<PAGE> 1
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, 1997
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
<PAGE> 2
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or 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 27, 1998, was approximately $7,386,028. 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:
4,797,132 shares as of February 27, 1998.
Documents incorporated by reference: None
==================================================================
<PAGE> 3
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 and dimensional novelty books, which they sell to
domestic retailers and international and US 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 some cases, the Company will self publish
certain titles and offer them to retailers through a distributor. In
substantially all cases, the Company retains the exclusive right to produce
these books.
In 1998, the Company will reenter the commercial/premium business. This
effort will include the creation, development and production of paper-based
premiums and advertising products. The Company was a leader in this area before
selling its commercial division in 1991. These products will be offered mainly
through Equity Marketing, a leading premium and promotional products company.
Under the arrangement, Equity Marketing will sell and market products created
and developed by the Company.
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. The Company enters into agreements
with publishers to create and produce books and derives
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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,
lights, stuffed animals and other elements 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. 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. The Company may also decide that
a title's potential would be maximized by self publishing it.
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 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 1997, 1996, and 1995, approximately 48%, 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,
Germany, and Italy. In 1997, the Company sold books to 109 different publishers
in 25 countries.
Sales from seven different imprints of two major U.S. publishing
groups, Simon & Schuster and The Penguin Group, and sales from Dainippon Kaiga
Co. of Japan have been the source of 35% of the Company's revenues during the
last three years. In 1997, these three publishers represented 31% of total
sales. Simon & Schuster represented over 10% of the Company's total sales in
1997.
Foreign sales accounted for 52%, 40%, and 52%, respectively, of the
Company's net sales for the years ended December 31, 1997, 1996 and 1995. The
Company sells in US 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 following table breaks down revenues attributed to export sales in
the geographic areas indicated as well as each area's percent of total sales:
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Export Sales as a Percentage of Total Revenues
(000's omitted)
<TABLE>
<CAPTION>
Geographic Area 1997 % 1996 % 1995 %
- --------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Europe $5,932 32 $4,767 28 $6,745 34
Asia 2,404 13 1,266 8 2,282 12
Other 1,374 7 622 4 1,164 6
</TABLE>
Because all sales are generated through the Company's US headquarters,
the Company does not distinguish operating profit or loss between US 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, 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 1,185,000 copies in print. In
1997, the Company sold over 250,000 copies of the bestselling interactive
playset Choo Choo Charlie.
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.
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 Book Expo America 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 1997, the Company introduced a total of 69
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new titles, with first run printing averaging 50,000 copies per title.
In 1997, the Company expanded its self publishing program in the US
with over 30 titles. The Company also plans to add 38 new items in 1998 and
expects this area to be increasingly important in the future. Items sold to
retailers through our self publishing program are designed and produced by the
Company and offered through a distributor, Andrews McMeel, located in Kansas
City, Missouri. Andrews McMeel provides sales, marketing, billing, warehousing,
and collection services. The Company is purchasing and owns the inventory
required to support these sales.
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 US retail sales of juvenile hardcover books. 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 seven
companies who compete with the Company as packagers of quality pop-up and
labor intensive novelty books. The Company's direct competitors in the United
States include Ottenheimer, Compass Productions, and White Heat. The other
principal competitors are located in the United Kingdom.
Backlist
In the calendar year after a new book has been shipped, the book is
classified as a "backlist" title. Sales from the backlist
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are a significant indicator of the strength of a publisher or book packager. In
1997, 1996 and 1995, approximately 53%, 55%, and 52%, respectively, of the
Company's sales were derived from the Company's backlist. As of the date of this
Report, the Company has approximately 1,200 backlist titles with 350 titles on
its "active" backlist (titles for which the Company has received orders within
the last 24 months).
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 5 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 1997. Tien Wah Press maintains its printing
facilities in Singapore and its hand-assembly plants in Malaysia and Indonesia.
In 1997, the
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Company produced 23% of its product at Tien Wah Press. Hua Yang Printing,
located in Hong Kong maintains its printing operation and hand-assembly plant in
China and was responsible for 26% of the Company's production in 1997.
