<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10916
INTERVISUAL BOOKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-2929217
(STATE OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER I.D. NO.)
2716 OCEAN PARK BOULEVARD, SUITE 2020
SANTA MONICA, CALIFORNIA 90405
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 396-8708
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K of any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of
the Registrant as of February 28, 1997, was approximately $3,349,935. The
aggregate market value was based on the closing price of the common stock as
quoted by The Nasdaq National Market System on such date.
Number of shares outstanding of common stock:
4,782,798 shares as of February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
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<PAGE> 2
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. ACTUAL RESULTS AND EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED
AS A RESULT OF THE FACTORS SET FORTH IN OR IMPLIED BY THE STATEMENTS CONTAINED
IN THIS REPORT.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Intervisual Books, Inc. (the "Company") was incorporated in California in
1975. The Company is engaged in the business of creating and producing a
diversified line of pop-up, dimensional novelty books, which they sell to
domestic and international publishers. To a lesser extent, the Company also
produces pop-up and dimensional game boards and playsets, as well as cloth
books.
The Company develops its own books and generally grants the exclusive
publishing rights to one publisher in each country. It also develops books in
partnership with the publisher to produce pop-up versions of existing titles
owned by the publishers, including the works of key artists or writers
controlled by the publisher. In substantially all cases, the Company retains the
exclusive right to produce these books.
The Company's creative department includes book designers, writers, and
highly trained and specialized "paper engineers" who conceive and design the
books and other products at the Company's offices in Santa Monica, California.
The books, most of which require printing and labor-intensive hand-assembly are
manufactured for the Company on a subcontracted basis by printers in Colombia,
Singapore, Thailand, China and Hong Kong. In 1996, the Company's customers
included 119 publishers in 28 countries. The Company enters into agreements with
publishers to create and produce books and derives substantially all of its
revenues from the unit price charged to the publisher for the product created.
The Company endeavors to combine the finest of children's contemporary book
illustration with high quality color printing and paper engineering which
achieves dramatic paper-folding effects. The Company's products incorporate
dimensional and movable features where illustrations come to life through
multiple movements activated by pull tabs and turning wheels. Pop-up paper
scenes are created when printed paper pieces are glued onto a page in such a way
that when the pages are opened, a complex three-dimensional model erects itself.
The model then folds itself neatly away when the page is turned or the book is
closed. The Company also incorporates electronic audio and musical chips and
lights into some of its works.
PUBLISHING AGREEMENTS
Approximately 60% of the books produced by the Company are conceived and
developed by the Company's creative department and offered to publishers in each
country on an exclusive basis. After the Company conceives an idea and makes a
dummy book, key publishers are consulted to determine if they have an interest
in publishing and marketing the book. In such cases, the Company and publisher
sign an agreement which stipulates that the publisher will purchase a specified
quantity of their edition for the right to control distribution and set pricing
to sell the book.
In addition, the publishing agreement allows the Company, on most titles,
to recapture publishing rights if the publisher does not continue to reorder
books. Normally the Company is also given the exclusive right in perpetuity to
produce all future print orders of book titles.
The Company often contracts with publishers to produce and market
internationally a pop-up version of a classic title owned by the publisher. In
such cases, the Company enters into a co-publishing agreement which requires the
Company to provide, at its expense, paper engineering, dimensional design, art
production and color separations. The publisher, who has contracted to order a
set number of books, provides the funds which enable the Company to guarantee
the quality of the final printing, hand assembly and binding of the book. The
agreement also provides that the Company receives the right to sell the books in
all world markets. In most cases, a royalty is paid to the co-publishing partner
for all international sales.
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The Company does not normally incur the expense of final printing and
assembly of books without firm publishers' orders in hand. Approximately half of
the Company's revenues are derived from such co-editions and the Company has
co-published approximately 400 book titles in association with major U.S. or
international publishers.
Most of the co-published works are authored and/or illustrated by top
international children's book authors and illustrators under contract with the
publisher or are recognized classics still in copyright with the publisher.
Examples of these books include: Peter Rabbit by Beatrix Potter, Winnie-the-Pooh
by A. A. Milne, Good Night Moon Room by Margaret Wise Brown and The Little
Engine That Could by Watty Piper. Because of the Company's reputation, prominent
authors and/or illustrators have been attracted to produce their books with the
Company. The Company has produced works authored and/or illustrated by Tomie
DePaola, Jan Pienkowski, Tasha Tudor, Eric Carle, David Carter, Babette Cole,
Mary Engelbreit, Jane Hissey, Mick Inkpen, Kees Moerbeek, and others.
CUSTOMERS
In 1996 and 1995, approximately 60% and 48%, respectively, of the Company's
books were sold in the United States; the balance of its sales are international
co-editions sold primarily in the United Kingdom, Japan, France, and Italy.
In 1996, the Company sold books to 119 different publishers in 28
countries. The Company has 27 publisher customers from 10 countries who have
been buying continuously from the Company for an average of 18 years.
Sales from 16 different imprints of the four major U.S. publishing groups;
the Disney Company, The Penguin Group, Simon & Schuster, The Putnam Grosset
Publishing Group, and from Dainippon Kaiga Co. of Japan have been the source of
41% of the Company's revenues during the last three years. In 1996, these five
publishers represented 52% of total sales. Simon & Schuster and The Penguin
Group each represented over 10% of the Company's total sales in 1996.
Foreign sales accounted for 40%, 52%, and 45%, respectively, of the
Company's net sales for the years ended December 31, 1996, 1995 and 1994. The
Company sells in U.S. dollars to all customers and, accordingly, currency
fluctuations which increase the price of the Company's products to its foreign
customers can adversely impact the level of the Company's export sales from time
to time. The Company's 1996 international sales were adversely impacted by the
strong U.S. dollar, which increased the cost of the Company' s books from 5% to
15% for the Company's major publishers in Japan, France, Spain, Germany, Italy
and Scandinavia. The following table breaks down revenues attributed to export
sales in the geographic areas indicated as well as each area's percent of total
sales:
EXPORT SALES AS A PERCENTAGE OF TOTAL REVENUES
(000'S OMITTED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA 1996 % 1995 % 1994 %
- --------------- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Europe 4,767 28 6,745 34 6,097 33
Asia 1,266 8 2,282 12 1,352 7
Other 622 4 1,164 6 910 5
</TABLE>
Because all sales are generated through our U.S. headquarters, the Company
does not distinguish operating profit or loss between U.S. sales and foreign
sales. The Company has no identifiable assets attributable to foreign sales.
TYPES OF BOOKS
Although the Company has produced pop-up versions of many popular
children's books, such as Madeline, Good Night Moon Room, Paddington, Clifford,
Tales of Peter Rabbit, and fairy tale classics, approximately half of the
Company's books are non-fiction educational books. The Human Body, a book with
anatomical pop-ups, and a series of "Learn About" books, which teach children
about such things as colors,
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shapes, sizes, numbers, etc. and were translated into 13 languages are examples
of such educational books. The Company publishes several pop-up books by Jan
Pienkowski including Haunted House which is probably the world's best selling
pop-up book with over 1,150,000 copies in print.
The Company has produced "electronic" books with micro-chip components that
play the music to songs such as Twinkle, Twinkle Little Star, Happy Birthday,
Silent Night, Jingle Bells, Lullaby and Goodnight, etc.; as well as other books
which have electronic sounds such as those created by a car horn, telephone,
doorbell, and a toilet flushing. To date, approximately 3,000,000 copies of
electronic books have been sold by the Company.
The Company introduced a new line of adult gift pop-up and novelty books in
1994. To date, 32 titles have been produced in this category and the Company
intends to continue developing such titles for the adult gift trade.
MARKETING AND DIRECT DISTRIBUTION
The Company's primary marketing activities take place with the presentation
of its pop-up books at the International Children's Book Fair in Bologna, Italy,
each April and at the Frankfurt International Book Fair in Germany each October.
The Company also attends the American Booksellers' Fair held in Chicago each
June. The sales executives of the Company also market its products by calling
directly on the major publishers, both in the United States and internationally.
In 1996, the Company introduced a total of 66 new titles, with first run
printing averaging 55,000 copies per title.
In 1995, the Company entered into a joint venture with Random House to
produce mass market novelty books. In this case the Company will not realize a
profit until all development and distribution costs have been recovered. The
Company also entered into a distribution agreement with Andrews & McMeel, a
Kansas City publisher. Under this arrangement, the Company owns inventory and
books a profit on sales after deducting manufacturing and distribution costs.
The Company is currently renegotiating the distribution deal with Andrews &
McMeel with the intention of increasing the number of reverted backlist titles
for distribution.
The Company's products are sold by its publishers through established
retail book distribution channels. Although in some cases the Company retains
direct marketing rights, in the past the Company has not normally engaged in
direct retailing of the books it produces.
SEASONALITY OF BUSINESS
The Company's business is seasonal, as is the publishing business as a
whole, with the major volume of sales occurring in the last six months of the
year. This is due primarily to the increase in retail sales during the
"back-to-school" season, Thanksgiving, and Christmas holidays. It is not unusual
for the Company's sales volume in the last half of the year to exceed by 50% or
more its sales volume for the first six months of the year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
The Company operates in the highly competitive book selling industry and
the Company's products compete generally with the entire publishing industry to
attract retail buyers. Pop-up and novelty books represent a relatively small
percentage of total U.S. retail sales of juvenile hardcover books. Sales volume
achieved by the average pop-up book title generally exceeds that of non-pop-up
titles. While the Company believes it is currently the largest pop-up packager
in the world, it realizes that other pop-up packagers have established a
competitive presence in the United States and the United Kingdom.
The Company estimates that there are currently approximately eight
companies who compete with the Company as pop-up packagers of quality pop-up and
labor intensive novelty books. The Company's direct competitors in the United
States include Ottenheimer, Joshua Morris, Compass Productions, and White Heat.
The other principal competitors are located in the United Kingdom.
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BACKLIST
In the calendar year after a new book has been shipped, the book is
classified as a "backlist" title. Sales from the backlist are a significant
indicator of the strength of a publisher or book packager. In 1996, 1995 and
1994, approximately 55%, 52%, and 39%, respectively, of the Company's sales were
derived from the Company's backlist. As of the date of this Report, the Company
has approximately 1,100 backlist titles with 350 titles on its "active" backlist
(titles for which the Company has received orders within the last 24 months or
which are anticipated to have future commercial value).
PAPER ENGINEERS
Management believes its pool of paper engineers is the most experienced in
the world. In the creation of pop-up books, the paper engineer has the
responsibility to design dramatic pop-up effects which are sturdy and durable,
yet can be hand-assembled with ease and at a reasonable cost. Paper engineering
is a skill rarely taught in schools; it is usually learned by doing. The Company
employs 6 paper engineers.
PRINTERS
The Company does not engage in any of its own printing, binding,
hand-assembly, manufacturing, or shipping, but contracts such services from
independent suppliers. The Company primarily utilizes printers in Colombia,
Singapore, Hong Kong, China and Thailand to perform the printing, hand-assembly,
binding, and shipping of its products. The Company supplies its printers with
color separated printing films and, for certain projects, components are
procured by the Company and provided to the printer to complete assembly.
Because pop-up books are usually printed on 10 and 12 point board stock,
not paper, the production operations required for pop-up books demand that the
printers have top-quality die cutting, printing, box making, and packaging
capabilities. The hand-assembly of the bits and pieces of the movable parts of
the books requires skilled labor similar to the level required to assemble
precision electronic products and cannot be automated. Workers must apply the
right amount of glue and assemble the parts together properly to enable the
moving parts to function perfectly; one failed glue point could be the cause for
book rejection.
Carvajal, one of the Company's primary producers, is located in Colombia
and is a major international printer. Carvajal operates two hand-assembly
plants, one in Colombia and the other in Ecuador, and produced 39% of the
Company's product in 1996. Tien Wah Press maintains its printing facilities in
Singapore and its hand-assembly plants in Malaysia and Indonesia. In 1996, the
Company produced 19% of its product at Tien Wah Press. Hua Yang Printing,
located in Hong Kong maintains its hand-assembly plant in China and was
responsible for 39% of the Company's production in 1996. Production on the
Company's cloth book line was handled by Pal-Up with silk screening, embroidery
and hand assembly in China. The balance of the Company's 1996 production was
handled by Sirivatana in Thailand, New Island Printing and Winner Offset
Printing both located in Hong Kong with hand assembly plants in China.
The Company has no long-term contracts with its printers but enters into
contracts on an order-by-order basis. The Company has been working with Carvajal
and Tien Wah Press for over 20 years and with Hua Yang Printing for nearly 10
years. The Company has not experienced any material difficulties in
manufacturing its products or achieving acceptable levels of quality control
through these printers and believes its relationships with them to be excellent.
BACKLOG
The Company's backlog consists of anticipated revenues from sales of books
for which the Company has confirmed orders which have not yet been manufactured
and shipped. The backlog at December 31, 1996, was $4,100,000 compared to
$4,500,000 at December 31, 1995. The backlog at December 31, 1996 consisted of
confirmed orders for delivery in 1997. The Company believes that backlog as of
any date is not necessarily indicative of future revenues.
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EMPLOYEES
As of March 26, 1997, the Company had 37 full-time employees and 2
part-time employees. These employees include members of the administrative,
creative, production and marketing departments. None of the Company's employees
are covered by a collective bargaining agreement. The Company has never
experienced a work stoppage and believes its labor relations to be good. The
Company also contracts with people on an independent contractor basis,
particularly in the performance of such functions as graphic design, finished
art, art production, and specialized writing.
ITEM 2. PROPERTIES
The Company's approximately 11,600 square foot executive offices are
located in Santa Monica, California. The lease rate is approximately $17,600 per
month for the first 30 months and then increases to $18,500 for the remainder of
the five year lease and is subject to adjustment only for increases in annual
operating expenses and taxes. The lease expires on January 31, 2002, subject to
an option to extend for an additional five years at an adjusted rental based on
95% of the prevailing rates for comparable space.
The Company believes that its physical properties are adequate for its
current needs.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, there are no material legal proceedings either
pending or threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
Information regarding the Company's executive officers is found in Part
III, Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT of this Annual
Report on Form 10-K.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on The Nasdaq National Market System
under the symbol "IVBK." The following table sets forth the high and low
quotations from The Nasdaq National Market System for the Company's common stock
for the periods indicated. Quotations do not include retail markups, markdowns
or commissions.
COMMON STOCK PRICE
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
First Quarter -- 1995...................... 2 1/2 1 3/4
Second Quarter -- 1995..................... 2 7/8 1 15/16
Third Quarter -- 1995...................... 3 1/4 1 3/4
Fourth Quarter -- 1995..................... 3 1/4 2 1/8
First Quarter -- 1996...................... 2 5/8 2
Second Quarter -- 1996..................... 2 9/16 2 1/4
Third Quarter -- 1996...................... 2 3/8 1 15/16
Fourth Quarter -- 1996..................... 2 29/32
First Quarter -- 1997
(Through March 14)....................... 1 3/4 1 1/8
</TABLE>
The number of record holders of the Company's common stock as of February
28, 1997, was 203, several of which represent "street accounts" of securities
brokers. The Company has not paid a dividend with respect to its common stock
nor does the Company anticipate paying dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain financial data for the Company for
the fiscal years ended December 31, 1996, 1995, 1994, 1993, and 1992 which
should be read in conjunction with the Financial Statements of the Company and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this Report.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales....................... $16,766,292 $19,494,405 $18,730,486 $21,666,204 $21,233,734
Cost of sales................... 12,984,796 14,897,013 13,788,428 15,499,529 15,541,834
------------ ------------ ------------ ------------ ------------
Gross profit.................... 3,781,496 4,597,392 4,942,058 6,166,675 5,691,900
Selling, general, and
administrative expenses....... 4,853,875 4,069,555 4,449,998 4,615,171 3,851,882
Non-cash stock compensation
expense....................... 0 0 0 209,250 0
------------ ------------ ------------ ------------ ------------
Income (loss) from operations... (1,072,379) 527,837 492,060 1,342,254 1,840,018
Interest income................. 109,627 127,837 97,140 81,610 116,428
Other income.................... 2,510 100,705 5,328 2,654 52,834
------------ ------------ ------------ ------------ ------------
Income (loss) before income tax
expense (benefit)............. (960,242) 756,379 594,528 1,426,518 2,009,280
Income tax expense (benefit).... (416,000) 320,500 266,100 590,531 859,000
------------ ------------ ------------ ------------ ------------
Net income (loss)............. $ (544,242) $ 435,879 $ 328,428 $ 835,987 $ 1,150,280
============ ============ ============ ============ ============
Earnings (loss) per share....... $ (0.11) $ 0.09 $ 0.07 $ 0.16 $ 0.22
============ ============ ============ ============ ============
Weighted average shares
outstanding................... 4,782,798 5,009,872 5,030,583 5,213,799 5,246,554
============ ============ ============ ============ ============
Dividends on common stock....... -- -- -- -- --
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.................... $12,142,275 $14,051,513 $12,305,802 $12,180,943 $13,375,550
Total liabilities............... $ 5,079,352 $ 6,493,400 $ 5,183,568 $ 5,387,137 $ 7,641,981
Working capital................. $ 4,082,181 $ 4,654,387 $ 3,948,720 $ 4,039,061 $ 3,310,600
Shareholders' equity............ $ 7,062,923 $ 7,558,113 $ 7,122,234 $ 6,793,806 $ 5,733,569
</TABLE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere in this Report.
GENERAL
The Company's inventory consists of a small quantity of books for sales
purposes, materials purchased for production and, in 1995 and 1996, finished
books for a joint venture arrangement with Andrews & McMeel. The Company
typically retains limited rights to publish the books it creates and the Company
has the rights to publish approximately 1,100 books that are considered part of
its "backlist" (titles that were originally manufactured in the previous year
prior to a subsequent order by a publisher). Sales of titles from the Company's
backlist accounted for approximately $9,204,000 or 55% in 1996, $10,066,000 or
52% of sales in 1995, and $7,305,000 or 39% of sales in 1994.
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Book development costs, which include amounts incurred for design, art,
editorial services, paper engineering, cutting dies, and color separations, are
generally capitalized and amortized over a five-year period. The development
cycle for books, prior to first printing, is approximately one and a quarter
years at which point amortization of costs begin. Items which have an
anticipated sales life of one year are written off in the first year of sale.
Book development costs, net of accumulated amortization were $3,014,000 at
December 31, 1996, $3,139,000 at December 31, 1995, and $3,233,000 at December
31, 1994.
The Company recognizes income upon shipment of books. Historically, the
Company, which has a December 31 year-end, has recognized most of its revenues
in the last six months of each year, resulting from year-end holiday season and
spring season sales. The Company achieved approximately 60%, 58%, and 61%,
respectively, of its total sales during the last six months of 1996, 1995, and
1994.
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 1996, to the year ended December
31, 1995. Net sales for the year ended December 31, 1996, were $16,766,000 as
compared to $19,494,000 for the same period in 1995, a decrease of $2,728,000 or
14%. The sales decrease is attributable to decreases of $862,000 in the sales of
backlist titles and $1,866,000 in the sales of new titles compared to the
previous year. Foreign sales represented $6,655,000 or 40% of total sales in
1996 as compared to $10,191,000 or 52% of total sales in 1995, a drop of
$3,536,000 while sales to U.S. publishers were $10,111,000 or 52% of total sales
in 1996 as compared to $9,303,000 or 48% in 1995, an increase of $808,000.
Foreign sales were adversely affected by the strong U.S. dollar which increased
the cost of the Company's books from 5% to 15% to our major publishers in Japan,
France, Germany, Italy and Spain. Also there was a sales decline resulting from
the reduction in the number of interactive books produced by the Company for
Disney and its international licensees. Additionally, sales in the U.K. were
substantially lower as a result of the elimination of the "net book agreement"
which kept retailers from discounting causing some U.K. publishers to delay
orders for new and backlist titles. Sales backlog at December 31, 1996 was
$4,100,000 compared to $4,500,000 for the prior year.
Gross profit margin for the year ended December 31, 1996, was 22.6% as
compared to 23.6% in 1995. Cost of sales consists primarily of manufacturing and
shipping costs, book development amortization, and royalties. Manufacturing and
shipping costs were $11,017,000 or 65.7% of sales for 1996 as compared to
$12,899,000 or 66.2% of sales for 1995. The amortization of book development
costs was $1,289,000 or 7.7% of sales for 1996 compared to $1,286,000 or 6.6% of
sales for 1995. Royalties for the year ended December 31, 1996 were $679,000 or
4.1% of sales as compared to $712,000 or 3.7% of sales in 1995.
Selling, general and administrative expenses for the year ended December
31, 1996 were $4,854,000 compared to $4,070,000 for the year ended December 31,
1995, an increase of $784,000 or 19.3%. Personnel expenses were $2,296,000 in
1996 as compared to $2,062,000 in 1995. The increase of $234,000 resulted
primarily from the non-recurring severance arrangement with the Company's
president and CEO who resigned in November, which was partially offset by
decreases in salaries, employee benefits and 401(k) contributions. Selling
expenses in 1996 were $734,000 versus $806,000 in 1995 for a decrease of $72,000
or 18.4%. The decrease is primarily attributable to decreases in delivery, U.K.
office and travel expenses, marketing sample expenses and commissions partially
offset by an increase in show expenses. Administrative expenses were $1,824,000
in 1996 as compared to $1,202,000 in 1995. The increase of $622,000 was non-
recurring and primarily comprised of $232,000 for the extensive evaluation of
two acquisition candidates which were rejected, $159,000 for additional legal
expenses primarily related to the severance agreement with the Company's former
president and CEO and $141,000 relating the Company's office move and
accelerated write off of leasehold improvements at their previous location.
There were also more moderate increases in office expense, directors' fees, and
bad debt expense.
Other income for the year ended December 31, 1996 was $2,500 as compared to
$101,000 in the prior year. This was the result of an allocation and realization
of deferred revenue of $100,000 in 1995 from the sale of the Company's
advertising division in 1991. Interest income was $114,000 in 1996 as compared
to $129,000 in 1995.
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The Company experienced a loss before income taxes for the year ended
December 31, 1996 of $960,000 compared to income of $756,000 for the comparable
period in 1995, a decrease of $1,716,000. The net loss in 1996 included an
offsetting tax benefit of $416,000 as compared to a 1995 tax expense of
$321,000.
Comparison of the year ended December 31, 1995, to the year ended December
31, 1994. Net sales for the year ended December 31, 1995, were $19,494,000 as
compared to $18,730,000 for the same period in 1994, an increase of $764,000 or
4.1%. The sales increase is attributable to an increase of $2,761,000 in the
sales of backlist titles and a decrease of $1,997,000 in the sales of new titles
compared to the previous year. Backlist titles increased due to a pent-up demand
from the previous years when backlist titles only accounted for 39% in 1994 and
38% in 1993. New titles decreased as publishers reduced quantities of initial
printings and became more selective when buying new titles. Sales backlog at
December 31, 1995 was $4,500,000 compared to $5,500,000 for the prior year.
Customers are increasingly late in confirming their orders, and the Company is
trying to adapt by getting better turnaround times from its printers. At the end
of the third quarter of 1995, sales were behind the previous year's by $857,000;
but with record sales in excess of $4,000,000 in December and the ability to
ship in a shorter time period, the Company managed to show an increase for the
entire year.
Manufacturing problems with the Company's line of cloth books in 1994
caused the Company to incur higher costs for repairs and shipping. In 1995, all
of the books were repaired and shipped to the initial customers. There were some
returns which the Company agreed to accept and credit. To offset these extra
costs, the Company negotiated a settlement of $80,000 with the manufacturer.
Although the resulting profit on this first shipment of cloth books was below
the Company's usual levels, the Company has decided to continue to develop cloth
books, and a second line was successfully shipped in 1995 with few problems. In
1995, sales of cloth books were less than 5% of total net sales.
Gross profit margin for the year ended December 31, 1995, was 23.6% as
compared to 26.4% in 1994. Cost of sales consists primarily of manufacturing and
shipping costs, book development amortization, and royalties. All three expense
categories increased during 1995 which caused the decrease in gross profit
margin. Manufacturing costs were $12,899,000 or 66.2% of sales for 1995 as
compared to $12,241,000 or 65.4% of sales for 1994. The increase resulted from
slightly higher prices from our printers which can be attributed to increased
paper costs. The amortization of book development costs was $1,286,000 or 6.6%
of sales for 1995 compared to $1,015,000 or 5.4% of sales for 1994. This is a
result of increased development costs resulting from the Company's effort to
develop more new titles. Royalties for the year ended December 31, 1995 were
$712,000 or 3.6% of sales as compared to $533,000 or 2.9% of sales in 1994. This
increase in royalty expense for 1995 is primarily attributable to a new
arrangement with the Walt Disney Company whereby the Company is now required to
pay royalties on foreign sales of its Disney titles.
Selling, general and administrative expenses for the year ended December
31, 1995 were $4,070,000 compared to $4,450,000 for the year ended December 31,
1994, a decrease of $380,000 or 8.5%. These expenses comprised of personnel,
selling and administrative are generally fixed and do not fluctuate with sales.
Personnel expenses were $2,062,000 in 1995 as compared to $2,329,000 in 1994.
The decrease of $267,000 is a result of personnel reductions instituted in the
second quarter of 1995 partially offset by an increase in the amount paid to The
Hunt Group to subsidize its operations, which payments were made under the
Company's May 1994 arrangement with The Hunt Group. The payments to The Hunt
Group in 1995 were $400,000 for a full 12 months as compared to $167,500 for 5
months in 1994. (See Note 12 to the Financial Statements.) Selling expenses in
1995 were $806,000 versus $954,000 in 1994 for a decrease of $148,000 or 18.4%.
The decrease is primarily attributable to decreases in delivery, U.K. office and
travel expenses resulting from the closure of the Company' s London office in
August 1995, and marketing sample expenses partially offset by an increase in
the Company's write-off of advance royalties. Administrative expenses were
$1,202,000 in 1995 as compared to $1,167,000 in 1994. The increase of $35,000
was primarily related to moderate increases in expenses, such as bad debt
expense, board of directors' expenses, and donations which were offset by
decreases in quarterly and annual report expenses and insurance costs.
Other income for the year ended December 31, 1995 was $101,000 as compared
to $5,000 in the prior year. This was the result of an allocation and
realization of deferred revenue from the sale of the Company's
8
<PAGE> 10
advertising division in 1991. Interest income also increased in 1995 to $128,000
versus $97,000 in 1994, as a result of higher interest rates and an increase in
cash for investing purposes.
The Company experienced income before income taxes for the year ended
December 31, 1995 of $757,000 compared to $595,000 for the comparable period in
1994, an increase of $162,000 or 27%. The effective tax rate was 42.3% for 1995
and 44.8% for 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations increased to $1,082,000 in 1996 compared to
$727,000 in 1995. The $355,000 increase was primarily attributable to a
$2,255,000 decrease in accounts receivable partially offset by a decrease in
accounts payable of $1,405,000, and net loss of $544,000. Decreases in both
accounts receivable and accounts payable resulted primarily from the $1,517,000
decline in sales for the fourth quarter of 1996 as compared to fourth quarter of
1995. Working capital at December 31, 1996 was $4,082,000 as compared to
$4,654,000 at December 31, 1995.
Net cash provided by operations decreased to $727,000 in 1995 compared to
$2,416,000 in 1994. The $1,689,000 decrease was primarily attributable to a
$2,304,000 increase in accounts receivable and a decrease in income taxes
payable of $163,000, and net income of $436,000, partially offset by increases
of $1,317,000 in accounts payable and $137,000 in royalties payable. Increases
in both accounts receivable and accounts payable resulted primarily from the
especially high sales in the month of December 1995 compared to December 1994.
Working capital at December 31, 1995 was $4,654,000 as compared to $3,949,000 at
December 31, 1994.
Net cash used in investing activities amounted to $1,342,000 in 1996 as
compared to $2,437,000 in 1995. Net purchases of investments in 1996 was
$107,000 as compared to $1,228,000 in 1995. The net purchases decrease resulted
from the Company's need to preserve cash for 1997 because of the net loss in
1996.
Net cash used in investing activities amounted to $2,437,000 in 1995 as
compared to $539,000 in 1994. In 1995, a greater percentage of the Company's
cash was invested in marketable securities as opposed to 1994 when most of the
excess cash was in money market accounts or treasury bills which were considered
cash equivalents for financial statement purposes.
There was no cash provided or used in financing activities during 1996 or
1995.
The Company has a $2,000,000 letter of credit line with City National Bank
expiring May 31, 1997, which the Company expects will be renewed. The credit
facility is available only for the issuance of letters of credit and as of
December 31, 1996, the Company had $1,819,000 available under this letter of
credit facility.
As of February 28, 1997, the Company did not have any commitments for any
material capital expenditures for 1997 or beyond. Management of the Company
believes that the existing levels of funds, combined with the Company's ability
to generate cash, are adequate to finance current and expected levels of
activity as well as anticipated capital expenditures of the Company for at least
the next twelve months.
This Section and this entire Report on Form 10-K contain forward-looking
statements and include assumptions concerning the Company's operations, future
results and prospects. These forward-looking statements are based on current
expectations and are subject to a number of risks, uncertainties and other
factors. In connection with the Private Securities Litigation Reform Act of
1995, the Company provides the following cautionary statements identifying
important factors which, among other things, could cause the actual results and
events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions contained in this Section and
in this entire Report. Such factors include, but are not limited to: product
demand and market acceptance risks; the effect of economic conditions; the
impact of competitive products and pricing; changes in foreign exchange rates;
product development and commercialization difficulties; capacity and supply
constraints or difficulties; availability of capital resources; general business
and economic conditions; and changes in government laws and regulations,
including taxes.
9
<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements prepared in accordance with Regulation S-X are set
forth beginning at page 12 hereof.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... 11
Balance Sheets as of December 31, 1996 and 1995....................................... 12
Statements of Operations for each of the Years ended December 31, 1996, 1995 and
1994................................................................................ 13
Statements of Stockholders' Equity for each of the Years Ended December 31, 1996, 1995
and 1994............................................................................ 14
Statements of Cash Flows for each of the Years Ended December 31, 1996, 1995 and
1994................................................................................ 15
Summary of Accounting Policies........................................................ 16
Notes to Financial Statements......................................................... 18
Schedule II -- Valuation and Qualifying Accounts...................................... 25
</TABLE>
10
<PAGE> 12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Intervisual Books, Inc.
Santa Monica, California
We have audited the accompanying balance sheets of Intervisual Books, Inc.
as of December 31, 1996 and 1995 and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. We have also audited the schedule listed in the
accompanying index. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Intervisual Books, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
BDO SEIDMAN, LLP
Los Angeles, California
February 21, 1997
11
<PAGE> 13
INTERVISUAL BOOKS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CURRENT:
Cash and cash equivalents....................................... $ 655,620 $ 915,374
Investment in marketable securities available for sale.......... 2,034,984 1,927,658
Accounts receivable, less allowance for possible losses of
$161,000 and $158,000........................................ 4,585,742 6,941,188
Inventories..................................................... 654,197 356,559
Prepaid expenses................................................ 337,404 99,955
Royalty advances................................................ 491,736 421,274
Royalty advances - related party (Note 12)...................... 247,010 20,000
------------ ------------
TOTAL CURRENT ASSETS.................................... 9,006,693 10,682,008
PRODUCTION COSTS, net of accumulated amortization of $12,936,064
and $11,647,134................................................. 3,013,773 3,138,737
PROPERTY AND EQUIPMENT, net (Note 1).............................. 121,809 230,768
------------ ------------
$ 12,142,275 $ 14,051,513
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 3,624,858 $ 5,030,044
Accrued royalties............................................... 775,134 709,021
Accrued expenses................................................ 453,309 197,544
Income taxes payable (Note 5)................................... - 38,070
Customer deposits (Note 2)...................................... 71,211 52,942
------------ ------------
TOTAL CURRENT LIABILITIES............................... 4,924,512 6,027,621
DEFERRED INCOME TAXES (Note 5).................................... 154,840 465,779
------------ ------------
TOTAL LIABILITIES....................................... 5,079,352 6,493,400
------------ ------------
COMMITMENTS (Notes 4 and 8)
STOCKHOLDERS' EQUITY (Notes 6 and 7):
Common stock, no par, shares authorized 10,000,000; issued and
outstanding 4,782,798........................................ 4,044,266 4,044,266
Additional paid-in capital...................................... 258,302 209,250
Retained earnings............................................... 2,760,355 3,304,597
------------ ------------
TOTAL STOCKHOLDERS' EQUITY.............................. 7,062,923 7,558,113
------------ ------------
$ 12,142,275 $ 14,051,513
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
12
<PAGE> 14
INTERVISUAL BOOKS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES (Note 9).................................. $16,766,292 $19,494,405 $18,730,486
COST OF SALES (Note 10)............................. 12,984,796 14,897,013 13,788,428
------------ ------------ ------------
Gross profit...................................... 3,781,496 4,597,392 4,942,058
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note
12)............................................... 4,853,875 4,069,555 4,449,998
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS....................... (1,072,379) 527,837 492,060
INTEREST INCOME, NET................................ 109,627 127,837 97,140
OTHER INCOME........................................ 2,510 100,705 5,328
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)... (960,242) 756,379 594,528
INCOME TAX EXPENSE (BENEFIT) (Note 5)............... (416,000) 320,500 266,100
------------ ------------ ------------
NET INCOME (LOSS)................................... $ (544,242) $ 435,879 $ 328,428
============ ============ ============
EARNINGS (LOSS) PER SHARE........................... $ (.11) $ .09 $ .07
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING....... 4,782,798 5,009,872 5,030,583
============ ============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
13
<PAGE> 15
INTERVISUAL BOOKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994............ 4,782,798 4,044,266 209,250 2,540,290 6,793,806
Net income for the year........... -- -- -- 328,428 328,428
--------- ---------- -------- ---------- ----------
BALANCE, December 31, 1994.......... 4,782,798 4,044,266 209,250 2,868,718 7,122,234
Net income for the year........... -- -- -- 435,879 435,879
--------- ---------- -------- ---------- ----------
BALANCE, December 31, 1995.......... 4,782,798 $4,044,266 $ 209,250 $3,304,597 $7,558,113
Compensation related to
non-employee stock options
(Note 6)....................... -- -- 49,052 -- 49,052
Net loss for the year............. -- -- -- (544,242) (544,242)
--------- ---------- -------- ---------- ----------
BALANCE, December 31, 1996.......... 4,782,798 $4,044,266 $ 258,302 $2,760,355 $7,062,923
========= ========== ======== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
14
<PAGE> 16
INTERVISUAL BOOKS, INC.
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ (544,242) $ 435,879 $ 328,428
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 1,366,632 1,376,529 1,110,583
Provision for losses on accounts receivable...... 100,000 101,630 60,000
Loss on disposal of property and equipment....... 101,495 1,014 --
Amortization of deferred income.................. -- (100,000) --
Deferred income taxes............................ (310,939) 101,057 15,888
Non cash stock option compensation.................... 49,052 -- --
Increase (decrease) from changes in:
Accounts receivable................................ 2,255,446 (2,303,708) 1,066,550
Inventories........................................ (297,638) (104,542) (54,470)
Prepaid expenses................................... (237,449) (89,883) (4,181)
Royalty advances................................... (297,472) -- --
Income taxes refundable............................ -- -- 112,971
Accounts payable................................... (1,405,184) 1,316,898 (291,250)
Accrued royalties.................................. 66,113 136,697 (176,280)
Accrued expenses................................... 255,765 32,318 (6,597)
Income taxes payable............................... (38,070) (162,722) 200,792
Customer deposits.................................. 18,269 (14,416) 53,878
----------- ----------- -----------
Net cash provided by operating activities..... 1,081,778 726,751 2,416,312
Cash flows from investing activities:
Collections on notes receivable....................... -- -- 30,625
Purchases of property and equipment................... (70,236) (16,773) (112,656)
Proceeds from disposals of property and equipment..... -- 1,385 3,093
Additions to production costs......................... (1,163,966) (1,193,424) (1,435,677)
Purchases of marketable securities available for
sale............................................... (5,457,752) (3,310,164) --
Proceeds from sales and maturities of marketable
securities available for sale...................... 5,350,422 2,082,167 975,339
----------- ----------- -----------
Net cash used in investing activities......... (1,341,532) (2,436,809) (539,276)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... (259,754) (1,710,058) 1,877,036
Cash and cash equivalents, beginning of year............ 915,374 2,625,432 748,396
----------- ----------- -----------
Cash and cash equivalents, end of year.................. $ 655,620 $ 915,374 $ 2,625,432
========== ========== ==========
Cash paid during the year for:
Income taxes.......................................... $ 55,000 $ 379,000 $ 16,449
========== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
15
<PAGE> 17
INTERVISUAL BOOKS, INC.
SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Intervisual Books, Inc. (the "Company") was incorporated in California in
1975. The Company is engaged in the creating, packaging and production of pop-up
books for domestic and international distribution. The Company distributes
through many publishers in the United States and other countries.
REVENUE RECOGNITION
The Company recognizes revenues upon shipment of books. The Company
generally sells its books directly to publishers who assume the responsibility
for any sales returns.
PRODUCTION COSTS AND AMORTIZATION
Production costs include amounts incurred for design, art, editorial
services, paper engineering, dies and color separation. The costs for pop-up
books are stated at the lower of cost or net realizable value and are amortized
using the sum-of-the-years-digits method over a five year projected sales life.
These costs are periodically evaluated each year based on management's estimates
of future sales of related products. These costs are written off when management
believes they provide no future benefit. Costs of products which have an
anticipated useful life of one year are charged to operations in the year the
sales occur.
Amortization of book production costs included in cost of sales for 1996,
1995 and 1994 was $1,288,930, $1,286,226 and $1,014,502.
INVESTMENT IN MARKETABLE SECURITIES
The Company accounts for the investments in marketable securities in
accordance with Statement of Financial Accounting Standards (SFAS 115),
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's investments are available for sale and are stated at market, which
approximates cost. Investments consist primarily of municipal bonds. These bonds
mature within one year of the purchase date and the related municipalities are
located throughout the United States.
INVENTORY
Inventory, which primarily consists of materials, is valued at the lower of
cost or market. Cost is determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed using
accelerated methods for both financial reporting and income tax purposes.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards 109 (SFAS 109), "Accounting for Income Taxes".
SFAS 109 requires a company to use the asset and liability method of accounting
for income taxes.
16
<PAGE> 18
INTERVISUAL BOOKS, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities and result primarily from differences in methods used to amortize
production costs. Under SFAS 109, the effect on deferred income taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is based upon the weighted average number of
common shares and common stock equivalents outstanding during each period.
Earnings per share for the years ended December 31, 1994 and 1995 is computed
using a treasury stock method, under which the number of shares outstanding
reflects an assumed use of the proceeds from the issuance of such shares and
from the assumed exercise of such options and the assumed exercise of common
stock warrants, to repurchase shares of the Company's common stock at the
current fair values. Common stock options which are considered common stock
equivalents, for the year ended December 31, 1996, are not considered in the
average number of common shares as their inclusion would be anti-dilutive.
STOCK-BASED COMPENSATION
As of January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), which establishes a fair value method of accounting for stock-based
compensation plans. In accordance with SFAS 123, the Company has chosen to
continue to account for stock-based compensation utilizing the intrinsic value
method prescribed in APB 25. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market price of the Company's stock
at the date of grant over the amount an employee must pay to acquire the stock.
Also, in accordance with SFAS 123, the Company has provided footnote
disclosure with respect to stock-based employee compensation. The cost of
stock-based employee compensation is measured at the grant date based on the
value of the award and recognize this cost over the service period. The value of
the stock based award is determined using a pricing model whereby compensation
cost is the excess of the fair value of the stock as determined by the model at
grant date or other measurement date over the amount an employee must pay to
acquire the stock.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
A description of the methods and assumptions used to estimate the fair
value of each class of the Company's financial instruments is as follows:
Cash, investments and receivables, are recorded at carrying amounts which
approximate fair value due to the short maturity of these instruments.
RECLASSIFICATIONS
Certain reclassifications have been made to conform the prior year's
amounts to the current year's presentation.
17
<PAGE> 19
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- PROPERTY AND EQUIPMENT
The major classes of property and equipment and the related estimated
useful lives are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- ESTIMATED
1996 1995 USEFUL LIVES
-------- ---------- ------------
<S> <C> <C> <C>
Computer................................. $490,259 $ 462,301 5 years
Office furniture and equipment........... 376,790 353,221 5-7 years
Leasehold improvements................... -- 188,536 10 years
-------- ----------
867,049 1,004,058
Less accumulated depreciation............ 745,240 773,290
-------- ----------
$121,809 $ 230,768
======== ==========
</TABLE>
Depreciation expense on property and equipment was $77,072, $89,175 and
$96,081 for the years ended December 31, 1996, 1995 and 1994.
NOTE 2 -- CUSTOMER DEPOSITS
Customer deposits of $71,211 and $52,942 reported at December 31, 1996 and
1995 consist of cash advances received from publishers prior to printing,
assembly and shipping of the related products.
