directors do not
require shareholder approval under California law.
VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of the Common
Stock is required for the approval of this proposal to adopt an amendment to the
Company's Bylaws to approve loans to officers. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. PROXIES SOLICITED BY THE
BOARD OF DIRECTORS WILL BE VOTED FOR THIS PROPOSAL UNLESS A VOTE AGAINST THE
PROPOSAL OR AN ABSTENTION IS SPECIFICALLY INDICATED.
PROPOSAL NO. 3
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected BDO Seidman, LLP to be the independent
auditors of the Company for the fiscal year ending December 31, 1997, and
proposes that the shareholders ratify this selection at the Annual Meeting. BDO
Seidman, LLP also acted as independent auditors of the Company for 1996.
Representatives of BDO Seidman, LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
Ratification of the selection of BDO Seidman, LLP requires the affirmative
vote of a majority of the shares voting on such proposal (i.e., shares voting
for or against the proposal).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL
NO. 3. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THIS
PROPOSAL UNLESS A VOTE AGAINST THE PROPOSAL OR AN ABSTENTION IS SPECIFICALLY
INDICATED.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which are
to be brought before the meeting. However, if any such other matters should be
presented for consideration and voting, it is the intention of the persons named
in the enclosed form of proxy to vote the proxy in accordance with their best
judgment.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than ten-percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of the copies of
such forms furnished to the Company and certain written representations, the
Company believes that during the last fiscal year all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with, except that Mr. Hunt filed an amendment in
March 1997 to a Form 5 original filed in February 1992.
11
<PAGE> 14
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals by shareholders for presentation at the 1998 Annual Meeting must
be received by the Company not later than January 30, 1998 in order to be
included in the Company's Proxy Statement and form of proxy relating to that
meeting. Such proposals should be in writing and addressed to Gail A. Thornhill,
Secretary, Intervisual Books, Inc., 2716 Ocean Park Boulevard, Suite 2020, Santa
Monica, California 90405.
By order of the Board of Directors
Gail A. Thornhill
Secretary
May 30, 1997
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1996 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE PROVIDED
TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO GAIL A. THORNHILL,
SECRETARY OF THE COMPANY, AT 2716 OCEAN PARK BOULEVARD, SUITE 2020, SANTA
MONICA, CALIFORNIA 90405.
12
<PAGE> 15
PRELIMINARY COPY
PROXY INTERVISUAL BOOKS, INC. PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 25, 1997
The undersigned hereby appoints Waldo H. Hunt and Nathan N. Sheinman and
each of them, with full power of substitution, attorneys and proxies of the
undersigned, to represent the undersigned and to vote the common stock as
specified below at the Annual Meeting of Shareholders of Intervisual Books, Inc.
to be held on June 25, 1997 at 10:00 a.m., Pacific Daylight Savings Time, at the
Company's headquarters, located at 2716 Ocean Park Boulevard, Suite 2020, Santa
Monica, California 90405, and at any adjournment(s) thereof, upon the following
matters and in accordance with their best judgment with respect to any other
matters which may properly come before the meeting, all as more fully described
in the Proxy Statement for said Annual Meeting (receipt of which is hereby
acknowledged).
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR ALL NOMINEES FOR DIRECTORS LISTED IN PROPOSAL 1 AND FOR
PROPOSALS 2 AND 3 AND IN ACCORDANCE WITH THE BEST JUDGMENT OF THE DESIGNATED
INDIVIDUALS WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF THE MEETING OR
WHICH MAY OTHERWISE PROPERLY COME BEFORE THE MEETING. IF ANY OF THE NOMINEES FOR
DIRECTOR ARE UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE PROXYHOLDER
WILL VOTE FOR SUCH OTHER PERSON OR PERSONS AS THE BOARD OF DIRECTORS MAY
RECOMMEND.
The Board of Directors favors an affirmative vote for the nominees for director
listed below and for proposals 2 and 3.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary for all nominees listed below
below)
</TABLE>
Nominees: Waldo H. Hunt, Nathan N. Sheinman, Gordon Hearne, John J. McNaughton,
Peter Seymour
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.)
- --------------------------------------------------------------------------------
(Continued and to be signed and dated on the reverse side)
<PAGE> 16
========================
Account Number Common
2. Amendment to the Company's Bylaws to approve loans to officers.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of selection of BDO Seidman, LLP as independent auditors of the
Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated , 1997
-------------------------
Signature
-------------------------
Signature (if held
jointly)
NOTE: Please date and
sign this Proxy exactly
as name appears. When
signing as attorney,
trustee, administrator,
executor or guardian,
please give your title as
such. In the case of
joint tenants, each joint
owner must sign.
VOTES MUST BE INDICATED
(X) IN INK. [ ]
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