Production on the Company's cloth book line was handled by Pal-Up Taiwan Co.
with silk screening, embroidery and hand assembly in China. The balance of the
Company's 1997 production was handled by Sirivatana in Thailand, New Island
Printing, Excel Printing Co. and Winner Offset Printing all located in Hong Kong
with hand assembly plants in China and three other smaller suppliers.
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 February 2, 1998, was $3,300,000
compared to $4,600,000 at February 2, 1997. The backlog at February 2, 1998,
consisted of confirmed orders for delivery in 1998. The Company believes that
backlog as of any date is not necessarily indicative of future revenues.
Employees
As of March 27, 1998, the Company had 38 full-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 are satisfactory. 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 through July 30, 1999, and then increases to $18,500 for the remainder of
the lease and is subject
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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 pending
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.
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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 - 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 2-5/8 1-1/8
Second Quarter - 1997 2-1/2 1-5/8
Third Quarter - 1997 2-1/8 1-1/4
Fourth Quarter - 1997 3-3/8 1-5/8
</TABLE>
The number of record holders of the Company's common stock as of
February 27, 1998, was 187, 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.
Item 6. SELECTED FINANCIAL DATA
The following table summarizes certain financial data for the Company
for the fiscal years ended December 31, 1997, 1996, 1995, 1994, and 1993 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.
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SELECTED FINANCIAL DATA
Statements of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 18,733,430 $ 16,766,292 $ 19,494,405 $ 18,730,486 $ 21,666,204
Cost of sales 14,645,468 12,984,796 14,897,013 13,788,428 15,499,529
------------ ------------ ------------ ------------ ------------
Gross profit 4,087,962 3,781,496 4,597,392 4,942,058 6,166,675
Selling, general,
and administrative expenses 4,468,344 4,804,823 4,069,555 4,449,998 4,615,171
Stock-based compensation
expense 43,112 49,052 -- -- 209,250
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (423,494) (1,072,379) 527,837 492,060 1,342,254
Interest income 52,837 109,627 127,837 97,140 81,610
Other income 303,374 2,510 100,705 5,328 2,654
------------ ------------ ------------ ------------ ------------
Income (loss) before income
tax expense (benefit) (67,283) (960,242) 756,379 594,528 1,426,518
Income tax expense (benefit) 44,792 (416,000) 320,500 266,100 590,531
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (112,075) $ (544,242) $ 435,879 $ 328,428 $ 835,987
============ ============ ============ ============ ============
Earnings (loss) per share:
Basic $ (0.02) $ (0.11) $ 0.09 $ 0.07 $ 0.17
============ ============ ============ ============ ============
Diluted $ (0.02) $ (0.11) $ 0.09 $ 0.07 $ 0.16
============ ============ ============ ============ ============
Weighted average shares outstanding:
Basic 4,782,937 4,782,798 4,782,798 4,782,798 4,782,798
============ ============ ============ ============ ============
Diluted 4,782,937 4,782,798 5,009,872 5,030,583 5,213,799
============ ============ ============ ============ ============
Dividends on common stock -- -- -- -- --
============ ============ ============ ============ ============
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets $ 13,470,304 $ 12,142,275 $ 14,051,513 $ 12,305,802 $ 12,180,943
Total liabilities $ 6,471,760 $ 5,079,352 $ 6,493,400 $ 5,183,568 $ 5,387,137
Working capital $ 3,416,276 $ 4,082,181 $ 4,654,387 $ 3,948,720 $ 4,039,061
Shareholders' equity $ 6,998,544 $ 7,062,923 $ 7,558,113 $ 7,122,234 $ 6,793,806
</TABLE>
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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 finished books for promotional
purposes, materials purchased for production and, in 1996 and 1997, finished
books for a distribution 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 1,200 books that are considered part of
its "backlist" (titles that were originally manufactured and sold in previous
years). Sales of titles from the Company's backlist accounted for approximately
$9,853,000 or 53% of sales in 1997, $9,204,000 or 55% of sales in 1996, and
$10,066,000 or 52% of sales in 1995.