NOTE 3 -- DEFERRED INCOME
In connection with the sale in June 1991 of its commercial division, the
Company received from the buyer a $100,000 cash advance intended to be applied
to royalties that in the future may be earned by the Company as compensation for
permission granted to the buyer to use certain books and other products
originally developed by the Company. All of the royalty advance was realized by
the Company as of December 31, 1995 and is included in other income.
NOTE 4 -- LETTERS OF CREDIT
At December 31, 1996, the Company has a $2,000,000 letter of credit
facility with a bank, of which $180,732 in letters of credit were outstanding.
The letter of credit facility expires on May 31, 1997, which the Company expects
will be renewed.
NOTE 5 -- INCOME TAXES
Provisions (benefit) for income taxes included in the accompanying
statements of operations consist of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal................................. $ (86,576) $153,181 $190,639
State................................... (11,647) 56,503 59,573
--------- -------- --------
(98,223) 209,684 250,212
--------- -------- --------
Deferred:
Federal................................. (246,441) 91,142 10,891
State................................... (71,336) 19,674 4,997
--------- -------- --------
(317,777) 110,816 15,888
--------- -------- --------
Total income tax provision (benefit)...... $(416,000) $320,500 $266,100
========= ======== ========
</TABLE>
18
<PAGE> 20
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The effective tax rate on income (loss) before income taxes differed from
the federal statutory tax rate. The following summary reconciles income taxes at
the federal statutory tax rate with the actual taxes and effective tax rate:
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate............................ (34.0)% 34.0% 34.0%
Increase in taxes resulting from:
State taxes, net of federal income tax benefit...... (7.2) 6.6 8.2
Other............................................... (2.1) 1.7 2.6
----- ---- ----
Effective tax rate.................................... (43.3)% 42.3% 44.8%
===== ==== ====
</TABLE>
The types of temporary differences between the tax basis of assets and
liabilities that give rise to the net deferred tax balance at December 31, 1996
and 1995 and their approximate tax effects, are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Assets:
Allowance for doubtful accounts...................... $ 65,820 $ 64,849
Inventory -- uniform capitalization.................. 43,526 20,543
Accrued vacation..................................... 18,676 21,151
Non-cash stock compensation.......................... 96,765 85,793
Severance costs...................................... 78,720 --
-------- --------
Deferred tax assets.................................. 303,507 192,336
-------- --------
Liabilities:
Excess tax amortization of production costs over book
amortization...................................... 458,347 658,115
-------- --------
Net deferred liability............................... $154,840 $465,779
======== ========
</TABLE>
NOTE 6 -- COMMON STOCK OPTIONS
Incentive Stock Option Plans ("ISOP")
Under the terms of the Company's ISOP, under which options to purchase
550,000 shares of common stock can be issued, all key employees are eligible to
receive non-assignable and non-transferrable options to purchase shares. The
exercise price of any option may not be less than the fair market value of the
shares on the date of grant; provided, however, that the exercise price of any
option granted to an eligible employee owning more than 10% of the outstanding
common stock may not be less than 110% of the fair market value of the shares
underlying such option on the date of grant. No options granted may be
exercisable prior to six months from the date of grant, nor more than ten years
after the date of grant. The options granted vest evenly over a three year
period, beginning from the date of grant, except for the options granted on
November 25, 1996, which represented a reissue of options granted in prior
periods, which retained the original vesting terms.
Non Qualified Stock Option Plans ("NQSOP")
Under the terms of the Company's NQSOP, options to purchase 200,000 shares
of common stock can be issued to attract and retain qualified persons for
positions of substantial responsibility, such as key officers, directors, and
consultants. Options of the plan are established in the same manner as the
ISOPs, are non-assignable and non-transferrable (for employees of the Company),
and are exercisable over a 10-year period from the date of grant. Each option
lapses, if not previously exercised, on the 10th anniversary of the date of
grant. The options granted vest evenly over a three year period, beginning from
the date of grant, except for the
19
<PAGE> 21
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
options granted on November 25, 1996, which represented a reissue of options
granted in prior periods, which retained the original vesting terms.
Directors Stock Option Plans ("DSOP")
Under the terms of the Company's DSOP, options to purchase 300,000 shares
of common stock can be issued to directors who are not employees of the Company.
The exercise price of any option may not be less than the fair market value of
the shares on the date of grant. Each person who becomes a director receives an
initial grant to purchase 30,000 shares. Thereafter, on the date of each annual
meeting of the Company's shareholders, each director will receive options to
purchase 2,500 shares. Options are non-assignable and non-transferrable and are
exercisable over a 10-year period from the date of grant or until the director
ceases to be a member of the Board. The options granted vest evenly over a three
year period beginning from the date of grant.
Option activity within each plan is as follows:
<TABLE>
<CAPTION>
INCENTIVE NON QUALIFIED DIRECTORS
STOCK OPTION STOCK OPTION STOCK OPTION
PLAN PLAN PLAN
------------ ------------- ------------
<S> <C> <C> <C>
Balance outstanding, January 1, 1994.......... 248,250 121,000 --
Options granted $2.375 per share............ 70,250 8,000 --
Options cancelled at $2.625 per share....... (16,750) -- --
Options cancelled at $2.70 per share........ (40,000) -- --
Options cancelled at $3.00 per share........ (9,500) -- --
Options cancelled at $3.25 per share........ -- (20,000) --
Options cancelled at $3.875 per share....... (10,250) -- --
-------- -------- --------
Balance outstanding, December 31, 1994........ 242,000 109,000 --
Options granted at $2.375 per share......... 66,000 -- --
Options granted at $2.50 per share.......... -- -- 75,000
Options cancelled at $2.375 per share....... (16,750) (3,000) --
Options cancelled at $2.625 per share....... (14,000) -- --
Options cancelled at $2.70 per share........ (20,000) -- --
Options cancelled at $3.00 per share........ (13,000) -- --
Options cancelled at $3.875 per share....... (9,750) -- --
-------- -------- --------
</TABLE>
20
<PAGE> 22
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
INCENTIVE NON QUALIFIED DIRECTORS
STOCK OPTION STOCK OPTION STOCK OPTION
PLAN PLAN PLAN
-------- -------- --------
<S> <C> <C> <C>
Balance outstanding, December 31, 1995........ 234,500 106,000 75,000
Options granted at $1.375 per share......... 261,500 101,000 --
Options granted at $2.00 per share.......... 53,000 10,000 --
Options granted at $2.063 per share......... -- 60,000 92,500
Options cancelled at $2.00 per share........ (46,000) (10,000) --
Options cancelled at $2.063 per share....... -- (30,000) (30,000)
Options cancelled at $2.375 per share....... (89,500) (5,000) --
Options cancelled at $2.50 per share........ -- -- (52,500)
Options cancelled at $2.625 per share....... (37,000) (21,000) --
Options cancelled at $3.00 per share........ (42,000) (5,000) --
Options cancelled at $3.375 per share....... -- (25,000) --
Options cancelled at $3.875 per share....... (18,000) (35,000) --
Options cancelled at $4.533 per share....... -- (5,000) --
-------- -------- --------
Balance outstanding, December 31, 1996........ 316,500 141,000 85,000
======== ======== ========
Options exercisable, December 31, 1996........ 144,153 54,332 7,500
======== ======== ========
</TABLE>
Information relating to stock options at December 31, 1996 summarized by
exercise price are as follows:
<TABLE>
<CAPTION>
EXERCISABLE
OUTSTANDING --------------------------
--------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE -------------------------------- --------------------------
PER SHARE SHARES LIFE (MONTHS) EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------------- -------- ------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Incentive Stock Option Plan:
$1.375.................... 261,500 97.5 $1.375 114,488 $1.375
$2.00..................... 7,000 108.5 2.00 -- --
$2.375.................... 30,000 96.0 2.375 11,665 2.375
$2.625.................... 8,000 83.5 2.625 8,000 2.625
$4.533.................... 10,000 73.0 4.533 10,000 4.533
------- ----- ------ ------- ------
316,500 94.5 $1.414 144,153 $1.744
======= ===== ====== ======= ======
Non Qualified Stock Option
Plan:
$1.375.................... 101,000 98.0 $1.375 44,332 $1.375
$2.063.................... 30,000 115.5 2.063 -- --
$3.875.................... 10,000 69.5 3.875 10,000 3.875
------- ----- ------ ------- ------
141,000 99.5 $1.699 54,332 $1.835
======= ===== ====== ======= ======
Directors Stock Option Plan:
$2.063.................... 62,500 110.0 $2.063 -- $ --
$2.50..................... 22,500 102.0 2.50 7,500 2.500
------- ----- ------ ------- ------
85,000 107.5 $2.178 7,500 $2.500
======= ===== ====== ======= ======
</TABLE>
All stock options issued to employees have an exercise price not less than
the fair market value of the Company's common stock on the date of the grant,
and in accordance with accounting for such options utilizing the intrinsic value
method there is no related compensation expense recorded in the Company's
financial statements. Had compensation cost for stock-based compensation been
determined based on the fair
21
<PAGE> 23
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value of the grant dates consistent with the method of SFAS 123, the Company's
net loss and loss per share for the year ended December 31, 1996 would have been
increased to the pro forma amounts presented, and 1995 would have had no effect:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Net loss
As reported.................................... $(544,242)
Pro forma...................................... $(626,242)
Net loss per share
As reported.................................... $ (.11)
Pro forma...................................... $ (.13)
</TABLE>
The fair value of option grants is estimated on the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996; expected life of options of 7 years, expected
volatility of 20%, risk-free interest rate of 6.1% and a 0% dividend yield. The
weighted average fair value on the date of grants for options granted during
1996 approximated $.55 per option.
Due to the fact that the Company's stock option programs vest over many
years and additional awards are made each year, the above proforma numbers are
not indicative of the financial impact had the disclosure provisions of SFAS 123
been applicable to all years of previous option grants. The above numbers do not
include the effect of options granted prior to 1995 that vested in 1995 and
1996.
Under the Company's Non-qualified and Director Stock Option Plan, the
Company granted 193,500 shares during 1996 to non-employees. As a result, the
Company recorded non cash compensation expense related to these options of
$49,052 and a corresponding credit to additional paid-in capital.
Former President and CEO Stock Option Award
The former President had entered into an agreement to purchase 600,000
shares from the Hunt Trust at the lower of $3.00 per share plus a 5%
appreciation factor until the exercise of the option or the then market price
for the Company's shares. The options were exercisable at any time and expired
on the earlier of January 2, 2017 or earlier based on certain conditions. These
options were cancelled on November 15, 1996, the effective date the former
President resigned.
NOTE 7 -- COMMON STOCK PURCHASE WARRANTS
In connection with its initial public offering of common stock, the Company
sold to the underwriter, for $100, warrants to purchase 170,000 shares of common
stock at $3.75 per share. The warrants were exercisable during the four year
period commencing on December 4, 1992. All such warrants expired as of December
4, 1996. No warrants were exercised.
NOTE 8 -- COMMITMENTS
Operating Leases
The Company leases its facilities and certain equipment under various
operating leases which expire at various dates through January 31, 2002. The
facility lease has a renewal option to extend the lease for an additional five
years at an agreed upon rental amount. Future minimum lease payments under the
22
<PAGE> 24
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
noncancelable portion of these leases having terms in excess of one year at
December 31, 1996 are presented in the schedule below.
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------- -----------
<S> <C>
1997............................................. $ 227,565
1998............................................. 213,930
1999............................................. 216,248
2000............................................. 221,482
2001............................................. 221,482
Thereafter....................................... 18,457
-----------
$ 1,119,164
===========
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$276,579, $286,276 and $279,333.
Employment Agreements
Effective October 1994, the Company entered into an employment agreement
with an employee with an initial term of three years and initial annual
compensation of $100,000.
Effective January 1995, the Company entered into an employment agreement
with an employee with an initial term of three years and initial compensation of
$90,000.
On January 1, 1997, the Company entered into an employment and compensation
agreement with an employee for a period of two years, with a renewal option for
two years. The minimum aggregate obligation under this agreement is: 1997 -
$107,200; and 1998 - $107,200.
On January 13, 1997, the Company entered into an employment and
compensation agreement with a new President and Chief Operating Officer. This
agreement expires on December 31, 1999. The minimum aggregate obligation under
this agreement is: 1997 - $266,600; 1998 - $292,200; and 1999 - $292,200. The
agreement also allows for reimbursable expenses in 1997 amounting up to
approximately $57,000. In addition, the agreement requires the Company to
co-sign on a home loan up to $250,000, upon the request of the President.
On January 13, 1997, the Company entered into another employment and
compensation agreement with an Executive Vice President and Creative Director.
This agreement expires on December 31, 1999. The minimum aggregate obligation
under this agreement is: 1997 - $190,500; 1998 - $208,500; and 1999 - $208,500.
The agreement also allows for other reimbursable expenses in 1997 and 1998
amounting up to approximately $56,000 and $23,000. In addition, the agreement
requires the Company to guarantee a home loan of up to $75,000, upon the request
of the Vice President.
Consulting Agreement
On November 1, 1996, the Company entered into a consulting agreement with
the former President. This consulting agreement expires on December 31, 2001.
The minimum aggregate obligation under this agreement is: 1997 - $150,000; 1998
- -$150,000; 1999 - $150,000; 2000 - $120,000; and 2001 - $120,000. Management
evaluated this agreement and determined that $192,000 related to the consulting
agreement should be recorded in fiscal year 1996 as additional severance costs.
This was based on evaluating the future benefit of the consulting agreement to
the Company.
23
<PAGE> 25
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- SALES
Export sales accounted for approximately 40%, 52%, and 45% of the Company's
net sales for the years ended December 31, 1996, 1995 and 1994. Sales by
geographic area are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
GEOGRAPHIC AREA PERCENT PERCENT PERCENT
-------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Europe....................................... 28 34 33
Asia......................................... 8 12 7
Other 4 6 5
</TABLE>
Approximately 25% and 11% of sales in 1996 were made to two customers 13%
of sales in 1995 were made to 1 customer and 11% and 10% of sales in 1994 were
made to two customers. During the year ended December 31, 1996, approximately
52% of the Company's sales were derived from five key customers.
NOTE 10 -- PURCHASES
The Company does not have manufacturing facilities. Most of the Company's
products are manufactured by three printers located in Hong Kong, Colombia, and
Singapore. The Company's operations are subject to the customary risks of doing
business abroad.
NOTE 11 -- EMPLOYEE BENEFIT PLAN
The Company maintains a qualified defined contribution employee benefit
plan (the "401(k) plan") covering substantially all employees who have been
employed for greater than one year and are at least 21 years of age. The Company
is required to contribute as a matching contribution an amount equal to a
specified percentage of employee contributions. In addition, the Board of
Directors may further elect to make discretionary contributions. Total
contributions made by the Company to the 401(k) plan during the years ended
December 31, 1996, 1995 and 1994 were $64,344, $81,994 and $93,312.
NOTE 12 -- RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with an affiliated entity, Hunt
Group, where the principal owner is the Company's Chief Executive Officer and a
member of the Company's Board of Directors. The Company has agreed to subsidize
this entity from August 1, 1994 through December 31, 1996 in return for a right
of first refusal on any products developed by the entity pursuant to the terms
of the agreement. The subsidy is $400,000 for each of the calendar years 1996
and 1995 and $167,500 for 1994. At December 31, 1996 and 1995, the Company paid
$247,000 and $20,000 to the Hunt Group as an advance against future royalties.
These advances were made for ten new products, two which were sold in 1996, with
the others to be introduced to the market in fiscal year 1997.
NOTE 13 -- FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1996, the Company recorded adjustments which
decreased its results of operations in the amount of approximately $640,000,
which consists of $312,000 relating to a contract settlement and consulting
agreement with the Company's former President and Chief Executive Officer,
increased legal fees of $63,000, expenses related to the move of its corporate
headquarters of $141,000, expenses related the pursuit and evaluation of an
acquisition candidate of $94,000 and expenses related to the hiring of a new
President and Vice President of $30,000.
24
<PAGE> 26
INTERVISUAL BOOKS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------- ----------- ---------- --------- -----------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(A) YEAR
- ---------------------------------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Allowance for possible losses on
receivables
Year ended December 31,
1996.................................... $ 158,000 $ 100,000 $ (97,000)(a) $ 161,000
1995.................................... 56,000 110,000 (8,000)(a) 158,000
1994.................................... 175,000 60,000 (178,000)(a) 57,000
Accumulated amortization of production
costs
Year ended December 31,
1996.................................... $11,647,134 $1,288,930 $ -- $12,936,064
1995.................................... 10,359,779 1,286,226 1,129 11,647,134
1994.................................... 9,345,277 1,014,502 -- 10,359,779
</TABLE>
- ---------------
(a) Write-off of uncollectible accounts.
25
<PAGE> 27
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------ --- -----------------------------------------------------
<S> <C> <C>
Waldo H. Hunt 76 Chairman of the Board, Chief Executive Officer,
Director
Nathan N. Sheinman 46 President, Chief Operating Officer, Director
Neil Stuart 51 Executive Vice President, Creative Director
Gail A. Thornhill 44 Interim Chief Financial Officer, Controller,
Secretary
Gordon Hearne 73 Director
John J. McNaughton 74 Director
Peter Seymour 64 Director
</TABLE>
Directors of the Company hold office until the next annual meeting of the
stockholders, and until their successors are duly elected and qualified.
Officers serve at the pleasure of the Board of Director's subject to the
provisions of their employment contracts, if any.
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. He previously served as its Chief
Executive Officer and Chief Financial Officer from 1975 to January 1992. From
1994 through December 1996, Mr. Hunt also served as Chairman of the Hunt Group,
a company founded by Mr. Hunt in 1994 (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 became President and Chief Operating Officer of the
Company on January 27, 1997. Mr. Sheinman joined the Board as a Director 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, Mr. Sheinman was Vice President Sales/Special Markets
and Vice President Marketing and Director of Sales, Special Markets for Penguin
Books Canada.
Neil Stuart joined the Company on January 27, 1997, as Executive Vice
President and Creative Director. He had previously been employed by Penguin USA
since 1987. Since August of 1995 he held the position of Creative Director of
Mass Merchandise and Special Sales and prior to that he was Vice President Art
Director of Adult and Trade Books. He was also Art Director of Adult and Trade
Books for Viking Press from 1981 to 1987 and prior to that owned his own
independent design firm.
Gail A. Thornhill was named interim Chief Financial Officer in November
1996 and has been Secretary of the Company since February 1993. Ms. Thornhill
has been employed by the Company since 1980 in various capacities and has served
as its Controller and Chief Accounting Officer since February 1992.
Gordon Hearne became a director of the Company in February 1996. He 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 as 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 working as a consultant to an affiliate of R. R. Donnelly 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.
26
<PAGE> 28
Peter Seymour became a director of the Company in February 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common stock and other equity securities of the Company. Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of 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 10-percent beneficial owners were complied with the
exception that Mr. Hunt filed an amendment in March 1997 to a Form 5 originally
filed in February 1992.
ITEM 11. EXECUTIVE COMPENSATION
Cash Compensation
The following table sets forth in the prescribed format the compensation
paid to all person's 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 0 563,113
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, 1995 102,367 0 10,897 25,000 6,796
Marketing and Sales 1994 -- -- -- -- --
</TABLE>
- ---------------
(1) The amounts disclosed in this column include payments 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 and (iii) $223,416 paid and
accrued in consulting fees to Mr. Gates subsequent to his termination, (iv)
$20,833 paid in consulting fees to Ms. Kosaka subsequent to her termination.
All other amounts for 1996 represent contributions to the Company's 401(k)
plan.
(3) Mr. Hunt assumed the role of President, CEO upon the resignation of Mr.
Gates November 15, 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. In exchange for such
services, the Company agreed to pay to Mr. Gates consulting fees of $12,500
27
<PAGE> 29
per month through December 31, 1999 and $10,000 per month commencing January
1, 2000 and continuing through December 31, 2001.
(5) Ms. Kosaka was an executive officer of the Company since January 1995, and
accordingly no executive compensation was reported for 1994. Her employment
with the Company ceased on October 18, 1996. In connection with Ms. Kosaka's
resignation from the Company, the Company agreed to pay Ms. Kosaka severance
of $10,417 per month through October 1997.
The following tables set forth certain information with respect to the
executive officers named in the previous table in the prescribed formats with
respect to options granted and exercised under the Company's various stock
option plans during the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES STOCK
UNDERLYING % OF TOTAL PRICE APPRECIATION
OPTIONS OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
GRANTED TO EMPLOYEES IN PRICE EXPIRATION ------------------
NAME (#)(1) FISCAL YEAR (%) ($) 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 $12,949
</TABLE>
- ---------------
(1) Options granted in 1996 are exercisable starting 12 months after the grant
date, with 33 1/3 percent of the shares covered thereby becoming exercisable
at that time and with an additional 33 1/3 percent of the option shares
becoming exercisable on each successive anniversary date, with full vesting
occurring on the third anniversary date. The options were granted for a term
of 10 years, subject to earlier termination in certain events related to
termination of employment. The applicable option plan grants discretionary
power to change or modify the terms of the option grants.
(2) Potential realizable value is based on an assumption that the stock price of
the common stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten year option term. Such
amounts are based on the assumption that the named persons hold the options
for their full 10-year term. These numbers are calculated based on the
requirements promulgated by the Securities and Exchange Commission and do
not reflect the Company's estimate of future stock price growth.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END AT FY-END(1)
ON VALUE ----------------------------- ----------------------------
EXERICISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- --------------------- ----------- -------- ----------- ------------- ----------- ------------
<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 Company's common stock at the Company's 1996
fiscal year-end and the option exercise prices.
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
28
<PAGE> 30
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.
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. 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.
In January 1997, the Company also entered into a three-year Employment
Agreement with Mr. 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. 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 a company owned by Mr. Hunt (the "Hunt Group") and
to pay the Hunt Group royalties. See "Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
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, options held by Mr. Gates from the Company and the Hunt Family
Trust were cancelled, certain insurance arrangements terminated, 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 a consulting
fee of $12,500 per month through December 31, 1999 and a fee of $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 continue Ms. Kosaka's salary through October 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning beneficial
ownership of common stock of the Company as of February 28, 1997, by any person
who is known by the Company to be the beneficial owner of more than five (5%)
percent of the Company's common stock, by each director of the Company, each
29
<PAGE> 31
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
indicated except to the extent that authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP(1)(2) OF CLASS
----------------------------------------------- -------------------------- --------
<S> <C> <C>
Waldo H. Hunt/The Hunt 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 *
Debra Kosaka (6)............................... 0 *
All directors and officers as a group (7
persons)..................................... 2,650,425 54.6
</TABLE>
- ---------------
* Less than 1%
(1) Information relating to beneficial ownership of shares of Company common
stock is based upon the rules set forth under the Securities Exchange Act of
1934. 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 February 28, 1997 or within 60 days thereafter: Mr. Hearne,
10,000; Mr. McNaughton, 32,500; 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 Trust, UTA May 30, 1980, of which both Trustees have
shared voting and investment power.
(4) Based on a 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 his position with the Company on November 15, 1996.
(6) Ms. Kosaka resigned her position with the Company on October 18, 1996.
ITEM 13. 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, a company owned by Mr. Hunt.
The Hunt Group creates new products not normally pursued by the Company in its
day-to-day activities. Under the letter 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 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 $167,500 for the period of August 1, 1994 to
December 31, 1994 and $400,000 in each of 1995 and 1996. At December 31, 1996,
the Company had paid $247,000 to the Hunt Group as advances against royalties.
30
<PAGE> 32
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report.
1. Financial Statements. A list of financial statements is contained
in "Index to Financial Statements" on page 10 hereof.
2. Financial Statement Schedule. The following financial statement
schedule of Intervisual Books, Inc., for the years ended December 31, 1996,
1995, and 1994 is filed as a part of this Report and should be read in
conjunction with the Financial Statements of Intervisual Books, Inc.
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<C> <S> <C>
II Valuation and Qualifying Accounts................................. 25
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is indicated in the Financial Statements or Notes thereto.
3. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
------------ -------------------------------------------------------------------------
<C> <S>
3.1 Restated and Amended Articles of Incorporation dated January 8, 1992
(Incorporated by reference to Exhibit 3.1 the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991.)
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
Registrant's Statement on Form S-18 (No. 33-43068-LA).)
3.3 Amendment to Article III, Section 2 to Amended and Restated Bylaws.
3.4 Amendment to Article III, Section 4 to Amended and Restated Bylaws.
10.1* Incentive Stock Option Plan and Form of Incentive Stock Option Agreement
(Incorporated by reference to Exhibit 10.1 to Registrant's Registration
Statement on Form S-18 (No. 33-43068-LA).)
10.2* 1993 Incentive Stock Option Plan (Incorporated by reference to Exhibit
4.3 to Registrant's Registration Statement on Form S-8 (No. 33-58990) .)
10.3* Non-Qualified Stock Option Plan and Form of Non-Qualified Stock Option
Agreement (Incorporated by reference to Exhibit 10.5 to Registrant's
Registration Statement on Form S-18 (No. 33-43068-LA).)
10.4* 1993 Non-Qualified Stock Option Plan (Incorporated by reference to
Exhibit 4.3 of Registrant's Registration Statement on Form S-8 (No.
33-58990).)
10.5* Employment Agreement between the Company and Charles E. Gates
(Incorporated by reference to Exhibit 10.7 to Registrant's Statement on
Form S-18 (No. 33-43068-LA).)
10.6* Nonstatutory Stock Option Agreement between the Company, Waldo H. Hunt
and Patricia E. Hunt as Trustees of the Hunt Family Trust and Charles E.
Gates dated October 3, 1991 for 675,000 shares (Incorporated by reference
to Exhibit 10.20 to Registrant's Registration Statement on Form S-18 (No.
33-43068-LA) .)
10.7* Stock Option Agreement between the Company, Waldo H. Hunt and Patricia E.
Hunt as Trustees of the Hunt Family Trust and Charles E. Gates dated
October 3, 1991 for 600,000 shares (Incorporated by reference to Exhibit
10.21 to Registrant's Registration Statement on Form S-18 (No.
33-43068-LA).)
10.8* Letter Agreement dated May 12, 1994 between the Company and Waldo H. Hunt
(Incorporated by reference to Exhibit 28.1 to Registrant's Current Report
on Form 8-K dated May 31, 1994.)
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
------------ -------------------------------------------------------------------------
<C> <S>
10.9* Employment Agreement between the Company and Debra Kosaka (Incorporated
by reference to Exhibit 10.25 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.)
10.10* Employment Agreement between the Company and Rodger Smith (Incorporated
by reference to Exhibit 10.27 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.)
10.11* Non-employee Directors Stock Option Plan (Incorporated by reference to
Exhibit 10.28 to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
10.12* Severance Agreement and General Release between the Company and Charles
E. Gates
10.13* Consulting Agreement between the Company and Charles E. Gates
10.14* Employment Agreement between the Company and Laurie Sale
10.15* Employment Agreement between the Company and Nathan N. Sheinman
10.16* Nonstatutory Stock Option Agreement to purchase 200,000 shares of common
stock between the Company and Nathan N. Sheinman
10.17* Nonstatutory Stock Option Agreement to purchase 100,000 shares of common
stock between the Company and Nathan N. Sheinman
10.18* Employment Agreement between the Company and Neil Stuart
10.19* Nonstatutory Stock Option Agreement to purchase 75,000 shares of common
stock between the Company and Neil Stuart
10.20* Nonstatutory Stock Option Agreement to purchase 50,000 shares of common
stock between the Company and Neil Stuart
10.21 Office Lease between Watt Headquarters Limited Partnership and the
Company dated August 8, 1996
10.22 Second Lease Addendum between Watt Headquarters Limited Partnership and
the Company dated December 3, 1996
10.23 Amendment to Lease Agreement between Watt Headquarters Limited
Partnership and the Company dated January 27, 1997
11. Statement re: Computation of Per Share Earnings
23. Consent of Independent Certified Public Accountants
24. Power of Attorney (contained on signature page)
27. Financial Data Schedule
</TABLE>
- ---------------
* Indicates management contract or compensatory plan or arrangement
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
32
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the 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.
INTERVISUAL BOOKS, INC.
Date: March 28, 1997 By: /s/ NATHAN N. SHEINMAN
------------------------------------
Nathan N. Sheinman, President,
Chief Operating Officer, Director
Date: March 28, 1997 By: /s/ GAIL A. THORNHILL
------------------------------------
Gail A. Thornhill, Controller,
Interim Chief Financial Officer,
Chief Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Waldo H. Hunt, Nathan N. Sheinman and Gail A.
Thornhill, or any of them, his attorney-in-fact, each with the power of
substitution in any and all capacities, to sign any amendments to this Report
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ WALDO H. HUNT Chairman, Chief Executive March 28, 1997
- --------------------------------------------- Officer, Director
WALDO H. HUNT
/s/ NATHAN N. SHEINMAN President, Chief Operating March 28, 1997
- --------------------------------------------- Officer, Director
NATHAN N. SHEINMAN
/s/ GORDON HEARNE Director March 28, 1997
- ---------------------------------------------
GORDON HEARNE
/s/ JOHN J. MCNAUGHTON Director March 28, 1997
- ---------------------------------------------
JOHN J. McNAUGHTON
/s/ PETER SEYMOUR Director March 28, 1997
- ---------------------------------------------
PETER SEYMOUR
</TABLE>
33
<PAGE> 35
INTERVISUAL BOOKS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
INDEX OF EXHIBITS FILED WITH REPORT
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
3.4 Amendment to Article III, Section 4 to Amended and Restated Bylaws
10.12 Severance Agreement and General Release between the Company and Charles E. Gates
10.13 Consulting Agreement between the Company and Charles E. Gates
10.14 Employment Agreement between the Company and Laurie Sale
10.15 Employment Agreement between the Company and Nathan N. Sheinman
10.16 Nonstatutory Stock Option Agreement to purchase 200,000 shares of common stock
between the Company and Nathan N. Sheinman
10.17 Nonstatutory Stock Option Agreement to purchase 100,000 shares of common stock
between the Company and Nathan N. Sheinman
10.18 Employment Agreement between the Company and Neil Stuart
10.19 Nonstatutory Stock Option Agreement to purchase 75,000 shares of common stock
between the Company and Neil Stuart
10.20 Nonstatutory Stock Option Agreement to purchase 50,000 shares of common stock
between the Company and Neil Stuart
10.21 Office Lease between Watt Headquarters Limited Partnership and the Company dated
August 8, 1996
10.22 Second Lease Addendum between Watt Headquarters Limited Partnership and the Company
December 3, 1996
10.23 Amendment to Lease Agreement between Watt Headquarters Limited Partnership and the
Company dated January 27, 1997
11. Statement re: Computation of Per Share Earnings
23. Consent of Independent Certified Public Accountants
24. Power of Attorney (contained on signature page)
27. Financial Data Schedule
</TABLE>
34
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF SECRETARY
OF
INTERVISUAL BOOKS, INC.
I, GAIL A. THORNHILL, the undersigned, do hereby certify that:
1. I am the duly elected Secretary of INTERVISUAL BOOKS, INC., a California
corporation;
2. The attached Amendment to Bylaws was adopted by the Board of Directors
of INTERVISUAL BOOKS, INC., on March 7, 1996; and
3. The attached Amendment to Bylaws is a true and correct copy of such
amendment and has not been amended, revoked or changed as of the date
hereof.
IN WITNESS WHEREOF, I have hereunto subscribed my name as of the 17th
day of March, 1997.
/s/ Gail A. Thornhill
-------------------------------
GAIL A. THORNHILL, Secretary
<PAGE> 2
AMENDMENT TO BYLAWS
ADOPTED MARCH 7, 1997
Article III, Section 4 is amended to read in the entirety as follows:
SECTION A. VACANCIES. Vacancies in the Board of Directors may be filled
by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director, except that a vacancy created by the removal of a
director by the vote or written consent of the shareholders or by court order
may be filled only by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of all shares entitled to vote for the election of
directors. Each director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the shareholders fail, at any meeting of shareholders at which
any director or directors are elected, to elect the number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
chairman of the Board, the President, the Secretary, or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
<PAGE> 1
EXHIBIT 10.12
Execution Copy
SEVERANCE AGREEMENT AND GENERAL RELEASE
THIS SEVERANCE AGREEMENT AND GENERAL RELEASE (the "Agreement")
is made and entered into by and among CHARLES E. GATES ("Gates"), INTERVISUAL
BOOKS, INC., a California corporation ("IBI" or the "Company"), and WALDO H.
HUNT ("Hunt").
W I T N E S S E T H:
WHEREAS, Gates entered into an employment agreement with IBI
to serve as its President and Chief Executive Officer on or about October 3,
1991 (the "Original Employment Agreement"). The Original Employment Agreement
was amended by that certain Addendum to Employment Agreement dated October 3,
1991 between IBI and Gates (the "Addendum"), that certain Amendment No. 2 to
Employment Agreement between IBI and Gates made and entered into as of January
1, 1992 (the "Amendment") and that certain letter of clarification from Gates
to the Company dated March 15, 1995 (the "Letter"). The Original Employment
Agreement, the Addendum, the Amendment and the Letter are all referred to
herein collectively as the "Employment Agreement".
<PAGE> 2
WHEREAS, on or about October 3, 1991, in connection with the
Employment Agreement, Gates and IBI entered into the Nonstatutory Stock Option
Agreement (which agreement was effective on January 1, 1992) whereby Gates was
granted options to purchase 675,000 shares of common stock of IBI (the "Gates
Option").
WHEREAS, on or about October 3, 1991, Gates entered into a
stock option agreement with the trustees of the Hunt Family Trust established
under that certain Declaration of Trust dated May 30, 1980 (the "Hunt Trust")
pursuant to which Gates was granted options to purchase 600,000 shares of
common stock of IBI (the "Original Hunt Option"). Thereafter, the Original
Hunt Option was amended by Amendment No. 1 to Stock Option Agreement to be
effective as of January 1, 1992 and Amendment No. 2 to Stock Option Agreement,
both between Gates and the Trustees of the Hunt Trust executed and effective as
of January 1, 1992. The Original Hunt Option as amended by Amendment No. 1 to
Stock Option Agreement and Amendment No. 2 to Stock Option Agreement is hereby
referred to herein as the "Hunt Option".
WHEREAS, on or about August 26, 1996, Gates, through his
attorney, Robert Tourtelot ("Tourtelot"), notified the Company that he was
being effectively deprived of his ability to function as President and CEO of
IBI by
-2-
<PAGE> 3
the actions of Hunt, who is the Chairman of the Board of IBI. Additionally,
Gates has alleged that certain representations made to him by Hunt to induce
him to leave his former employer have been untrue.
WHEREAS, certain disputes have now arisen between Gates and
IBI as to the propriety of IBI's, Hunt's and Gates' actions, and as to their
respective rights and obligations pursuant to the Employment Agreement, the
Gates Option, the Hunt Option and other agreements.
WHEREAS, Gates has contended that IBI's and Hunt's actions
present "Good Reason" for the voluntary termination of his Employment Agreement
within the meaning of the Employment Agreement, and were tortious,
discriminatory, in violation of statute, including the California Fair
Employment & Housing Act, fraudulent and otherwise intended to and did cause
him to suffer personal injuries and severe emotional distress.
WHEREAS, IBI and Hunt each denies any fraudulent or improper
actions toward Gates, or anyone else.
WHEREAS, Gates has retained the services of Tourtelot to
represent him in connection with all aspects of his potential claims against
IBI and Hunt, and has made
-3-
<PAGE> 4
potential tort and personal injury claims against IBI and Hunt.
WHEREAS, Gates, IBI and Hunt each desires to settle fully and
finally all differences between them, including, but in no way limited to,
those differences that exist concerning their respective rights and obligations
under the Employment Agreement, the Gates Option, Hunt Option and all other
documents and agreements between the parties hereto.
WHEREAS, Gates no longer desires to be employed by IBI.
NOW, THEREFORE, in consideration of the premises and mutual
promises herein contained, it is agreed as follows:
FIRST: Non-Admission of Liability by IBI and Hunt.
This Agreement shall not in any way be construed as an
admission by Hunt or IBI, or any of their affiliated organizations, members,
shareholders, directors, officers, trusts or agents, as applicable, that any of
them has acted wrongfully with respect to Gates, or any other person, or
-4-
<PAGE> 5
that Gates has any rights whatsoever against IBI and/or Hunt and the Hunt
Trust, and IBI, Hunt and their affiliated organizations, members, shareholders,
directors, officers and agents, including the Hunt Trust, each specifically
disclaims any liability whatsoever to Gates on the part of any of them.
SECOND: Gates' Cessation of Employment with IBI.
By signing this Agreement, and in consideration of the mutual
covenants contained in this Agreement, Gates hereby resigns as a director of
IBI as of the date of this Agreement and resigns his employment as President
and Chief Executive Officer effective November 15, 1996. Gates hereby waives
notice of all Board of Directors' meetings of IBI which have occurred to
discuss the subject matter of this Agreement, and Gates agrees to sign any
waivers of notices pertaining to such meetings as reasonably requested by the
Company. From the date of signing this Agreement through November 15, 1996 and
subject to the limitations in this Agreement, Gates will perform his normal
responsibilities to the best of his ability and under the direction of the
Company's Chairman of the Board. Gates shall cooperate fully and amicably for
a professional transition of Gates' responsibilities. Gates agrees that from
the date of signing, Gates will not bind or obligate the Company and will not
sign any contracts,
-5-
<PAGE> 6
agreements or other documents or make any other commitments on behalf of the
Company without the express authorization of the Company's Chairman of the
Board. Gates agrees to return to IBI all files, records, credit cards, keys,
equipment and any other IBI property or documents maintained by Gates;
provided, however, that Gates will be allowed to keep, and will be sold for the
sum of $1.00, the following items of office equipment presently located in
Gates' personal residence: (a) his computer; (b) his copy machine; (c) his
tape recorder; and (d) his Sharp Personal Assistant. Mr. Gates will be
permitted to continue to have delivered to his house, for the remainder of the
subscription period, those periodicals which have already been paid for by the
Company and which as of the date of this Agreement are already being delivered
to his home. On January 2, 1997, IBI will pay to Gates all accrued and unpaid
vacation pay for the period up to and including November 15, 1996, less legally
required deductions. Should any employer or prospective employer inquire of
Hunt or his designated representative regarding Gates' reason for leaving the
employment of IBI, "mutual agreement of the parties" will be given as the
reason; Gates' personnel records will be marked accordingly.
-6-
<PAGE> 7
THIRD: Letter of Reference; Press Release.
Upon request by Gates, IBI agrees to provide Gates with a
written letter of reference that provides (a) the dates of Gates' employment
with IBI, (b) the positions that Gates held with IBI, and (c) the fact that
Gates' employment with IBI terminated at the mutual agreement of the parties.
After the time for revocation of this Agreement by Gates in accordance with the
TWENTY-SECOND Paragraph below has expired without the Agreement having been
revoked, IBI and Gates agree to jointly issue a press release attached hereto
as Exhibit "A" announcing Gates' separation from IBI.
FOURTH: Benefits.
IBI agrees that when counsel for IBI (Paul, Hastings, Janofsky
& Walker LLP) has received from Gates a fully executed copy of this Agreement
and copies of all of the exhibits to this Agreement required to be signed by
Gates according to this Paragraph FOURTH, and the time for revocation of the
Agreement by Gates in accordance with the TWENTY-SECOND Paragraph below has
expired without the Agreement having been revoked, IBI will provide Gates with
the following benefits:
-7-
<PAGE> 8
(a) IBI will forthwith cause to be sent to Tourtelot on
behalf of Gates a check in the gross amount of Thirty-Five Thousand
Dollars ($35,000).
(b) IBI will enter into with Gates the Consulting
Agreement attached hereto as Exhibit "B" (the "Consulting Agreement").
(c) IBI will enter into with Gates the Letter of
Termination terminating the Gates Option attached hereto as
Exhibit "C".
(d) The Trustees of the Hunt Family Trust will enter into
with Gates the Letter of Termination terminating the Hunt Option
attached hereto as Exhibit "D".
(e) IBI will enter into with Gates the Letter
transferring from Gates to the Company that certain split-dollar life
insurance policy on the life of Hunt attached hereto as Exhibit "E."
(f) IBI will enter into with Gates the Letter regarding
that certain split-dollar life insurance policy on the life of Gates
attached hereto as Exhibit "F."
-8-
<PAGE> 9
(g) IBI will cause to be delivered on January 2, 1997 to
Gates a check in the amount of Two Hundred Fifty Thousand Dollars
($250,000), less applicable withholdings as required by law.
The above referenced agreements and payments are made in full
and complete settlement of any and all claims, including claims for attorneys'
fees and costs, arising out of the employment and termination of employment of
Gates and in settlement of any alleged rights of Gates under the Employment
Agreement, the Gates Option, the Hunt Option and all related documents and
agreements. These agreements shall be in lieu of and discharge any obligations
of IBI and/or Hunt to Gates for compensation, severance benefits, lost wages,
lost benefits, unused accrued vacation, personal injuries, pain and suffering
or any other expectation of remuneration or benefit on the part of Gates.
Gates expressly acknowledges that he has no rights whatsoever under the
Employment Agreement, the Intervisual Books, Inc., Supplemental Executive
Retirement Plan effective as of January 1, 1993 or under the Declaration of
Trust made and entered into as of March 24, 1992 by and between IBI and Kevin
Quinn as Trustee. Gates agrees not to apply for re-employment with the
Company. Gates agrees that the agreements set forth in this FOURTH Paragraph
are fully acceptable to him and discharge IBI and Hunt of all liability to him.
-9-
<PAGE> 10
FIFTH: Payment of Taxes and/or Contributions.
Gates agrees that any federal, state, municipal or other taxes
or contributions that may be owed or payable on the sums paid to him under the
FOURTH Paragraph of this Agreement and the exhibits referred to therein are his
sole and exclusive responsibility, and agrees to indemnify, defend and hold IBI
and/or Hunt harmless from and against any and all liability or claim for any
tax or contribution or penalty or interest thereon incurred or demanded as a
result of the payment of such sum to Gates.
SIXTH: No Obligation to Make Payments under Contract or
Normal Policies.
Gates agrees that the payments and arrangements described in
the FOURTH Paragraph may be more than IBI is required to pay to him under the
normal policies and procedures of IBI, the Employment Agreement, the Gates
Option the Hunt Option and any related documents and agreements. Gates,
however, believes that the claims he is releasing by this Agreement would, if
litigated to conclusion, result in a financial benefit to him in excess of the
payments and arrangements described in the FOURTH Paragraph.
-10-
<PAGE> 11
SEVENTH: Release by Gates.
Gates hereby irrevocably and unconditionally releases, acquits
and forever discharges Hunt, the Hunt Trust and IBI, and each of their
respective owners, stockholders, predecessors, successors, assigns, agents,
directors, officers, executives, employees, representatives, and attorneys,
parent, related, or subsidiary entities, and affiliates (and agents, directors,
officers, employees, representatives and attorneys of such parent, related, or
subsidiary entities, and affiliates), and all persons acting by, through, under
or in concert with any of them (collectively "Releasees"), or any of them, from
any and all charges, complaints, claims, liabilities, acts, omissions,
obligations, promises, agreements, controversies, damages, actions, causes of
action, suits, rights, demands, costs, compensation, losses, penalties, debts
and expenses (including attorneys' fees and costs actually incurred) of any
nature whatsoever, whether known or unknown or suspected or unsuspected, fixed
or contingent, which Gates now has, owns or holds, or claims to have, own or
hold, or which Gates at any time heretofore had, owned or held, or claimed to
have, own or hold, or which Gates at any time hereinafter may have, own or
hold, or claim to have, own or hold, against any of the Releasees, including,
but in no way limited to, alleged torts, including fraud and misrepresentation;
violations of any
-11-
<PAGE> 12
contracts, express or implied; violations of any policies, practices or
procedures; violations of any covenant of good faith and fair dealing, express
or implied; or violations of any federal, state or other governmental statute,
regulation or ordinance or under the Age Discrimination In Employment Act of
1967, as amended (hereinafter collectively "Claim" or "Claims"). It is
expressly understood and agreed, however, that this Agreement shall not release
any Releasee from any violation of this Agreement.
EIGHTH: Release by IBI and Hunt.
IBI (for itself and its predecessors, successors and assigns)
and Hunt each hereby releases and forever discharges Gates from any and all
claims, demands and causes of action, at law or in equity, known or unknown,
suspected or unsuspected, including claims for costs or attorneys' fees, which
IBI (for itself and its predecessors, successors and assigns) and Hunt have
ever had or may now have, including but not limited to claims that have been or
could have been made against Gates under the Employment Agreement, the Gates
Option or the Hunt Option. To the actual knowledge of IBI and Hunt, there is
no pending or threatened litigation or action against Gates by any director,
officer, employee or agent of IBI. For purposes of the previous sentence, the
term "knowledge of IBI and Hunt" shall mean the actual present knowledge of
Hunt and
-12-
<PAGE> 13
the directors and officers of IBI without inquiry or investigation. It is
expressly understood and agreed, however, that this Agreement shall not release
Gates from any violation of this Agreement.
NINTH: Knowing and Voluntary Waiver.
Gates, IBI, and Hunt each understands that California law
includes Civil Code Section 1542, which says that releases usually do not apply
to certain unknown claims. Specifically, Section 1542 states as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
Because the parties want now to settle all matters, known or unknown, between
them, Gates, IBI and Hunt each hereby agrees that Section 1542 does not apply
to this Agreement, and that this Agreement releases any and all claims that
Gates, IBI and Hunt, and each of them, do not know about or suspect may exist
in his or its favor at the time of the execution of this Agreement. It is
expressly understood and agreed, however,
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that this Agreement shall not release any party from any violation of this
Agreement.
TENTH: No Present Claims.
Gates represents that he has not filed and does not have on
file any complaints, charges or claims against Hunt or IBI, or any of its
officers, directors, trusts, executives, employees, agents, parent, related and
subsidiary entities and affiliates, successors and assigns, in any court or
administrative forum, or before any governmental agency or entity.
ELEVENTH: No Future Claims.
Gates represents that he will not hereafter file any
complaints, charges or claims against Hunt or IBI, or any of its officers,
directors, trusts, executives, employees, agents, parent, related and
subsidiary entities and affiliates, successors and assigns, with any state,
federal or other governmental entity agency, board or court based on any Claim
or Claims released by this Agreement.
TWELFTH: Confidentiality by Gates.
Gates represents and agrees that he has kept and will keep the
fact, amount and terms of this Agreement
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completely confidential, and that he will not hereafter knowingly disclose any
information concerning this Agreement to any person, including but not limited
any past or present employee of IBI or any parent, related or subsidiary
companies; provided, however, that Gates may disclose this Agreement and/or its
terms to members of his immediate family, tax and investment advisors, legal
counsel and employees of financial institutions to the extent necessary to
engage in financial transactions, such as loans, with such institutions
("Confidants"). Before Gates tells any Confidant anything about this
Agreement, he will inform the Confidant of this TWELFTH Paragraph and have the
Confidant agree to follow it.
THIRTEENTH: Non-Disparagement by Gates.
Gates represents and agrees that he will not criticize,
denigrate or otherwise disparage or cause disparagement to Hunt or IBI, or any
other Releasee. Gates further represents and agrees that he will not engage in
any conduct or take any action to encourage any person or entity to initiate
litigation or assert any other kind of claim against Hunt or IBI, or any other
Releasee.
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<PAGE> 16
FOURTEENTH: Damages for Breach.
Gates represents and agrees that any disclosure of information
or other action contrary to the terms of the TWELFTH and/or THIRTEENTH
Paragraphs by him would cause Hunt, IBI and/or other Releasees injury and
damage, the actual amount of which would be impractical or extremely difficult
to determine. Accordingly, Gates agrees that IBI shall be entitled to recover
from him liquidated damages in the amount of Five Thousand Dollars ($5,000) for
each instance in which he discloses any information or takes any other action
in violation of the terms of the TWELFTH and/or THIRTEENTH Paragraphs.
FIFTEENTH: Non Disparagement by IBI and/or Hunt.
IBI and Hunt each represents and agrees that he/it will not
criticize, denigrate or otherwise disparage or cause disparagement to Gates.
IBI and Hunt each further represents and agrees that he/it will not engage in
any conduct or take any action to encourage any person or entity to initiate
litigation or assert any other kind of claim against Gates.
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SIXTEENTH: Trade Secrets; No Solicitation.
Gates understands and agrees that in the course of his
employment with IBI, he has acquired privileged and/or confidential,
proprietary information and trade secrets concerning IBI's operations, its
future plans and its methods of doing business ("Trade Secrets"), which
information Gates understands and agrees would be extremely damaging to IBI if
disclosed to a competitor or made available to any other person or corporation.
Gates understands and agrees that such Trade Secrets have been divulged to him
in confidence and that he will keep such Trade Secrets secret and confidential,
and will not, directly or indirectly, use or disclose, for his own benefit or
the benefit of another, any of the Trade Secrets of IBI. Gates further agrees
that he will not for a period of one (1) year from the date he signs this
Agreement solicit or participate in or assist in any way in the solicitation of
any employees of IBI, or of any of its parent, subsidiary or affiliated
companies, for the purpose of inducing them to sever their employment
relationship with IBI, or any of its parent, subsidiary or affiliated
companies. In view of the nature of Gates' employment and the information and
Trade Secrets which each has received during the course of his employment,
Gates likewise agrees that IBI would be irreparably harmed by any violation or
threatened violation of this FIFTEENTH Paragraph and that, therefore, IBI shall
be entitled
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to damages and an injunction prohibiting Gates from any violation or threatened
violation of this Paragraph. The undertakings set forth in this Paragraph
shall survive the termination of other arrangements contained in this
Agreement.
SEVENTEENTH: Indemnification by Gates.
Gates hereby agrees to indemnify and hold the Releasees
harmless from and against any and all loss, costs, damages or expenses,
including, without limitation, attorneys' fees, incurred by the Releasees, or
any of them, as a result of any breach of this Agreement by Gates or the fact
that any representation made herein by Gates was false when made.
EIGHTEENTH: Indemnification by IBI.
IBI agrees to the extent permitted and required by California
law to defend and indemnify Gates against any and all costs, attorneys' fees
and judgments incurred in connection with any legal actions or other legal
claims brought by shareholder(s) or other third parties, including employees or
former employees of IBI, for any matters alleged to have occurred during Gates'
employment with IBI and until the expiration of the Consulting Agreement.
Gates agrees to (i) cooperate and use his best efforts to assist the Company in
any lawsuit, arbitration, administrative hearing, regulatory
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proceeding or other similar legal action which the Company's Board of Directors
determines that Gates' cooperation and/or assistance is needed for preparation
of an effective defense of such action(s), (ii) not to take any position
related to or in connection with any actions that is reasonably determined by
the Company's Board of Directors to be adverse and/or harmful to the Company's
defense of any such actions, and (iii) direct his legal counsel to coordinate
all defenses of such actions with the Company and with the Company's legal
counsel.
NINETEENTH: No Representations.
Gates represents and acknowledges that, in executing this
Agreement, he does not rely and has not relied upon any representation or
statement not set forth in this Agreement made by any of the Releasees or by
any of the Releasees' agents, representatives or attorneys with regard to the
subject matter, basis or effect of this Agreement, or otherwise, nor does he
rely upon nor has he relied upon any failure to disclose facts on the part of
any of the Releasees or any of the Releasees' agents, representatives or
attorneys.
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TWENTIETH: Non-Release of Future Claims.
This Agreement does not waive or release any rights or claims
that Gates may have under the Age Discrimination in Employment Act which may
arise after the date that he signs this Agreement.
TWENTY-FIRST: Period for Review and Consideration of
Agreement.
Gates understands that he has been given a period of
twenty-one (21) days from receipt of this Agreement to review and consider this
Agreement before signing it. Gates further understands that he may use as much
of this twenty-one day (21) period as he wishes prior to signing.
TWENTY-SECOND: Right to Revoke Agreement.
Gates may revoke this Agreement within seven (7) days of his
signing it. Revocation can be made by delivering a written notice of
revocation to Waldo H. Hunt, Acting Chief Executive Officer of IBI. For
revocation to be effective, such written notice of revocation must be received
by Waldo H. Hunt at 2850 Ocean Park Boulevard, Suite 225, Santa Monica, CA
90405, no later than the close of business on the seventh (7th) day after he
signs this Agreement. If Gates revokes
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this Agreement, it shall not be effective or enforceable, he will not receive
the compensation and benefits described in the FOURTH Paragraph above.
TWENTY-THIRD: Stand Still; No Acting in Concert.
Except for the shares of the Company's common stock owned by
Gates as of the date of this Agreement or with the prior written approval of
the Company's Board of Directors, Gates agrees, from the date of this Agreement
through December 31, 2001, that he will not (a) acquire, agree to acquire or
make any proposal to acquire, directly or indirectly, any securities of the
Company, (b) propose to enter into, directly or indirectly, any merger or
business combination involving the Company or an agreement concerning the
possible sale or purchase of a material portion of the assets of the Company,
(c) participate, directly or indirectly, in any "solicitation" of "proxies" (as
such terms are used in the proxy rules of the Securities and Exchange
Commission) to vote, or seek to advise or influence any person with respect to
the voting of any voting securities of the Company, or (d) join or act in
concert with others to seek to control or influence the management, Board of
Directors or the policies of the Company, or for the purpose of acquiring,
holding, voting or disposing of the Company's securities, assets or properties.
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TWENTY-FOURTH: Arbitration.
This Agreement is made and entered into in the State of
California, and shall in all respects be interpreted, enforced and governed by
and under the laws of the State of California. Any dispute regarding any
aspect of this Agreement or any act which allegedly has or would violate any
provision of this Agreement ("Arbitrable Dispute") will be submitted to
arbitration in Los Angeles County, California, before a retired judge chosen
through JAMS/Endispute, as the exclusive remedy for such claim or dispute.
Should any party to this Agreement hereafter institute any legal action or
administrative proceeding against the other with respect to any claim waived by
this Agreement, or pursue any Arbitrable Dispute by any method other than such
arbitration, the responding party shall be entitled to recover from the
initiating party all damages, costs, expenses, and attorneys' fees incurred as
a result of such action. This Paragraph is not applicable to claims of
violation of the SIXTEENTH Paragraph.
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TWENTY-FIFTH: Tender of Proceeds as Condition to Challenging
Enforceability of Agreement.
Gates understands that this Agreement is final and binding
when executed and not revoked by him, and executed by IBI, and agrees not to
thereafter challenge its enforceability. Should Gates nevertheless attempt to
challenge the enforceability of this Agreement, as a further limitation on any
right to make such a challenge, he shall initially tender to IBI, by certified
check delivered to IBI, all monies received by Gates pursuant to this
Agreement, including the Consulting Agreement, plus interest at the rate of Ten
Percent (10%) per annum from the date of his receipt of such monies, and invite
IBI to retain such monies and agree with Gates to cancel this Agreement. In
the event IBI accepts this offer, IBI shall retain such monies and this
Agreement shall be canceled. In the event IBI does not accept such offer, IBI
shall so notify Gates, and shall place such monies in an interest-bearing
escrow account pending resolution of the dispute as to whether or not this
Agreement shall be set aside and/or otherwise rendered unenforceable.
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TWENTY-SIXTH: Consultation with Counsel.
Gates represents that he has thoroughly discussed all aspects
of this Agreement with Tourtelot, that he has carefully read and fully
understands all of the provisions of this Agreement, and that he is voluntarily
entering into this Agreement.
TWENTY-SEVENTH: Counterparts; Headings.
This Agreement may be executed in one or more counterparts and
each such counterpart shall be deemed an original, but all of which taken
together shall constitute one and the same agreement. The headings contained
in this Agreement are for reference only and shall not be considered in the
interpretation or construction of this Agreement.
TWENTY-EIGHTH: Sole and Entire Agreement.
This Agreement and the exhibits hereto set forth the entire
agreement between the parties hereto, and fully replace and supersede any and
all prior agreements, including but not limited to the Employment Agreement,
the Gates Option and the Hunt Option, or understandings between the parties
hereto pertaining to the subject matter hereof.
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<PAGE> 25
PLEASE READ CAREFULLY. THIS SEVERANCE AGREEMENT AND GENERAL
RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
Executed at Kona, Hawaii, this 4th day of November, 1996.
/s/ CHARLES E. GATES
-----------------------
CHARLES E. GATES
Executed at __________________________, California, this _____ day of
______________, 1996.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
----------------------------
Title: Chairman
----------------------------
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<PAGE> 1
EXHIBIT 10.13
Execution Copy
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
as of this lst day of November, 1996, by and between INTERVISUAL BOOKS, INC., a
California corporation ("Company") and CHARLES E. GATES, an individual
("Consultant").
R E C I T A L S:
A. The Company, Waldo H. Hunt and Consultant entered into that
certain Severance Agreement and General Release (the "Severance Agreement")
whereby the Consultant and the Company amicably agreed to cease Consultant's
employment with the Company as the Company's President and Chief Executive
Officer.
B. The parties hereto are entering into this Agreement pursuant
to the terms of the Severance Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. SCOPE OF AGREEMENT. The Company hereby employs Consultant and
Consultant agrees to render services to the Company upon the terms and
conditions hereinafter set forth.
2. TERM OF ENGAGEMENT. Consultant shall be engaged by the
Company for the period of commencing November 18, 1996 and terminating December
31, 2001, unless sooner terminated as provided herein.
3. DUTIES OF CONSULTANT.
a. THROUGH DECEMBER 1996. Commencing November 18, 1996
and continuing through December 31, 1996, Consultant hereby agrees to be
available upon request by the Company to provide consulting services to the
Company for up to thirty (30) hours per month. Such consulting services shall
be scheduled at reasonable times as may be mutually agreed upon by the Company
and Consultant and may include a limited amount of domestic travel by
Consultant to meet with customers of the Company to help facilitate the
transition arising from Consultant's separation from the Company as the
Company's former President and Chief Executive Officer. Any such travel
expenses shall be paid by the Company.
<PAGE> 2
b. COMMENCING JANUARY 1, 1997. Commencing January 1,
1997 through the term of Consultant's engagement hereunder, Consultant hereby
agrees to be available upon request by the Company to provide consulting
services to the Company for up to fifteen (15) hours per month. Such
consulting services shall be scheduled at reasonable times as may be mutually
agreed in good faith by the Company and Consultant after reasonably taking into
account Consultant's professional availability and reasonable vacation
schedule.
c. SCOPE OF CONSULTING SERVICES; NO AUTHORITY All
consulting services to be provided by Consultant hereunder shall be limited to
areas of Consultant's expertise and experience and to areas of the "business of
the Company" as defined in paragraph 6.c. Consultant shall have no authority
to obligate or incur on behalf of the Company any expense, liability or
obligation, or enter into any contract on behalf of the Company.
4. FEES, BENEFITS AND EXPENSES.
a. THROUGH 1996. In consideration for Consultant's
promises herein, commencing November 18, 1996 and continuing through December
31, 1996, the Company agrees to pay to Consultant a consulting fee of $10,472
for the month of November 1996 and $20,944 for the month of December 1996, less
legally required deductions and withholdings. Such fee shall be payable in
accordance with the Company's normal payroll practices for employees. In
addition to such fee, from November 18, 1996 through December 31, 1996, the
Company agrees to maintain on Consultant the benefits and insurance policies
listed on Exhibit "A" hereto.
b. COMMENCING JANUARY 1997. In consideration for
Consultant's promises herein, commencing January 1, 1997 and continuing through
December 31, 1999, the Company agrees to pay to Consultant a consulting fee of
$12,500 per month, less legally required deductions and withholdings, payable
on the last day of each month. In consideration for Consultant's promises
herein, commencing January 1, 1997 and continuing through December 31, 1999,
the Company agrees to provide Consultant with medical health insurance
substantially equivalent to the medical insurance provided to Consultant
through 1996 pursuant to subparagraph 4.a. above. Such insurance shall
terminate on the earlier of (i) December 31, 1999 or (ii) the date Consultant
accepts work which provides him with health insurance. Notwithstanding the
foregoing, the Company shall be permitted to make changes in such plans and
arrangements to the extent such changes occur pursuant to a program applicable
to the executives of the Company generally and do not result in a
proportionately greater reduction in the rights of Consultant as compared with
any other executive of the Company.
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<PAGE> 3
c. COMMENCING JANUARY 2000. In consideration for
Consultant's promises herein, commencing January 1, 2000 and continuing through
December 31, 2001, the Company agrees to pay to Consultant a consulting fee of
$10,000 per month, less legally required deductions and withholding, payable on
the last day of each month. No other benefits shall be paid by the Company.
5. EXPENSES. The Company shall reimburse Consultant for
reasonable business-class travel, lodging, and out-of-pocket expenses incurred
in providing consulting services hereunder, provided that such expenses have
been previously approved by the Company and the Company has first received
appropriate documentation of such expenses.
6. NONDISCLOSURE AND OWNERSHIP OF PROPRIETARY INFORMATION.
a. DEFINITION OF PROPRIETARY INFORMATION. Consultant
hereby acknowledges and agrees that Consultant possesses and, in the course of
rendering consulting services hereunder, may make use of, acquire, create,
develop or add to certain confidential and/or proprietary information regarding
the Company and its business (whether in existence prior to, as of or after the
date hereof, collectively, "Proprietary Information"), which Proprietary
Information shall include, without limitation, all of the following materials
and information (whether or not reduced to writing and whether or not
patentable or protected by copyright): inventions, processes, formulae,
programs, technical data, "know-how," procedures, manuals, confidential reports
and communications, marketing methods, product sales or cost information, new
product ideas or improvements, new packaging ideas or improvements, research
and development programs, identities or lists of suppliers, vendors, or other
customers, financial information and financial projections of the Company of
any nature whatsoever, or any other confidential or proprietary information
relating to the Company and/or its business. Consultant (i) shall hold all
such Proprietary Information in the strictest confidence and not use such
Proprietary Information, and (ii) shall cause any of Consultant's employees and
agents to hold all such Proprietary Information in the strictest confidence.
The term "Proprietary Information" does not include any information which (i)
at the time of disclosure is generally available to and known by the public
(other than as a result of the disclosure of such information by Consultant),
(ii) was available to Consultant prior to disclosure by the Company, provided
that the person who was the source of such information was not known to
Consultant to be subject to an obligation of confidentiality to the Company, or
(iii) becomes available to Consultant on a non- confidential basis from a
person other than the Company or its representatives, provided that the source
of such information was not known to Consultant to be subject to an obligation
of confidentiality to the Company.
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b. OWNERSHIP. Consultant acknowledges and agrees that
all right, title and interest in and to any Proprietary Information shall be
and shall remain the exclusive property of the Company. Without limiting the
foregoing, Consultant hereby assigns to the Company any and all right, title or
interest which Consultant may have in all Proprietary Information made,
developed or conceived of in whole or in part by Consultant during Consultant's
engagement hereof.
c. COVENANT NOT TO COMPETE. Consultant agrees for a
term commencing from the date of this Agreement until December 31, 2002, not
to, directly or indirectly, engage or have any interest in any person, firm,
corporation or business (whether as an employee, officer, director, agent,
security holder, creditor, consultant or otherwise) that is competitive with
the business of the Company in each of the states of the United States of
America and in Canada, Australia, New Zealand and Japan and each country of
Western Europe and South America. It is understood and agreed upon by the
parties hereto that the Company is actively conducting business in each of such
jurisdictions and the parties agree and stipulate that the geographical scope
and period of time of the restrictive covenant contained in this paragraph is
reasonable and necessary to protect the Company's trade secrets.
For purposes of the above paragraph and paragraph 3.c., the
term the "business of the Company" shall mean (a) the design, packaging and
production of books with dimensional and moveable features such as "pop-ups",
pull-tabs, turning wheels and sliding pads, (ii) the design, packaging and
production of novelty books and other products which require printing and labor
intensive hand assembly and (iii) the design, packaging and production of books
(including novelty books), game boards, play sets, greeting cards, and
advertising and sales promotional products utilizing multi-dimensional
accessories such as talking and sound chips, lights, holograms and other
accessory elements.
d. AGREEMENT NOT TO SOLICIT CUSTOMERS. To protect the
Proprietary Information and trade secrets of the Company, Consultant agrees,
during the term of this Agreement, not to at anytime, directly or indirectly,
either on Consultant's own behalf or on behalf of any other person or entity:
(i) Attempt in any manner to persuade any
customer of the Company to cease to do business or to reduce the amount of
business which any customer of the Company has customarily done or contemplates
doing with the Company; or
(ii) Solicit the business of any customer of the Company
if such solicitation could reasonably be expected to diminish the business or
potential business of the Company.
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<PAGE> 5
Consultant agrees that the covenants contained in this paragraph are reasonable
and desirable.
e. AGREEMENT NOT TO SOLICIT EMPLOYEES. To protect the
Proprietary Information and trade secrets of the Company, Consultant agrees,
during the term of this Agreement and for a period of one year after
termination of this Agreement, not to at anytime, directly or indirectly,
either on Consultant's own behalf or on behalf of any other person or entity,
solicit or employ any person who is an employee of the Company. Consultant
agrees that the covenants contained in this paragraph are reasonable and
desirable.
7. TERMINATION OF ENGAGEMENT. This Agreement and Consultant's
engagement by the Company shall, at the election of the Nonbreaching Party (as
defined below), terminate and the obligations and covenants of the parties
hereunder shall be of no further force and effect, except that the provisions
of Sections 6 and 11 shall survive the termination of this Agreement, ten (10)
business days after a party ("Breaching Party") has received written notice
from the other party ("Nonbreaching Party") of the Breaching Party's material
breach of this Agreement. Such notice shall set forth in reasonable detail the
grounds for the alleged breach. Notwithstanding the foregoing, if such
material breach is capable of being cured, this Agreement shall not terminate
if the Breaching Party cures such breach within ten (10) business days of
receiving such notice.
8. SUCCESSORS. This Agreement shall inure to the benefit and be
binding upon the Company and its successors. The Company shall require any
successor to all or substantially all of its business and/or assets, whether
direct or indirect, by purchase, merger, consolidation, acquisition of stock or
otherwise, to expressly assume and agree to perform this Agreement in the same
manner and in the same extent as the Company would be required to perform if no
such succession had taken place.
9. DEATH OF CONSULTANT. In the event of the death of Consultant
prior to December 31, 2001, then Consultant's wife, Barbara Gates, agrees to be
bound by and to perform all of the provisions of Consultant under this
Agreement, including being available upon request by the Company to provide
consulting services to the Company as required under paragraph 3.b. of this
Agreement. Such consulting services by Mrs. Gates shall be reasonably limited
to the areas of Mrs. Gates' expertise and experience. In return, the Company
agrees to pay to Mrs. Gates a consulting fee in the amount of $4,000 per month
through the remaining term of Consultant's engagement provided for hereunder.
10. NOTICES. All notices under this Agreement shall be in writing
and shall be deemed to have been duly given on the date of service if served
personally, or within five days after
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<PAGE> 6
mailing by first class registered or certified mail, postage prepaid, and
properly addressed, or upon receipt if sent by telegraph or telephonic
facsimile transmission to the party to whom notice is to be given, at such
party's address or the telex or facsimile number set forth on the signature
page of this Agreement, or any other address or number that any party may
designate by written notice to the other.
11. EQUITABLE RELIEF. Consultant recognizes that the Company is
relying for its protection upon the existence and validity of the provisions
set forth in this Agreement and that monetary damages would not be an adequate
remedy for the Company if Consultant violated any of these provisions.
Therefore, Consultant agrees that in addition to any other rights or remedies
it may have, the Company shall have the right to equitable relief by way of
injunction, accounting for earnings or otherwise, for the violation of any
provision of this Agreement.
12. EXPENSES. If any legal action or other proceeding is brought
by any party for the enforcement of this Agreement, the prevailing party shall
be entitled to recover from the non-prevailing party its reasonable attorneys'
fees and other costs and expenses incurred in connection therewith in addition
to any other relief to which it might be entitled.
13. EFFECT OF AGREEMENT. This Agreement constitutes the entire
agreement between the Company and Consultant with respect to the subject
hereof, and fully supersedes any prior agreements or understandings with
respect thereto, including, without limitation, all prior discussions between
the Company and Consultant regarding the provision of management services by
the Consultant to the Company or arising out of any contemplated transaction
between Consultant and the Company. The parties hereto acknowledge that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not
contained in this Agreement shall be valid or binding on either party. No
provision of this Agreement shall be deemed waived, amended or modified by any
party, unless in writing and signed by the parties hereto.
14. CROSS-DEFAULT. Any breach by Consultant of any provision
contained in the Severance Agreement shall also be deemed a breach of this
Agreement.
15. ARBITRATION. Except for claims seeking injunctive or
equitable relief, which claims may be brought in any court of competent
jurisdiction, the parties hereto agree that arbitration pursuant to the terms
of this Section 15 shall be the sole and exclusive method of resolving any and
all controversies, claims or disputes related to this Agreement, including,
without
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<PAGE> 7
limitation, any disputes related to termination of this Agreement pursuant
Section 7 hereof. Any such arbitration shall be conducted by a judicial
arbitrator who is selected in accordance with the rules the Judicial
Arbitration and Mediation Services/Endispute (the "Rules"). The arbitration
shall be conducted in Los Angeles County, California and in accordance with the
Rules; provided that the arbitration hearing shall, notwithstanding anything in
the Rules to the contrary, commence within sixty (60) days following
appointment of the arbitrator. Both parties hereby consent to such
arbitration, and any arbitration award shall be final and binding. Any
judgment upon the arbitration award may be entered in any court having
jurisdiction thereof.
In the event the Company elects to terminate this Agreement
pursuant to Section 7 hereof based upon an alleged breach of this Agreement by
Consultant and such alleged breach is disputed by Consultant, the Company
shall, pending resolution of such dispute, place the payments required by
Section 4a., 4b. or 4c. hereof (as the case may be) in a separate and
segregated interest bearing account (the "Account") in the name of the Company.
The amounts held in the Account shall not be used by the Company for any
purpose pending resolution of the dispute. In the event the arbitrator
determines that (i) the Company did not have a right terminate this Agreement
based upon the alleged breach and (ii) the Company had a reasonable, good faith
belief (after reasonable inquiry) that it had such a right, then (a) all
amounts held in the Account (including interest) shall be paid to Consultant,
(b) the Company shall pay to Consultant an amount equal to all attorneys' fees
and other out-of-pocket costs incurred by Consultant in connection with the
arbitration, and (c) this Agreement shall not be terminated (with Consultant
continuing to provide services to the Company pursuant to the terms of this
Agreement and the Company continuing to pay Consultant pursuant to the terms of
this Agreement). In the event the arbitrator determines that (i) the Company
did not have a right terminate this Agreement based upon the alleged breach and
(ii) the Company did not have a reasonable, good faith belief (after reasonable
inquiry) that it had such a right, then (a) all amounts held in the Account
(including interest) shall be paid to Consultant, (b) the Company shall pay to
Consultant an amount equal to all attorneys' fees and other out-of-pocket costs
incurred by Consultant in connection with the arbitration, (c) the Company
shall continue to pay Consultant the payments required by Section 4a., 4b. or
4c. hereof (as the case may be) on the terms provided therein, (d) Consultant
shall not be required to provide the services required by Section 1 hereof and
(e) Consultant shall no longer be bound by the restrictions set forth in
Section 6c. In the event the arbitrator determines that the Company had the
right to terminate this Agreement based upon the alleged breach, then (a) this
Agreement shall terminate
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<PAGE> 8
pursuant to its terms and (b) the Company shall be entitled to all amounts held
in the Account (including interest).
16. MISCELLANEOUS. Any provision of this Agreement which is
rendered unenforceable by a court of competent jurisdiction shall be
ineffective only to the extent of such prohibition or invalidity and shall not
invalidate or otherwise render ineffective any or all of the remaining
provisions of this Agreement. Any assignment by Consultant of the services or
work to be performed under this Agreement, in whole or in part, or any other
interests hereunder, voluntarily, involuntarily or by operation of law, without
the Company's written consent, shall be void. No modification amendment or
waiver of any provision of this Agreement shall be effective unless the same
shall be in a written instrument signed by the parties hereto. This Agreement
shall be governed by and construed in accordance with the laws of the State of
California and, in connection therewith, the language contained herein shall in
all events be construed simply and in accordance with its fair meaning, and not
strictly for or against any party to this Agreement, and, in any event, without
reference to which party drafted this Agreement or any language contained
herein.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date set forth above.
"Company"
INTERVISUAL BOOKS, INC.,
a California corporation
By: [SIGNATURE]
---------------------------------
Name: WALDO H. HUNT
-------------------------------
Title: CHAIRMAN
------------------------------
Address: 2850 Ocean Park Blvd.
Suite 225
Santa Monica, CA 90405
Fax: (310) 399-0419
"Consultant"
CHARLES E. GATES, an individual
By: [SIGNATURE]
---------------------------------
Name: CHARLES E. GATES
Address: 16633 Cumbre Verdi Court
Pacific Palisades, CA 90272
Fax: (310) 454-2513
The undersigned hereby agrees to be bound by the provisions of
this Agreement in the event of the death of Consultant prior to December 31,
2001.
[SIGNATURE]
---------------------------------
BARBARA GATES, an individual
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is dated and
effective as of January 1, 1997, by and between INTERVISUAL BOOKS, INC., a
California corporation (the "Company"), and LAURIE SALE (the "Employee").
W I T N E S S E T H
WHEREAS, the Company desires to retain the services of
Employee as its Vice President, Publishing Operations; and
WHEREAS, Employee desires to provide her services to the
Company, on the terms and conditions set forth herein:
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto hereby agree as follows:
1. Employment and Term. The Company hereby retains the
Employee as its Vice President, Publishing Operations for a term commencing
January 1, 1997, and continuing to and ending on December 31, 1998, unless this
Agreement is sooner terminated as set forth herein. This Agreement shall be
renewed thereafter for one additional two year term ending on December 31, 2000
(subject to sooner
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termination as set forth herein), unless either party shall deliver written
notice to the other party in accordance with Section 9 hereof of its intention
not to so renew no later than October 31, 1998.
2. Position and Duties. Employee agrees to be available
to serve as its Vice President, Publishing Operations and the Company agrees to
retain her as such for the term of this Agreement and any renewal hereof.
In addition to service as its Vice President, Publishing
Operations, Employee may also possess such other titles and serve in such other
capacities commensurate with her position with the Company as the Company and
Employee shall from time to time mutually agree. Employee shall render such
services and have such duties and responsibilities as may be assigned to her
form time to time by the Company consistent with such positions. Employee
shall report directly to the President of the Company. Employee's performance
will be reviewed, approximately every six months upon written request from
Employee to the Company's President, by the President and the Chairman of the
Board of the Company in accordance with the Company's policies and procedures.
Employee shall devote her full working time, attention and energy to the
business of the Company and agrees to perform faithfully and diligently such
duties and responsibilities as may be assigned to her to the best of her
ability. The Company acknowledges and the
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<PAGE> 3
Employee agrees that Employee may not serve as a consultant or in any other
capacity for any other business during the term of this Agreement without prior
written consent of the President or the Chairman of the Board.
3. Compensation, Expenses, etc.
3.1 For the services to be rendered by the Employee
hereunder, the Company shall pay to her a salary at the rate of $100,000 per
annum payable semi-monthly in accordance with the regular payroll schedule of
the Company.
3.2 For the calendar year ended December 31, 1997, and
each subsequent year thereafter, during the term of this Agreement, Employee
shall earn a bonus based upon any bonus plan then in effect that is generally
applicable to officers of the Company, as determined by the Compensation
Committee of the Company's Board of Directors.
3.3 The Company shall pay or reimburse the Employee for
all approved out-of-pocket business expenses, in accordance with the Company's
reimbursement policy, reasonably incurred by her in performing her services to
the Company during the term of this Agreement.
3.4 During the term of this Agreement, the Company shall
pay the Employee an automobile allowance in the amount of $600 per month, on or
about the last day of each month, provided that the Employee maintains all
necessary records as required by the Company and the Internal Revenue Service.
The Employee shall be responsible
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<PAGE> 4
for all costs and expenses incurred in connection with the maintenance and
operation of such automobile, including but not limited to required insurance.
3.5 Employee shall be entitled to fifteen (15) business
days paid vacation and six (6) business days paid sick leave each year during
the term of this Agreement in accordance with the Company's policies. Any
accrued but unused vacation days and sick leave for a given year will be
carried over into the next year of this Agreement pursuant to the Company's
written policy for officers. Upon termination of this Agreement, the Company
shall pay Employee for unused vacation days and sick leave accrued through the
date of termination in accordance with the Company's policies.
3.6 As of December 12, 1996, Employee was granted options
to acquire 30,000 shares of the Company's common stock under a Company
Incentive Stock Option Plan (the "Stock Option Plan"). The terms of such
options shall be governed by the Stock Option Plan and the agreement entered
into pursuant thereto.
3.7 During the term of this Agreement, the Employee and
Employee's spouse shall have the right to participate in group insurance and
other employee benefit plans now in effect or hereafter established by the
Company for the benefit of the class of employees of which Employee would be a
member for so long as any such plan is maintained
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<PAGE> 5
in effect for the benefit of such class, with the participation or share of
Employee and Employee's spouse therein being determined by the provisions and
requirements of the respective plan and the applicable Company policy. The
Company hereby agrees to waive its standard ninety (90) day waiting period for
Employee and Employee's spouse to be eligible to participate in its health
insurance program (but Employee must still satisfy the insurance company's
requirements pertaining to insurability). Employee shall be entitled to
participate in the Company's 401(k) Plan from and after January 1, 1998, and
continuing during the term of this Agreement for such time that the Company's
401(k) Plan remains in effect. The Company agrees to pay $2,400 to Employee
in December 1997.
4. Termination.
4.1 This Agreement shall terminate and the Company shall
have no further obligation or liability to Employee, except for the Minimum
Payments (as hereinafter defined), upon the occurrence of any of the following
events: (a) the death of Employee; (b) the incapacity or disability of
Employee which renders her unable to perform substantially all of the services
contemplated by this Agreement for a continuous period of ninety (90) days; or
(c) the mutual agreement of the parties to this Agreement.
4.2 This Agreement may be terminated by the Company prior
to the date specified in Section 1 hereof
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<PAGE> 6
without further obligation or liability to Employee, except for the Minimum
Payments, upon the occurrence of one or more of the following events: (a) the
commission of an act of fraud, dishonesty or embezzlement by Employee; (b) the
willful neglect by Employee in the performance of the services contemplated by
this Agreement in such manner as to provide reasonable cause for terminating
her services, such performance to be determined by the Company's Board of
Directors; or (c) the breach by the Employee of any of the covenants or
obligations under this Agreement and such breach provides reasonable cause for
the Company to terminate this Agreement; provided that, in order to terminate
this Agreement pursuant to subclauses (b) or (c) of this Section 4.2, the
Company shall have given thirty (30) days written notice to the Employee, and
the Employee shall have failed to fully cure or correct such neglect or breach
within the thirty (30) days immediately following such notice.
4.3 This Agreement may be terminated by the Employee
prior to the date specified in Section 1 hereof on thirty (30) days written
notice of termination to the Company if the Company breaches any of its
covenants or obligations under this Agreement and such breach provides
reasonable cause for the Employee to terminate this Agreement.
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<PAGE> 7
4.4 In addition to the circumstances under which this
Agreement may be terminated by the Employee pursuant to Section 4.3, the
Employee may terminate this Agreement at any time, without cause, upon thirty
(30) days written notice of termination to the Company, in which event the
Company shall have no further obligation or liability to Employee except for
the Minimum Payments.
4.5 In addition to the circumstances under which this
Agreement may be terminated by the Company pursuant to Section 4.2, the Company
may terminate this Agreement at any time, without cause, upon thirty (30) days
written notice of termination to the Employee; provided, however, that if the
Company terminates this Agreement pursuant to this Section 4.5, then the
Employee shall become entitled to (a) receive the Minimum Payments, (b) receive
severance pay in an amount equal to six (6) months salary payable at the salary
rate then in effect and at the times as such compensation would have been
payable to the Employee pursuant to Section 3.1 hereof had this Agreement not
been terminated, and (c) receive a prorated portion of the bonus that would
have been due to Employee in accordance with Section 3.2 for the calendar year
during which such termination occurs. The proration of Employee's bonus shall
be based on the number of days of the calendar year elapsed prior to the
termination date using a 365-day year, and any such payment
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<PAGE> 8
of a prorated bonus shall be made at the time and in the manner set forth in
Section 3.2.
4.6 If this Agreement is terminated pursuant to any of
the provisions of this Section 4, the Company shall pay to Employee (a) the
portion of Employee's salary as set forth in Section 3.1 which has been earned
up to the date of termination, (b) reimbursement for business expenses pursuant
to Section 3.3 incurred up to the date of termination, and (c) compensation for
any accrued and unused vacation pursuant to Section 3.5 up to the date of
termination (collectively, the "Minimum Payments").
4.7 Notwithstanding any termination of the Employee's
services hereunder, all of the covenants of the Employee contained in Sections
5 and 6 shall continue in full force and effect in accordance with their
respective terms.
5. Confidential Information. The Employee acknowledges
that, in the course of the performance of her services hereunder, she may
become acquainted with confidential information regarding the Company (and
companies controlled, owned or operated by the Company) and their business,
operations, finances, personnel, accounts, customers and suppliers. This
information may include information relating to persons, firms, corporations
and other entities which are or become suppliers or customers of the Company
(or a company controlled, owned or operated by
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<PAGE> 9
the Company). The Employee will not, either during the term of this Agreement
or thereafter, without the prior express written consent of the Company,
disclose or make any use of such confidential information except as may be
required in the course of the performance of her services under this Agreement.
As used in this Section 5, the term "confidential information" does not include
information that (a) becomes or is generally available to the public other than
as a result of a disclosure by Employee; (b) was available to Employee on a
non-confidential basis prior to its disclosure by Company to Employee; or (c)
becomes available to Employee on a non-confidential basis from a source other
than Company who is not known to Employee to be bound by a confidentiality
agreement with Company.
By execution of this Agreement, Employee agrees and
acknowledges that she shall be bound by all of the terms of the Company's
Proprietary Information Agreement. Employee has reviewed such Proprietary
Information Agreement and agrees that any breach by Employee of any term or
covenant contained therein shall constitute a breach by Employee of this
Agreement.