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 using the
sum-of-the-years-digits method. The development cycle for books, prior to first
printing, is approximately one year 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
$3,358,000 at December 31, 1997, $3,014,000 at December 31, 1996, and $3,139,000
at December 31, 1995.
The Company recognizes income upon shipment of books. Historically, the
Company, which has a December 31 year-end, has recognized most of its sales in
the last six months of each year, resulting from the year-end holiday season and
the spring season of the following year which is often shipped in December. The
Company achieved approximately 71%, 60%, and 58%, respectively, of its total
sales during the last six months of 1997, 1996, and 1995.
Results of Operations
Comparison of the Year Ended December 31, 1997, to the year ended December 31,
1996. Net sales for the year ended December 31, 1997, were $18,733,000 as
compared to $16,766,000 for the same period in
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1996, an increase of $1,967,000 or 12%. The sales increase is attributable to
increases of $647,000 in the sales of backlist titles and $1,320,000 in the
sales of new titles compared to the previous year. Foreign sales represented
$9,710,000 or 52% of total sales in 1997 as compared to $6,655,000 or 40% of
total sales in 1996, an increase of $3,055,000 while sales to U.S. publishers
were $9,023,000 or 48% of total sales in 1997 as compared to $10,111,000 or 60%
in 1996, a decrease of $1,088,000. Foreign sales were up due mainly to increased
reprints including Disney titles in Brazil, the shipment of a new format into
the UK using magnetic cloth, success with new titles to direct sellers and the
opening of new accounts. Sales in the US were lower due mainly to lower reprint
sales, two major titles Noah's Ark and Star Trek shipping in 1996 not replaced
in 1997, and the loss of a customer due to consolidations in the publishing
industry. These decreases were offset by new accounts and sales from our
self-publishing program. Sales backlog at February 2, 1998 was $3,300,000
compared to $4,600,000 for the prior year.
Gross profit margin for the year ended December 31, 1997, was 21.8% as
compared to 22.6% in 1996. Cost of sales consists primarily of manufacturing and
shipping costs, book development amortization, and royalties. The decrease in
gross profit was due mainly to lower margins on sales to foreign publishers
resulting from a change in the mix of products sold and the increasing strength
of the US dollar. Also affecting gross margin were one time tooling and startup
costs related to the introduction of a line of books using magnetic cloth.
Manufacturing and shipping costs were $12,881,000 or 68.8% of sales for 1997 as
compared to $11,017,000 or 65.7% of sales for 1996. The amortization of book
development costs was $1,267,000 or 6.8% of sales for 1997 compared to
$1,289,000 or 7.7% of sales for 1996. Royalties for the year ended December 31,
1997 were $498,000 or 2.7% of sales as compared to $679,000 or 4.1% of sales in
1996. The decrease in royalty expense is due mainly to the reversal of
previously expensed royalties in 1996 that the Company determined in 1997 were
not due.
Selling, general and administrative expenses for the year ended
December 31, 1997 were $4,511,000 compared to $4,854,000 for the year ended
December 31, 1996, a decrease of $343,000 or 7%. Personnel expenses were
$2,082,000 in 1997 as compared to $2,296,000 in 1996. The decrease of $214,000
resulted primarily from lower salaries and costs related to recruiting. Selling
expenses in 1997 were $1,225,000 versus $734,000 in 1996 for an increase of
$491,000. The increase was due mainly to payments made to our distributor for
services related to our self-publishing efforts which started in 1997 and, to a
lesser extent, to higher
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sample, show expenses and sales materials. Administrative expenses were
$1,204,000 in 1997 as compared to $1,824,000 in 1996. The decrease of $620,000
was primarily comprised of 1996 costs for the extensive evaluation of two
acquisition candidates which were rejected, legal expenses primarily related to
the severance agreement with the Company's former president and CEO, relocation
expenses relating to the Company's office move, accelerated write off of
leasehold improvements, directors' fees and office expenses incurred in 1996
which were not duplicated in 1997.
Other income for the year ended December 31, 1997 was $303,000 as
compared to $2,500 in the prior year. This increase is due to the Company's
sales of worldwide direct marketing rights (door to door)on some of its
products. Interest income was $53,000 in 1997 as compared to $110,000 in 1996.