6. Protection of Property. All records, files, manuals,
lists of customers, blanks, forms, materials, supplies, computer programs and
other materials furnished to the Employee by the Company (or any company
controlled, owned or operated by the Company), used on their behalf or
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<PAGE> 10
generated or obtained during the course of the performance of the Employee's
services hereunder, shall be and remain the property of the Company (or any
company controlled, owned or operated by the Company, as the case may be). The
Employee shall be a holder thereof for the sole use and benefit of the Company
(or any company controlled, owned or operated by the Company), and shall safely
keep and preserve such property, except as consumed in the normal business
operations of the Company (or any company controlled, owned or operated by the
Company, as the case may be). The Employee acknowledges that this property is
not readily accessible to the Company's competitors. Upon termination of this
Agreement hereunder, the Employee shall immediately deliver to the Company, or
its authorized representative, all such property, including all copies,
remaining in the Employee's possession or control.
7. Specific Performance. In the event of the breach by
Employee of any of the provisions of paragraphs 5 or 6, the Company, in
addition and supplementary to all other rights and remedies existing in its
favor, may apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions thereof.
8. Assignment. Neither the rights nor obligations under
this Agreement may be assigned,
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<PAGE> 11
transferred, pledged or hypothecated by any party hereto, except that this
Agreement shall be binding upon and inure to the benefit of any successor of
the Company, whether by merger, purchase or otherwise and the Company may
assign this Agreement to any subsidiary or affiliate of the Company.
9. Notices. Any notices required or permitted to be
given under this Agreement shall be deemed to have been duly given if in
writing and if personally delivered or sent by registered or certified mail,
return receipt requested, with postage prepaid, to the following address:
If to the Company:
Intervisual Books, Inc.
2716 Ocean Park Blvd., #2020
Santa Monica, CA 90405
Attention: President
If to Employee:
At the address on the Company's
records.
Any party may change the address to which notices are to be sent to it or her
by giving ten (10) days written notice of such change of address to the other
party in the manner above provided for giving notice. Notices will be
considered delivered on the date of personal delivery or on the date of deposit
in the United States mail in the manner above provided for giving notice by
mail.
10. Waiver. The waiver by any party hereto of a breach
of any of the provisions of this Agreement by the
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<PAGE> 12
other party shall not operate or be construed as a waiver of any subsequent
breach hereof by such party.
11. Severability. If any one or more covenants,
agreements or provisions herein contained shall be held or determined for any
reason whatsoever to be invalid or unenforceable, either in whole or in part,
then such covenants, agreements or provisions, or portion thereof, shall be
null and void and shall be deemed separable from the remaining covenants,
agreements or provisions hereof and shall in no way affect the validity of any
of the other provisions hereof.
12. Attorneys' Fees. The prevailing party in any
arbitration or litigation concerning the enforcement or interpretation of this
Agreement shall be entitled to recover reasonable costs and attorneys' fees.
13. Arbitration. The parties hereto acknowledge that it
is in their best interests to facilitate the informal resolution of any
disputes arising out of this Agreement or otherwise by mutual cooperation and
without resorting to litigation. As a result, if any party has a dispute
arising hereunder or otherwise, including but not limited to any claim for
breach of any contract or covenant (express or implied), tort claims, claims
for discrimination (including, but not limited to, race, sex, religion,
national origin, age, handicap or disability), claims for compensation or
benefits (except where a benefit plan or
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<PAGE> 13
pension plan or insurance policy specifies a different claims procedure) and
claims for violation of any federal, state or other governmental law, statute,
regulation or ordinance (except for claims involving workers' compensation
benefits), and the parties are unable to reach agreement among themselves, then
a settlement conference must be held within thirty (30) days upon receipt of a
notice by the complaining party describing in detail the complaint and setting
forth a proposed solution to the complaint. The settlement conference will be
held in any Los Angeles office of the Judicial Arbitration and Mediation
Services, Inc. ("JAMS"). The complaining party must contact JAMS to schedule
the conference and the parties must agree on a retired judge from the JAMS
panel. If the parties are unable to agree upon such a retired judge, JAMS
shall provide a list of three available judges and each party may strike one
judge. The remaining judge will serve as the mediator at the settlement
conference.
If the dispute is not settled by the above-described
format, the parties agree to submit the dispute to JAMS for binding
arbitration. A three-judge panel will be selected to arbitrate the dispute.
JAMS will provide the names of five potential arbitrators, giving each party
the opportunity to strike one name. The remaining three arbitrators will serve
as the arbitration panel. The parties agree that the arbitration must be
initiated within
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<PAGE> 14
six months after the claimed breach occurred and that failure to initiate
arbitration within the six-month period constitutes an absolute bar from the
institution of any new proceedings. Arbitration may be initiated by the
aggrieved party by sending written notice of an intent to arbitrate by
registered certified mail to all parties and to JAMS. The notice must contain
a description of the dispute, the amount involved and the remedies sought. If
and when a demand for arbitration is made by either party, the parties agree to
execute a Submission Agreement provided by JAMS, setting forth the rights of
the parties if the case is arbitrated and rules and procedures to be followed
at the arbitration hearing.
The parties hereto agree that arbitration in
accordance with this Section 13 shall be the sole and exclusive remedy for any
dispute arising hereunder or otherwise. Notwithstanding the foregoing, nothing
contained in this Section 13 shall prevent the Company from seeking and
obtaining equitable relief in a court to enforce any of its rights under
Sections 5 or 6 hereof or under the Company's Proprietary Information
Agreement.
14. Withholding of Taxes; Tax Reporting. The Company may
withhold from any amounts payable under this Agreement all such Federal, state,
city and other taxes, and may file with appropriate governmental authorities
all such information, returns or other reports with respect to the
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<PAGE> 15
tax consequences of any amounts payable under this Agreement, as may, in its
reasonable judgment, be required by law.
15. Choice of Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
16. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INTERVISUAL BOOKS, INC.
By:___________________________
Waldo H. Hunt,
Chairman of the Board and
Chief Executive Officer
EMPLOYEE
______________________________
Laurie Sale
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EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of the 13th day of January, 1997, between INTERVISUAL BOOKS, INC., a
California corporation (the "Company"), and NATHAN NORMAN SHEINMAN (the
"Executive").
In consideration of the promises and covenants set forth
below, the parties hereto agree as follows:
1. Employment.
The Company hereby agrees to employ Executive, and
Executive hereby agrees to accept such employment with the Company, on the
terms and conditions set forth herein.
2. Term.
The employment of Executive by the Company as
provided in this Agreement will commence on January 27, 1997 (the "Start
Date"), and end on December 31, 1999, unless sooner terminated as hereinafter
provided. As a condition precedent to the effectiveness of this Agreement,
Executive shall report for work at the principal executive offices of the
Company on the Start Date and, if requested by the Company, Executive shall
affirm in writing on the Start Date that he has ceased employment with his
current employer. The Company and Executive shall attempt to negotiate in good
faith between January 1, 1999, and March 31, 1999, the terms of employment of
Executive by the Company for a period following the expiration of this
Agreement.
3. Position and Duties.
Executive shall serve as President and Chief
Operating Officer of the Company, or such other position or positions as may be
agreed upon by Executive and the Board of Directors. Executive shall at all
times perform his duties and obligations faithfully and diligently and shall
devote all his business time and best efforts exclusively to the business of
the Company. Executive shall at all times industriously perform his duties
under the supervision of and report to the Board of Directors, the Chairman of
the Board and the Chief Executive Officer of the Company and shall accept and
comply with all directions from and all policies established from time to time
by the Chairman of the Board, Board of Directors and Chief Executive Officer of
the Company. Executive's primary duties shall include,
<PAGE> 2
without limitation, responsibility for the day-to-day management the Company
and such other duties as may from time to time be prescribed by the Board of
Directors and the Chief Executive Officer of the Company.
Executive shall promote the trade and business of the
Company to the best of his ability and shall not willingly do anything to the
prejudice of the Company's trade or business. Executive shall not at any time
intentionally make any untrue statement regarding the Company and shall not
after the termination of employment by the Company represent himself as being
employed or connected with the Company. Executive shall not directly or
indirectly render any services of a business, commercial or professional nature
to any other person, entity or organization, whether for compensation or
otherwise, without the prior written consent of the Company's Board of
Directors. Executive shall adhere to all of the Company's policies and
procedures applicable to Company's employees generally.
4. Place of Performance.
In connection with Executive's employment by the
Company and except for required travel on Company business, Executive shall be
based at the principal executive offices of the Company or such other place or
places outside of Southern California as the interests, needs, business and
opportunities of the Company require or deem advisable and as reasonably agreed
by Executive.
5. Compensation and Related Matters.
(a) Salary. During the term of Executive's
employment hereunder, the Company shall pay to Executive a salary of $250,000
per annum from the Start Date through December 31, 1997 and a salary of
$275,000 per annum from January 1, 1998 through December 31, 1999. Such salary
shall be paid in equal semi-monthly installments (or such shorter intervals as
the Company may elect) and shall accrue from day to day. Such salary shall be
subject to any withholding or taxes the Company is required by law to make or
pay.
(b) Vacations. During the term of Executive's
employment hereunder, Executive shall be entitled to four weeks of vacation in
each calendar year, and to compensation with respect to earned but unused
vacation days determined in accordance with the Company's vacation policy.
Executive's vacation shall be scheduled by
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<PAGE> 3
mutual agreement between the Executive and the Company's Chairman of the Board
and Chief Executive Officer.
(c) Expenses. During the term of Executive's
employment hereunder, Executive shall be entitled to receive reimbursement for
all reasonable out-of-pocket travel and other expenses (excluding ordinary
commuting expenses) incurred by Executive in performing Executive's services
hereunder, provided that:
i) Each such expenditure is of a nature
qualifying it as a proper business expenditure of the Company and is
approved by the Company; and
ii) Executive furnishes to the Company adequate
records and other documentary evidence required by the Company for the
substantiation of such expenditures as proper business expenditures of
the Company, and Executive otherwise complies with general Company
policies with respect to expense reimbursement.
(d) Stock Options. Executive acknowledges that,
as additional compensation for Executive's employment hereunder, Executive will
be granted two nonstatutory stock options to acquire 200,000 and 100,000
shares, respectively, of the Company's common stock pursuant to the Stock
Option Agreements attached hereto as Exhibits A and B. The terms of such stock
options shall be governed by the provisions of the Stock Option Agreements
(including Executive's right to exercise such options upon termination.)
(e) Medical Insurance. During the term of
Executive's employment hereunder, Executive will be entitled to participate in
any medical insurance plans from time to time generally applicable to full-time
employees of the Company during the term of Executive's employment hereunder.
(f) 401(k). During the term of Executive's
employment hereunder, Executive will be entitled to participate in the
Company's 401(k) plan, or other similar plans established by the Company,
generally applicable to full-time employees of the Company. If Executive is
employed by the Company on December 31, 1997, and Executive has not been
permitted to participate in the Company's 401(k) plan prior to such date, then
the Company shall pay to Executive an amount equal to the federal and state
income taxes on $9,100 of compensation at an assumed effective tax rate of 35%,
which amount shall be paid in the last pay period of the 1997 calendar year.
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<PAGE> 4
(g) Life Insurance. During the term of
Executive's employment hereunder, the Company shall pay the premiums, in an
amount not to exceed $10,000 per annum, for term life insurance on the life of
Executive; provided that Executive must pass any physical examination required
under such life insurance policy, and such life insurance policy must be
established by Executive on or before the one year anniversary of the Start
Date. The beneficiary or beneficiaries under such policy shall be designated
by Executive, and Executive shall be responsible for any taxes incurred by
Executive by reason of the Company's payment of premiums on such policy
hereunder.
(h) Moving Expenses. Executive shall be entitled
to reimbursement by the Company, in accordance with the Company's policies, for
reasonable and customary moving expenses actually and reasonably incurred by
Executive, but not to exceed $20,000, in connection with moving Executive and
Executive's immediate family, together with the personal belongings of
Executive and Executive's immediate family, from New York to the Southern
California area. Executive also shall be entitled to reimbursement for any
taxes incurred by Executive by reason of the Company's payment of moving
expenses hereunder.
(i) Automobile Allowance. During Executive's
employment hereunder, the Company shall:
a) Pay Executive an automobile allowance in an
amount equal to Executive's monthly automobile lease payment, but not
to exceed $600 per month, on or about the last day of each month,
provided that Executive maintains all necessary records as required by
the Company and the Internal Revenue Service;
b) Reimburse Executive, at standard rates and in
accordance with the Company's policies, for repair and maintenance
expenses (including gasoline and oil) regarding such automobile
incurred by Executive in performance of his responsibilities
hereunder, provided that Executive furnishes to the Company adequate
records and other documentary evidence required for the substantiation
of such payments as proper business expenses of the Company and not as
deductible compensation to Executive; and
c) Procure and maintain insurance coverage on such
automobile, provided the Company shall not pay any excess or increased
costs resulting from Executive's driving record.
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<PAGE> 5
Executive acknowledges that the personal use portion of such automobile
allowance will be accounted for by the Company as income paid to Executive,
based on the records maintained by Executive and standard IRS tables.
Executive shall conform to the Company's policies regarding the use of such
automobile.
(j) Interim Living Expenses. From the Start Date
until the earlier to occur of (A) the securing of permanent housing in the
Southern California area for Executive and Executive's immediately family, or
(B) September 30, 1997, Executive shall be entitled to reimbursement by the
Company, in accordance with the Company's policies, for the following expenses
actually and reasonably incurred by Executive:
i) Apartment or housing rental expenses, but not
to exceed $1,250 per month;
ii) Furniture rental expenses, but not to exceed
$250 per month;
iii) Expenses for travel between Southern
California and New Jersey, but not to exceed $1,000 per month; and
iv) Reasonable living expenses for which receipts
are furnished by Executive, but not to exceed $1,000 per month.
In addition, the Company shall advance any deposits required by the lessor in
connection with the rental of an apartment, house or furniture under
subsections (i) and (ii) above.
(k) Home Loan. Upon request by Executive, the
Company shall co-sign a loan with Executive to purchase a permanent residence
in Southern California for Executive and Executive's immediate family, which
loan shall not exceed the lesser of (A) the purchase price for such residence
or (B) $250,000; provided, that the Company will not co-sign such loan unless
and until the sale of Executive's existing home in New Jersey enters escrow and
the Company obtains shareholder approval of such loan, the terms of such loan
and the documents relating to such loan must be reasonably acceptable to the
Company in form and substance, and the loan must be secured by deeds of trust
on the residence being purchased by Executive and on Executive's home in New
Jersey. Executive agrees to sign documentation evidencing his and the
Company's obligations under the loan, and to obtain a release of the Company
from
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all liability under such loan on the earliest to occur of (i) the termination
of Executive's employment under this Agreement, (ii) the sale of Executive's
home in New Jersey, (iii) the date that is six months after the date such loan
is made, or (iv) December 31, 1997. If Executive does not promptly pay-off the
loan as required under the preceding sentence, the Company may withhold any
amounts owed to Executive under this Agreement up to the outstanding amount of
such loan.
6. Termination.
(a) Cause. The Company may at any time upon written
notice to Executive terminate this Agreement and Executive's employment
hereunder for Cause pursuant to the provisions of this Section 6(a). Executive
shall be given written notice by the Board of Directors of its intention to
terminate Executive for Cause, which notice shall state the acts or omissions
that constitute grounds on which the proposed termination for Cause is based.
In the Board of Director's reasonable business judgment, the Board shall permit
Executive an opportunity to address the Board or a committee of one or more
directors regarding the grounds on which the proposed termination for Cause is
based. In every case, the good faith judgment of the Board of Directors shall
be conclusive as to whether Cause for termination exists.
For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon:
(i) The breach by Executive of any material provision or
covenant of this Agreement, and if such breach is susceptible to cure by
Executive, the failure to effect such cure within twenty (20) days after
written notice of such breach is given to the Executive; or
(ii) The willful failure or neglect of Executive to
perform Executive's duties hereunder or the gross negligence of Executive in
the performance of such duties, and if such failure or gross negligence is
susceptible to cure by Executive, the failure to effect such cure by Executive
within twenty (20) days after written notice of such failure or gross
negligence is given to Executive; or
(iii) Except as permitted hereunder, Executive's
unexplained and regular absences from the Company; or
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<PAGE> 7
(iv) Executive's use of alcohol or illegal drugs, which
use interferes with the performance of Executive's duties hereunder; or
(v) Executive's indictment for a crime or for theft,
embezzlement, fraud, misappropriation of funds or any other alleged act of
dishonesty by Executive or Executive's indictment for any other felony or other
crime involving moral turpitude; or
(vi) Executive's violation of any law or ethical rule
relating to Executive's employment by the Company, including, but not limited
to a violation by Executive of Executive's fiduciary duty of loyalty to the
Company which Executive owes to the Company as an officer and/or director; or
(vii) Executive's failure to move his immediate family's
permanent residence to the Southern California area on or before September 30,
1997.
For purposes of this Agreement, an action shall be considered
"willful" if it is done intentionally, purposely or knowingly.
(b) Death. This Agreement and Executive's employment
hereunder shall terminate automatically upon Executive's death.
(c) Incapacity. If Executive becomes incapacitated
during Executive's employment hereunder, this Agreement and Executive's
employment hereunder shall terminate on the date of determination by the Board
of Directors of the Company of such incapacity. As used herein, "incapacity"
shall mean any physical or mental illness or disability, or both, which renders
Executive incapable of performing substantially all of his managerial and
executive services hereunder for 120 days or more in the aggregate during any
calendar year, and which at any time after such 120 days the Company's Board of
Directors shall determine continues to render Executive incapable of performing
substantially all of his managerial and executive services hereunder. Any
determination made in good faith by the Company's Board of Directors shall be
conclusive and binding upon Executive.
(d) Without Cause. The Company shall be entitled
to terminate this Agreement and Executive's employment hereunder at any time
without Cause.
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<PAGE> 8
(e) Resignation. Executive shall be entitled to
terminate this Agreement and Executive's employment hereunder at any time on
thirty days prior written notice delivered by Executive to the Company.
(f) Notice of Termination. Any termination of
Executive's employment by the Company or by Executive (other than termination
pursuant to subsection 6(b) above) shall be communicated by a written Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" means a notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets forth the
circumstances which provide a basis for termination of Executive's employment
under the provisions so indicated, and (iii) if the termination date is other
than the date of receipt of such notice, specifies the termination date of this
Agreement (which date shall not be more than 30 days after the giving of such
notice).
(g) Date of Termination. "Date of Termination"
shall mean the date of death, the date of receipt of the Notice of Termination
or the date specified therein, as the case may be.
(h) Arbitration Rights. Nothing contained in this
Section 6 shall contravene the Company and Executive's right and obligation to
arbitrate disputes as provided for in Section 11 of this Agreement.
7. Obligations of the Company Upon Termination.
(a) Termination for Cause. If this Agreement is
terminated pursuant to Section 6(a), the Company shall have no further
obligation or liability to Executive, except that Executive shall be entitled
to receive only (i) the portion of Executive's salary as set forth in Section
5(a) which has been earned up to the Date of Termination, (ii) compensation for
any accrued and unused vacation up to the Date of Termination, and (iii)
reimbursement, subject to the requirements set forth in Section 5(c), for
business expenses incurred up to the Date of Termination (collectively, the
"Minimum Payments").
(b) Termination for Death or Disability. If this
Agreement is terminated pursuant to Sections 6(b) or 6(c), the Company shall
have no further obligation or liability to Executive, except that Executive
shall be entitled to receive only the Minimum Payments.
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<PAGE> 9
(c) Termination Without Cause. If this Agreement
is terminated by the Company pursuant to Section 6(d), the Company shall have
no further obligation or liability to Executive, except that Executive shall be
entitled to receive only (i) the Minimum Payments, and (ii) an amount equal to
(A) $300,000 if the Date of Termination is before the first year anniversary of
the Start Date, (B) $200,000 plus one week of Executive's salary as set forth
in Section 5(a) if the Date of Termination is on or after the first year
anniversary but before the second year anniversary of the Start Date, or (C)
$100,000 plus two weeks of Executive's salary as set forth in Section 5(a) if
the Date of Termination is on or after the second year anniversary but before
December 31, 1999. Any amounts owed to Executive pursuant to subsection (ii)
above shall be paid at the rate of $15,000 per month commencing one month from
the Date of Termination until paid in full.
(d) Resignation. If this Agreement is terminated
by Executive pursuant to Section 6(e), the Company shall have no further
obligation or liability to Executive, except that Executive shall be entitled
to receive only (i) the Minimum Payments and (ii) if the Date of Termination is
on or before December 31, 1997, then an amount equal to two weeks of
Executive's salary as set forth in Section 5(a). In addition, if the Date of
Termination is on or before December 31, 1997, Executive shall be entitled to
reimbursement by the Company, in accordance with the Company's policies, for
reasonable and customary moving expenses actually and reasonably incurred by
Executive, but not to exceed $20,000, in connection with moving Executive and
Executive's immediate family, together with the personal belongings of
Executive and Executive's immediate family, from Southern California to the
East Coast of the United States; provided, that Executive completes such move
on or before the date that is six months after the Date of Termination.
(e) Exclusivity of Payments. Upon termination of
Executive's employment hereunder, Executive shall not be entitled to any
severance payments or severance benefits from the Company or any payments by
the Company on account of any claim for wrongful termination, including but not
limited to claims under any federal, state or local human and civil rights or
labor laws, other than the payments provided in this Section 7, except for any
benefits which may be due to Executive in the normal course under any employee
benefit plan of the Company which provides for benefits after termination of
employment. Executive agrees that any right to receive payments hereunder upon
termina-
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<PAGE> 10
tion of employment will cease if Executive breaches any provision of Sections 8
or 9 below.
8. Proprietary Information.
(a) Definition. Executive hereby acknowledges
that Executive possesses and may make use of, acquire, create, develop or add
to certain confidential and/or proprietary information regarding the Company
and its business (whether in existence prior to, as of or after the date
hereof, collectively, "Proprietary Information"), which Proprietary Information
shall include, without limitation, all of the following materials and
information (whether or not reduced to writing and whether or not patentable or
protected by copyright): trade secrets, inventions, processes, formulae,
programs, technical data, "know-how," procedures, manuals, confidential reports
and communications, marketing methods, product sales or cost information, new
product ideas or improvements, new packaging ideas or improvements, research
and development programs, identities or lists of suppliers, vendors or
customers, financial information and financial projections of the Company of
any nature whatsoever, or any other confidential or proprietary information
relating to the Company and/or its business. The term "Proprietary
Information" does not include any information that (i) at the time of
disclosure is generally available to and known by the public (other than as a
result of its disclosure by Executive), (ii) was available to Executive prior
to disclosure by the Company, provided that the person who was the source of
such information was not known by Executive to be subject to an obligation of
confidentiality to the Company, or (iii) becomes available to Executive on a
non-confidential basis from a person other than the Company or its
representatives, provided that the source of such information was not known by
Executive to be subject to an obligation of confidentiality to the Company.
(b) Nondisclosure. During the term of this
Agreement and thereafter, Executive will not, without the prior express written
consent of the Board of Directors, disclose or make any use of any Proprietary
Information except as may be required in the course of the performance of
Executive's services under this Agreement.
(c) Ownership. Executive acknowledges and agrees
that all right, title and interest in and to any Proprietary Information shall
be and shall remain the exclusive property of the Company. Without limiting
the foregoing, Executive shall assign to the Company any and all
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<PAGE> 11
right, title or interest which Executive may have in all Proprietary
Information made, developed or conceived of in whole or in part by Executive
during his employment hereunder.
(d) Agreement Not to Solicit Customers. To
protect the Proprietary Information and trade secrets of the Company, Executive
agrees, during the term of this Agreement and for a period of one year after
termination of this Agreement, not to, directly or indirectly, either on
Executive's own behalf or on behalf of any other person or entity, attempt to
intentionally persuade any customer of the Company to cease to do business or
to reduce the amount of business which any customer of the Company has
customarily done or contemplates doing with the Company. Executive agrees that
the covenants contained in this paragraph are reasonable and desirable.
(e) Agreement Not to Solicit Employees. To
protect the Proprietary Information and trade secrets of the Company, Executive
agrees, during the term of this Agreement and for a period of one year after
termination of this Agreement, not to, directly or indirectly, either on
Executive's own behalf or on behalf of any other person or entity, solicit or
employ any person who is an employee of the Company. Executive agrees that the
covenants contained in this paragraph are reasonable and desirable.
(f) Proprietary Information Agreement. By
execution of this Agreement, Executive agrees and acknowledges that he shall be
bound by all of the terms of the Company's Proprietary Information Agreement
attached hereto as Exhibit C. Executive has reviewed such Proprietary
Information Agreement and agrees that any breach by Executive of any term or
covenant contained therein shall constitute a breach by Executive of this
Agreement.
9. Protection of Property.
All records, files, manuals, documents,
specifications, lists of customers, banks, forms, materials, supplies, computer
programs and other materials furnished to the Executive by the Company, used on
its behalf or generated or obtained during the course of the performance of the
Executive's services hereunder, shall be and remain the property of the
Company. Executive shall be a holder thereof for the sole use and benefit of
the Company, and shall safely keep and preserve such property, except as
consumed in the normal business operations of the Company. Executive
acknowledges that this property is not readily
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<PAGE> 12
accessible to the Company's competitors. Upon termination of Executive's
employment with the Company for any reason, Executive shall immediately deliver
to the Company, or its authorized representative, all such property, including
all copies, remaining in Executive's possession or control.
10. Specific Performance.
In the event of the breach by Executive of any of the
provisions of Sections 8 or 9, the Company, in addition and supplementary to
all other rights and remedies existing in its favor and notwithstanding the
provisions of Section 11 hereof, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions thereof.
11. Arbitration.
The parties hereto acknowledge that it is in their
best interests to facilitate the informal resolution of any disputes arising
out of this Agreement or otherwise by mutual cooperation and without resorting
to litigation. As a result, if any party has a dispute arising hereunder or
otherwise, including but not limited to any claim for breach of any contract or
covenant (express or implied), tort claims, claims for discrimination
(including, but not limited to, race, sex, religion, national origin, age,
handicap or disability), claims for compensation or benefits (except where a
benefit plan or pension plan or insurance policy specifies a different claims
procedure) and claims for violation of any federal, state or other governmental
law, statute, regulation or ordinance (except for claims involving workers'
compensation benefits), and the parties are unable to reach agreement among
themselves, then a settlement conference must be held within thirty (30) days
upon receipt of a notice by the complaining party describing in detail the
complaint and setting forth a proposed solution to the complaint. The
settlement conference will be held in any Los Angeles office of the Judicial
Arbitration and Mediation Services, Inc. ("JAMS"). The complaining party must
contact JAMS to schedule the conference and the parties must agree on a retired
judge from the JAMS panel. If the parties are unable to agree upon such a
retired judge, JAMS shall provide a list of three available judges and each
party may strike one judge. The remaining judge will serve as the mediator at
the settlement conference.
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<PAGE> 13
If the dispute is not settled by the above-described
format, the parties agree to submit the dispute to JAMS for binding
arbitration. A three-judge panel will be selected to arbitrate the dispute.
JAMS will provide the names of five potential arbitrators, giving each party
the opportunity to strike one name. The remaining three arbitrators will serve
as the arbitration panel. The parties agree that the arbitration must be
initiated within six months after the claimed breach occurred and that failure
to initiate arbitration within the six-month period constitutes an absolute bar
from the institution of any new proceedings. Arbitration may be initiated by
the aggrieved party by sending written notice of an intent to arbitrate by
registered certified mail to all parties and to JAMS. The notice must contain
a description of the dispute, the amount involved and the remedies sought. If
and when a demand for arbitration is made by either party, the parties agree to
execute a Submission Agreement provided by JAMS, setting forth the rights of
the parties if the case is arbitrated and rules and procedures to be followed
at the arbitration hearing.
Nothing contained in this Section 11 shall prevent
the Company from seeking and obtaining equitable relief in a court to enforce
any of its rights under Sections 8 or 9 hereof.
12. Additional Covenants of the Company.
(a) The Company shall reimburse Executive, in
accordance with the Company's policies, for all reasonable costs and expenses
actually incurred by Executive in connection with a trip by Executive and
Executive's spouse from New York to Southern California for the purpose of
reviewing possible living accommodations.
(b) The Company shall nominate Executive to its
Board of Directors at the first meeting of the Board of Directors after the
Start Date.
13. Additional Covenants, Representations and Warranties
of Executive.
(a) Executive hereby represents and warrants that
the execution, delivery and performance of this Agreement by Executive does not
(i) breach, or result in a default under, any agreement to which Executive is a
party or by which Executive is bound, (ii) breach or otherwise violate any
order, writ, judgment, order or decree binding
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<PAGE> 14
upon Executive, or (iii) violate any applicable law or regulation.
(b) Executive shall undergo a physical
examination during January of each year during the term of this Agreement to be
performed by a reputable doctor chosen by Executive. The Company shall
reimburse Executive, in accordance with the Company's policies, for all
reasonable costs and expenses actually incurred by Executive in connection with
each such examination.
(c) Upon Executive's cessation of employment with
the Company for any reason whatsoever, Executive shall thereupon be deemed to
have resigned from the Board of Directors of the Company, every parent or
subsidiary of the Company on which he is then serving as a director, and any
other company on which Executive is then serving as a director at the request
of the Company, in each case effective as of the date of cessation of
employment.
14. Representation by Counsel.
Executive acknowledges that he has been represented
by legal counsel in connection with this Agreement and has consulted with such
legal counsel. The Company shall reimburse Executive for all reasonable
attorneys' fees and expenses actually incurred by Executive, but not to exceed
$2,500, in connection with the negotiation and preparation of this Agreement.
15. Reimbursement of Expenses.
Executive shall promptly furnish to the Company
adequate records and other documentary evidence as requested by the Company to
substantiate any costs or expenses for which reimbursement is sought hereunder.
16. Successors.
This Agreement is personal to the Executive and is
not assignable by the Executive otherwise than by will or the laws of descent
and distribution without the prior written consent of the Company's Board of
Directors. This Agreement shall inure the benefit of and be enforceable by
Executive's legal representatives. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns.
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<PAGE> 15
17. Notice.
For purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to Executive: Executive's address as on file with the Company
If to Company: Intervisual Books, Inc.
2716 Ocean Park Blvd., #2020
Santa Monica, California 90405
Attention: Chairman of the Board
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt thereof.
18. Entire Agreement.
This Agreement, together with the documents
referenced herein, contains the entire agreement of the parties hereto with
respect to the subject matter hereof. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by the Company. Each party to this Agreement
acknowledges that no representations, inducements, promises or agreements,
written, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other
agreement, statement or promise not contained in this Agreement shall be valid
or binding.
19. Amendment; Waiver; Governing Law.
No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Executive and by such officer of the Company as may be
specifically designated by the Company's Board of Directors. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. The
validity, interpretation, construction
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<PAGE> 16
and performance of this Agreement shall be governed by the laws of the State of
California.
20. Validity.
The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
21. Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
22. Attorneys' Fees.
In the event of any dispute arising out of the
subject matter of this Agreement, the prevailing party shall be entitled to
recover from the nonprevailing party its costs and expenses (including
reasonable attorneys' fees) incurred in arbitrating or otherwise resolving such
dispute.
23. Withholding of Taxes; Tax Reporting.
The Company may withhold from any amounts payable
under this Agreement all such Federal, state, city and other taxes, and may
file with appropriate governmental authorities all such information, returns or
other reports with respect to the tax consequences of any amounts payable under
this Agreement, as may, in its reasonable judgment, be required by law.
[Signature Page Follows]
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
--------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EXECUTIVE
/s/ NATHAN NORMAN SHEINMAN
--------------------------------
Nathan Norman Sheinman
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<PAGE> 1
EXHIBIT 10.16
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement") between INTERVISUAL BOOKS,
INC., a California corporation (the "Company"), and NATHAN NORMAN SHEINMAN
("Employee") is entered into as of the 13th day of January, 1997.
RECITALS
A. Pursuant to an Employment Agreement bearing even date herewith
between the Company and Employee (the "Employment Agreement"), the Company has
agreed to grant to Employee this option to purchase shares of the Company's
common stock.
B. As a condition precedent to the effectiveness of this
Agreement, Employee must commence full time employment with the Company
pursuant to the terms of the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant. The Company hereby grants to Employee the
right to purchase up to 200,000 shares of common stock of the Company at a
price of $1.375 per share (which price equals the fair market value of the
Company's common stock as of the date of this Agreement), on the terms and
conditions set forth herein. This option is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code, as
amended, and is not made pursuant to any Company stock option plan. Employee
agrees that Employee and any other person who may be entitled hereunder to
exercise this option shall be bound by all terms and conditions of this
Agreement.
This Agreement and the grant of the option herein
shall not be effective unless and until Employee commences full time employment
with the Company pursuant to the terms of the Employment Agreement. If
Employee does not commence full time employment with the Company pursuant to
the terms of the Employment Agreement, this Agreement and the option granted
herein shall be null and void, and the parties hereto shall be deemed to have
no rights or obligations under this Agreement whatsoever.
<PAGE> 2
2. Exercisability. The option granted herein shall
become exercisable at the following times and in the following amounts:
The option shall become exercisable in cumulative increments
of 66,667 shares on each of December 31, 1997, and December 31, 1998, and
66,666 shares on December 31, 1999. The option granted
hereunder shall lapse and expire on the seventh (7th) anniversary of
the date hereof.
If Employee does not purchase the full number of
shares he is entitled to purchase in any one year, the right to purchase such
shares carries over to the subsequent years during the term of this option.
Notwithstanding the foregoing, this option shall
automatically become fully exercisable upon a "Change in Control of the
Company," as such term is defined below.
For purposes of this Agreement, a "Change in Control
of the Company" shall be deemed to have occurred if:
(a) the shareholders of the Company approve a definitive
agreement to sell, transfer, or otherwise dispose of all or
substantially all of the Company's assets and properties; or
(b) any "person" (as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934), other than the Company or any
"person" who as of the date this Agreement is a director or officer of
the Company (including any trust of such director or officer), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of
the combined voting power of the Company's then outstanding
securities; provided, however, that the following shall not constitute
a "Change in Control" of the Company:
(i) any acquisition directly from the Company
(excluding any acquisition resulting from the exercise of a conversion
or exchange privilege in respect of outstanding convertible or
exchangeable securities);
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<PAGE> 3
(ii) any acquisition by an employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or
(iii) upon the death of any person who as of the date
of this Agreement is a director or officer of the Company, the
transfer (A) by testamentary disposition or the laws of intestate
succession to the estate or the legal beneficiaries or heirs of such
person, or (B) by the provisions of any trust to the beneficiaries
thereof of the securities of the Company beneficially owned by such
director or officer of the Company; or
(c) the shareholders of the Company approve the dissolution or
liquidation of the Company or a definitive agreement to merge or
consolidate the Company with or into another entity in which the
Company is not the continuing or surviving corporation or pursuant to
which any shares of the Company's stock would be converted into cash,
securities or other property of another entity, other than a merger of
the Company in which holders of the Company's common stock immediately
prior to the merger have the same proportionate ownership of common
stock (or equivalent securities) of the surviving entity immediately
after the merger as immediately before.
3. Exercise. This option may be exercised on the terms
and conditions contained herein by giving ten (10) days' prior written notice
of exercise to the Company, specifying the number of shares to be purchased and
the price to be paid therefor and by delivering a check in the amount of the
purchase price payable to the Company. The purchase price may also be paid, in
whole or in part, by delivery to the Company of outstanding shares of the
Company's common stock previously held by the Employee valued at "Fair Market
Value".
For the purposes of this Agreement, "Fair Market
Value" as of a certain date (the "Determination Date") means: (a) the closing
price of a share of the Company's common stock on the principal exchange on
which shares of the Company's common stock are then trading, if any, on the
Determination Date, or, if shares were not traded on the Determination Date,
then on the nearest preceding trading day during which a sale occurred; or (b)
if such stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (i) the last sales
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<PAGE> 4
price (if the stock is then listed as a National Market Issue under The Nasdaq
National Market System) or (ii) the mean between the closing representative bid
and asked prices (in all other cases) for the stock on the Determination Date
as reported by NASDAQ or such successor quotation system; or (c) if such stock
is not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for the
stock, on the Determination Date, as determined in good faith by the Board; or
(d) if the Company's stock is not publicly traded, the fair market value
established in good faith by the Board.
4. Termination of Employment.
(a) Termination by Employee. If Employee's
employment is terminated by Employee, Employee shall have ninety (90) days
following the "Date of Termination" (as defined in Section 6(f) of the
Employment Agreement) to exercise this option, but only to the extent that this
option was exercisable on such Date of Termination.
(b) Termination for Cause. If Employee's
employment is terminated by the Company for "Cause" (as defined in Section 6(a)
of the Employment Agreement), neither Employee nor his estate shall be entitled
to exercise this option after the Date of Termination.
(c) Death or Incapacity. If Employee's
employment is terminated for death or "Incapacity" (as defined in Section 6(c)
of the Employment Agreement), Employee or Employee's estate, as the case may
be, shall have the right for six (6) months following the Date of Termination
to exercise this option, but only to the extent that this option was
exercisable on such Date of Termination.
(d) Other. If Employee's employment is
terminated for any reason other than as set forth in Sections 4(a), (b) and (c)
above, this option shall automatically become fully exercisable on the Date of
Termination, and Employee shall have ninety (90) days following such Date of
Termination to exercise this option.
5. Transferability. This option shall be transferable
only by will or by the law of descent and distribution to the estate (or other
personal representative) of Employee and shall be exercisable during Employee's
lifetime only by him. Except as otherwise provided herein, any attempt at
alienation, assignment, pledge,
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<PAGE> 5
hypothecation, transfer, sale, attachment, execution or similar process,
whether voluntary or involuntary, with respect to all or any part of this
option or any right under this Agreement, shall be null and void and, at the
Company's option, shall cause Employee's rights under this Agreement to
terminate.
6. Withholding Requirements. In the event the Company
determines that it is required to withhold state or Federal income taxes as a
result of the exercise of this option, Employee shall be required, as a
condition to the exercise hereof, to make arrangements satisfactory to the
Company to enable it to satisfy such withholding requirements.
7. Rights as a Stockholder. Employee, or any permitted
transferee of Employee, shall have no rights as a stockholder with respect to
any shares covered by this option until the date of the issuance of a stock
certificate for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 8 of this
Agreement. This Agreement shall not confer upon Employee any right of
continued employment by the Company or interfere in any way in the Company's
right to terminate Employee.
8. Recapitalization. Subject to any required action by
stockholders, the number of shares of Common Stock covered by this option and
the exercise price thereof shall be proportionately adjusted for any increase
or decrease in the number of issued shares of common stock resulting from a
subdivision or consolidation of such shares or the payment of a stock dividend
(but only of common stock) or any other increase or decrease in the number of
issued shares of common stock effected without receipt of consideration by the
Company. Subject to any required action by stockholders, if the Company is the
surviving corporation in any merger or consolidation, this option shall pertain
and apply to the securities to which a holder of the number of shares of common
stock subject to the option would have been entitled.
The foregoing adjustments shall be made by the
Company's Board of Directors, whose determination shall be conclusive and
binding on the Company and Employee.
Except as expressly provided in this Section 8, Employee
shall have no rights by reason of any
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<PAGE> 6
subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class, or by reason of any dissolution, liquidation, merger,
consolidation or spin-off of assets or stock of another corporation, and any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number of shares subject to
this option or the exercise price thereof.
This option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or
assets.
9. Securities Act and Other Regulatory Requirements.
This option is not exercisable, in whole or in part, and the Company is not
obligated to sell any shares of the Company's common stock subject to this
option, if such exercise or sale, in the opinion of counsel for the Company,
would violate the Securities Act of 1933 (or any other federal or state
statutes having similar requirements) as it may be in effect at that time.
Further, the Board of Directors of the Company may
require as a condition of issuance of any shares under this option that
Employee furnish a written representation that he is acquiring the shares for
investment and not with a view to distribution to the public. The certificate
evidencing any shares issued pursuant to this option shall bear such
restrictive legends as required by federal or state law.
Further, the Board of Directors of the Company may
decide, in its sole discretion, that the listing or qualification of the shares
of stock subject to the option under any securities exchange requirements or
under any applicable law is necessary or desirable. If such a decision is
made, this option shall not be exercisable in whole or in part unless and until
such listing, qualification, consent or approval shall have been effected or
obtained free of any conditions that are not acceptable to the Board of
Directors of the Company.
10. Effect of Exercise. Upon the exercise of all or any
part of this option, the number of shares of common stock subject to the option
under this Agreement shall be
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<PAGE> 7
reduced by the number of shares with respect to which such exercise is made.
11. Right of First Refusal. If Employee desires to
transfer any shares of common stock which he has acquired pursuant to the
exercise of the option granted herein ("Shares"), Employee shall deliver to the
Company written notice of his intention to transfer such Shares (the "Notice")
together with either a copy of a signed and binding offer by the proposed
transferee (a "Negotiated Sale") or a statement that such Shares are to be sold
into the public market at Fair Market Value at the time of sale (a "Market
Sale"). The Notice for a Negotiated Sale shall state the name and address of
the proposed transferee, the number of Shares to be transferred, the price per
Share, and the other terms of such transfer. The Notice for a Market Sale
shall state the expected date of the proposed sale and the number of Shares to
be sold. For thirty (30) days following delivery of the Notice, the Company
shall have the option to purchase all (but not less than all) of the Shares
proposed to be sold by Employee at the price and terms stated in the Notice.
In the event of a Market Sale, such purchase price shall be the Fair Market
Value of the Shares on the day the Company exercises its option, less five (5)
percent. Such option shall be exercisable by delivery of written notice to
Employee within such thirty (30) day period. Any Shares not purchased by the
Company may, for a period of sixty (60) days commencing on the expiration of
the Company's option to purchase such Shares, be sold to the proposed
transferee at the price and upon the terms specified in the Notice. Shares
which are not transferred by Employee within such sixty (60) day period shall
again become subject to the notice and option provisions of this Section 11.
The certificate evidencing any shares issued pursuant to this option shall bear
a restrictive legend stating that such shares are subject to the right of first
refusal set forth in this Section 11.
12. Notices. Any notice or other communication required
or permitted hereunder or by law shall be validly given or made only if in
writing and delivered in person to an officer or duly authorized representative
of the other party, or deposited in the United States mail, duly certified or
registered, return receipt requested, postage prepaid, and addressed to the
party to whom intended. If sent to the Company, it shall be addressed in care
of the President, 2850 Ocean Park Boulevard, Suite 225, Santa Monica, California
90405, and if sent to Employee, it shall be addressed to Employee's address on
file with the Company on the date of such notice. If sent by mail, notice shall
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be deemed given two days after deposit of such notice in the mail and in
accordance with this section. Any party may from time to time, by written
notice to the other, designate a different address for notice which shall be
substituted for that specified above.
13. Choice of Law; Counterparts. This Agreement, and all
rights and obligations hereunder, shall be governed by the laws of the State of
California. This Agreement may be executed in one or more counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
14. Successor. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
heirs, beneficiaries, executors and administrators.
15. Paragraph Headings; Employment. Paragraph headings
are for convenience only and are not part of the context. This Agreement shall
not obligate the Company or any affiliate to employ Employee for any period of
time nor does this Agreement constitute a contract or agreement for employment.
IN WITNESS WHEREOF, this Agreement is executed as of the
date first written above.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
-------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EMPLOYEE:
/s/ NATHAN NORMAN SHEINMAN
-------------------------------
Nathan Norman Sheinman
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<PAGE> 1
EXHIBIT 10.17
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement") between
INTERVISUAL BOOKS, INC., a California corporation (the "Company"), and NATHAN
NORMAN SHEINMAN ("Employee") is entered into as of the 13th day of January,
1997.
RECITALS
A. Pursuant to an Employment Agreement bearing even date herewith
between the Company and Employee (the "Employment Agreement"), the Company has
agreed to grant to Employee this option to purchase shares of the Company's
common stock.
B. As a condition precedent to the effectiveness of
this Agreement, Employee must commence full time employment
with the Company pursuant to the terms of the Employment
Agreement.
NOW, THEREFORE, the parties hereto agree as
follows:
1. Grant. The Company hereby grants to Employee
the right to purchase up to 100,000 shares of common stock of the Company at a
price of $1.375 per share (which price equals the fair market value of the
Company's common stock as of the date of this Agreement), on the terms and
conditions set forth herein. This option is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code, as
amended, and is not made pursuant to any Company stock option plan. Employee
agrees that Employee and any other person who may be entitled hereunder to
exercise this option shall be bound by all terms and conditions of this
Agreement.
This Agreement and the grant of the option
herein shall not be effective unless and until Employee commences full time
employment with the Company pursuant to the terms of the Employment Agreement.
If Employee does not commence full time employment with the Company pursuant to
the terms of the Employment Agreement, this Agreement and the option granted
herein shall be null and void, and the parties hereto shall be deemed to have no
rights or obligations under this Agreement whatsoever.
<PAGE> 2
2. Exercisability. The option granted herein
shall become exercisable at the following times and in the
following amounts:
The option shall become exercisable in cumulative
increments of 50,000 shares on each of (a) December 31,
1998 and (b) December 31, 1999. The option granted
hereunder shall lapse and expire on the seventh (7th)
anniversary of the date hereof.
If Employee does not purchase the full number
of shares he is entitled to purchase in any one year, the right to purchase such
shares carries over to the subsequent years during the term of this option.
Notwithstanding the foregoing, this option
shall automatically become fully exercisable upon a "Change in Control of the
Company," as such term is defined below.
For purposes of this Agreement, a "Change in
Control of the Company" shall be deemed to have occurred if:
(a) the shareholders of the Company approve
a definitive agreement to sell, transfer, or
otherwise dispose of all or substantially all of
the Company's assets and properties; or
(b) any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934), other than the
Company or any "person" who as of the date this Agreement is a
director or officer of the Company (including any trust of such
director or officer), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; provided, however, that the
following shall not constitute a "Change in Control" of the
Company:
(i) any acquisition directly from the Company
(excluding any acquisition resulting from the exercise of a
conversion or exchange privilege in respect of outstanding
convertible or exchangeable securities);
(ii) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the
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<PAGE> 3
Company or any corporation controlled by the Company;
or
(iii) upon the death of any person who as of the
date of this Agreement is a director or officer of the Company,
the transfer (A) by testamentary disposition or the laws of
intestate succession to the estate or the legal beneficiaries or
heirs of such person, or (B) by the provisions of any trust to the
beneficiaries thereof of the securities of the Company
beneficially owned by such director or officer of the Company; or
(c) the shareholders of the Company approve the dissolution
or liquidation of the Company or a definitive agreement to merge
or consolidate the Company with or into another entity in which
the Company is not the continuing or surviving corporation or
pursuant to which any shares of the Company's stock would be
converted into cash, securities or other property of another
entity, other than a merger of the Company in which holders of the
Company's common stock immediately prior to the merger have the
same proportionate ownership of common stock (or equivalent
securities) of the surviving entity immediately after the merger
as immediately before.
3. Exercise. This option may be exercised on
the terms and conditions contained herein by giving ten (10) days' prior written
notice of exercise to the Company, specifying the number of shares to be
purchased and the price to be paid therefor and by delivering a check in the
amount of the purchase price payable to the Company. The purchase price may also
be paid, in whole or in part, by delivery to the Company of outstanding shares
of the Company's common stock previously held by the Employee valued at "Fair
Market Value".
For the purposes of this Agreement, "Fair
Market Value" as of a certain date (the "Determination Date") means: (a) the
closing price of a share of the Company's common stock on the principal exchange
on which shares of the Company's common stock are then trading, if any, on the
Determination Date, or, if shares were not traded on the Determination Date,
then on the nearest preceding trading day during which a sale occurred; or (b)
if such stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (i) the last sales price (if the stock is then
listed as a National Market Issue under The Nasdaq National Market System) or
(ii) the
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<PAGE> 4
mean between the closing representative bid and asked prices (in all other
cases) for the stock on the Determination Date as reported by NASDAQ or such
successor quotation system; or (c) if such stock is not publicly traded on an
exchange and not quoted on NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the stock, on the Determination
Date, as determined in good faith by the Board; or (d) if the Company's stock is
not publicly traded, the fair market value established in good faith by the
Board.
4. Termination of Employment.
(a) Termination by Employee. If Employee's
employment is terminated by Employee, Employee shall have ninety (90) days
following the "Date of Termination" (as defined in Section 6(f) of the
Employment Agreement) to exercise this option, but only to the extent that this
option was exercisable on such Date of Termination.
(b) Termination for Cause. If Employee's
employment is terminated by the Company for "Cause" (as defined in Section 6(a)
of the Employment Agreement), neither Employee nor his estate shall be entitled
to exercise this option after the Date of Termination.
(c) Death or Incapacity. If Employee's
employment is terminated for death or "Incapacity" (as defined in Section 6(c)
of the Employment Agreement), Employee or Employee's estate, as the case may be,
shall have the right for six (6) months following the Date of Termination to
exercise this option, but only to the extent that this option was exercisable on
such Date of Termination.
(d) Other. If Employee's employment is
terminated for any reason other than as set forth in Sections 4(a), (b) and (c)
above, Employee shall have ninety (90) days following the Date of Termination to
exercise this option, but only to the extent that this option was exercisable on
such Date of Termination.
5. Transferability. This option shall be
transferable only by will or by the law of descent and distribution to the
estate (or other personal representative) of Employee and shall be exercisable
during Employee's lifetime only by him. Except as otherwise provided herein, any
attempt at alienation, assignment, pledge, hypothecation, transfer, sale,
attachment, execution or similar process, whether voluntary or involuntary, with
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<PAGE> 5
respect to all or any part of this option or any right under this Agreement,
shall be null and void and, at the Company's option, shall cause Employee's
rights under this Agreement to terminate.
6. Withholding Requirements. In the event the
Company determines that it is required to withhold state or Federal income taxes
as a result of the exercise of this option, Employee shall be required, as a
condition to the exercise hereof, to make arrangements satisfactory to the
Company to enable it to satisfy such withholding requirements.
7. Rights as a Stockholder. Employee, or any
permitted transferee of Employee, shall have no rights as a stockholder with
respect to any shares covered by this option until the date of the issuance of a
stock certificate for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 8 of this
Agreement. This Agreement shall not confer upon Employee any right of continued
employment by the Company or interfere in any way in the Company's right to
terminate Employee.
8. Recapitalization. Subject to any required action by
stockholders, the number of shares of Common Stock covered by this option and
the exercise price thereof shall be proportionately adjusted for any increase or
decrease in the number of issued shares of common stock resulting from a
subdivision or consolidation of such shares or the payment of a stock dividend
(but only of common stock) or any other increase or decrease in the number of
issued shares of common stock effected without receipt of consideration by the
Company. Subject to any required action by stockholders, if the Company is the
surviving corporation in any merger or consolidation, this option shall pertain
and apply to the securities to which a holder of the number of shares of common
stock subject to the option would have been entitled.
The foregoing adjustments shall be made by
the Company's Board of Directors, whose determination shall be conclusive and
binding on the Company and Employee.
Except as expressly provided in this Section
8, Employee shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
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<PAGE> 6
increase or decrease in the number of shares of stock of any class, or by reason
of any dissolution, liquidation, merger, consolidation or spin-off of assets or
stock of another corporation, and any issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number of shares subject to this option or the exercise price thereof.
This option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
9. Securities Act and Other Regulatory
Requirements. This option is not exercisable, in whole or in part, and the
Company is not obligated to sell any shares of the Company's common stock
subject to this option, if such exercise or sale, in the opinion of counsel for
the Company, would violate the Securities Act of 1933 (or any other federal or
state statutes having similar requirements) as it may be in effect at that time.
Further, the Board of Directors of the
Company may require as a condition of issuance of any shares under this option
that Employee furnish a written representation that he is acquiring the shares
for investment and not with a view to distribution to the public. The
certificate evidencing any shares issued pursuant to this option shall bear such
restrictive legends as required by federal or state law.
Further, the Board of Directors of the Company
may decide, in its sole discretion, that the listing or qualification of the
shares of stock subject to the option under any securities exchange requirements
or under any applicable law is necessary or desirable. If such a decision is
made, this option shall not be exercisable in whole or in part unless and until
such listing, qualification, consent or approval shall have been effected or
obtained free of any conditions that are not acceptable to the Board of
Directors of the Company.
10. Effect of Exercise. Upon the exercise of all
or any part of this option, the number of shares of common stock subject to the
option under this Agreement shall be reduced by the number of shares with
respect to which such exercise is made.
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<PAGE> 7
11. Right of First Refusal. If Employee desires
to transfer any shares of common stock which he has acquired pursuant to the
exercise of the option granted herein ("Shares"), Employee shall deliver to the
Company written notice of his intention to transfer such Shares (the "Notice")
together with either a copy of a signed and binding offer by the proposed
transferee (a "Negotiated Sale") or a statement that such Shares are to be sold
into the public market at Fair Market Value at the time of sale (a "Market
Sale"). The Notice for a Negotiated Sale shall state the name and address of the
proposed transferee, the number of Shares to be transferred, the price per
Share, and the other terms of such transfer. The Notice for a Market Sale shall
state the expected date of the proposed sale and the number of Shares to be
sold. For thirty (30) days following delivery of the Notice, the Company shall
have the option to purchase all (but not less than all) of the Shares proposed
to be sold by Employee at the price and terms stated in the Notice. In the event
of a Market Sale, such purchase price shall be the Fair Market Value of the
Shares on the day the Company exercises its option, less five (5) percent. Such
option shall be exercisable by delivery of written notice to Employee within
such thirty (30) day period. Any Shares not purchased by the Company may, for a
period of sixty (60) days commencing on the expiration of the Company's option
to purchase such Shares, be sold to the proposed transferee at the price and
upon the terms specified in the Notice. Shares which are not transferred by
Employee within such sixty (60) day period shall again become subject to the
notice and option provisions of this Section 11. The certificate evidencing any
shares issued pursuant to this option shall bear a restrictive legend stating
that such shares are subject to the right of first refusal set forth in this
Section 11.
12. Notices. Any notice or other communication required or
permitted hereunder or by law shall be validly given or made only if in writing
and delivered in person to an officer or duly authorized representative of the
other party, or deposited in the United States mail, duly certified or
registered, return receipt requested, postage prepaid, and addressed to the
party to whom intended. If sent to the Company, it shall be addressed in care of
the President, 2850 Ocean Park Boulevard, Suite 225, Santa Monica, California
90405, and if sent to Employee, it shall be addressed to Employee's address on
file with the Company on the date of such notice. If sent by mail, notice shall
be deemed given two days after deposit of such notice in the mail and in
accordance with this section. Any party may from time to time, by written notice
to the other, designate
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<PAGE> 8
a different address for notice which shall be substituted for that specified
above.
13. Choice of Law; Counterparts. This Agreement,
and all rights and obligations hereunder, shall be governed by the laws of the
State of California. This Agreement may be executed in one or more counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
14. Successor. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, heirs, beneficiaries, executors and administrators.
15. Paragraph Headings; Employment. Paragraph
headings are for convenience only and are not part of the context. This
Agreement shall not obligate the Company or any affiliate to employ Employee for
any period of time nor does this Agreement constitute a contract or agreement
for employment.
IN WITNESS WHEREOF, this Agreement is executed as
of the date first written above.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
-------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EMPLOYEE:
/s/ NATHAN NORMAN SHEINMAN
-------------------------------
Nathan Norman Sheinman
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<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is
entered into as of the 13th day of January, 1997, between INTERVISUAL BOOKS,
INC., a California corporation (the "Company"), and NEIL STUART (the
"Executive").
In consideration of the promises and covenants set
forth below, the parties hereto agree as follows:
1. Employment.
The Company hereby agrees to employ
Executive, and Executive hereby agrees to accept such employment with the
Company, on the terms and conditions set forth herein.
2. Term.
The employment of Executive by the Company as
provided in this Agreement will commence on January 27, 1997 (the "Start Date"),
and end on December 31, 1999, unless sooner terminated as hereinafter provided.
As a condition precedent to the effectiveness of this Agreement, Executive shall
report for work at the principal executive offices of the Company on the Start
Date and, if requested by the Company, Executive shall affirm in writing on the
Start Date that he has ceased employment with his current employer.
3. Position and Duties.
Executive shall serve as Executive Vice
President and Creative Director of the Company, or such other position or
positions as may be agreed upon by Executive and the Board of Directors.
Executive shall at all times perform his duties and obligations faithfully and
diligently and shall devote all his business time and best efforts exclusively
to the business of the Company. Executive shall at all times industriously
perform his duties under the supervision of and report to the President and
Chief Executive Officer of the Company and shall accept and comply with all
directions from and all policies established from time to time by the Chairman
of the Board, Board of Directors, President, and Chief Executive Officer of the
Company. Executive's primary duties shall include, without limitation,
responsibility for the day-to-day operations of the creative department and such
other duties as may from time to time be prescribed by the Board of Directors,
President, and Chief Executive Officer of the Company.
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<PAGE> 2
Executive shall promote the trade and busi-
ness of the Company to the best of his ability and shall not willingly do
anything to the prejudice of the Company's trade or business. Executive shall
not at any time make any untrue statement regarding the Company and shall not
after the termination of employment by the Company represent himself as being
employed or connected with the Company. Executive shall not directly or
indirectly render any services of a business, commercial or professional nature
to any other person, entity or organization, whether for compensation or
otherwise, without the prior written consent of the Company's Board of
Directors. Executive shall adhere to all of the Company's policies and
procedures applicable to Company's employees generally.
Notwithstanding the foregoing, the parties
hereto agree that Executive shall be permitted to continue his current
consulting commitments until February 28, 1997, after which time no outside
consulting will be permitted. Executive shall be entitled to engage in the
permitted consulting set forth in the preceding sentence only if (a) such
activities shall not require Executive to be absent from the Company more than
five regularly scheduled Company work days per month (which days shall be
counted as vacation days and scheduled in advance with the agreement of the
President and Chief Executive Officer), (b) the Company shall not incur any
liability or obligation or any additional expenses or costs associated with such
activities by Executive, and (c) such activities do not detract from Executive's
fulfillment of his duties hereunder or cause Executive to compete in any manner
with the Company. Executive agrees to discontinue such activities if, in the
good faith judgment of the Company's Board of Directors, Executive has violated
or the continuance of such activities more likely than not will cause Executive
to violate any of the restrictions set forth in the preceding sentence or any
other provision of this Agreement.
4. Place of Performance.
In connection with Executive's employment by
the Company and except for required travel on Company business, Executive shall
be based at the principal executive offices of the Company or such place or
places as the interests, needs, business and opportunities of the Company
require or deem advisable.
5. Compensation and Related Matters.
(a) Salary. During the term of Executive's
employment hereunder, the Company shall pay to Executive a
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<PAGE> 3
salary of $175,000 per annum from the Start Date through December 31,1997 and a
salary of $192,500 per annum from January 1, 1998 through December 31, 1999.
Such salary shall be paid in equal semi-monthly installments (or such shorter
intervals as the Company may elect) and shall accrue from day to day. Such
salary shall be subject to any withholding or taxes the Company is required by
law to make or pay.
(b) Vacations. During the term of
Executive's employment hereunder, Executive shall be entitled to four weeks of
vacation in each calendar year, and to compensation with respect to earned but
unused vacation days determined in accordance with the Company's vacation
policy. Executive's vacation shall be scheduled by mutual agreement between the
Executive and the Company's President.
(c) Expenses. During the term of Execu-
tive's employment hereunder, Executive shall be entitled to receive
reimbursement for all reasonable out-of-pocket travel and other expenses
(excluding ordinary commuting expenses) incurred by Executive in performing
Executive's services hereunder, provided that:
i) Each such expenditure is of a nature
qualifying it as a proper business expenditure of the
Company and is approved by the Company; and
ii) Executive furnishes to the Company adequate
records and other documentary evidence reasonably required by the
Company for the substantiation of such expenditures as proper
business expenditures of the Company, and Executive otherwise
complies with general Company policies with respect to expense
reimbursement.
(d) Stock Options. Executive acknowledges
that, as additional compensation for Executive's employment hereunder, Executive
will be granted two nonstatutory stock options to acquire 75,000 and 50,000
shares, respectively, of the Company's common stock pursuant to the Stock Option
Agreements attached hereto as Exhibits A and B. The terms of such stock options
shall be governed by the provisions of the Stock Option Agreements.
(e) Medical Insurance. During the term of
Executive's employment hereunder, Executive will be entitled to participate in
any medical insurance plans from time to time generally applicable to full-time
employees of the Company during the term of Executive's employment hereunder.
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<PAGE> 4
If any pre-existing condition of Executive's immediate family may effect
Executive's ability to be eligible to receive benefits commensurate with those
that Executive is eligible to receive immediately prior to the Start Date under
the Company's medical insurance plans, Executive may elect not to participate in
any of such insurance plans and the Company will pay the premiums for
continuation of Executive's medical insurance plan as in effect prior to the
Start Date or such other plan as Executive may choose, if permitted under such
plan and available at rates similar to the rates under the Company's plans.
Executive will be responsible for any premium costs in excess of the amount of
the premiums the Company would normally pay under the Company's medical
insurance policy.
(f) 401(k). During the term of Executive's
employment hereunder, Executive will be entitled to participate in the Company's
401(k) plan, or other similar plans established by the Company, generally
applicable to full-time employees of the Company.
(g) Life Insurance. During the term of
Executive's employment hereunder, the Company shall pay the premiums, in an
amount not to exceed $10,000 per annum, for term life insurance on the life of
Executive; provided that Executive must pass any physical examination required
under such life insurance policy, and such life insurance policy must be
established by Executive on or before the one year anniversary of the Start
Date. The beneficiary or beneficiaries under such policy shall be designated by
Executive, and Executive shall be responsible for any taxes incurred by
Executive by reason of the Company's payment of premiums on such policy
hereunder.
(h) Moving Expenses. Executive shall be
entitled to reimbursement by the Company, in accordance with the Company's
policies, for reasonable and customary moving expenses actually and reasonably
incurred by Executive, but not to exceed $20,000, in connection with moving
Executive and Executive's immediate family, together with the personal
belongings of Executive and Executive's immediate family, from New York to the
Southern California area. Executive also shall be entitled to reimbursement for
any taxes incurred by Executive by reason of the Company's payment of moving
expenses hereunder.
(i) Automobile Allowance. During Execu-
tive's employment hereunder, the Company shall:
a) Pay Executive an automobile allowance in an
amount equal to Executive's monthly automobile lease
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<PAGE> 5
payment, but not to exceed $500 per month, on or about the last
day of each month, provided that Executive maintains all necessary
records as required by the Company and the Internal Revenue
Service;
b) Reimburse Executive, at standard rates and
in accordance with the Company's policies, for repair and
maintenance expenses regarding such automobile incurred by
Executive in performance of his responsibilities hereunder,
provided that Executive furnishes to the Company adequate records
and other documentary evidence required for the substantiation of
such payments as proper business expenses of the Company and not
as deductible compensation to Executive; and
c) Procure and maintain insurance coverage on
such automobile, provided the Company shall not pay any excess or
increased costs resulting from Executive's driving record.
Executive acknowledges that the personal use portion of such automobile
allowance will be accounted for by the Company as income paid to Executive,
based on the records maintained by Executive and standard IRS tables. Executive
shall conform to the Company's policies regarding the use of such automobile.
(j) Interim Living Expenses. From the Start
Date until the earlier to occur of (A) the securing of permanent housing in the
Southern California area for Executive and Executive's immediate family, or (B)
July 31, 1998, Executive shall be entitled to reimbursement by the Company, in
accordance with the Company's policies, for the following expenses actually and
reasonably incurred by Executive:
i) Apartment or housing rental expenses,
but not to exceed $1,250 per month;
ii) Furniture rental expenses, but not to
exceed $250 per month;
iii) Expenses for travel between Southern
California and New York for Executive and his immediate
family, but not to exceed $1,000 per month; and
iv) Reasonable living expenses for which
receipts are furnished by Executive, but not to exceed
$750 per month.
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<PAGE> 6
In addition, the Company shall advance any deposits required by the lessor in
connection with the rental of an apartment, house or furniture under subsections
(i) and (ii) above. If Executive secures permanent housing in the Southern
California area for Executive and Executive's immediate family on or before
August 31, 1997, the Company shall pay Executive a relocation bonus in the
amount of $35,000, which amount shall be payable to Executive not later than the
last pay period of the 1997 calendar year; provided, that Executive must be
employed by the Company on the date of payment of such relocation bonus to be
eligible to receive such relocation bonus.
(k) Home Loan Guaranty. Upon request by
Executive, the Company shall provide a guaranty of a loan obtained by Executive
to purchase a permanent residence in Southern California for Executive and
Executive's immediate family, which guaranty shall not exceed the lesser of (A)
10% of the purchase price for such residence or (B) $75,000; provided, that the
Company will not make such guaranty unless and until it obtains shareholder
approval of such guaranty, the terms of such loan and guaranty and the documents
relating to such loan and guaranty must be reasonably acceptable to the Company
in form and substance, and the guaranty must be secured by deeds of trust on the
residence being purchased by Executive and on Executive's home in Mahopac, New
York. Executive agrees to sign documentation evidencing his and the Company's
obligations under the guaranty, and to obtain a release of such guaranty upon
the earliest to occur of (i) the termination of Executive's employment under
this Agreement, (ii) the sale of Executive's home in Mahopac, New York, or (iii)
the third anniversary of the date such guaranty is made. If Executive does not
promptly obtain the release required under the preceding sentence, the Company
may withhold any amounts owed to Executive under this Agreement up to the
outstanding amount of such guaranty.
6. Termination or Resignation.
(a) Cause. The Company may at any time upon
written notice to Executive terminate this Agreement and Executive's employment
hereunder for Cause pursuant to the provisions of this Section 6(a). Executive
shall be given written notice by the Board of Directors of its intention to
terminate Executive for Cause, which notice shall state the acts or omissions
that constitute grounds on which the proposed termination for Cause is based. In
the Board of Director's reasonable business judgment, the Board shall permit
Executive an opportunity to address the Board or a committee of one or more
directors regarding the grounds on
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<PAGE> 7
which the proposed termination for Cause is based. In every case, the good faith
judgment of the Board of Directors shall be conclusive as to whether Cause for
termination exists.
For purposes of this Agreement, the Company
shall have "Cause" to terminate Executive's employment
hereunder upon:
(i) The breach by Executive of any material
provision or covenant of this Agreement, and if such breach is susceptible to
cure by Executive, the failure to effect such cure within twenty (20) days after
written notice of such breach is given to the Executive; or
(ii) The willful failure or neglect of
Executive to perform Executive's duties hereunder or the gross negligence of
Executive in the performance of such duties, and if such failure or gross
negligence is susceptible to cure by Executive, the failure to effect such cure
by Executive within twenty (20) days after written notice of such failure or
gross negligence is given to Executive; or
(iii) Except as permitted hereunder,
Executive's unexplained and regular absences from the
Company; or
(iv) Executive's use of alcohol or illegal
drugs, which use interferes with the performance of
Executive's duties hereunder; or
(v) Executive's indictment for a crime or
for theft, embezzlement, fraud, misappropriation of funds or any other alleged
act of dishonesty by Executive or Executive's indictment for any other felony or
other crime involving moral turpitude; or
(vi) Executive's violation of any law or
ethical rule relating to Executive's employment by the Company, including, but
not limited to a violation by Executive of Executive's fiduciary duty of loyalty
to the Company which Executive owes to the Company as an officer and/or
director; or
(vii) Executive's failure to move his
immediate family's permanent residence to the Southern California area on or
before July 31, 1998.
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<PAGE> 8
For purposes of this Agreement, an action
shall be considered "willful" if it is done intentionally,
purposely or knowingly.
(b) Death. This Agreement and Executive's
employment hereunder shall terminate automatically upon
Executive's death.
(c) Incapacity. If Executive becomes
incapacitated during Executive's employment hereunder, this Agreement and
Executive's employment hereunder shall terminate on the date of determination by
the Board of Directors of the Company of such incapacity. As used herein,
"incapacity" shall mean any physical or mental illness or disability, or both,
which renders Executive incapable of performing substantially all of his
managerial and executive services hereunder for 120 days or more in the
aggregate during any calendar year, and which at any time after such 120 days
the Company's Board of Directors shall determine continues to render Executive
incapable of performing substantially all of his managerial and executive
services hereunder. Any determination made in good faith by the Company's Board
of Directors shall be conclusive and binding upon Executive.
(d) Without Cause. The Company shall be
entitled to terminate this Agreement and Executive's employment hereunder at any
time without Cause.
(e) Resignation. Executive shall be
entitled to terminate this Agreement and Executive's employment hereunder at any
time on thirty days prior written notice delivered by Executive to the Company.
(f) Notice of Termination. Any termination
of Executive's employment by the Company or by Executive (other than termination
pursuant to subsection 6(b) above) shall be communicated by a written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" means a notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth the circumstances which
provide a basis for termination of Executive's employment under the provisions
so indicated, and (iii) if the termination date is other than the date of
receipt of such notice, specifies the termination date of this Agreement (which
date shall not be more than 30 days after the giving of such notice).
(g) Date of Termination. "Date of Termina-
tion" shall mean the date of death, the date of receipt of
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<PAGE> 9
the Notice of Termination or the date specified therein, as the case may be.
(h) Arbitration Rights. Nothing contained
in this Section 6 shall contravene the Company and Executive's right and
obligation to arbitrate disputes as provided for in Section 11 of this
Agreement.
7. Obligations of the Company Upon Termination
or Resignation.
(a) Termination for Cause. If this Agree-
ment is terminated pursuant to Section 6(a), the Company shall have no further
obligation or liability to Executive, except that Executive shall be entitled to
receive only (i) the portion of Executive's salary as set forth in Section 5(a)
which has been earned up to the Date of Termination, (ii) compensation for any
accrued and unused vacation up to the Date of Termination, and (iii)
reimbursement, subject to the requirements set forth in Section 5(c), for
business expenses incurred up to the Date of Termination (collectively, the
"Minimum Payments").
(b) Termination for Death or Disability. If
this Agreement is terminated pursuant to Sections 6(b) or 6(c), the Company
shall have no further obligation or liability to Executive, except that
Executive shall be entitled to receive only the Minimum Payments.
(c) Termination Without Cause. If this
Agreement is terminated by the Company pursuant to Section 6(d), the Company
shall have no further obligation or liability to Executive, except that
Executive shall be entitled to receive only (i) the Minimum Payments, and (ii)
an amount equal to (A) $180,000 if the Date of Termination is before the first
year anniversary of the Start Date, (B) $120,000 plus one week of Executive's
salary as set forth in Section 5(a) if the Date of Termination is on or after
the first year anniversary but before the second year anniversary of the Start
Date, or (C) $60,000 plus two weeks of Executive's salary as set forth in
Section 5(a) if the Date of Termination is on or after the second year
anniversary but before December 31, 1999. Any amounts owed to Executive pursuant
to subsection (ii) above shall be paid at the rate of $7,500 per month
commencing one month from the Date of Termination until paid in full. In
addition, Executive shall be entitled to reimbursement by the Company, in
accordance with the Company's policies, for reasonable and customary moving
expenses actually and reasonably incurred by Executive, but not to exceed
$20,000, in connection with moving Executive and Executive's immediate family,
together
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<PAGE> 10
with the personal belongings of Executive and Executive's immediate family, out
of Southern California; provided, that Executive completes such move on or
before the date that is six months after the Date of Termination.
(d) Resignation. If this Agreement is
terminated by Executive pursuant to Section 6(e), the Company shall have no
further obligation or liability to Executive, except that Executive shall be
entitled to receive only (i) the Minimum Payments and (ii) if the Date of
Termination is on or before December 31, 1997, then an amount equal to two weeks
of Executive's salary as set forth in Section 5(a). In addition, if the Date of
Termination is on or before December 31, 1997, Executive shall be entitled to
reimbursement by the Company, in accordance with the Company's policies, for
reasonable and customary moving expenses actually and reasonably incurred by
Executive, but not to exceed $20,000, in connection with moving Executive and
Executive's immediate family, together with the personal belongings of Executive
and Executive's immediate family, out of Southern California; provided, that
Executive completes such move on or before the date that is six months after the
Date of Termination.
(e) Exclusivity of Payments. Upon termina-
tion of Executive's employment hereunder, Executive shall not be entitled to any
severance payments or severance benefits from the Company or any payments by the
Company on account of any claim for wrongful termination, including but not
limited to claims under any federal, state or local human and civil rights or
labor laws, other than the payments provided in this Section 7, except for any
benefits which may be due to Executive in the normal course under any employee
benefit plan of the Company which provides for benefits after termination of
employment. Executive agrees that any right to receive any payments under this
Section 7 upon termination of employment will cease if Executive breaches any
provision of Sections 8 or 9 below.
8. Proprietary Information.
(a) Definition. Executive hereby acknowl-
edges that Executive possesses and may make use of, acquire, create, develop or
add to certain confidential and/or proprietary information regarding the Company
and its business (whether in existence prior to, as of or after the date hereof,
collectively, "Proprietary Information"), which Proprietary Information shall
include, without limitation, all of the following materials and information
(whether or not reduced to writing and whether or not patentable or protected by
copyright): trade secrets, inventions,
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<PAGE> 11
processes, formulae, programs, technical data, "know-how," procedures, manuals,
confidential reports and communications, marketing methods, product sales or
cost information, new product ideas or improvements, new packaging ideas or
improvements, research and development programs, identities or lists of
suppliers, vendors or customers, financial information and financial projections
of the Company of any nature whatsoever, or any other confidential or
proprietary information relating to the Company and/or its business. The term
"Proprietary Information" does not include any information that (i) at the time
of disclosure is generally available to and known by the public (other than as a
result of its disclosure by Executive), (ii) was available to Executive prior to
disclosure by the Company, provided that the person who was the source of such
information was not known by Executive to be subject to an obligation of
confidentiality to the Company, or (iii) becomes available to Executive on a
non-confidential basis from a person other than the Company or its
representatives, provided that the source of such information was not known by
Executive to be subject to an obligation of confidentiality to the Company.
(b) Nondisclosure. During the term of this
Agreement and thereafter, Executive will not, without the prior express written
consent of the Board of Directors, disclose or make any use of any Proprietary
Information except as may be required in the course of the performance of
Executive's services under this Agreement.
(c) Ownership. Executive acknowledges and
agrees that all right, title and interest in and to any Proprietary Information
shall be and shall remain the exclusive property of the Company. Without
limiting the foregoing, Executive shall assign to the Company any and all right,
title or interest which Executive may have in all Proprietary Information made,
developed or conceived of in whole or in part by Executive during his employment
hereunder.
(d) Agreement Not to Solicit Customers. To
protect the Proprietary Information and trade secrets of the Company, Executive
agrees, during the term of this Agreement and for a period of one year after
termination of this Agreement, not to, directly or indirectly, either on
Executive's own behalf or on behalf of any other person or entity, attempt in
any manner to persuade any customer of the Company to cease to do business or to
reduce the amount of business which any customer of the Company has customarily
done or contemplates doing with the Company. Executive agrees that the covenants
contained in this paragraph are reasonable and desirable.
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<PAGE> 12
(e) Agreement Not to Solicit Employees. To
protect the Proprietary Information and trade secrets of the Company, Executive
agrees, during the term of this Agreement and for a period of one year after
termination of this Agreement, not to, directly or indirectly, either on
Executive's own behalf or on behalf of any other person or entity, solicit or
employ any person who is an employee of the Company. Executive agrees that the
covenants contained in this paragraph are reasonable and desirable.
(f) Proprietary Information Agreement. By
execution of this Agreement, Executive agrees and acknowledges that he shall be
bound by all of the terms of the Company's Proprietary Information Agreement
attached hereto as Exhibit C. Executive has reviewed such Proprietary
Information Agreement and agrees that any breach by Executive of any term or
covenant contained therein shall constitute a breach by Executive of this
Agreement.
9. Protection of Property.
All records, files, manuals, documents,
specifications, lists of customers, banks, forms, materials, supplies, computer
programs and other materials furnished to the Executive by the Company, used on
its behalf or generated or obtained during the course of the performance of the
Executive's services hereunder, shall be and remain the property of the Company.
Executive shall be a holder thereof for the sole use and benefit of the Company,
and shall safely keep and preserve such property, except as consumed in the
normal business operations of the Company. Executive acknowledges that this
property is not readily accessible to the Company's competitors. Upon
termination of Executive's employment with the Company for any reason, Executive
shall immediately deliver to the Company, or its authorized representative, all
such property, including all copies, remaining in Executive's possession or
control.
10. Specific Performance.
In the event of the breach by Executive of
any of the provisions of Sections 8 or 9, the Company, in addition and
supplementary to all other rights and remedies existing in its favor and
notwithstanding the provisions of Section 11 hereof, may apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the
provisions thereof.
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<PAGE> 13
11. Arbitration.
The parties hereto acknowledge that it is in
their best interests to facilitate the informal resolution of any disputes
arising out of this Agreement or otherwise by mutual cooperation and without
resorting to litigation. As a result, if any party has a dispute arising
hereunder or otherwise, including but not limited to any claim for breach of any
contract or covenant (express or implied), tort claims, claims for
discrimination (including, but not limited to, race, sex, religion, national
origin, age, handicap or disability), claims for compensation or benefits
(except where a benefit plan or pension plan or insurance policy specifies a
different claims procedure) and claims for violation of any federal, state or
other governmental law, statute, regulation or ordinance (except for claims
involving workers' compensation benefits), and the parties are unable to reach
agreement among themselves, then a settlement conference must be held within
thirty (30) days upon receipt of a notice by the complaining party describing in
detail the complaint and setting forth a proposed solution to the complaint. The
settlement conference will be held in any Los Angeles office of the Judicial
Arbitration and Mediation Services, Inc. ("JAMS"). The complaining party must
contact JAMS to schedule the conference and the parties must agree on a retired
judge from the JAMS panel. If the parties are unable to agree upon such a
retired judge, JAMS shall provide a list of three available judges and each
party may strike one judge. The remaining judge will serve as the mediator at
the settlement conference.
If the dispute is not settled by the above-
described format, the parties agree to submit the dispute to JAMS for binding
arbitration. A three-judge panel will be selected to arbitrate the dispute. JAMS
will provide the names of five potential arbitrators, giving each party the
opportunity to strike one name. The remaining three arbitrators will serve as
the arbitration panel. The parties agree that the arbitration must be initiated
within six months after the claimed breach occurred and that failure to initiate
arbitration within the six-month period constitutes an absolute bar from the
institution of any new proceedings. Arbitration may be initiated by the
aggrieved party by sending written notice of an intent to arbitrate by
registered certified mail to all parties and to JAMS. The notice must contain a
description of the dispute, the amount involved and the remedies sought. If and
when a demand for arbitration is made by either party, the parties agree to
execute a Submission Agreement provided by JAMS, setting forth the rights of the
parties if the case is arbitrated
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<PAGE> 14
and rules and procedures to be followed at the arbitration hearing.
Nothing contained in this Section 11 shall
prevent the Company from seeking and obtaining equitable relief in a court to
enforce any of its rights under Sections 8 or 9 hereof.
12. Additional Covenants of the Company.
(a) The Company will allow Executive and
Executive's creative staff to spend a reasonable amount of time (in an amount
agreed to in advance by the Company) on pro bono work in connection with
planning and organizing each National Book Awards Dinner scheduled during the
term of this Agreement. The Company shall reimburse Executive, in accordance
with the Company's policies, for all necessary and reasonable out-of-pocket
expenses actually incurred by Executive in connection with his attendance at
each such dinner.
(b) The Company shall reimburse Executive,
in accordance with the Company's policies, for all reasonable costs and expenses
actually incurred by Executive in connection with a trip by Executive and
Executive's spouse from New York to Southern California for the purpose of
reviewing possible living accommodations.
13. Additional Covenants, Representations and
Warranties of Executive.
(a) Executive hereby represents and warrants
that the execution, delivery and performance of this Agreement by Executive does
not (i) breach, or result in a default under, any agreement to which Executive
is a party or by which Executive is bound, (ii) breach or otherwise violate any
order, writ, judgment, order or decree binding upon Executive, or (iii) violate
any applicable law or regulation.
(b) Executive shall undergo a physical
examination during January of each year during the term of this Agreement to be
performed by a reputable doctor chosen by Executive. The Company shall reimburse
Executive, in accordance with the Company's policies, for all reasonable costs
and expenses actually incurred by Executive in connection with each such
examination.
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<PAGE> 15
14. Representation by Counsel.
Executive acknowledges that he has been
represented by legal counsel in connection with this Agreement and has consulted
with such legal counsel. The Company shall reimburse Executive for all
reasonable attorneys' fees and expenses actually incurred by Executive, but not
to exceed $2,500, in connection with such representation.
15. Reimbursement of Expenses.
Executive shall promptly furnish to the
Company adequate records and other documentary evidence as requested by the
Company to substantiate any costs or expenses for which reimbursement is sought
hereunder.
16. Successors.
This Agreement is personal to the Executive
and is not assignable by the Executive otherwise than by will or the laws of
descent and distribution without the prior written consent of the Company's
Board of Directors. This Agreement shall inure the benefit of and be enforceable
by Executive's legal representatives. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and assigns.
17. Notice.
For purposes of this Agreement, notices,
demands and all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to Executive: Executive's address as on file
with the Company
If to Company: Intervisual Books, Inc.
2716 Ocean Park Blvd., #2020
Santa Monica, California 90405
Attention: President
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt thereof.
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<PAGE> 16
18. Entire Agreement.
This Agreement, together with the documents
referenced herein, contains the entire agreement of the parties hereto with
respect to the subject matter hereof. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by the Company. Each party to this Agreement
acknowledges that no representations, inducements, promises or agreements,
written, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid or binding.
19. Amendment; Waiver; Governing Law.
No provisions of this Agreement may be modi-
fied, waived or discharged unless such waiver, modification or discharge is
agreed to in a writing signed by Executive and by such officer of the Company as
may be specifically designated by the Company's Board of Directors. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
20. Validity.
The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
21. Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
22. Attorneys' Fees.
In the event of any dispute arising out of
the subject matter of this Agreement, the prevailing party shall be entitled to
recover from the nonprevailing party its costs and expenses (including
reasonable attorneys'
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<PAGE> 17
fees) incurred in arbitrating or otherwise resolving such dispute.