This was a result of a decrease in the cash available for investment purposes.
The Company experienced a loss before income taxes for the year ended
December 31, 1997 of $67,000 compared to loss of $960,000 for the comparable
period in 1996, a decrease of $893,000. The net loss in 1997 included a tax
expense of $45,000 as compared to a 1996 tax benefit of $416,000.
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
60% 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 February
2, 1997, was $4,600,000 compared to $4,800,000 for the prior year.
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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 to the Company's office move and
accelerated write off of leasehold improvements at 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 $110,000 in 1996 as
compared to $129,000 in 1995.
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.
14
<PAGE> 17
Liquidity and Capital Resources
Net cash provided by operations increased to $1,513,000 in 1997
compared to $1,082,000 in 1996. The $431,000 increase was primarily attributable
to depreciation and amortization of $1,359,000 and an increase in accounts
payable of $1,916,000. This was partially offset by a net loss of $112,000, an
$892,000 increase in accounts receivable, a $613,000 increase in inventories, a
decrease in accrued royalties of $396,000, and a decrease in royalty advances of
$296,000. The increase in accounts receivable is due mainly to higher fourth
quarter sales and a delay in payments from certain customers which were
collected subsequent to year end. The change in inventory relates to the
increased purchases of materials and finished books for the Company's
self-publishing program. The increase in accounts payable is related to amounts
due printers for purchases on the higher fourth quarter sales and timing
differences of payments made to printers in late 1997 as compared to 1996.
Working capital at December 31, 1997 was $3,416,000 as compared to $4,082,000 at
December 31, 1996.
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 depreciation and amortization of $1,367,000, 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 investing activities amounted to $209,000 in 1997
as compared to net cash used of $1,342,000 in 1996. Net sales of investments in
1997 was $2,035,000 as compared to net purchases of investments of $107,000 in
1996. The increase in sales of investments is due to higher liquidations of the
Company's marketable securities, the proceeds of which are now being held in
more traditional cash accounts. A portion of these proceeds was used to meet the
increased cash requirements to fund purchases of inventory for the Company's
self published titles.
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
15
<PAGE> 18
Company's need to preserve cash for 1997 because of the net loss in 1996.
There was cash provided of $4,584 in financing activities during 1997.
There was no cash provided or used in financing activities in 1996.
At December 31, 1997, the Company had a $750,000 letter of credit
facility with a bank, of which $329,630 in letters of credit were outstanding.
This facility expired on December 31, 1997, with all obligations paid in 1998 as
they became due. Subsequent to year end, the Company replaced this line with a
$2,000,000 revolving line of credit with a new bank which expires April 1, 1999.
The Company may borrow against this line, as well as issue letters of credit.
The line of credit contains restrictive covenants, including covenants which
require a minimum tangible net worth of the Company, minimum working capital
requirements, and other requirements. The line of credit is secured by the
Company's assets. As of March 17, 1998, the Company had $2,000,000 available on
this line.
As of February 27, 1998, 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 and its ability to borrow on its
revolving line of credit, 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.
Recent Accounting Pronouncements
Statement of Financial Accounting Standard No. 129, "Disclosure of
Information about Capital Structure," ("SFAS 129") issued by the FASB is
effective for financial statements ended after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The Company does not expect adoption of SFAS No. 129
to have an impact on its financial position or results of operations, and any
effect will be limited to the form and content of its disclosures.
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," ("SFAS 130") issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997. SFAS
130 establishes standards for reporting and display
16
<PAGE> 19
of comprehensive income and its components in a full set of general-purpose
financial statements. The Company does not expect adoption of SFAS 130 to have
an impact on its financial position or results of operations, and any effect
will be limited to the form and content of its disclosures.
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS 131") issued by the
FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. SFAS 131 requires that public companies report certain
information about operating segments, products, services and geographical areas
in which they operate and their major customers. The Company does not expect
adoption of SFAS 131 to have an impact on its financial position or results of
operations, and any effect will be limited to the form and content of its
disclosures.