23. Withholding of Taxes; Tax Reporting.
The Company may withhold from any amounts
payable under this Agreement all such Federal, state, city and other taxes, and
may file with appropriate governmental authorities all such information, returns
or other reports with respect to the tax consequences of any amounts payable
under this Agreement, as may, in its reasonable judgment, be required by law.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date first above written.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
--------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EXECUTIVE
/s/ NEIL STUART
-----------------------------------
Neil Stuart
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<PAGE> 1
EXHIBIT 10.19
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement") between
INTERVISUAL BOOKS, INC., a California corporation (the "Company"), and NEIL
STUART ("Employee") is entered into as of the 13th day of January, 1997.
RECITALS
A. Pursuant to an Employment Agreement bearing even date herewith
between the Company and Employee (the "Employment Agreement"), the Company has
agreed to grant to Employee this option to purchase shares of the Company's
common stock.
B. As a condition precedent to the effectiveness of this
Agreement, Employee must commence full time employment with the Company pursuant
to the terms of the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as
follows:
1. Grant. The Company hereby grants to Employee
the right to purchase up to 75,000 shares of common stock of the Company at a
price of $1.375 per share (which price equals the fair market value of the
Company's common stock as of the date of this Agreement), on the terms and
conditions set forth herein. This option is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code, as
amended, and is not made pursuant to any Company stock option plan. Employee
agrees that Employee and any other person who may be entitled hereunder to
exercise this option shall be bound by all terms and conditions of this
Agreement.
This Agreement and the grant of the option
herein shall not be effective unless and until Employee commences full time
employment with the Company pursuant to the terms of the Employment Agreement.
If Employee does not commence full time employment with the Company pursuant to
the terms of the Employment Agreement, this Agreement and the option granted
herein shall be null and void, and the parties hereto shall be deemed to have no
rights or obligations under this Agreement whatsoever.
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<PAGE> 2
2. Exercisability. The option granted herein
shall become exercisable at the following times and in the
following amounts:
The option shall become exercisable in cumulative
increments of 25,000 shares on each of December 31, 1997,
December 31, 1998 and December 31, 1999. The option granted
hereunder shall lapse and expire on the seventh (7th)
anniversary of the date hereof.
If Employee does not purchase the full number
of shares he is entitled to purchase in any one year, the right to purchase such
shares carries over to the subsequent years during the term of this option.
Notwithstanding the foregoing, this option
shall automatically become fully exercisable upon a "Change in Control of the
Company," as such term is defined below.
For purposes of this Agreement, a "Change in
Control of the Company" shall be deemed to have occurred if:
(a) the shareholders of the Company approve
a definitive agreement to sell, transfer, or
otherwise dispose of all or substantially all of
the Company's assets and properties; or
(b) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934), other than the
Company or any "person" who as of the date this Agreement is a
director or officer of the Company (including any trust of such
director or officer), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; provided, however, that the
following shall not constitute a "Change in Control" of the
Company:
(i) any acquisition directly from the Company
(excluding any acquisition resulting from the exercise of a
conversion or exchange privilege in respect of outstanding
convertible or exchangeable securities);
(ii) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the
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<PAGE> 3
Company or any corporation controlled by the Company;
or
(iii) upon the death of any person who as of the
date of this Agreement is a director or officer of the Company,
the transfer (A) by testamentary disposition or the laws of
intestate succession to the estate or the legal beneficiaries or
heirs of such person, or (B) by the provisions of any trust to the
beneficiaries thereof of the securities of the Company
beneficially owned by such director or officer of the
Company; or
(c) the shareholders of the Company approve the dissolution or
liquidation of the Company or a definitive agreement to merge or
consolidate the Company with or into another entity in which the
Company is not the continuing or surviving corporation or pursuant
to which any shares of the Company's stock would be converted into
cash, securities or other property of another entity, other than a
merger of the Company in which holders of the Company's common
stock immediately prior to the merger have the same proportionate
ownership of common stock (or equivalent securities) of the
surviving entity immediately after the merger as immediately
before.
3. Exercise. This option may be exercised on
the terms and conditions contained herein by giving ten (10) days' prior written
notice of exercise to the Company, specifying the number of shares to be
purchased and the price to be paid therefor and by delivering a check in the
amount of the purchase price payable to the Company. The purchase price may also
be paid, in whole or in part, by delivery to the Company of outstanding shares
of the Company's common stock previously held by the Employee valued at "Fair
Market Value".
For the purposes of this Agreement, "Fair
Market Value" as of a certain date (the "Determination Date") means: (a) the
closing price of a share of the Company's common stock on the principal exchange
on which shares of the Company's common stock are then trading, if any, on the
Determination Date, or, if shares were not traded on the Determination Date,
then on the nearest preceding trading day during which a sale occurred; or (b)
if such stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (i) the last sales price (if the stock is then
listed as a National Market Issue under The Nasdaq National Market System) or
(ii) the
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<PAGE> 4
mean between the closing representative bid and asked prices (in all other
cases) for the stock on the Determination Date as reported by NASDAQ or such
successor quotation system; or (c) if such stock is not publicly traded on an
exchange and not quoted on NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the stock, on the Determination
Date, as determined in good faith by the Board; or (d) if the Company's stock is
not publicly traded, the fair market value established in good faith by the
Board.
4. Termination of Employment.
(a) Termination by Employee. If Employee's
employment is terminated by Employee, Employee shall have ninety (90) days
following the "Date of Termination" (as defined in Section 6(f) of the
Employment Agreement) to exercise this option, but only to the extent that this
option was exercisable on such Date of Termination.
(b) Termination for Cause. If Employee's
employment is terminated by the Company for "Cause" (as defined in Section 6(a)
of the Employment Agreement), neither Employee nor his estate shall be entitled
to exercise this option after the Date of Termination.
(c) Death or Incapacity. If Employee's
employment is terminated for death or "Incapacity" (as defined in Section 6(c)
of the Employment Agreement), Employee or Employee's estate, as the case may be,
shall have the right for six (6) months following the Date of Termination to
exercise this option, but only to the extent that this option was exercisable on
such Date of Termination.
(d) Other. If Employee's employment is
terminated for any reason other than as set forth in Sections 4(a), (b) and (c)
above, this option shall automatically become fully exercisable on the Date of
Termination, and Employee shall have ninety (90) days following such Date of
Termination to exercise this option.
5. Transferability. This option shall be
transferable only by will or by the law of descent and distribution to the
estate (or other personal representative) of Employee and shall be exercisable
during Employee's lifetime only by him. Except as otherwise provided herein, any
attempt at alienation, assignment, pledge, hypothecation, transfer, sale,
attachment, execution or similar process, whether voluntary or involuntary, with
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<PAGE> 5
respect to all or any part of this option or any right under this Agreement,
shall be null and void and, at the Company's option, shall cause Employee's
rights under this Agreement to terminate.
6. Withholding Requirements. In the event the
Company determines that it is required to withhold state or Federal income taxes
as a result of the exercise of this option, Employee shall be required, as a
condition to the exercise hereof, to make arrangements satisfactory to the
Company to enable it to satisfy such withholding requirements.
7. Rights as a Stockholder. Employee, or any
permitted transferee of Employee, shall have no rights as a stockholder with
respect to any shares covered by this option until the date of the issuance of a
stock certificate for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 8 of this
Agreement. This Agreement shall not confer upon Employee any right of continued
employment by the Company or interfere in any way in the Company's right to
terminate Employee.
8. Recapitalization. Subject to any required
action by stockholders, the number of shares of Common Stock covered by this
option and the exercise price thereof shall be proportionately adjusted for any
increase or decrease in the number of issued shares of common stock resulting
from a subdivision or consolidation of such shares or the payment of a stock
dividend (but only of common stock) or any other increase or decrease in the
number of issued shares of common stock effected without receipt of
consideration by the Company. Subject to any required action by stockholders, if
the Company is the surviving corporation in any merger or consolidation, this
option shall pertain and apply to the securities to which a holder of the number
of shares of common stock subject to the option would have been entitled.
The foregoing adjustments shall be made by
the Company's Board of Directors, whose determination shall be conclusive and
binding on the Company and Employee.
Except as expressly provided in this Section
8, Employee shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
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<PAGE> 6
increase or decrease in the number of shares of stock of any class, or by reason
of any dissolution, liquidation, merger, consolidation or spin-off of assets or
stock of another corporation, and any issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number of shares subject to this option or the exercise price thereof.
This option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
9. Securities Act and Other Regulatory
Requirements. This option is not exercisable, in whole or in part, and the
Company is not obligated to sell any shares of the Company's common stock
subject to this option, if such exercise or sale, in the opinion of counsel for
the Company, would violate the Securities Act of 1933 (or any other federal or
state statutes having similar requirements) as it may be in effect at that time.
Further, the Board of Directors of the
Company may require as a condition of issuance of any shares under this option
that Employee furnish a written representation that he is acquiring the shares
for investment and not with a view to distribution to the public. The
certificate evidencing any shares issued pursuant to this option shall bear such
restrictive legends as required by federal or state law.
Further, the Board of Directors of the
Company may decide, in its sole discretion, that the listing or qualification of
the shares of stock subject to the option under any securities exchange
requirements or under any applicable law is necessary or desirable. If such a
decision is made, this option shall not be exercisable in whole or in part
unless and until such listing, qualification, consent or approval shall have
been effected or obtained free of any conditions that are not acceptable to the
Board of Directors of the Company.
10. Effect of Exercise. Upon the exercise of all
or any part of this option, the number of shares of common stock subject to the
option under this Agreement shall be reduced by the number of shares with
respect to which such exercise is made.
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<PAGE> 7
11. Right of First Refusal. If Employee desires
to transfer any shares of common stock which he has acquired pursuant to the
exercise of the option granted herein ("Shares"), Employee shall deliver to the
Company written notice of his intention to transfer such Shares (the "Notice")
together with either a copy of a signed and binding offer by the proposed
transferee (a "Negotiated Sale") or a statement that such Shares are to be sold
into the public market at Fair Market Value at the time of sale (a "Market
Sale"). The Notice for a Negotiated Sale shall state the name and address of the
proposed transferee, the number of Shares to be transferred, the price per
Share, and the other terms of such transfer. The Notice for a Market Sale shall
state the expected date of the proposed sale and the number of Shares to be
sold. For thirty (30) days following delivery of the Notice, the Company shall
have the option to purchase all (but not less than all) of the Shares proposed
to be sold by Employee at the price and terms stated in the Notice. In the event
of a Market Sale, such purchase price shall be the Fair Market Value of the
Shares on the day the Company exercises its option, less five (5) percent. Such
option shall be exercisable by delivery of written notice to Employee within
such thirty (30) day period. Any Shares not purchased by the Company may, for a
period of sixty (60) days commencing on the expiration of the Company's option
to purchase such Shares, be sold to the proposed transferee at the price and
upon the terms specified in the Notice. Shares which are not transferred by
Employee within such sixty (60) day period shall again become subject to the
notice and option provisions of this Section 11. The certificate evidencing any
shares issued pursuant to this option shall bear a restrictive legend stating
that such shares are subject to the right of first refusal set forth in this
Section 11.
12. Notices. Any notice or other communication
required or permitted hereunder or by law shall be validly given or made only if
in writing and delivered in person to an officer or duly authorized
representative of the other party, or deposited in the United States mail, duly
certified or registered, return receipt requested, postage prepaid, and
addressed to the party to whom intended. If sent to the Company, it shall be
addressed in care of the President, 2850 Ocean Park Boulevard, Suite 225, Santa
Monica, California 90405, and if sent to Employee, it shall be addressed to
Employee's address on file with the Company on the date of such notice. If sent
by mail, notice shall be deemed given two days after deposit of such notice in
the mail and in accordance with this section. Any party may from time to time,
by written notice to the other, designate
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<PAGE> 8
a different address for notice which shall be substituted for that specified
above.
13. Choice of Law; Counterparts. This Agreement,
and all rights and obligations hereunder, shall be governed by the laws of the
State of California. This Agreement may be executed in one or more counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
14. Successor. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, heirs, beneficiaries, executors and administrators.
15. Paragraph Headings; Employment. Paragraph
headings are for convenience only and are not part of the context. This
Agreement shall not obligate the Company or any affiliate to employ Employee for
any period of time nor does this Agreement constitute a contract or agreement
for employment.
IN WITNESS WHEREOF, this Agreement is executed as
of the date first written above.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
-------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EMPLOYEE:
/s/ NEIL STUART
----------------------------------
Neil Stuart
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<PAGE> 1
EXHIBIT 10.20
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement") between
INTERVISUAL BOOKS, INC., a California corporation (the "Company"), and NEIL
STUART ("Employee") is entered into as of the 13th day of January, 1997.
RECITALS
A. Pursuant to an Employment Agreement bearing even date herewith
between the Company and Employee (the "Employment Agreement"), the Company has
agreed to grant to Employee this option to purchase shares of the Company's
common stock.
B. As a condition precedent to the effectiveness of this
Agreement, Employee must commence full time employment with the Company pursuant
to the terms of the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as
follows:
1. Grant. The Company hereby grants to Employee
the right to purchase up to 50,000 shares of common stock of the Company at a
price of $1.375 per share (which price equals the fair market value of the
Company's common stock as of the date of this Agreement), on the terms and
conditions set forth herein. This option is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code, as
amended, and is not made pursuant to any Company stock option plan. Employee
agrees that Employee and any other person who may be entitled hereunder to
exercise this option shall be bound by all terms and conditions of this
Agreement.
This Agreement and the grant of the option
herein shall not be effective unless and until Employee commences full time
employment with the Company pursuant to the terms of the Employment Agreement.
If Employee does not commence full time employment with the Company pursuant to
the terms of the Employment Agreement, this Agreement and the option granted
herein shall be null and void, and the parties hereto shall be deemed to have no
rights or obligations under this Agreement whatsoever.
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<PAGE> 2
2. Exercisability. The option granted herein
shall become exercisable at the following times and in the
following amounts:
The option shall become exercisable in cumulative
increments of 25,000 shares on each of (a) December 31,
1998, and (b) December 31, 1999. The option granted
hereunder shall lapse and expire on the seventh (7th)
anniversary of the date hereof.
If Employee does not purchase the full number
of shares he is entitled to purchase in any one year, the right to purchase such
shares carries over to the subsequent years during the term of this option.
Notwithstanding the foregoing, this option
shall automatically become fully exercisable upon a "Change in Control of the
Company," as such term is defined below.
For purposes of this Agreement, a "Change in
Control of the Company" shall be deemed to have occurred if:
(a) the shareholders of the Company approve
a definitive agreement to sell, transfer, or
otherwise dispose of all or substantially all of
the Company's assets and properties; or
(b) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934), other than the
Company or any "person" who as of the date this Agreement is a
director or officer of the Company (including any trust of such
director or officer), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; provided, however, that the
following shall not constitute a "Change in Control" of the
Company:
(i) any acquisition directly from the Company
(excluding any acquisition resulting from the exercise of a
conversion or exchange privilege in respect of outstanding
convertible or exchangeable securities);
(ii) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the
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<PAGE> 3
Company or any corporation controlled by the Company;
or
(iii) upon the death of any person who as of the
date of this Agreement is a director or officer of the Company,
the transfer (A) by testamentary disposition or the laws of
intestate succession to the estate or the legal beneficiaries or
heirs of such person, or (B) by the provisions of any trust to the
beneficiaries thereof of the securities of the Company
beneficially owned by such director or officer of the
Company; or
(c) the shareholders of the Company approve the dissolution or
liquidation of the Company or a definitive agreement to merge or
consolidate the Company with or into another entity in which the
Company is not the continuing or surviving corporation or pursuant
to which any shares of the Company's stock would be converted into
cash, securities or other property of another entity, other than a
merger of the Company in which holders of the Company's common
stock immediately prior to the merger have the same proportionate
ownership of common stock (or equivalent securities) of the
surviving entity immediately after the merger as immediately
before.
3. Exercise. This option may be exercised on
the terms and conditions contained herein by giving ten (10) days' prior written
notice of exercise to the Company, specifying the number of shares to be
purchased and the price to be paid therefor and by delivering a check in the
amount of the purchase price payable to the Company. The purchase price may also
be paid, in whole or in part, by delivery to the Company of outstanding shares
of the Company's common stock previously held by the Employee valued at "Fair
Market Value".
For the purposes of this Agreement, "Fair
Market Value" as of a certain date (the "Determination Date") means: (a) the
closing price of a share of the Company's common stock on the principal exchange
on which shares of the Company's common stock are then trading, if any, on the
Determination Date, or, if shares were not traded on the Determination Date,
then on the nearest preceding trading day during which a sale occurred; or (b)
if such stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (i) the last sales price (if the stock is then
listed as a National Market Issue under The Nasdaq National Market System) or
(ii) the
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<PAGE> 4
mean between the closing representative bid and asked prices (in all other
cases) for the stock on the Determination Date as reported by NASDAQ or such
successor quotation system; or (c) if such stock is not publicly traded on an
exchange and not quoted on NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the stock, on the Determination
Date, as determined in good faith by the Board; or (d) if the Company's stock is
not publicly traded, the fair market value established in good faith by the
Board.
4. Termination of Employment.
(a) Termination by Employee. If Employee's
employment is terminated by Employee, Employee shall have ninety (90) days
following the "Date of Termination" (as defined in Section 6(f) of the
Employment Agreement) to exercise this option, but only to the extent that this
option was exercisable on such Date of Termination.
(b) Termination for Cause. If Employee's
employment is terminated by the Company for "Cause" (as defined in Section 6(a)
of the Employment Agreement), neither Employee nor his estate shall be entitled
to exercise this option after the Date of Termination.
(c) Death or Incapacity. If Employee's
employment is terminated for death or "Incapacity" (as defined in Section 6(c)
of the Employment Agreement), Employee or Employee's estate, as the case may be,
shall have the right for six (6) months following the Date of Termination to
exercise this option, but only to the extent that this option was exercisable on
such Date of Termination.
(d) Other. If Employee's employment is
terminated for any reason other than as set forth in Sections 4(a), (b) and (c)
above, Employee shall have ninety (90) days following the Date of Termination to
exercise this option, but only to the extent that this option was exercisable on
such Date of Termination.
5. Transferability. This option shall be
transferable only by will or by the law of descent and distribution to the
estate (or other personal representative) of Employee and shall be exercisable
during Employee's lifetime only by him. Except as otherwise provided herein, any
attempt at alienation, assignment, pledge, hypothecation, transfer, sale,
attachment, execution or similar process, whether voluntary or involuntary, with
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<PAGE> 5
respect to all or any part of this option or any right under this Agreement,
shall be null and void and, at the Company's option, shall cause Employee's
rights under this Agreement to terminate.
6. Withholding Requirements. In the event the
Company determines that it is required to withhold state or Federal income taxes
as a result of the exercise of this option, Employee shall be required, as a
condition to the exercise hereof, to make arrangements satisfactory to the
Company to enable it to satisfy such withholding requirements.
7. Rights as a Stockholder. Employee, or any
permitted transferee of Employee, shall have no rights as a stockholder with
respect to any shares covered by this option until the date of the issuance of a
stock certificate for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 8 of this
Agreement. This Agreement shall not confer upon Employee any right of continued
employment by the Company or interfere in any way in the Company's right to
terminate Employee.
8. Recapitalization. Subject to any required
action by stockholders, the number of shares of Common Stock covered by this
option and the exercise price thereof shall be proportionately adjusted for any
increase or decrease in the number of issued shares of common stock resulting
from a subdivision or consolidation of such shares or the payment of a stock
dividend (but only of common stock) or any other increase or decrease in the
number of issued shares of common stock effected without receipt of
consideration by the Company. Subject to any required action by stockholders, if
the Company is the surviving corporation in any merger or consolidation, this
option shall pertain and apply to the securities to which a holder of the number
of shares of common stock subject to the option would have been entitled.
The foregoing adjustments shall be made by
the Company's Board of Directors, whose determination shall be conclusive and
binding on the Company and Employee.
Except as expressly provided in this Section
8, Employee shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
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<PAGE> 6
increase or decrease in the number of shares of stock of any class, or by reason
of any dissolution, liquidation, merger, consolidation or spin-off of assets or
stock of another corporation, and any issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number of shares subject to this option or the exercise price thereof.
This option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
9. Securities Act and Other Regulatory
Requirements. This option is not exercisable, in whole or in part, and the
Company is not obligated to sell any shares of the Company's common stock
subject to this option, if such exercise or sale, in the opinion of counsel for
the Company, would violate the Securities Act of 1933 (or any other federal or
state statutes having similar requirements) as it may be in effect at that time.
Further, the Board of Directors of the
Company may require as a condition of issuance of any shares under this option
that Employee furnish a written representation that he is acquiring the shares
for investment and not with a view to distribution to the public. The
certificate evidencing any shares issued pursuant to this option shall bear such
restrictive legends as required by federal or state law.
Further, the Board of Directors of the
Company may decide, in its sole discretion, that the listing or qualification of
the shares of stock subject to the option under any securities exchange
requirements or under any applicable law is necessary or desirable. If such a
decision is made, this option shall not be exercisable in whole or in part
unless and until such listing, qualification, consent or approval shall have
been effected or obtained free of any conditions that are not acceptable to the
Board of Directors of the Company.
10. Effect of Exercise. Upon the exercise of all
or any part of this option, the number of shares of common stock subject to the
option under this Agreement shall be reduced by the number of shares with
respect to which such exercise is made.
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<PAGE> 7
11. Right of First Refusal. If Employee desires
to transfer any shares of common stock which he has acquired pursuant to the
exercise of the option granted herein ("Shares"), Employee shall deliver to the
Company written notice of his intention to transfer such Shares (the "Notice")
together with either a copy of a signed and binding offer by the proposed
transferee (a "Negotiated Sale") or a statement that such Shares are to be sold
into the public market at Fair Market Value at the time of sale (a "Market
Sale"). The Notice for a Negotiated Sale shall state the name and address of the
proposed transferee, the number of Shares to be transferred, the price per
Share, and the other terms of such transfer. The Notice for a Market Sale shall
state the expected date of the proposed sale and the number of Shares to be
sold. For thirty (30) days following delivery of the Notice, the Company shall
have the option to purchase all (but not less than all) of the Shares proposed
to be sold by Employee at the price and terms stated in the Notice. In the event
of a Market Sale, such purchase price shall be the Fair Market Value of the
Shares on the day the Company exercises its option, less five (5) percent. Such
option shall be exercisable by delivery of written notice to Employee within
such thirty (30) day period. Any Shares not purchased by the Company may, for a
period of sixty (60) days commencing on the expiration of the Company's option
to purchase such Shares, be sold to the proposed transferee at the price and
upon the terms specified in the Notice. Shares which are not transferred by
Employee within such sixty (60) day period shall again become subject to the
notice and option provisions of this Section 11. The certificate evidencing any
shares issued pursuant to this option shall bear a restrictive legend stating
that such shares are subject to the right of first refusal set forth in this
Section 11.
12. Notices. Any notice or other communication
required or permitted hereunder or by law shall be validly given or made only if
in writing and delivered in person to an officer or duly authorized
representative of the other party, or deposited in the United States mail, duly
certified or registered, return receipt requested, postage prepaid, and
addressed to the party to whom intended. If sent to the Company, it shall be
addressed in care of the President, 2850 Ocean Park Boulevard, Suite 225, Santa
Monica, California 90405, and if sent to Employee, it shall be addressed to
Employee's address on file with the Company on the date of such notice. If sent
by mail, notice shall be deemed given two days after deposit of such notice in
the mail and in accordance with this section. Any party may from time to time,
by written notice to the other, designate
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<PAGE> 8
a different address for notice which shall be substituted for that specified
above.
13. Choice of Law; Counterparts. This Agreement,
and all rights and obligations hereunder, shall be governed by the laws of the
State of California. This Agreement may be executed in one or more counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
14. Successor. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, heirs, beneficiaries, executors and administrators.
15. Paragraph Headings; Employment. Paragraph
headings are for convenience only and are not part of the context. This
Agreement shall not obligate the Company or any affiliate to employ Employee for
any period of time nor does this Agreement constitute a contract or agreement
for employment.
IN WITNESS WHEREOF, this Agreement is executed as
of the date first written above.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
-----------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EMPLOYEE:
/s/ NEIL STUART
--------------------------------
Neil Stuart
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<PAGE> 1
FINAL
Exhibit 10.21
#96-197
STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, August
8, 1996 is made by and between WATT HEADQUARTERS LIMITED PARTNERSHIP, a
California limited partnership (therein called "Lessor") and INTERVISUAL BOOKS,
INC., a California corporation doing business under the name of Intervisual
Books (therein called "Lessee").
1.2 PREMISES: Suite Number(s) 2020 floor, consisting of
approximately 11,215 rentable, 10,013 usable feet, more or less, as defined in
paragraph 2 and as shown on Exhibit "A" hereto (the "Premises"). SEE ADDENDUM
1.3 BUILDING: Commonly described as being located at 2716 Ocean
Park Boulevard in the City of Santa Monica, County of Los Angeles, State of
California as more particularly described in Exhibit A hereto, and as defined
in paragraph 2.
1.4 USE: general offices for the production of childrens books as
well as a museum of childrens books, See Second Lease Addendum section 24,
subject to paragraph 6.
1.5 TERM: five (5) years commencing February 1, 1997 ("Commencement
Date") and ending January 31, 2002 as defined in paragraph 3.
1.6 BASE RENT: $17,383.25 per month, payable on the 1st day of each
month, per paragraph 4.1 of this Lease.
1.7 BASE RENT INCREASE: On August 1, 1999 the monthly Base Rent
payable under paragraph 1.6 above shall be adjusted as provided in paragraph
4.3 below.
1.8 RENT PAID UPON EXECUTION: $17,383.25 for February 1, 1997
1.9 SECURITY DEPOSIT: $17,383.25 SEE ADDENDUM
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 11.292% as
defined in paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the
Basic Lease Provisions. "Building" shall include adjacent parking structures
used in connection therewith. The Premises, the Building, the Common Areas, the
land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as the
"Office Building Project." Lessor hereby leases to Lessee and Lessee leases
from Lessor for the term, at the rental, and upon all of the conditions set
forth herein, the real property referred to in the Basic Lease Provisions,
paragraph 1.2, as the "Premises," including rights to the Common Areas as
hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and
subject to the rules and regulations attached hereto, and as established by
Lessor from time to time, Lessee shall be entitled to rent and use 41 unreserved
parking spaces in the Office Building Project at the monthly rate applicable
from time to time for monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the
prohibited activities described in the Lease or the rules then in effect, then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.2.2 The monthly parking rate per parking space will be
$60.00 per month. See Second Lease Addendum section 18.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee and
of other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by
and conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as lessor may appoint shall have the
exclusive control and management of the Common Areas and shall have the right,
from time to time, to modify, amend and enforce said rules and regulations.
Lessor shall not be responsible to Lessee for the non-compliance with said
rules and regulations by other lessees, their agents, employees and invitees of
the Office Building Project.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building Project
as Lessor may, in the exercise of sound business judgment deem to be
appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
cases Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's
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option by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease.
3.2.1 Possession Tendered - Defined. Possession of the
Premises shall be deemed tendered to Lessee ("Tender of Possession") when (1)
the improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2) and (3) above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2 shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to
said Commencement Date, such occupancy shall be subject to all provisions of
this Lease, and such occupancy shall not change the termination date.
3.4 Lessee and Lessor shall execute an amendment to this Lease
establishing the date of Tender of Possession (as defined in paragraph 3.2.1)
or the actual taking of possession by Lessee, whichever first occurs, as the
Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph
1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.6 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
Increase." In accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease,
as the percentage set forth in paragraph 1.10 of the Basic Lease Provisions,
which percentage has been determined by dividing the approximate square footage
of the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that the
square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office Building
Project.
(b) "Base Year" is defined as the 1997 calendar year.
(c) "Comparison Year" is defined as each calendar year
during the term of this Lease subsequent to the Base Year; provided, however,
Lessee shall have no obligation to pay a share of the Operating Expense increase
applicable to the first twelve (12) months of the Lease Term (other than such as
are mandated by a governmental authority, as to which government mandated
expenses Lessee shall pay Lessee's Share, notwithstanding they occur during the
first twelve (12) months. Lessee's Share of the Operating Expense increase for
the first and last Comparison Years of the Lease Term shall be prorated
according to that portion of such Comparison Year as to which Lessee is
responsible for a share of such increase.
(d) "Operating Expense" is defined, for purposes of this
Lease, to include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion for:
(i) The operation, repair, maintenance, and
replacement, in neat, clean, safe, good order and condition, of the Office
Building Project, including but not limited to, the following:
(aa) The Common Areas, including their
surfaces, coverings, decorative items, carpets, drapes and window coverings, and
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, stairways, parkways, driveways, landscaping areas,
striping, bumpers, irrigation systems, Common Area lighting facilities, building
exteriors and roofs, fences and gates;
(bb) All heating, air conditioning, plumbing,
electrical systems, life safety equipment, telecommunication and other equipment
used in common by, or for the benefit of, lessees or occupants of the Office
Building Project, including elevators and escalators, tenant directories, fire
detection systems including sprinkler system, maintenance and repair.
(ii) Trash disposal, janitorial and security
services.
(iii) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and
property insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid
by Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and
other publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits
and costs, materials, supplies and tools, used in maintaining and/or cleaning
the Office Building Project and accounting and a management fee attributable to
the operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by
any governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that
have a useful life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs
of replacements of equipment or improvements that have a useful life for Federal
income tax purposes in excess of five (5) years unless it is of the type
described in paragraph 4.2(d)(viii), in which case their cost shall be included
as above provided, but such costs shall be amortized over their useful life.
(f) Operating Expenses shall not include any
expenses paid by any lessee directly to third parties, or as to which Lessor is
otherwise reimbursed by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time in advance of Lessee's
Share of the Operating Expense increase for any Comparison Year, and the same
shall be payable monthly or quarterly, as Lessor shall designate, during each
Comparison Year of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of
Operating Expense increase as aforesaid. Lessor shall deliver to Lessee within
sixty (60) days after the expiration of each Comparison Year a reasonably
detailed statement showing Lessee's Share of the actual Operating Expense
increase incurred during such year. If Lessee's payments under this paragraph
4.2(g) during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 Rent Increases. See Addendum.
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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the security deposit set forth in paragraph 1.9 of the Basic Lease
Provisions as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default for the payment of any other sum to which Lessor may
become obligated by reason of Lessee's default, or to compensate Lessor for any
loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required of Lessee. If the monthly
Base Rent shall, from time to time increase during the term of this Lease,
Lessee shall, at the time of such increase, deposit with Lessor additional money
as a security deposit so that the total amount of the security deposit held by
Lessor shall at all times bear the same proportion to the then current Base Rent
as the initial security deposit bears to the initial Base Rent set forth in
paragraph 1.6 of the Basic Lease Provisions. Lessor shall not be required to
keep said security deposit separate from its general accounts. Said deposit, or
so much thereof as has not heretofore been applied by Lessor, shall be returned,
without payment of interest or other increment for its use, to Lessee (or, at
Lessor's option, to the last assignee, if any, of Lessee's interest hereunder)
at the expiration of the term hereof, and after Lessee has vacated the Premises.
No trust relationship is created herein between Lessor and Lessee with respect
to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the
purpose set forth in paragraph 1.4 of the Basic Lease Provisions or any other
use which is reasonably comparable to that use and for no other purpose. See
Second Lease Addendum section 24.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in
effect or which may hereafter come into effect, whether or not they reflect a
change in policy from that now exiting, during the term or any part of the term
hereof, relating in any manner to the Premises and the occupation and use by
Lessee of the Premises. Lessee shall conduct its business in a lawful manner
and shall not use or permit the use of the Premises or the Common Areas in any
manner that will tend to create waste or a nuisance or shall tend to disturb
other occupants of the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition
existing as of the Lease Commencement Date or the date that Lessee takes
possession of the Premises, whichever is earlier, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and regulating the use of the Premises, and any easements, covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that it has satisfied itself by its own independent investigation
that the Premises are suitable for its intended use, and that neither Lessor nor
Lessor's agent or agents has made any representation or warranty as to the
present or future suitability of the Premises, Common Areas, or Office Building
Project for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls, roof, and common
areas, and the equipment whether used exclusively for the Premises or in
common with other premises, in good condition and repair; provided, however,
Lessor shall not be obligated to paint, repair or replace wall coverings, or to
repair or replace any improvements that are not ordinarily a part of the
Building or are above then Building standards. Except as provided in paragraph
9.5, there shall be no abatement of rent or liability of Lessee on account of
any injury or interference with Lessee's business with respect to any
improvements, alterations or repairs made by Lessor to the Office Building
Project or any part thereof. Lessee expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises
in good condition and repair, Lessee shall be responsible for payment of the
cost thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located)
that serves only Lessee or the Premises, to the extent such cost is
attributable to causes beyond normal wear and tear. Lessee shall be
responsible for the cost of painting, repairing or replacing wall coverings,
and to repair or replace any Premises improvements that are not ordinarily a
part of the Building or that are above then Building standards. Lessor may, at
its option, upon reasonable notice, elect to have Lessee perform any particular
such maintenance or repairs the cost of which is otherwise Lessee's
responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Lessee. Lessee shall repair any damage to the
Premises occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Except as otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, air conditioning, window coverings, wall coverings,
carpets, wall panelling, ceilings and plumbing on the Premises and in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS. See Second Lease Addendum section 35.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, Utility Installations or repairs
in, on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication
wiring and equipment. At the expiration of the term, Lessor may require the
removal of any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such improvements, to insure
Lessor against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, or use a contractor not expressly approved by Lessor, Lessor may, at
any time during the term of this Lease, require that Lessee remove any part or
all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any mechanic's
or materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days'
notice prior to the commencement of any work in the Premises by Lessee, and
Lessor shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy
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any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs of participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations (whether or not such
Utility Installations constitute trade fixtures of Lessee, which may be made to
the Premises by Lessee, including but not limited to, floor coverings,
panelings, doors, drapes, built-ins, moldings, sound attenuation, and lighting
and telephone or communication systems, conduit, wiring and outlets, shall be
made and done in a good and workmanlike manner and of good and sufficient
quality and materials and shall be the property of Lessor and remain upon and be
surrendered with the Premises at the expiration of the Lease term, unless Lessor
requires their removal pursuant to paragraph 7.3(a). Provided Lessee is not in
default, notwithstanding the provisions of this paragraph 7.3(e), Lessee's
personal property and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises or
the Building, and other than Utility Installations, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
8. INSURANCE; INDEMNITY
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL-0404) or equivalent, in an
amount of not less than $5,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Broad Form Property Damage Insurance, plus coverage against such
other risks Lessor deems advisable from time to time, insuring Lessor but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$5,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies of insurance covering
loss or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount of
the full replacement cost thereof, as the same may exist from time to time,
utilizing Insurance Services Office standard form, or equivalent, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a lien on
the Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be cancellable
or subject to reduction of coverage or other modification except after thirty
(30) days prior written notice to Lessor. Lessee shall, at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with renewals
thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether as to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and
its agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or any
entity arising from Lessee's use of the Office Building Project, from the
conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims,
costs and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission by Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach,default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible. Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS. See Second Lease Addendum Section 10.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then replacement
Cost of the Building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary
to be spent in order to repair or rebuild the damaged area to the content that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessor's expense
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9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense,
repair such damage (but not Lessee's fixtures, equipment or tenant improvements
originally paid for by Lessee) to its condition existing at the time of the
damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from making any substantial use of the
Premises. Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage or Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence
of such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION: OFFICE BUILDING PROJECT
TOTAL DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or destruction
as soon as reasonably possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial channels) to its
condition existing at the time of the damage, but not Lessee's fixtures,
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date
of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option
terminate and cancel this Lease as of the expiration of said twenty (20) day
period by giving written notice to Lessee of Lessor's election to do so within
ten (10) days after the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from
the Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement or completion, respectively, of such
repair or restoration, in such event this Lease shall terminate as of the date
of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES. See Second Lease Addendum Section 16 and
Section 47.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying any increase in real property tax specified in the tax assessor's
records and work sheets as being caused by additional improvements placed upon
the Office Building Project by other lessees or by Lessor for the exclusive
enjoyment of any other lessee. Lessee shall, however, pay to Lessor at the time
that Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Office Building Project or any
portion thereof by any authority having the direct or indirect power to tax,
including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or in any portion thereof, as against Lessor's right to rent
or, other income therefrom, and as against Lessor's business of leasing the
Office Building Project. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge (i) in substitution of, partially or
totally, any tax, fee, levy, assessment or charge hereinabove included within
the definition of "real property tax," or (ii) the nature of which was
hereinbefore included within the definition of "real property tax," or (iii)
which is imposed for a service or right not charged prior to June 1, 1978, or,
if previously charged, has been increased since June 1, 1978, or (iv) which is
imposed as a result of a change in ownership, as defined by applicable local
statutes for property tax purposes, of the Office Building Project or which is
added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such change of ownership, or (v) which is imposed by
reason of this transaction, any modifications or changes hereto, or any
transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes
for which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are
not separately assessed, Lessee's portion of that tax shall be equitably
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information (which may include the cost of
construction) as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes attributable
to Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water,
gas, heat, light, power, telephone and other utilities and services specially
or exclusively supplied and/or metered exclusively to the Premises or to
Lessee, together with any taxes thereon. If any such services are not
separately metered to the Premises, Lessee shall pay at Lessor's option, either
Lessee's Share or a reasonable proportion to be determined by Lessor or at
charges jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours
as may hereafter be set forth. Utilities and services required at other times
shall be subject to advance request and reimbursement by Lessee to Lessor of
the cost thereof.
Initials:
-----
FULL SERVICE--GROSS
PAGE 5 OF 10 PAGES
<PAGE> 6
See Second Lease Addendum Section 11.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power or suffer or permit any act that caused extra burden upon the utilities
or services, including but not limited to security services over standard office
usage for the Office Building Project. Lessor shall require Lessee to reimburse
Lessor for any excess expenses or costs that may arise out of a breach of this
subparagraph by Lessee. Lessor may, in its sole discretion, install at Lessee's
expense supplemental equipment and/or separate metering applicable to Lessee's
usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other case beyond Lessor's
reasonable control or in cooperation with governmental request or direction.
12. ASSIGNMENT AND SUBLETTING. See Second Lease Addendum Section 13.
12.1 See Second Lease Addendum Section 13(b).
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate"; provided that before such assignment shall be effective, (a) said
assignee shall assume, in full, the obligations of Lessee under this Lease and
(b) Lessor shall be given written notice of such assignment and assumption. Any
such assignment shall not, in any way, affect or limit the liability of Lessee
under the terms of this Lease even if after such assignment or subletting the
terms of this Lease are materially changed or affected without the consent of
Lessee, the consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or
subletting shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense increase, and to perform all
other obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and Lessor's
consent thereto shall not be effective unless and guarantors give their written
consent to such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or sublettings by the
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable on the Lease or sublease and without
obtaining their consent and such action shall not relieve such persons from
liability under this Lease or said sublease; however, such persons shall not be
responsible to the extent any such amendment or modification enlarges or
increases the obligations of the Lessee or sublessee under this Lease or such
sublease.
(f) In the event of any default under this Lease, Lessor
may proceed directly against Lessee, any guarantors or anyone else responsible
for the performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no
default then exists under this Lease of the obligations to be performed by
Lessee nor shall such consent be deemed a waiver of any then existing default,
except as may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement
relied upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render said consent null and
void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and conditions shall apply
to any subletting by Lessee of all or any part of the Premises and shall be
deemed included in all subleases under this Lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublessee as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor shall at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease from
the time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior defaults of
Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee
to the sublessee. Such sublessee shall have the right to cure a default of
Lessee within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such default cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet
the Premises or request the consent of Lessor to any assignment or subletting
or if Lessee shall request the consent of Lessor for any act Lessee proposes
to do then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition
any approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be at least as financially responsible as Lessee
was expected to be at the time of the execution of this Lease or of such
assignment or subletting, whichever is greater.
13. DEFAULT REMEDIES. See Second Lease Addendum Section 29.
FULL SERVICE - GROSS
PAGE 6 OF 10 PAGES
<PAGE> 7
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to [Illegible]... in which case this
Lease and the term hereof shall terminate and Lessee shall immediately surrender
possession of the Premises to Lessor. In such event Lessor shall be entitled to
recover from Lessee all damages incurred by Lessor by reason of Lessee's default
including, but not limited to, the cost of recovering possession of the
Premises; expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys fees and any real estate commission
actually paid; the worth at the time of award by the court having jurisdiction
thereof of the amount by which the unpaid rent for the balance of the term after
the time of such award exceeds the amount of such rental loss for the same
period that Lessee proves could be reasonably avoided; that portion of the
leasing commission paid by Lessor pursuant to paragraph 15 applicable to the
unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and
thereafter diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or
other sums due hereunder will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any
installment of Base Rent, Operating Expense Increase or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
See Second Lease Addendum Section 10.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common Areas
usable by Lessee and no reduction of rent shall occur with respect thereto or by
reason thereof. Lessor shall have the option in its sole discretion to terminate
this Lease as of the taking of possession by the condemning authority, by giving
written notice to Lessee of such election within thirty (30) days after receipt
of notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date
(c) 1984 American Industrial Initials_____
Real Estate Association _____
FULL SERVICE - GROSS
PAGE 7 OF 10 PAGES
<PAGE> 8
to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest. Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantor.