Year 2000 Modifications
The Company is currently reviewing its computer systems in order to
evaluate if any modifications are necessary for the year 2000. The Company
currently does not anticipate that any material modifications or expenditures
will be required in its computer systems for the year 2000 modifications.
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.
17
<PAGE> 20
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements prepared in accordance with Regulation S-X are
set forth beginning at page 20 hereof.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified
Public Accountants....................................... 19
Balance Sheets as of December 31, 1997 and 1996.......... 20
Statements of Operations for the years ended
December 31, 1997, 1996 and 1995......................... 22
Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995................... 23
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995......................... 24
Summary of Accounting Policies........................... 26
Notes to Financial Statements............................ 30
Schedule II - Valuation and Qualifying Accounts.......... 42
</TABLE>
18
<PAGE> 21
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, 1997 and 1996 and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. 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 and schedule. 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, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 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 20, 1998
19
<PAGE> 22
INTERVISUAL BOOKS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
ASSETS (Note 6) 1997 1996
------ ----------- -----------
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 2,382,405 $ 655,620
Investment in marketable securities available for sale -- 2,034,984
Accounts receivable, net (Note 1) 5,467,851 4,585,742
Inventories (Note 2) 1,267,158 654,197
Prepaid expenses 308,075 337,404
Royalty advances 372,314 499,736
Royalty advances - related party (Note 14) 69,936 239,010
----------- -----------
TOTAL CURRENT ASSETS 9,867,739 9,006,693
PRODUCTION COSTS, net of accumulated
amortization of $14,202,631 and $12,936,064 3,357,918 3,013,773
PROPERTY AND EQUIPMENT, net (Note 3) 244,647 121,809
----------- -----------
$13,470,304 $12,142,275
=========== ===========
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
20
<PAGE> 23
INTERVISUAL BOOKS, INC.
BALANCE SHEETS
(Concluded)
<TABLE>
<CAPTION>
LIABILITIES AND December 31,
-----------------------------
STOCKHOLDERS' EQUITY 1997 1996
-------------------- ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,540,920 $ 3,624,858
Accrued royalties 378,980 775,134
Accrued expenses 364,288 453,309
Income taxes payable (Note 7) 130,275 --
Customer deposits (Note 4) 37,000 71,211
----------- -----------
TOTAL CURRENT LIABILITIES 6,451,463 4,924,512
DEFERRED INCOME TAXES (Note 7) 20,297 154,840
----------- -----------
TOTAL LIABILITIES 6,471,760 5,079,352
----------- -----------
COMMITMENTS (Notes 6, 10 and 14)
STOCKHOLDERS' EQUITY (Notes 8 and 9):
Common stock, no par, shares
authorized 10,000,000; issued and
outstanding 4,786,132 and 4,782,798 4,048,850 4,044,266
Additional paid-in capital 301,414 258,302
Retained earnings 2,648,280 2,760,355
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 6,998,544 7,062,923
----------- -----------
$13,470,304 $12,142,275
=========== ===========
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
21
<PAGE> 24
INTERVISUAL BOOKS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES (Note 11) $ 18,733,430 $ 16,766,292 $ 19,494,405
COST OF SALES (Note 12) 14,645,468 12,984,796 14,897,013
------------ ------------ ------------
Gross profit 4,087,962 3,781,496 4,597,392
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
(Note 14) 4,511,456 4,853,875 4,069,555
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (423,494) (1,072,379) 527,837
INTEREST INCOME 52,837 109,627 127,837
OTHER INCOME (Note 5) 303,374 2,510 100,705
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE (BENEFIT) (67,283) (960,242) 756,379
INCOME TAX EXPENSE (BENEFIT)
(Note 7) 44,792 (416,000) 320,500
------------ ------------ ------------
NET INCOME (LOSS) $ (112,075) $ (544,242) $ 435,879
============ ============ ============
EARNINGS (LOSS) PER SHARE
Basic $ (.02) $ (.11) $ .09
============ ============ ============
Diluted $ (.02) $ (.11) $ .09
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING (Note 16)
Basic 4,782,937 4,782,798 4,782,798
============ ============ ============
Diluted 4,782,937 4,782,798 5,009,872
============ ============ ============
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
22
<PAGE> 25
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, 1995 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
Stock-based compensation
(Note 8) -- -- 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
Stock-based compensation -- -- 43,112 -- 43,112
(Note 8)
Exercise of stock options (Note 8) 3,334 4,584 -- -- 4,584
Net loss for the year -- -- -- (112,075) (112,075)
--------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1997 4,786,132 $ 4,048,850 $ 301,414 $ 2,648,280 $ 6,998,544
========= =========== =========== =========== ===========
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
23
<PAGE> 26
INTERVISUAL BOOKS, INC.
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (112,075) $ (544,242) $ 435,879
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,359,194 1,366,632 1,376,529
Provision for losses on accounts
receivable 10,000 100,000 101,630
Loss on disposal of property and
equipment -- 101,495 1,014
Amortization of deferred income -- -- (100,000)
Deferred income taxes (134,543) (310,939) 101,057
Stock-based compensation expense 43,112 49,052 --
Increase (decrease) from changes in:
Accounts receivable (892,109) 2,255,446 (2,303,708)
Inventories (612,961) (297,638) (104,542)
Prepaid expenses 29,329 (237,449) (89,883)
Royalty advances 296,496 (297,472) --
Accounts payable 1,916,062 (1,405,184) 1,316,898
Accrued royalties (396,154) 66,113 136,697
Accrued expenses (89,021) 255,765 32,318
Income taxes payable 130,275 (38,070) (162,722)
Customer deposits (34,211) 18,269 (14,416)
------------ ------------ ------------
Net cash provided by operating
activities
1,513,394 1,081,778 726,751
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (215,465) (70,236) (16,773)
Proceeds from disposals of property and
equipment -- -- 1,385
Additions to production costs (1,610,712) (1,163,966) (1,193,424)
Purchases of marketable securities available
for sale (12,868,361) (5,457,752) (3,310,164)
Proceeds from sales and maturities of
marketable securities available for sale 14,903,345 5,350,422 2,082,167
------------ ------------ ------------
Net cash provided by (used in)
investing activities 208,807 (1,341,532) (2,436,809)
------------ ------------ ------------
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
24
<PAGE> 27
INTERVISUAL BOOKS, INC.
STATEMENTS OF CASH FLOWS
(Concluded)
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flow from financing activities:
Exercise of stock options 4,584 -- --
----------- ----------- -----------
Net cash provided by
financing activities 4,584 -- --
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,726,785 (259,754) (1,710,058)
Cash and cash equivalents, beginning of year 655,620 915,374 2,625,432
----------- ----------- -----------
Cash and cash equivalents, end of year 2,382,405 $ 655,620 $ 915,374
=========== =========== ===========
Cash paid during the year for:
Income taxes $ 800 $ 55,000 $ 379,000
=========== =========== ===========
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
25
<PAGE> 28
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 and dimensional novelty 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. The Company also sells its books through
its self-publishing program, which the Company is responsible for all returns.
The Company records a provision for estimated future 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 1997, 1996 and 1995 was $1,266,567, $1,288,930 and $1,286,226.
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. During 1997, the Company's marketable
securities matured and were reinvested into traditional bank accounts.
INVENTORY
Inventory, which consists of materials and finished goods, is
valued at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method.
26
<PAGE> 29
INTERVISUAL BOOKS, INC.
SUMMARY OF ACCOUNTING POLICIES
(Continued)
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.
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
The Company adopted SFAS No. 128, "Earnings Per Share," during
1997. SFAS No. 128 requires presentation of basic and diluted earnings per
share. Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the reporting period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts, such as stock
options, to issue common stock were exercised or converted into common stock.
All prior period weighted average and per share information had no effect on the
amounts presented in accordance with SFAS No.
128.
STOCK-BASED COMPENSATION
The Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), as of January 1,
1996, 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.
27
<PAGE> 30
INTERVISUAL BOOKS, INC.