The obligations ......... Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the Interest
Rate. Payment of such interest shall not excuse or cure any default by Lessee
under this Lease; provided, however, that interest shall not be payable on late
charges incurred by Lessee nor on any amounts upon which late charges are paid
by Lessee. See Lease Addendum Section 45.
20. TIME OF ESSENCE. Time is of the essence with respect to the
obligations to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under
the terms of this Lease, including but not limited to Lessee's Share of
Operating Expense Increase and any other expenses payable by Lessee hereunder
shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS: AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employee or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of the Premises or the Office Building Project and
Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the Premises
and the compliance thereof with all applicable laws and regulations in effect
during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to the
signature of the respective parties, as the case may be. Mailed notices shall
be deemed given upon actual receipt at the address required, or forty-eight
hours following deposit in the mail, postage prepaid, whichever first occurs.
Either party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No Waiver by Lessor or Lessee of any provision hereof shall
be deemed a waiver of any other provision hereof or of any subsequent breach by
the other of the same or any other provision. Lessor's consent to, or approval
of, any act shall not be deemed to render unnecessary the obtaining of the
other's consent to or approval of any subsequent act by Lessee. The acceptance
of rent hereunder by Lessor shall not be a waiver of any preceding breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such preceding
breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in
possession of the Premises or any part thereof after the expiration of the term
hereof, such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Lessee, except that
the rent payable shall be, as set forth in Second Lease Addendum Section 28, and
all Options, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT: CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact
and in Lessee's name, place and stead, to execute such documents in accordance
with this paragraph 30(b).
31. ATTORNEYS' FEES. See Second Lease Addendum Section 12.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all attorneys'
fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys fees and all
other costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS. See Second Lease Addendum Section 25.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
any services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and
maintaining of utilities, services, pipes and conduits through the Premises
and/or other premises as long as there is no material adverse effect to
Lessee's use of the Premises. Lessor may at any time place on or about the
Premises or the Building any ordinary "For Sale" signs and Lessor may at any
time during the last 120 days of the term hereof place on or about the
Premises any ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for
the same.
Initials: _____
(C) 1984 American Industrial Real Estate Association _____
FULL SERVICE - GROSS
PAGE 8 OF 10 PAGES
<PAGE> 9
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in
violation of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) during the
period of time commencing on the day after a monetary obligation to Lessor is
due from Lessee and unpaid (without any necessity for notice thereof to Lessee)
and continuing until the obligation is paid, or (iii) if Lessee has committed
any non-curable breach, including without limitation those described in
paragraph 13.1(b).
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due, or
(ii) Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in default of any of the terms, covenants and conditions of this
Lease.
(d) If an Event of Default occurs, as defined in Second Lease
Addendum Section 29, Tenant may not exercise an option.
4.0 SECURITY MEASURES - LESSOR'S RESERVATIONS. See Second Lease Addendum
Section 37.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days prior written notice;
(b) To install Building standard graphics on the door of the
Premises and such portions of the Common Areas as Lessor shall reasonably deem
appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
given herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business; See Addendum I Section 52c.
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted
shall have the right to make payment "under protest" and such payment shall not
be regarded as a voluntary payment, and there shall survive the right on the
part of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
[C] 1984 American Industrial Real Estate Association
FULL SERVICE - GROSS
PAGE 9 OF 10 PAGES
<PAGE> 10
43. Authority. If Lessee is a corporation trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity if Lessee is a corporation
trust or partnership. Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease: *
50. WAIVER OF TRIAL BY JURY. Tenant hereby waives trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto on any
matters whatsoever arising out of or in anyway connected with this lease.
*Exhibit "A" - Premises
Exhibit "B" - Rules and Regulations
Exhibit "C" - Signage
Exhibit "D" - Final Plans
Addendum
Second Lease Addendum
Paragraph 51-52 - See Addendum
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
WATT HEADQUARTERS LIMITED PARTNERSHIP, INTERVISUAL BOOKS, INC.,
- -------------------------------------- -------------------------------
a California limited partnership a California corporation
By WATT FAMILY PROPERTIES, INC.,
------------------------------------
a California corporation
its general partner
----------------------------
By /s/ [illegible] By /s/ [illegible]
----------------------------------- ----------------------------
its Chairman
--------------------
Executed at Executed at Santa Monica Calif
--------------------------- --------------------
on on Nov 15, 1996
------------------------------------ -----------------------------
Address Address 2716 Ocean Park Blvd
------------------------------- ------------------------
Suite 2005
FULL SERVICE--GROSS
(C) 1984 American Industrial Real Estate Association
PAGE 10 OF PAGES
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071, (213) 687-8777.
(C)1984--By American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
<PAGE> 11
ADDENDUM TO LEASE
1.2 CONT. Suite 2020 consists of Suites 2005, 2017, 2021, 2022, 2023, 2027 and
2029 containing the following square footage:
Suite Rentable sq. ft. Usable sq. ft.
----- ---------------- --------------
2005 3,101 2,769
2017 850 759
2020-2023 5,454 4,870
2027 1,525 1,362
2029 285 254
------ ------
Total Sq. Ft. 11,215 10,013
1.9 CONT. $4,930.59 shall be transferred from previous lease dated July 19,
1994 between Watt Headquarters Limited Partnership and Hunt Enterprises Inc., a
California corporation. Lessee to deposit an additional $12,010.91 for a total
security deposit of $16,941.50.
<PAGE> 12
ADDENDUM (Continued)
4.2 OPERATING EXPENSE ADJUSTMENTS
(a) If Operating Costs (hereinafter described) for any calendar year
during the term of this Lease exceed Base Operating Costs (hereinafter
described), Lessee shall pay to Lessor as additional rent an amount equal to
Lessee's Proportionate Share (hereinafter described) of such excess.
(b) Lessee's Proportionate Share is 11.292%. It represents a
fraction, the numerator of which is the number of square feet of Usable Area in
the Premises and the denominator of which is the number of square feet of
Usable Area in the Building.
(c) "Base Operating Costs", when expressed on the basis of cost per
square foot of Rentable Area in the Building, equals [ * ] for Calendar Year
The following example illustrates the operation of this
Paragraph 4.2:
In the calendar year 198X, the Operating Costs equal $575,000 or
$6.58 per square foot of Usable Area in the Building.
Lessee Y has 1,000 square feet of Usable Area in the premises
and has a Proportionate Share of 1.14%.
Base Operating Costs for the entire Project, at $5.78 per square
foot, presently equal $505,847. Thus, the amount payable by Lessee Y for
calendar year 198X equals Lessee Y's Proportionate Share (1.14%) of the
difference between actual Operating Costs for calendar year 198X and Base
Operating Costs for Calendar Year 1983 ($505,847). Expressed in mathematical
terms, Lessee's Proportionate Share of the excess would equal 1.14% of $69,153
($575,000 - $505,847) or $788.34.
(d) "Operating Costs" means all costs, expenses and obligations
payable by Lessor attributable to the normal operation, repair and maintenance
of the Project during the term of this Lease, including without limitation, the
following:
(i) All real estate taxes, assessments, water and sewer charges
and other similar governmental as valorem or other charges levied on or
attributable to the Project or its operation, and all taxes imposed in lieu of
such taxes, (collectively, "Real Estate Taxes") including, without limitation,
assessments or charges levied or assessed by any redevelopment agency and all
taxes measured by gross rentals or net rentals received from the Project.
Operating Costs and Real Estate Taxes shall not include any
franchise, capital stock, estate or inheritance tax imposed by the State of
California, the Federal Government or by any agency, branch or department
thereof; provided, however, that if there shall be assessed against Lessor by
any governmental entity and general or special excise levy or other tax or
assessment, directly or indirectly, on the rent received under this Lease or
any of the same upon the rents and/or the transfer or transaction directly or
indirectly represented by this Lease or other Leases, in the Project and/or
the occupancy or use of the Premises or the Project, then all such taxes,
assessments, levies and charges shall be deemed to be included in the terms
"Real Estate Taxes" and Operating Costs"; and
(ii) The cost of utilities, supplies, insurance (including
public liability, property damage, flood, earthquake and fire and extended
coverage insurance for the full replacement cost of the Project and such other
insurance as is customarily carried by operators of other first class
buildings in the County of Los Angeles) to the extent carried by Lessor in its
discretion, the cost of compensation, including employment taxes and fringe
benefits, of all persons (including independent contractor) who perform
services connected with the normal operation, maintenance and repair of the
Project, costs incurred in connection with the operation of a mailroom as
required by the United States Postal Service, such auditors' fees and legal
fees as are incurred in connection with the operation, maintenance and repair
of the Project, costs incurred for management of the Project, whether by Lessor
or by an independent contractor, rental expense for or a reasonable allowance
for depreciation of, personal property used in the operation, maintenance and
repair of the Project, license, permit and inspection fees, costs or expenses
required by any governmental or quasi-governmental authority for any reason,
* To be calculated after the close of the calendar year 1997
Page 2 of 5
<PAGE> 13
ADDENDUM (CONTINUED)
including capital improvements, whether capitalized or not, the cost of any
capital improvements made to the Project by Lessor that reduce operating
expenses (such costs to be amortized over such reasonable periods as Lessor
shall determine with a return on capital at such rate as would have been paid by
Lessor on funds borrowed for the purpose of constructing such capital
improvements) and any other cost or expense incurred by Lessor in connection
with the Project.
(e) In the case of Real Estate taxes, if the assessed valuation of the
Project at any time shall not be based upon a completed building, at least 90%
of which is occupied then Real Estate Taxes shall be adjusted to reflect the
taxes which would have been payable if the Building had been completed and were
at least 90% occupied. Operating Costs for any calendar year during which actual
occupancy is less than 90% of the Rentable Area of the Project shall be adjusted
to reflect 90% occupancy of the Rentable Area of the Project during such period.
(f) Prior to the commencement of the Lease term and of each calendar
year thereafter, Lessor shall give to Lessee a written estimate of Lessee's
Proportionate Share of the projected excess, if any, of the Operating Costs for
the Project for the ensuing year over the Base Operating Costs for the Project.
Lessee shall pay such estimated amount to Lessor in equal monthly installments,
in advance on the first day of each month. Within 90 days after the end of each
calendar year, Lessor shall furnish Lessee a statement showing in reasonable
detail the actual Operating Costs incurred by Lessor during such period and the
parties shall, within 30 days thereafter, make any payment or allowance
necessary to adjust Lessee's estimated payments to Lessee's actual share of such
excess as indicated by such annual statement. Any payment due Lessor shall be
payable by Lessee on demand from Lessor. Any amount due Lessee shall be credited
against installments next becoming due under this Paragraph 4.2.
(g) In the event of any dispute as to any additional rental due under
this Paragraph 4.2. Lessee shall have the right after reasonable notice and at
reasonable times to inspect Lessor's accounting records at Lessor's accounting
office. If after such inspection Lessee still disputes such additional rental, a
certification as to the proper amount of Operating Costs and the amount due to
or payable by Lessee shall be made by Lessor's independent certified public
accountant. Such certification shall be final and conclusive as to all parties.
Lessee agrees to pay the cost of such certification and the investigation with
respect thereto and no adjustments in Lessee's favor shall be made unless it is
determined that Lessor's original statement was in error in Lessor's favor by
more than 5%.
(h) It is agreed between Lessor and Lessee, for calculation purposes,
that the Base Year shall be 1997.
10.2 The following should be added to the end of Paragraph 10.2: If the
improvements or alterations in or upon the Premises (whether installed and/or
paid for by the Lessor or Lessee and whether or not becoming a part of the real
property thereof) result in a property tax re-assessment at a higher valuation
than the assessed value at the time the improvements were installed, then the
increase in property taxes shall be deemed to be the responsibility of the
Lessee whose improvements caused such re-assessment. Lessee shall pay, in
addition to the provisions in Paragraph 4.2(c), any and all property taxes based
on such assessed valuation upon invoice from Lessor. The basis for determining
an additional tax shall be the Supplemental tax bills received from the County
Assessor and the property tax bills for the year(s) in which the improvements
took place. Lessor shall make its best effort to furnish evidence of the
appropriate tax bills and Supplemental tax bills to Lessee upon request.
Page 3 of 5
<PAGE> 14
ADDENDUM TO LEASE (CONTINUED)
4.3 RENT INCREASE The fixed minimum rental shall be increased on the first day
of the thirty-first (31st) month (August 1, 1999) from $16,941.50 per month to
$17,815.90 per month.
39 CONT. OPTION: Provided that Lessee has at no time been in default of the
terms of this Lease, then Lessee shall have the option to extend this Lease for
one (1) additional period of five (5) years. The rental rate for the option
period shall be at ninety-five percent (95%) of Fair Market Rental Rate as
defined in Second Lease Addendum Section 19. Lessee shall exercise the option by
providing written notification to the Lessor no earlier than 240 days nor later
than 180 days prior to the expiration of the original term herein. THIS OPTION
TO RENEW APPLIES ONLY TO THE ORIGINAL LESSEE AND IS NOT ASSIGNABLE OR
TRANSFERABLE.
Page 4 of 5
<PAGE> 15
ADDENDUM TO LEASE (CONTINUED)
EXCEPT AS HEREIN MODIFIED, ALL TERMS AND CONDITIONS OF THE LEASE SHALL REMAIN
IN FULL FORCE AND EFFECT.
Page 5 of 5
<PAGE> 16
EXHIBIT "A"
[FLOOR PLAN -- 2ND FLOOR]
<PAGE> 17
RULES ND REGULATIONS FOR
STANDARD OFFICE LEASE
[LOGO]
Dated: August 8, 1996
By and Between WATT HEADQUARTERS LIMITED PARTNERSHIP, a California limited
partnership and Intervisual Books, Inc., a California corporation
GENERAL RULES
1. Lessee shall not suffer or permit the construction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property of the
Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other Lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
Premises or Office Building Project.
9. Lessee shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out
of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of ____ P.M. and
____ A.M. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for security lockup of any doors it may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. the Premises shall not be used for lodging or manufacturing, cooking or
food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicle."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles. Injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
See Second Lease Addendum Section 8.
Initials: ______
(C) 1984 American Industrial Real Estate Association ______
FULL SERVICE--NET
EXHIBIT B
PAGE 1 OF 1 PAGE
<PAGE> 1
SECOND LEASE ADDENDUM
Between
WATT HEADQUARTERS LIMITED PARTNERSHIP
a California limited partnership,
Landlord
And
INTERVISUAL BOOKS, INC.
a California corporation,
Tenant
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Consent/Duty to Act Reasonably . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Building Structure and Building Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------------------------
3. Quality of Construction - Standard for Maintenance, Repairs and Operation . . . . . . . . . . . . . . 2
-------------------------------------------------------------------------
4. Reciprocal Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--------------------
5. Covenants and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------------------------
6. Non-disturbance Agreement and Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-------------------------------------------------
7. Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
----
8. Rules and Regulations and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-----------------------------
9. Abatement of Rent When Tenant Is Prevented From Using Premises . . . . . . . . . . . . . . . . . . . . 3
----------------------------------------------- --------------
10. Right to Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
------------------
11. Excess Utilities and Services/Actual Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------------------------------
12. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-----------
13. Assignment and Subleasing and Definition of Profits . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------------------------------------------
14. Signage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------
15. Exclusions from Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------------------------------
16. Payment of Taxes and Insurance Premiums; Gross Up . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------------------------------------------------
17. Audit Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------
18. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------
19. Fair Market Rental Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------------
20. BOMA Method of Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------------------------
21. Insurance Obligations, Allocation of Risks and Minimizing Duplication of Insurance Coverage . . . . . 18
-------------------------------------------------------------------------------------------
22. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------------
23. Relocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
24. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
25. Secured Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------
26. First Month's Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
------------------
27. Default by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------------
28. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
------------
29. Default by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------
30. Insurance Obligations of Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------------------------------
31. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------
32. Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------
33. Brokers' Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------
34. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------
35. Alterations and Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------------------------
36. Access to Building and Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
------------------------------
37. Building Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------
38. Removal of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-------------------
39. Storage Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-------------
40. Window Washing/Window Washing Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
---------------------------------------
41. When Payment Is Due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-------------------
42. Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------
43. Landlord Bankruptcy Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
------------------------------
44. Roof Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------
45. Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------------
46. Interest on Past Due Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------------------------------
47. Proposition 8 Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------------
48. Reimbursement Upon Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------------------
49. Construction of Tenant Improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------------------------
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
51. Sign Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-----------
52. Early Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------------
53. Patios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------
54. Existing Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------------
</TABLE>
-iii-
<PAGE> 5
SECOND LEASE ADDENDUM
This SECOND LEASE ADDENDUM ("Addendum") is made to the Standard Office
Lease-Gross and Exhibits A and B dated as of August 8, 1996 (collectively, the
"Lease"), by and between WATT HEADQUARTERS LIMITED PARTNERSHIP, a California
limited partnership ("Landlord"), and INTERVISUAL BOOKS, INC., a California
corporation ("Tenant").
Tenant and Landlord hereby agree that notwithstanding anything
contained in the Lease to the contrary, the provisions set forth below will be
deemed to be a part of the Lease and shall supersede, to the extent
appropriate, any contrary provision in the Lease. All references in the Lease
and in this Addendum shall be construed to mean the Lease and Exhibits, as
amended and supplemented by this Addendum. All defined terms used in this
Addendum, unless specifically defined in this Addendum, shall have the same
meaning as such terms have in the Lease. The term "Tenant" shall mean "Lessee"
and the term "Landlord" shall mean "Lessor." "Parking Garage" or "Parking
Structure" shall mean the adjacent parking lot to the south of the Building.
1. Consent/Duty to Act Reasonably. Regardless of any reference
to the words "sole" or "absolute" (but except for matters which (a) would have
an adverse effect on the structural integrity of the Building Structure (as
hereinafter defined) (b) could have an adverse effect on the Building Systems
(also as hereinafter defined), or (c) could have an effect on the exterior
appearance of the Building, whereupon in each such case Landlord's duty is to
act in good faith and in compliance with the Lease), any time the consent of
Landlord or Tenant is required, such consent shall not be unreasonably
withheld, conditioned or delayed. Whenever the Lease grants Landlord or Tenant
the right to take action, exercise discretion, establish rules and regulations
or make allocations or other determinations (other than decisions to exercise
expansion, contraction, cancellation, termination or renewal options), Landlord
and Tenant shall act reasonably and in good faith and take no action which
might result in the frustration of the reasonable expectations of a
sophisticated tenant or landlord concerning the benefits to be enjoyed under
the Lease.
2. Building Structure and Building Systems. Landlord agrees that
at all times it will maintain the structural portions of the Building,
including the foundation, floor/ceiling slabs, roof, curtain walls, exterior
glass and mullions, columns, beams, shafts (including elevator shafts), stairs,
parking garage, stairwells, elevator cabs, plazas, washrooms, mechanical,
electrical and telephone closets and all Common Areas and public areas
(collectively, "Building Structure") and the mechanical, electrical, life
safety, plumbing, sprinkler systems (connected to the core) and HVAC
<PAGE> 6
systems (including primary and secondary loops connected to the core)
("Building Systems") in first class condition and repair and shall operate the
Building as a first class office building. Notwithstanding anything in the
Lease to the contrary, Tenant shall not be required to make any repair to,
modification of, or addition to the Building Structure and/or the Building
Systems except and to the extent required because of its use of the Premises
for other than normal and customary business office operations.
3. Quality of Construction - Standard for Maintenance, Repairs
and Operation. Landlord hereby warrants to Tenant that (a) the Building and
(b) that portion of the Premises already constructed and to be constructed by
Landlord or Landlord's contractor, have been or will be constructed and
operated in a first-class manner, free (to the best of Landlord's actual
knowledge) of all asbestos containing materials ("ACM"). Notwithstanding
anything set forth in this Paragraph 3, Landlord shall not be in breach of any
warranty contained herein, nor shall Landlord have any obligation to undertake
any construction, alteration or upgrade to the Building or the Premises if, as
of the date of original or any subsequent construction, the Building (and the
Premises if any separate requirements apply to the Premises) was constructed in
full compliance with all governmental regulations, codes, ordinances and laws
then existing (collectively "Applicable Laws") and if, under Applicable Laws,
the Building (and the Premises if separately applicable) is deemed
"grandfathered" into compliance with Applicable Laws unless and until some
triggering activity occurs requiring alterations or upgrades to comply with
current or future Applicable Laws. Landlord shall, subject to Tenant's repair
obligations set forth in the Lease, maintain and operate the Building in a
first class manner, keep the Building Structure and the Building Systems in
first class condition and repair, maintain a safe and healthful environment in
the Building, and operate, maintain and provide services to, the Building in a
first-class manner comparable to other first-class office buildings in the
vicinity of the Building ("Comparable Building").
4. Reciprocal Indemnity. [Intentionally omitted.]
5. Covenants and Agreements. The failure of Landlord or Tenant
to insist in any instance on the strict keeping, observance or performance of
any covenant or agreement contained in the Lease, or the exercise of any
election contained in the Lease, shall not be construed as a waiver or
relinquishment for the future of such covenant or agreement, but the same shall
continue and remain in full force and effect.
-2-
<PAGE> 7
6. Non-disturbance Agreement and Memorandum of Lease.
(a) Landlord agrees that, prior to the earlier of: (a)
the Commencement Date or (b) sixty (60) days after the date of full execution
of the Lease, it will provide Tenant with a Subordination of Mortgage Agreement
which Tenant agrees to execute and Landlord agrees to cause Teachers Insurance
and Annuity Association of America ("Lender") to execute whereby the Lease will
become senior to the Mortgage and Lender's Mortgage will become subordinate to
the Lease ("non-disturbance agreement") in favor of Tenant from the Lender
("Superior Mortgagee").
(b) Landlord agrees to provide Tenant with commercially
reasonable non-disturbance agreement(s) in favor of Tenant from any Superior
Mortgagee(s) of Landlord who later come(s) into existence at any time prior to
the expiration of the Term of the Lease, as it may be extended, in
consideration of, and as a condition precedent to, Tenant's agreement to be
bound by Lease Section 30 (Subordination). Said non-disturbance agreements
shall be in recordable form and may be recorded at Tenant's election and
expense.
7. Days. All references in the Lease to "days" involving less
than "ten (10) days" shall mean business days, and all references to "notice"
shall mean written notice given in compliance with Lease Section 23.
8. Rules and Regulations and Use. To the extent not inconsistent
with the terms of any recorded mortgage and/or CC&Rs, Landlord agrees that the
General Rules and Parking Rules of the Building, attached to the Lease as
Exhibit "B", shall not be changed, revised or enforced in any unreasonable way
by Landlord, nor modified or added to by Landlord in such a way as to interfere
with Tenant's permitted use of the Premises set forth in the Lease. Landlord
shall use commercially reasonably efforts (which shall include unlawful
detainer proceedings if so warranted) as least comparable to those that would
be used by other landlords of Comparable Buildings, to secure compliance by
other tenants of the Building with the Rules. Landlord shall not enforce the
Rules in an unreasonable manner or in a manner which shall unreasonably
interfere with the normal and customary use of the Premises by Tenant for
normal and customary business office operations. Tenant may also use the
Premises for any general office use to the extent consistent with uses
permitted by Landlord of comparable space in the Project provided such use does
not violate an exclusive granted in good faith by the Landlord.
9. Abatement of Rent When Tenant Is Prevented From Using
Premises. In the event that Tenant is prevented from using, and does not use,
the Premises or any portion thereof, for five (5) consecutive business days or
ten (10) business days in any twelve (12) month period (the "Eligibility
Period") as a result
-3-
<PAGE> 8
of (a) any damage or destruction to the Premises, the Parking Facility and/or
the Building, (b) any repair, maintenance or alteration performed by Landlord
after the Commencement Date and required or permitted by the Lease, which
substantially interferes with Tenant's use of the Premises, the Parking
Facility and/or the Building, (c) any failure by Landlord to provide Tenant
with services or access to the Premises, the Parking Facility and/or the
Building, (d) because of an eminent domain proceeding, or (e) because of the
presence of hazardous substances in, on or around the Premises, the Building or
the Site which could pose a health risk to occupants of the Premises, then
Tenant's Rent shall be abated or reduced, as the case may be, after expiration
of the Eligibility Period for such time that Tenant continues to be so
prevented from using, and does not use, the Premises or a portion thereof, in
the proportion that the rentable area of the portion of the Premises that
Tenant is prevented from using, and does not use, bears to the total rentable
area of the Premises. However, in the event that Tenant is prevented from
conducting, and does not conduct, its business in any portion of the Premises
for a period of time in excess of the Eligibility Period, and the remaining
portion of the Premises is not sufficient to allow Tenant to effectively
conduct its business therein, and if Tenant does not conduct its business from
such remaining portion, then for such time after expiration of the Eligibility
Period during which Tenant is so prevented from effectively conducting its
business therein, the Rent for the entire Premises shall be abated; provided,
however, if Tenant reoccupies and conducts its business from any portion of the
Premises during such period, or the interruption is abated such that the
Premises are available for business, the Rent allocable to such reoccupied
portion, based on the proportion that the rentable area of such reoccupied
portion of the Premises bears to the total rentable area of the Premises, shall
be payable by Tenant from the date such business operations commence, or the
interruption is abated such that the Premises are available for business. If
Tenant's right to abatement occurs because of an eminent domain taking and/or
because of damage or destruction to the Premises, the Parking Facility, the
Building, or Tenant's property, Tenant's abatement period shall continue until
Tenant has been given sufficient time and sufficient access to the Premises,
the Parking Facility and/or the Building, to rebuild such portion it is
required to rebuild, to install its property, furniture, fixtures, and
equipment to the extent the same shall have been removed and/or damaged as a
result of such damage or destruction and/or eminent domain taking and to move
in over one (1) weekend. To the extent Tenant is entitled to abatement without
regard to the Eligibility Period, because of an event covered by Lease Sections
9 (Damage & Destruction) or 14 (Eminent Domain), then the Eligibility Period
shall not be applicable. To the extent that the event which prevents Tenant
from using the Premises is caused by Tenant's negligence or willful misconduct,
and if Landlord is not entitled to receive proceeds from rent
-4-
<PAGE> 9
continuation insurance required to be carried by Landlord, then Tenant will
not, to such extent, be entitled to rent abatement.
10. Right to Terminate.
(a) Notwithstanding anything in either Lease Sections 9
(Damage and Destruction) or 14 (Eminent Domain to the contrary, and except as
expressly set forth in Subsection (b) below, in the event that Tenant is
notified or becomes aware of the fact that:
(i) damage or destruction to the Premises, the
Parking Facility and/or the Building or any part thereof so as to
interfere substantially with Tenant's use of the Premises, the Parking
Facility and/or the Building;
(ii) a taking by eminent domain or exercise of
other governmental authority of the Premises, the Parking Facility
and/or the Building or any part thereof so as to interfere
substantially with Tenant's use of the Premises, the Parking Facility
and/or the Building;
(iii) the inability of Landlord to provide services
to the Premises, the Parking Facility and/or the Building so as to
interfere substantially with Tenant's use of the Premises, the Parking
Facility and/or the Building; or
(iv) any discovery of hazardous substances in, on
or around the Premises, the Building and/or the Site not placed in, on
or around the Premises, the Building and/or the Site by Tenant, that
may, considering the nature and amount of the substances involved,
interfere with Tenant's use of the Premises or which present a health
risk to any occupants of the Premises) (each of the items set forth in
provision (a)(i), (ii), (iii) and (iv) being referred to herein as a
"Trigger Event"),
Tenant cannot, within six (6) months ("Non-Use Period") of the occurrence of
the Trigger Event, be given reasonable use of, and access to, a fully repaired,
restored, safe and healthful Premises, the Parking Facility and Building
(except for minor "punch-list" items which will be repaired promptly
thereafter), and the utilities and services pertaining to the Premises, the
Parking Facility and the Building, all suitable for the efficient conduct of
Tenant's business therefrom, then Tenant may elect to exercise a one-time right
to terminate the Lease upon ten (10) days' written notice sent to Landlord
within ten (10) days) following the expiration of the Non-Use Period.
-5-
<PAGE> 10
(b) In the event of any Trigger Event occurring during
the last year of the Lease Term or, if an applicable renewal option has been
exercised, during the last year of any renewal term, should the Non-Use Period
continue for thirty (30) days, Tenant may elect to exercise a one-time right to
terminate the Lease upon ten (10) days' written notice sent to Landlord within
ten (10) days following the expiration of the Non-Use Period.
11. Excess Utilities and Services/Actual Costs. As part of
Operating Expenses, Landlord shall provide Normal Quantities (as defined below)
of electricity to the Premises twenty-four (24) hours a day, seven (7) days per
week, every day of the year. In the event Tenant requires utilities (other
than electricity), heating, ventilating or air-conditioning ("HVAC") and/or
services in excess of what Landlord is required to provide during normal
business hours or at times other than during business hours, Landlord agrees to
provide such extra utilities and services, and Tenant agrees to reimburse to
Landlord its actual costs (including a charge for depreciation when appropriate
to the extent such extra use accelerates the wearing down of the equipment) of
providing such extra utilities and services ("Actual Costs"), without a profit
to or overhead or administration charge (unless extra administration is
required and performed by people not already being charged to tenants as part
of Operating Expenses) by Landlord. Tenant shall not be charged for excess
electrical consumption (except for HVAC during non-Business Hours) until total
consumption exceeds the wattage utilized by the typical office tenant in the
Building.
12. Arbitration. The parties have declined to use arbitration
(except pursuant to Addendum Provision 19) and references herein to arbitration
shall mean that either party may elect to enforce rights by litigation.
13. Assignment and Subleasing and Definition of Profits.
(a) Notwithstanding any provision of Lease Section 12
(Assignment and Subletting) to the contrary which will be deemed stricken and
null and void to the extent inconsistent with the following, Landlord shall
never, unless an Event of Default by Tenant occurs, have the right to recapture
the Premises or any part of the Premises, in the event of a sublease or a
proposed sublease, or to terminate the Lease in the event of an assignment or a
proposed assignment. Tenant may assign or sublease at any time upon receipt of
Landlord's consent, which consent shall not be unreasonably withheld or delayed
beyond ten (10) days after Landlord's receipt of Tenant's request, to any
assignee or sublessee that is comparable in quality and financial standing to
other tenants in the Building or the Site or Comparable Buildings who have
lease terms for one (1) full year or more ("Comparable Tenants") and that will
use the Premises in a manner generally comparable to the use of
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comparable space in the Building or the Site or Comparable Buildings by
Comparable Tenants. With respect to any assignment or sublease, Tenant shall
pay Landlord fifty percent (50%) of any Profits (as defined below) actually
received by Tenant pursuant to such approved assignment or sublease. Whenever
Landlord is entitled to share in any excess income resulting from an assignment
or sublease of the Premises, the following shall (provided, however, Tenant
must prove, and has the burden of proof with respect thereto, any deduction
claimed by Tenant) constitute the definition of "Profits": the gross revenue
received from the assignee or sublessee during the sublease term or during the
assignment, with respect to the space covered by the sublease or the assignment
("Transferred Space") less: (a) the gross revenue paid to Landlord by Tenant
during the period of the sublease term or during the assignment with respect to
the Transferred Space; (b) the gross revenue as to the Transferred Space paid
to Landlord by Tenant for all days the Transferred Space was vacated from the
date that Tenant first vacated the Transferred Space until the date the
assignee or sublessee was to pay Rent; (c) any improvement allowance or other
economic concession (planning allowance, moving expenses, etc.), paid by Tenant
to sublessee or assignee; (d) brokers' commissions; (e) attorneys' fees; (f)
lease takeover payments; (g) costs of advertising the space for sublease or
assignment; (h) unamortized cost of initial and subsequent improvements to the
Premises by Tenant; and (i) any other costs actually paid in assigning or
subletting the Transferred Space; provided, however, under no circumstance
shall Landlord be paid any Profits until Tenant has recovered all the items set
forth in subparts (a) through (i) for such Transferred Space, it being
understood that if in any year the gross revenues, less the deductions set
forth in subparts (a) through (i) above (the "Net Revenues"), are less than any
and all costs actually paid in assigning or subletting the affected space
(collectively "Transaction Costs"), the amount of the excess Transaction Costs
shall be carried over to the next year and then deducted from Net Revenues with
the procedure repeated until a Profit is achieved. Provided, however, no
computation of Profits shall result in Landlord receiving less money pursuant
to this Lease, in the event of an assignment or subletting, then it would have
otherwise received had no such assignment or sublease occurred.
(b) Tenant may assign the Lease at any time, or sublease
all or part of the Premises, with receipt of Landlord's written consent, to any
entity which acquires all or part of Tenant, or which is acquired in whole or
in part by Tenant, or which is controlled directly or indirectly by Tenant, or
which entity controls, directly or indirectly, Tenant ("Affiliate"), or which
owns or is owned by the Affiliate, so long as such transaction was not entered
into as a subterfuge to avoid the obligations and restrictions of the Lease.
14. Signage. No sign shall be placed in, on or around the
Building and/or the Site (except for the Building directory)
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which identifies any person, company or entity which is a "competitor" of
Tenant (as hereinafter defined). Under no circumstances shall the Building
and/or the Site be named after or referred to utilizing the name of a
competitor of Tenant. For purposes of the Lease, a "competitor" of Tenant
shall be a person or entity whose primary business is predominantly based in
the sale of children's books.
15. Exclusions from Operating Expenses.
(a) Notwithstanding anything to the contrary in the
definition of Operating Expenses and Taxes set forth in Section 4 of the Lease
or in the Addendum to Lease, Operating Expenses and Taxes shall not include the
following, except to the extent specifically permitted by a specific exception
to the following:
(i) Any ground lease rental;
(ii) Costs of items considered capital repairs,
replacements, improvements and equipment under generally accepted
accounting principles consistently applied or otherwise ("Capital
Items"), except for (1) the annual amortization (amortized over the
useful life) of costs, including financing costs, if any, incurred by
Landlord after the Commencement Date for any capital improvements
installed or paid for by Landlord and required by any new (or change
in) laws, rules or regulations of any governmental or quasi-
governmental authority which are enacted after the Commencement Date;
(2) the annual amortization (amortized over the useful life) of costs,
including financing costs, if any, or any equipment, device or capital
improvement purchased or incurred as a labor-saving measure or to
affect other economics in the operation or maintenance of the Building
(provided the annual amortized costs does not exceed the actual cost
savings realized and such savings do not redound primarily to the
benefit of any particular tenant); or (3) minor capital improvements,
tools or expenditures to the extent each such improvement or
acquisition costs less than Three Thousand Dollars ($3,000) and the
total cost of same are not in excess of Ten Thousand Dollars ($10,000)
in any twelve (12) month period;
(iii) Rentals for items (except when needed in
connection with normal repairs and maintenance of permanent systems)
which if purchased, rather than rented, would constitute a Capital
Item which is specifically excluded in Subsection (ii) above
(excluding, however, equipment not affixed to the Building which is
used in providing janitorial or similar services);
(iv) Costs incurred by Landlord for the repair of
damage to the Building, to the extent that Landlord is
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reimbursed by insurance proceeds, and costs of all capital repairs in
excess of $100,000 to the extent such repairs are necessitated by an
earthquake, regardless of whether such repairs are covered by
insurance;
(v) Costs, including permit, license and
inspection costs, incurred with respect to the installation of
tenants' or other occupants' improvements in the Building or incurred
in renovating or otherwise improving, decorating, painting or
redecorating vacant space for tenants or other occupants of the
Building;
(vi) Depreciation, amortization and interest
payments, except as provided herein and except on materials, tools,
supplies and vendor-type equipment purchased by Landlord to enable
Landlord to supply services Landlord might otherwise contract for with
a third party where such depreciation, amortization and interest
payments would otherwise have been included in the charge for such
third party's services, all as determined in accordance with generally
accepted accounting principles, consistently applied, and when
depreciation or amortization is permitted or required, the item shall
be amortized over its reasonably anticipated useful life;
(vii) Marketing costs including, without
limitation, leasing commissions, attorneys' fees in connection with
the negotiation and preparation of letters, deal memos, letters of
intent, leases, subleases and/or assignments, space planning costs,
and other costs and expenses incurred in connection with lease,
sublease and/or assignment negotiations and transactions with present
or prospective tenants or other occupants of the Building;
(viii) Expenses in connection with services or other
benefits which are not offered to Tenant or for which Tenant is
charged for directly but which are provided to another tenant or
occupant of the Building;
(ix) Costs incurred by Landlord due to the
violation by Landlord or any tenant of the terms and conditions of any
lease of space in the Building;
(x) Overhead and profit increment paid to
Landlord or to subsidiaries or affiliates of Landlord for goods and/or
services in or to the Building to the extent the same exceeds the
costs of such goods and/or services rendered by unaffiliated third
parties on a competitive basis;
(xi) Interest, principal, points and fees on debts
or amortization on any mortgage or mortgages or any other debt
instrument encumbering the Building or the Site (except as permitted
in Subsection (ii) above);
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(xii) Landlord's general corporate overhead and
general and administrative expenses except to the extent included in
the Management Fee;
(xiii) Any compensation paid to clerks, attendants
or other persons in commercial concessions operated by Landlord or in
the parking garage of the Building or wherever Tenant is granted its
parking privileges and/or all fees paid to any parking facility
operator (on or off Site);
(xiv) Rentals and other related expenses incurred
in leasing HVAC systems, elevators or other equipment ordinarily
considered to be Capital Items, except for (1) expenses in connection
with making minor repairs on or keeping Building Systems in operation
while minor repairs are being made, and (2) costs of equipment not
affixed to the Building which is used in providing janitorial or
similar services;
(xv) Advertising and promotional expenditures, and
costs of signs in or on the Building identifying the owner of the
Building or other tenants' signs;
(xvi) The cost of any electric power used by any
tenant in the Building in excess of the Building-standard amount, or
electric power costs for which any tenant directly contracts with the
local public service company or of which any tenant is separately
metered or submetered and pays Landlord directly; provided, however,
that if any tenant in the Building contracts directly for electric
power service or is separately metered or submetered during any
portion of the relevant period, the total electric power costs for the
Building shall be "grossed up" to reflect what those costs would have
been had each tenant in the Building used the Building-standard amount
of electric power;
(xvii) Services and utilities provided, taxes
attributable to, and costs incurred in connection with the operation
of the retail and restaurant operations in the Building, except to the
extent the square footage of such operations are included in the
rentable square feet of the Building and do not exceed the services,
utility and tax costs which would have been incurred had the retail
and/or restaurant space been used for general office purposes;
(xviii) Costs incurred in connection with upgrading
the Building to comply with disability, life, fire and safety codes,
ordinances, statutes, or other laws in effect prior to the
Commencement Date (this exclusion shall not apply to changes in such
laws enacted after the Commencement Date), including, without
limitation, the ADA,
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including penalties or damages incurred due to such non-compliance;
(xix) Tax penalties incurred as a result of
Landlord's negligence, inability or unwillingness to make payments
and/ or to file any tax or informational returns when due;
(xx) Any management fees in excess of those
management fees which are normally and customarily charged by
comparable landlords of Comparable Buildings;
(xxi) Costs arising from the negligence or fault of
other tenants or Landlord or its agents, or any vendors, contractors,
or providers of materials or services selected, hired or engaged by
Landlord or its agents including, without limitation, the selection of
Building materials;
(xxii) Notwithstanding any contrary provision of the
Lease, including, without limitation, any provision relating to
capital expenditures, any and all costs arising from the presence of
hazardous materials or substances (as defined by Applicable Laws in
effect on the date the Lease is executed) in or about the Premises,
the Building or the Site including, without limitation, hazardous
substances in the ground water or soil, not placed in the Premises,
the Building or the Site by Tenant;
(xxiii) Costs arising from Landlord's charitable or
political contributions;
(xxiv) Costs arising from latent defects in the
base, shell or core of the Building or improvements installed by
Landlord or repair thereof;
(xxv) INTENTIONALLY OMITTED
(xxvi) Costs (including in connection therewith all
attorneys' fees and costs of settlement judgments and payments in lieu
thereof) arising from claims, disputes or potential disputes in
connection with potential or actual claims litigation or arbitrations
pertaining to Landlord and/or the Building and/or the Site;
(xxvii) Costs associated with the operation of the
business of the partnership or entity which constitutes Landlord as
the same are distinguished from the costs of operation of the
Building, including partnership accounting and legal matters, costs of
defending any lawsuits with any mortgagee (except as the actions of
Tenant may be in issue), costs of selling, syndicating, financing,
mortgaging or hypothecating any of Landlord's interest in the
Building, costs of any disputes between Landlord and
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its employees (if any) not engaged in Building operation, disputes of
Landlord with Building management, or outside fees paid in connection
with disputes with other tenants;
(xxviii) Any increase of, or reassessment in, real
property taxes and assessments in excess of two percent (2%) of the
taxes for the previous year, resulting from the first sale, transfer,
or other change in ownership of the Building or the Site during the
Lease Term (collectively, "Transfers") unless such Transfers incur
during the Base Year in which case this provision will not apply;
(xxix) Costs of any "tap fees" or any sewer or water
connection fees for the benefit of any particular tenant (as
contrasted with all or substantially all of the tenants) in the
Building;
(xxx) Costs incurred in connection with any
environmental clean-up, response action, or remediation on, in, under
or about the Premises or the Building, including but not limited to,
costs and expenses associated with the defense, administration,
settlement, monitoring or management thereof;
(xxxi) Any expenses incurred by Landlord for use of
any portions of the Building to accommodate events including, but not
limited to shows, promotions, kiosks, displays, filming, photography,
private events or parties, ceremonies, and advertising beyond the
normal expenses otherwise attributable to providing Building services,
such as lighting and HVAC to such public portions of the Building in
normal Building operations during standard Building hours of
operation;
(xxxii) Any entertainment, dining or travel expenses for any
purpose;
(xxxiii) Any flowers, gifts, balloons, etc. provided to any
entity whatsoever, to include, but not limited to, Tenant, other
tenants, employees, vendors, contractors, prospective tenants and
agents;
(xxxiv Any "validated" parking for any entity;
(xxxv) Any "finders fees", brokerage commissions,
job placement costs or job advertising cost, other than with respect
to a receptionist or secretary in the Building office, once per year;
(xxxvi) Any "above-standard" cleaning, including, but not
limited to construction cleanup or special cleanings associated with
parties/events and specific tenant requirements in excess of service
provided to
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Tenant, including related trash collection, removal, hauling and
dumping;
(xxxvii) The cost of any magazine, newspaper, trade or
other subscriptions;
(xxxviii) The cost of any training or incentive programs,
other than for tenant life safety information services;
(xxxix) The cost of any "tenant relations" parties, events
or promotion not consented to by an authorized representative of Tenant
in writing; and
(xl) Any other expenses which, in accordance with
generally accepted accounting principles, consistently applied, would
not normally be treated as Operating Expenses by comparable landlords
of Comparable Buildings.
(b) In the event any facilities, services or utilities
used in connection with the Building are provided from another building owned
or operated by Landlord or vice versa, the costs incurred by Landlord in
connection therewith shall be allocated to Operating Expenses by Landlord on a
reasonably equitable basis.
(c) Landlord further agrees that since one of the
purposes of Operating Expenses and the gross up provision is to allow Landlord
to require Tenant to pay for the costs attributable to its Premises, Landlord
agrees that (i) Landlord will not collect or be entitled to collect Operating
Expenses from all of its tenants in an amount which is in excess of one hundred
percent (100%) of the Operating Expenses actually paid by Landlord in
connection with the operation of the Building, and (ii) Landlord shall make no
profit from Landlord's collections of Operating Expenses. All assessments and
premiums which are not specifically charged to Tenant because of what Tenant
has done, which can be paid by Landlord in installments, shall be paid by
Landlord in the maximum number of installments permitted by law and not
included as Operating Expenses except in the year in which the assessment or
premium installment is actually paid; provided, however, that if the prevailing
practice in Comparable Buildings is to pay such assessments or premiums on an
earlier basis, and Landlord pays on such basis, such assessments or premiums
shall be included in Operating Expenses as paid by Landlord, but in no event
shall Landlord include any accrued interest (resulting from such assessments or
premiums) in its computation of Operating Expenses.
(d) Each time Landlord provides Tenant with an actual
and/or estimated statement of Operating Expenses, such statement shall be
itemized on a line item by line item basis, showing the applicable expense for
the applicable year and the year prior to the applicable year.
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16. Payment of Taxes and Insurance Premiums; Gross Up. Landlord
shall in any year, including the 1997 Base Year, during which the Building is
not ninety-five percent (95%) occupied during the entire calendar year, adjust
such Operating Expenses to what the Operating Expenses would have been had the
Building been ninety-five percent (95%) occupied during the entire calendar
year.
17. Audit Right. In the event of any dispute regarding the amount
due as Tenant's Pro Rata Share of Operating Expenses and/or the amount due as
Operating Expenses pursuant to Lease Section 4, Tenant shall have the right,
after reasonable notice and at reasonable times, to inspect and photocopy
Landlord's accounting records at Landlord's office. If, after such inspection
and photocopying, Tenant continues to dispute the amount of its Pro Rata Share
of Operating Expenses, Tenant, or an agent designated by Tenant, shall be
entitled to audit and/or review Landlord's records to determine the proper
amount of its Pro Rata Share of Operating Expenses. If such audit or review
reveals that Landlord has overcharged Tenant, then within thirty (30) days
after the results of such audit are made available to Landlord, Landlord shall
reimburse Tenant the amount of such overcharge plus interest thereon at the
Interest Rate pursuant to Second Lease Addendum Section 45. If the audit
reveals that Tenant was undercharged, then within thirty (30) days after the
results of the audit are made available to Tenant, Tenant shall reimburse
Landlord the amount of such undercharge plus interest thereon at the Interest
Rate. If Landlord desires to contest such audit results, Landlord may do so by
refusing to pay Tenant and Tenant may seek judicial relief and enforcement.
Tenant agrees to pay the cost of such audit, provided that if the audit reveals
that Landlord's determination of Tenant's Pro Rata Share of Operating Expenses
as set forth in any Statement (such statement submitted pursuant to and defined
in Lease Section 4 (Rental Adjustment)) sent to Tenant was in error in
Landlord's favor by more than ten percent (10%), Landlord shall pay the cost of
such audit not to exceed $1,000. Landlord shall be required to maintain
records of all Operating Expenses and other Rent Adjustments for the entirety
of a six-month period ("Review Period") following Landlord's delivery to Tenant
of each Statement setting forth Tenant's Pro Rata Share of Operating Expenses.
The payment by Tenant of any amounts pursuant to Lease Section 4 (Rental
Adjustment) shall not preclude Tenant from questioning the correctness of any
Statement provided by Landlord at any time during the Review Period, but the
failure of Tenant to object thereto prior to the expiration of the Review
Period shall be conclusively deemed Tenant's approval of the Statement.
18. Parking.
(a) Notwithstanding anything to the contrary contained in
the Lease, Tenant's parking privileges shall be available to Tenant twenty-four
(24) hours per day, seven (7)
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days per week, every day of the year, in any location where Tenant shall
maintain its parking privileges. Tenant's parking shall be non- tandem.
Should Landlord provide reserved, segregated, preferred, priority, valet or
block parking to any other tenant of the Building, the same shall be made
available to Tenant on a pro rata basis ("Equitable Parking Assurance"). Any
time and from time to time during the Lease Term, but no more than twice in any
two (2) year period, Tenant may decrease or increase the number of parking
spaces up to the maximum permitted under Lease Section 2.2 (Parking) by giving
four (4) months' written notice to Landlord.
(b) Visitor parking shall be at a charge to visitors at
the rate established by Landlord from time to time, comparable to visitor
parking rates being charged by comparable landlords of Comparable Buildings.
Tenant may purchase validations from Landlord's parking lot operator at the
lowest rate charged by Landlord to its other tenants and may elect to validate
such parking for its visitors. Tenant shall comply with all reasonable parking
rules and regulations promulgated from time to time by Landlord which are not
inconsistent with the foregoing.
(c) Notwithstanding anything to the contrary set forth in
the Lease, in no event shall Tenant be charged more than Sixty Dollars ($60.00)
per parking privilege. Provided, however, Landlord may on two (2) separate
occasions increase the parking charge to its then prevailing rate, but in no
event shall Tenant be charged more than Sixty-Nine Dollars ($69.00) per parking
privilege for the initial Term of the Lease.
19. Fair Market Rental Rate. For purposes of the Lease, the term
"Fair Market Rental Rate" shall mean the annual amount per rentable square foot
that Landlord has accepted in current transactions between non-affiliated
parties from renewal tenants of comparable credit-worthiness, for comparable
space, for a comparable use, for a comparable period of time ("Comparable
Transactions") in the Building, or if there are not a sufficient number of
Comparable Transactions in the Building, what a comparable landlord of a
Comparable Building with comparable vacancy factors would accept in Comparable
Transactions. In any determination of Comparable Transactions appropriate
consideration shall be given to the annual rental rates per rentable square
foot, the standard of measurement by which the rentable square footage is
measured, the ratio of rentable square feet to usable square feet, the type of
escalation clause (e.g., whether increases in additional rent are determined on
a net or gross basis, and if gross, whether such increases are determined
according to a base year or a base dollar amount expense stop), abatement
provisions reflecting free rent and/or no rent during the period of
construction or subsequent to the commencement date as to the space in
question, length of the lease term, size and location of premises being leased,
building standard work letter and/or tenant improvement allowances, if
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any, and other generally applicable conditions of tenancy for such Comparable
Transactions.
Landlord shall determine the Fair Market Rental Rate by using its good
faith judgment. Landlord shall provide written notice of such amount within
fifteen (15) days (but in no event later than twenty (20) days) after Tenant
provides the notice to Landlord exercising Tenant's option rights which require
a calculation of the Fair Market Rental Rate. Tenant shall have thirty (30)
days ("Tenant's Review Period") after receipt of Landlord's notice of the new
rental within which to accept such rental or to reasonably object thereto in
writing. In the event Tenant objects, Landlord and Tenant shall attempt to
agree upon such Fair Market Rental Rate using their best good faith efforts.
If Landlord and Tenant fail to reach agreement within fifteen (15) days
following Tenant's Review Period ("Outside Agreement Date"), then each party
shall place in a separate sealed envelope their final proposal as to Fair
Market Rental Rate and such determination shall be submitted to arbitration in
accordance with Subsections (a) through (e) below. Failure of Tenant to so
elect in writing within Tenant's Review Period shall conclusively be deemed its
disapproval of the Fair Market Rental Rate determined by Landlord.
In the event that Landlord fails to timely generate the initial
written notice of Landlord's opinion of the Fair Market Rental Rate which
triggers the negotiation period of this Addendum Provision, then Tenant may
commence such negotiations by providing the initial notice, in which event
Landlord shall have fifteen (15) days ("Landlord's Review Period") after
receipt of Tenant's notice of the new rental within which to accept such
rental. In the event Landlord fails to accept in writing such rental proposed
by Tenant, then such proposal shall be deemed rejected, and Landlord and Tenant
shall attempt in good faith to agree upon such Fair Market Rental Rate using
their best good faith efforts. If Landlord and Tenant fail to reach agreement
within fifteen (15) days following Landlord's Review Period (which shall be, in
such event, the "Outside Agreement Date" in lieu of the above definition of
such date), then each party shall place in a separate sealed envelope their
final proposal as to the Fair Market Rental Rate and such determination shall
be submitted to arbitration in accordance with Subsections (a) through (e)
below.
(a) Landlord and Tenant shall meet with each other within
five (5) business days of the Outside Agreement Date and exchange the sealed
envelopes and then open such envelopes in each other's presence. If Landlord
and Tenant do not mutually agree upon the Fair Market Rental Rate within five
(5) business days of the exchange and opening of envelopes, then, within ten
(10) business days of the exchange and opening of envelopes, Landlord and
Tenant shall agree upon and jointly appoint a single arbitrator who shall by
profession be a real estate lawyer or broker who shall have been active over
the five (5)
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year period ending on the date of such appointment in the leasing of comparable
commercial properties in the vicinity of the Building. Neither Landlord nor
Tenant shall consult with such broker or lawyer as to his or her opinion as to
Fair Market Rental Rate prior to the appointment. The determination of the
arbitrator shall be limited solely to the issue of whether Landlord's or
Tenant's submitted Fair Market Rental Rate for the Premises is the closest to
the actual Fair Market Rental Rate for the Premises as determined by the
arbitrator, taking into account the requirements of this Addendum Provision.
Such arbitrator may hold such hearings and require such briefs as the
arbitrator, in his or her sole discretion, determines is necessary. In
addition, Landlord or Tenant may submit to the arbitrator, with a copy to the
other party, within five (5) business days after the appointment of the
arbitrator any market data and additional information that such party deems
relevant to the determination of the Fair Market Rental Rate ("FMRR Data") and
the other party may submit a reply in writing within five (5) business days
after receipt of such FMRR Data.
(b) The arbitrator shall, within thirty (30) days of his
or her appointment, reach a decision as to whether the parties shall use
Landlord's or Tenant's submitted Fair Market Rental Rate, and shall notify
Landlord and Tenant of such determination.
(c) The decision of the arbitrator shall be binding upon
Landlord and Tenant, except as provided below.
(d) If Landlord and Tenant fail to agree upon and appoint
an arbitrator, then the appointment of the arbitrator shall be made by the
Presiding Judge of the Los Angeles Superior Court, or, if he or she refuses to
act, by any judge having jurisdiction over the parties.
(e) The cost of arbitration shall be paid by Landlord and
Tenant equally.
20. BOMA Method of Measurement. Landlord warrants and represents
that the rentable and usable areas of the Premises and the Building have been
determined in accordance with the standards set forth in ANSI Z65.1-1980, as
promulgated by the Building Owners and Managers Association ("BOMA Standard").
Tenant shall have the right, exercisable within ninety (90) days after the
later of (a) the date Landlord gives Tenant written notice of the final field
measurements of the Premises and the Building, or (b) the date Tenant commences
business operations from the Premises (or, when appropriate, any additional
space leased by Tenant pursuant to the Lease), to remeasure the Premises and
the Building within such ninety (90) day period. In the event that subsequent
remeasurement of the Premises and/or the Building by Tenant, within the time
period specified above, indicates that the square footage measurement prepared
by Landlord produces a square footage number in excess of or lower
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than the square footage number which would have resulted had the BOMA Standard
been properly utilized, any payments due to Landlord from Tenant based upon the
amount of square feet contained in the Premises shall be proportionally,
retroactively and prospectively reduced or increased, as appropriate, to
reflect the actual number of square feet as properly remeasured under the BOMA
Standard. If Landlord disagrees with Tenant's remeasurement and if a dispute
occurs regarding the final accuracy of the measurement of the Premises and the
Building in accordance with the BOMA Standard, such dispute will be resolved
pursuant to binding arbitration pursuant to Second Lease Addendum Section 12
(Arbitration).
21. Insurance Obligations, Allocation of Risks and Minimizing
Duplication of Insurance Coverage. Notwithstanding Lease Section 8 to the
contrary, because Landlord is required to maintain property and casualty
insurance on the Building and Tenant compensates Landlord for such insurance as
part of Tenant's Pro Rata Share of Operating Expenses and because of the
existence of waivers of subrogation set forth in Lease Section 8, Landlord
hereby indemnifies and holds Tenant harmless from any loss, cost, liability,
damage or expense (including, but not limited to penalties, fines and actual
attorneys' fees and costs) to any property outside of the Premises to the
extent such property and casualty loss, costs, liability, damage or expenses
are covered (and are actually recovered or paid) by such insurance, even if
resulting from the negligent acts, omissions, or willful misconduct of Tenant
or those of its agents, contractors, servants, employees or licensees.
Similarly, since Tenant must carry insurance pursuant to Lease Section 8 to
cover its personal property within the Premises, Tenant hereby indemnifies and
holds Landlord harmless from any loss, cost, liability, damage or expense
(including, but not limited to, penalties, fines and actual attorneys' fees and
costs) to any property within the Premises to the extent such loss, costs,
liability, damage or expenses are covered by such insurance, even if resulting
from the negligent acts, omissions or willful misconduct of Landlord or those
of its agents, contractors, servants, employees or licensees. In the event the
Premises and/or the Building are damaged or destroyed and such damage or
destruction is covered by insurance obtained by Landlord and not covered by
insurance obtained by Tenant, Landlord shall use the proceeds of its insurance
to repair the damage or destruction to the Premises and/or the Building,
subject to any rights either Landlord or Tenant may have to terminate the Lease
in the event such damage or destruction occurs. Landlord and Tenant agree to
use commercially reasonable efforts to effectuate recoveries from their
respective insurance companies.
22. Eminent Domain. In the event that the entire Premises or such
portion thereof as shall materially and adversely interfere with Tenant's use
and occupancy thereof shall be either (a) taken for any public or quasi-public
purpose by any
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lawful power or authority by exercise of the right of appropriation,
condemnation, or eminent domain, or (b) sold to prevent such taking. Landlord
shall take no actions to interfere with Tenant's attempt, through a separate
action or proceeding brought by Tenant against the condemning authority, to
recover from the condemning authority one hundred percent (100%) of the "Bonus
Value" of the leasehold estate which shall be equal to the difference between
the rental rate payable by Tenant under the Lease and the rate established by
the condemning authority as an award for compensation purposes, together with
any amount Tenant is able to obtain from the condemning authority for any award
or compensation attributable to the taking or purchase of Tenant's property,
chattels, or trade fixtures, or attributable to Tenant's relocation expenses.
23. Relocation. Notwithstanding anything to the contrary
contained in the Lease, Landlord shall not have the right to relocate Tenant's
Premises.
24. Use. Notwithstanding any specific use of the Premises
permitted under Lease Sections 1.4 and 6, Tenant or its assignees or sublessees
may use the Premises for any legally permitted uses consistent with the
character of the Building and the uses permitted by Landlord of other office
tenants of comparable space in the Building. Landlord may grant exclusive uses
to other tenants of the Building, but no such exclusive use shall preclude,
restrict or limit Tenant's ability to utilize the Premises for the operation of
a book publishing company.
25. Secured Areas. Tenant may designate certain areas of the
Premises as "Secured Areas" should Tenant require such areas for the purpose of
securing certain valuable property or confidential information. Landlord may
not enter such Secured Areas except in the case of emergency or in the event of
a Landlord inspection, in which case Landlord shall provide Tenant with two (2)
business days' prior written notice of the specific date and time of such
Landlord inspection.
26. First Month's Rent. [Intentionally omitted.]
27. Default by Landlord. [Intentionally omitted.]
28. Holding Over. Notwithstanding anything to the contrary set
forth in Lease Section 26 pertaining to holding over, in the event Tenant holds
over in the Premises following the expiration or earlier termination of the
Lease without Landlord's consent, and if such hold over is the result of
Tenant's inability to move into new premises because such premises have not
been constructed on a timely basis, or because of any Force Majeure Delay or
Force Majeure Event, then, under no circumstances shall Tenant be required to
pay Base Rent to Landlord in excess of the greater of ten percent (10%) over
the Base Rent in effect during the last month of the Lease, plus an
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<PAGE> 24
amount equal to any damages actually incurred by Landlord due to Tenant's
holdover.
29. Default by Tenant. Lease Section 13.1 pertaining to defaults
by Tenant, is hereby deemed deleted, and the following paragraph is deemed
inserted in its place:
"(a) The occurrence of any of the following shall constitute
an event of default ("Event of Default") hereunder on the part of
Tenant:
"(1) Nonpayment of Rent. Failure to pay any
installment of Base Rent or any other monetary sum due and
payable hereunder, upon the date when payment is due, such
failure continuing for a period of ten (10) business days
after written notice of such failure; or
"(2) Other Obligations. Failure to perform any
obligation, agreement or covenant under the Lease, other than
Tenant's obligation to pay Base Rent, such failure continuing
for ten (10) business calendar days after written notice of
such failure or such longer period as is reasonably necessary
to remedy such failure, provided that Tenant shall
continuously and diligently pursue such remedy until such
failure is cured.
"(b) All notices to be given pursuant to this Section shall
be in addition to, and not in lieu of, the notice requirements of
California Code of Civil Procedure Section 1161.
"(c) Tenant shall have, and under no circumstances shall
Tenant be deemed to have waived, the rights set forth in Sections 1174
and 1179 of the California Civil Code of Procedure."
30. Insurance Obligations of Landlord. [Intentionally omitted.]
31. Estoppel Certificate. [Intentionally omitted.]
32. Bonding. Notwithstanding anything to the contrary in the
Lease, Tenant shall not be required to obtain or provide any completion bond in
connection with any construction, alteration or improvement work performed by
Tenant or on Tenant's behalf.
33. Brokers' Commissions. Landlord shall indemnify Tenant for and
hold Tenant harmless from and against any and all claims of any person
(including Landlord's broker) other than Tenant's broker making a claim based
on its representation and/or alleged representation of Landlord in connection
with this Lease and all liabilities arising out of or in connection with such
claim.
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<PAGE> 25
34. Notices. Copies of all notices pertaining to any Tenant Delay
or any Event of Default applicable to Tenant shall be sent, in the same manner
and at the same time, to:
Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, California 90017
Attention: Michael E. Meyer, Esq.
Telephone: (213) 488-7100
Telecopier: (213) 629-1033
35. Alterations and Improvements. Tenant is granted the right to
make alterations and improvements to the Premises, as long as (a) Tenant pays
for the entire cost of such alterations and improvements, (b) Tenant agrees to
remove said alterations and improvements upon the expiration or termination of
the Lease, if requested by Landlord at the time the alterations and
improvements are approved by Landlord and if such alterations and improvements
are not normal and customary for general business office purposes, and (c) such
alterations and improvements will not (i) adversely affect the Building
Structure as defined in Addendum Provision 2, (ii) adversely affect the
Building Systems as defined in Addendum Provision 2 (iii) affect the exterior
appearance of the Building, (iv) interfere unreasonably with any other
occupants' normal and customary business operations and (v) not be in
compliance with any applicable law, code or ordinance (individually and
collectively a "Design Problem"). Any time Tenant proposes to make such
alterations and/or improvements, Tenant shall provide Landlord with twenty-one
days' notice of the proposed alterations and/or improvements, together with the
plans and specifications, and Landlord shall grant its approval within such
twenty-one (21) day period, unless Landlord reasonably determines that such
alterations and/or improvements would adversely affect the structural integrity
of the Premises and/or the Building or would adversely affect the exterior
appearance of the Building.
36. Access to Building and Parking. Tenant shall be granted
access to the Building, the Premises, Services and Utilities and the parking
provided to the Building twenty-four (24) hours per day, seven (7) days per
week, every day of the year. Tenant's employees shall have the right to
utilize Tenant's parking privileges within the Building parking structure for
any period of time for the purpose of storing their vehicles and to leave their
vehicles overnight when Tenant's employees are on business trips or vacations.
Tenant expressly acknowledges and agrees that the parking area for the Building
is an open outdoor area with no security services and Landlord shall have no
liability whatsoever for damage to or theft of vehicles left overnight.
-21-
<PAGE> 26
37. Building Security. Subject to Landlord's reasonable approval,
Tenant shall be entitled, at its sole cost, to install its own security systems
for the Premises, which shall be located within the Premises and which shall
not interfere with the Building Systems.
38. Removal of Property. Notwithstanding anything to the contrary
in the Lease, all articles of personal property and all business and trade
fixtures, machinery and equipment, furniture and movable partitions owned by
Tenant or installed by or on behalf of Tenant in the Premises shall remain the
property of Tenant, and may be removed by Tenant at any time during the Term of
the Lease as long as Tenant is not in default hereunder with any applicable
cure period having expired. If Tenant fails to remove all of its effects from
the Premises upon the expiration or earlier termination of the Lease for any
cause whatsoever, Landlord may, at its option, any time after five (5) days'
written notice to Tenant of its intention to remove such effects, remove same
in any manner that Landlord shall choose and store such effects without
liability to Tenant for loss thereof, and Tenant shall pay Landlord upon demand
any and all expenses incurred in connection with such removal, including court
costs, attorneys' fees, and reasonable storage charges incurred while such
effects were in Landlord's possession.
39. Storage Space. [Intentionally omitted.]
40. Window Washing/Window Washing Equipment. [Intentionally
omitted.]
41. When Payment Is Due. Whenever in the Lease a payment is
required to be made by one party to the other, but a specific date for payment
is not set forth or a specific number of days within which payment is to be
made is not set forth, or the words "immediately," "promptly" and/or "on
demand," or their equivalent, are used to specify when such payment is due,
then such payment shall be due ten (10) days after the party which is entitled
to such payment sends written notice to the other party demanding such payment.
42. Entry by Landlord. Notwithstanding anything to the contrary
set forth in the Lease to the contrary, but subject to and in addition to
Addendum Provision 25, Landlord and/or those acting on Landlord's behalf may
only enter the Premises upon reasonable prior notice to Tenant, except in cases
of emergency or to supply normal and regular janitorial or security services
pursuant to the terms of the Lease, in which case no such notice shall be
required. In any event, any such entry shall be accomplished as expeditiously
as reasonably possible and in a manner so as to cause as little interference to
Tenant as reasonably possible.
-22-
<PAGE> 27
43. Landlord Bankruptcy Proceeding. In the event that the
obligations of Landlord under the Lease are not performed during the pendency
of a bankruptcy or insolvency proceeding involving the Landlord as the debtor,
or following the rejection of this Lease in accordance with Section 365 of the
United States Bankruptcy Code, then notwithstanding any provision of this Lease
to the contrary, Tenant shall have the right to set off against Rents next due
and owing under this Lease (a) any and all damages caused by such
non-performance of Landlord's obligations under the Lease by Landlord,
debtor-in-possession, or the bankruptcy trustee, and (b) any and all damages
caused by the non-performance of Landlord's obligations under the Lease
following any rejection of the Lease in accordance with Section 365 of the
United States Bankruptcy Code; provided, however, in both instances, the
existence and amount of Tenant's damages have been fully and finally
adjudicated and determined by a court order in Tenant's favor.
44. Roof Rights. [Intentionally omitted.]
45. Interest Rate. The "Interest Rate" is defined as the lesser
of (a) the rate publicly announced from time to time, by the largest (as
measured by deposits) chartered bank operating in California, as its Prime
Rate, Reference Rate or other similar benchmark, plus two percent (2%) or (b)
the maximum rate permitted by law.
46. Interest on Past Due Obligations. Whenever one party is
obligated pursuant to this Lease to make a payment to the other party, if such
payment is not paid when due, then the party who does not make such payment
when due shall pay interest at the Interest Rate (as defined in Addendum
Provision 45) to the party on the unpaid amount from the date such amount was
due until the date such amount is paid.
47. Proposition 8 Reduction. The amount of Taxes included in the
Base Year (the "Base Taxes") shall be the amount of Taxes incurred during the
Base Year, exclusive of any Proposition 8 reduction of Taxes, as adopted by the
voters of the State of California, attributable to the valuation of the Project
and the Building (inclusive of tenant improvements). If, in any comparison
year subsequent to the Base Year (the "Adjustment Year"), the amount of Taxes
decreases below the amount of Base Taxes as a result of a Proposition 8
reduction, then for purposes of all subsequent comparison years, including the
comparison year in which such decrease in Taxes occurred, the Base Taxes shall
be decreased by an amount equal to the decrease in Taxes in the Adjustment
Year. Conversely, if the Taxes thereafter are increased during any comparison
year subsequent to the Adjustment Year (the "Readjustment Year") as a result of
Landlord's failure to secure a Proposition 8 reduction which is greater than or
equal to the Proposition 8 reduction secured during the Adjustment Year, then
for purposes of all subsequent comparison years, including the comparison year
in which such increase in
-23-
<PAGE> 28
Taxes occurred, the Base Taxes shall be increased by an amount equal to the
increase in Taxes during such Readjustment Year which resulted from Landlord's
failure to secure a Proposition 8 reduction greater than or equal to the
Proposition 8 reduction secured during the Adjustment Year.
48. Reimbursement Upon Cancellation. If Lessee timely elects to
cancel this Lease pursuant to Section 3.2, Lessee shall reimburse Tenant for
all costs incurred by Landlord for improvements to the Premises constructed by
Landlord pursuant to this Lease in excess of $84,000.
49. Construction of Tenant Improvements.
(a) Selection of Contractor. Landlord's contractor shall be the
contractor selected pursuant to a procedure whereby the Final Plans and a
construction contract approved by Tenant are submitted to three (3)
contractors, selected by Landlord and approved by Tenant, who are requested to
each submit a sealed fixed price contract bid price (on such contract form as
Landlord shall designate) to construct the improvements designated on the Final
Plans, to Landlord and Tenant, who shall jointly open and review the bids.
Landlord and Tenant, after adjustments for the inconsistent assumptions to
reflect an "apples to apples" comparison, shall select the lowest price bidder
and such contractor with the lowest priced bid ("Contractor") shall enter into
a construction contract with Landlord consistent with the terms of the bid to
construct the Tenant Improvements ("Construction Contract"). If Tenant elects
to use materials in its construction which Landlord has pre-stocked, Tenant
must purchase such pre-stocked materials from Landlord, and Landlord must sell
such pre-stocked materials to Tenant. Landlord shall charge Tenant for any
pre-stocked items utilized by Contractor in constructing the Tenant
Improvements at Landlord's actual cost (purchase price plus tax and shipping
charges to Building only, and no other charges, fees or costs), without profit
or overhead to Landlord.
(b) [Intentionally omitted.]
(c) Tenant Improvements. The term "Tenant Improvements" shall
mean all improvements shown in the Final Plans which Plans are self-explanatory
but include the purchase and installation of building standard paint and carpet
throughout the interior of the Premises and installation of partition walls
reconfigured electrical wiring and HVAC ducting. The Final Plans consist of
those plans and specifications itemized on the attached Exhibit D.
(d) Tenant Improvement Allowance Amount. Landlord will
pay on behalf of Tenant an amount up to Eighty Four Thousand Dollars ($84,000)
("Tenant Improvement Allowance") for the costs of the design and initial
construction of the Tenant Improvements shown on the Final Plans, for the costs
paid to Mark Fisher in
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<PAGE> 29
connection with the preparation of the Final Plans and related work (but not in
excess of seven thousand dollars) and for the costs of changes to the Final
Plans pursuant to Change Orders which are reasonable and customary as to scope
and number and only involved building standard items (collectively, "Permitted
Items").
(e) Disbursement of Tenant Improvement Allowance. The
Tenant Improvement Allowance shall be utilized to pay for all Permitted Items
and shall be disbursed to pay for items contracted for by Landlord pursuant to
this Addendum on a timely basis and for the payment to Mark Fisher (not in
excess of seven thousand dollars ($7,000).
(f) [Intentionally omitted.]
(g) Change Orders. In the event that Tenant requests any
changes to the Final Plans, Landlord shall not unreasonably withhold its
consent to any such changes, and shall grant its consent to such changes within
four (4) business days after Landlord's receipt of same, provided the changes
do not create a Design Problem. If any changes requested by Tenant and
approved by Landlord increase the cost to Landlord of constructing the Tenant
Improvements shown on the Final Plans, and are not within the scope of the
Permitted Items (as provided in Paragraph 49(d) above), or, if within the scope
of the Permitted Items would cause Landlord to exceed the Tenant Improvement
Allowance, Landlord shall provide Tenant with invoices documenting and
evidencing such increased costs, and Tenant shall reimburse Landlord for such
increased costs within thirty (30) days after Tenant's receipt of such
invoices. Subject to the next paragraph, if such changes delay Landlord's
completion of the work shown on the Final Plans, then such delay shall
constitute a Tenant Delay.
In addition, since in any project there are always change
orders, the first seven (7) days of any delay which results from a change order
requested by Tenant shall constitute a grace period and shall not constitute a
Tenant Delay.
(h) Fee to Landlord. Landlord shall receive a fee for
supervision, profit, overhead or general conditions in connection with the
Tenant Improvements equal to 5% of the amount paid out pursuant to Section 49
for the Permitted Items (other than the fee to Mark Fisher) and such amount
shall be disbursed out of the Tenant Improvement Allowance to the extent such
amount is available and to the extent not so available because the Tenant
Improvement Allowance has been exhausted, Tenant shall pay such amount to
Landlord.
(i) No Miscellaneous Charges. Neither Tenant nor the
Contractor shall be charged for parking (to the extent parking is available) or
for the use of electricity, water, HVAC, security
-25-
<PAGE> 30
elevators, and/or during the construction of the Tenant Improvements or during
the Tenant's move into the Premises.
(j) Bonding. Notwithstanding anything to the contrary
set forth in the Lease, Tenant shall not be required to obtain or provide any
completion or performance bond in connection with any construction, alteration,
or improvement work performed by or on behalf of Tenant.
(k) Presence of Hazardous Substances. In the event that
at any point in time the Premises and/or the Common Areas of the Building are
determined to contain hazardous substances (as defined by Applicable Laws),
Tenant shall have the right, by notice to Landlord, to require Landlord to
remove, at Landlord's sole cost and expense, all such hazardous substances (as
defined by Applicable Laws) within sixty (60) days following receipt of such
notice. In the event the contamination of the Premises and/or the Common Areas
of the Building is caused by Tenant, Tenant will be responsible for all costs
of the remediation.
(l) Life-Fire Safety Codes/Disabled Access
Codes/Earthquake Safety Codes. In the event that, because the Premises and or
the Building as initially constructed do not comply with current life-fire
safety codes, disabled access codes (including, without limitation, the ADA),
and/or earthquake safety codes, Tenant incurs increased construction costs that
it would not have incurred had the Premises and/or the Building already been in
compliance with the applicable life-fire safety codes, disabled access codes
(including, without limitation, the ADA), and/or earthquake safety codes,
applicable to new construction, then such costs shall be paid by Landlord
separate and apart from, and in addition to, the Tenant Improvement Allowance.
(m) Construction Contract. The Construction Contract
shall be included in the bid package, and shall be subject to Tenant's
reasonable approval, but shall not, unless Tenant otherwise directs, require
the Contractor to post a completion bond or contain any provision penalizing
the Contractor for not completing the Tenant Improvements within a specific
period of time.
(n) Refurbishment of Public Area. Landlord agrees,
separate and apart from, and in addition to, the Tenant Improvement Allowance
and the Tenant Incentive Payment, to recarpet and repaint the common areas
within the Building prior to January 1, 1998.
50. Tenant Incentive Payment. Landlord shall pay to Tenant,
separate and apart from amounts payable by Landlord as the Tenant Improvement
Allowance, an incentive payment (the "Tenant Incentive Payment") in the amount
of $100,000 on the Commencement Date (but not in any event before January 1,
1997) unless requested by Tenant but in no event prior to December 15,
-26-
<PAGE> 31
1996. If Landlord fails to pay the Tenant Incentive Payment to Tenant when
due, Tenant may deduct such amount from the rents next due and owing under the
Lease. Landlord agrees to pay, providing the aggregate amount so paid for the
Tenant Incentive Payment does not exceed one hundred thousand dollars
($100,000), such amounts from the Tenant Incentive Payments to those people and
entities, including, when appropriate, the Landlord, who provide goods, labor
or services to Tenant in connection with its Premises and/or sign, including
the purchase of equipment and furnishings for its Premises. This Section will
not be applicable if Lender succeeds to a position of Landlord.
51. Sign Rights.
Landlord grants to Tenant, at Tenant's sole cost and expense, to place
its sign as described on the attached Exhibit C, in the same location of the
existing Watt Industries Signage, which Landlord agrees to remove at it's sole
cost and expense. Tenant shall pay Lessor $50,000 for such sign rights which
Tenant and Landlord agree may be deducted from the Tenant Incentive Payment if
requested by written notice from Tenant to Landlord. Tenant shall cause its
sign to comply with all applicable laws. Landlord agrees to fully cooperate
with Tenant in obtaining any governmental permits required for such signage.
The cost of any such permits shall be deducted from the Tenant Incentive
Payment if requested by written notice from Tenant to Landlord. Additionally,
as a further offset to the Tenant Incentive Payment, Landlord shall pay, if
requested by written notice from Tenant to Landlord, the cost of fabrication
and installation of Tenant's sign; provided, however, that in no event shall
Landlord be required to pay any sign related costs or any other costs in excess
of an aggregate of $100,000. It is understood and agreed that all signage work
shall be performed by a licensed sign contractor; and Tenant shall, at its sole
cost and expense, maintain and keep such signage in good repair and condition.
Tenant shall within seven (7) days following the termination of this Lease,
remove said sign and repair any damage to the wall caused by such installation
and removal. To the extent such repair and restoration are not timely
performed by Tenant, Landlord may perform same and deduct the cost thereof from
the Security Deposit.
52. Early Occupancy. Tenant shall have the right to enter the
Premises prior to the Commencement Date to install its furniture, fixtures and
equipment.
53. Patios. Patios to the Premises shall be free of charge for
the term of the Lease and any option periods.
54. Existing Tenant. Tenant agrees that the failure of the
existing tenant of a portion of the Premises, which Landlord represents is
leased to such tenant on a month-to-month basis, to vacate such space within
thirty (30) days following receipt of notice from Landlord, which notice
Landlord agrees to send within
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<PAGE> 32
one (1) week following the execution of this Lease, shall constitute a force
majeure delay. Landlord agrees to use commercially reasonable efforts,
including the filing of unlawful detainer proceedings, to cause such tenant to
vacate such portion of such Premises.
Tenant: INTERVISUAL BOOKS, INC.,
a California corporation
By: _________________________________
Name: _______________________________
Title: ______________________________
Landlord: WATT HEADQUARTERS LIMITED PARTNERSHIP,
a California limited partnership,
By: _________________________________
Name: _______________________________
Title: ______________________________
-28-
<PAGE> 1
EXHIBIT 10.23
AMENDMENT TO LEASE AGREEMENT
THIS AMENDMENT TO LEASE dated, for references purposes only, this 14th
day of January 1997, between WATT HEADQUARTERS LIMITED PARTNERSHIP, a
California limited partnership, (hereinafter referred to as "LESSOR"), and
Intervisual Books, Inc., a California corporation (hereinafter referred to as
"LESSEE"), with reference to the following facts and objectives:
WHEREAS, Lessor and Lessee have heretofore entered into that certain
Lease dated August 8, 1996 (the "LEASE") for premises commonly known as 2716
Ocean Park Boulevard, Suite 2020, Santa Monica, CA 90405.
WHEREAS, Lessor and Lessee have agreed to amend said Lease as
hereinafter set forth.
NOW, THEREFORE, in consideration of the terms, covenants and conditions
as set forth in the Lease and in this Agreement, the Lease agreement shall be
amended as follows:
1. 1.2 PREMISES Effective February 1, 1997, the premises square
footage shall be increased from 11,215 rentable square feet and
10,013 usable square feet to 11,551 rentable square feet and
10,313 usable square feet.
2. Exhibit "A" is hereby replaced with Exhibit "A-1".
3. PARAGRAPH 1.6 BASE RENT Effective February 1, 1997, Lessee's
minimum monthly rent shall be increased from $17,383.25 per
month to $17,551.25 per month.
4. PARAGRAPHS 1.7 AND 4.3 BASE RENT INCREASES Effective August 1,
1999, Lessee's minimum base rent shall be increased from
$17,551.25 to $18,456.85 per month.
THIS AMENDMENT TO LEASE AGREEMENT shall be under the same terms and
conditions as set forth in the Lease, except as specifically mentioned herein,
and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed the Amendment to
Lease Agreement on the date referenced below.
"LESSOR" "LESSEE"
WATT HEADQUARTERS LIMITED PARTNERSHIP, INTERVISUAL BOOKS, INC.,
a California limited partnership a California corporation
BY: WATT FAMILY PROPERTIES, INC.,
a California corporation
its general partner
By: /s/ Gale J. Zander By: /s/ Waldo H. Hunt
---------------------------------- ----------------------------
Gale J. Zander, Vice President Waldo H. Hunt, Chairman
Date: 1-27 , 1997 Date: January 02, 1997
------------------- -- --------------------------
<PAGE> 1
INTERVISUAL BOOKS, INC.
EXHIBIT 11
EARNINGS PER SHARE
=======================================
The computation of the weighted average number of shares
outstanding for each year presented is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Common stock 4,782,798 4,782,798 4,782,798
Contingent shares relating to:
Employment contract for former President
and CEO - 227,074 247,785
--------- --------- ---------
Weighted average number of shares outstanding 4,782,798 5,009,872 5,030,583
========= ========= =========
1996 1995 1994
--------- --------- ---------
Net income (loss) $(544,242) $ 435,879 $ 328,428
========= ========= =========
Earnings (loss) per share $ (.11) $ .09 $ .07
========= ========= =========
</TABLE>
All earnings per share amounts reported in the accompanying
statements of income have been rounded to the nearest $.01.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Intervisual Books, Inc.
Santa Monica, California
We consent to the incorporation by reference to the Registration Statements on
Form S-8 (SEC file no. 33-58990 and SEC file no. 333-04784) of our report dated
February 21, 1997 with respect to the financial statements of Intervisual
Books, Inc. included in this Annual Report on Form 10-K for the year ended
December 31, 1996.
BDO SEIDMAN, LLP
March 28, 1997
Los Angeles, California
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 656
<SECURITIES> 2,035
<RECEIVABLES> 4,747
<ALLOWANCES> 161
<INVENTORY> 654
<CURRENT-ASSETS> 9,007
<PP&E> 867
<DEPRECIATION> 745
<TOTAL-ASSETS> 12,142
<CURRENT-LIABILITIES> 4,925
<BONDS> 0
0
0
<COMMON> 4,044
<OTHER-SE> 3,019
<TOTAL-LIABILITY-AND-EQUITY> 12,142
<SALES> 16,766
<TOTAL-REVENUES> 16,766
<CGS> 12,985
<TOTAL-COSTS> 12,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (960)
<INCOME-TAX> (416)
<INCOME-CONTINUING> (544)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (544)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