SUMMARY OF ACCOUNTING POLICIES
(Continued)
STOCK-BASED COMPENSATION (Continued)
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.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 129, "Disclosure
of Information about Capital Structure," ("SFAS 129") issued by the FASB is
effective for financial statements ended after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The Company does not expect adoption of SFAS No. 129
to have an impact on its financial position or results of operations and any
effect will be limited to the form and content of its disclosures.
28
<PAGE> 31
INTERVISUAL BOOKS, INC.
SUMMARY OF ACCOUNTING POLICIES
(Concluded)
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," ("SFAS 130") issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997. SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. The
Company does not expect adoption of SFAS 130 to have an impact on its financial
position or results of operations and any effect will be limited to the form and
content of its disclosures.
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," ("SFAS
131") issued by the FASB is effective for financial statements with fiscal years
beginning after December 15, 1997. SFAS 131 requires that public companies
report certain information about operating segments, products, services and
geographical areas in which they operate and their major customers. The Company
does not expect adoption of SFAS 131 to have an impact on its financial position
or results of operations and any effect will be limited to the form and content
of its disclosures.
29
<PAGE> 32
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTS RECEIVABLE
Accounts receivable relates to sales to traditional publishing
customers, as well as, sales under the Company's self-publishing program. Sales
under the publishing program are subject to returns, as such the Company has
established a reserve for estimated future returns.
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Accounts receivable $ 5,670,201 $ 4,746,242
Less: Allowance for possible losses (127,750) (160,500)
Less: Allowance for sales returns (74,600) --
----------- -----------
Accounts receivable, net $ 5,467,851 $ 4,585,742
=========== ===========
</TABLE>
NOTE 2 - INVENTORY
Inventories consists of the following:
<TABLE>
1997 1996
---------- ----------
<S> <C> <C>
Materials $ 354,129 $ 654,197
Finished goods 913,029 --
---------- ----------
Total inventory $1,267,158 $ 654,197
========== ==========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
The major classes of property and equipment and the related
estimated useful lives are as follows:
<TABLE>
<CAPTION>
December 31, Estimated
--------------------------
1997 1996 Useful Lives
---------- ---------- ------------
<S> <C> <C> <C>
Computer $ 545,899 $ 490,259 5 years
Office furniture and equipment 473,334 376,790 5-7 years
Leasehold improvements 63,281 -- 5 years
---------- ----------
1,082,514 867,049
Less accumulated depreciation 837,867 745,240
---------- ----------
$ 244,647 $ 121,809
========== ==========
</TABLE>
Depreciation expense on property and equipment was $92,627,
$77,072 and $89,175 for the years ended December 31, 1997, 1996 and 1995.
30
<PAGE> 33
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4 - CUSTOMER DEPOSITS
Customer deposits of $37,000 and $71,211 recorded at December
31, 1997 and 1996 consist of cash advances received from publishers prior to
printing, assembly and shipping of the related products.
NOTE 5 - OTHER 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.
During 1997, the Company sold the direct marketing rights to a
third party to produce and sell three of the Company's titles for a
non-refundable fee of $300,000.
NOTE 6 - LINE OF CREDIT
At December 31, 1997, the Company had a $750,000 letter of
credit facility with a bank, of which $329,630 in letters of credit were
outstanding. This facility expired on December 31, 1997, with all obligations
paid in 1998 as they became due. Subsequent to December 31, 1997, the Company
replaced this line with a new revolving line of credit for $2,000,000, expiring
on April 1, 1999. The Company may borrow against this line, as well as issue
letters of credit. The line of credit is secured by the Company's assets.
NOTE 7 - INCOME TAXES
Provisions (benefit) for income taxes included in the
accompanying statements of operations consist of the following components:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable:
Federal $ 98,869 $ (86,576) $ 153,181
State 32,207 (11,647) 56,503
--------- --------- ---------
131,076 (98,223) 209,684
--------- --------- ---------
Deferred:
Federal (68,010) (246,441) 91,142
State (18,274) (71,336) 19,674
--------- --------- ---------
(86,284) (317,777) 110,816
--------- --------- ---------
Income tax provision (benefit) $ 44,792 $(416,000) $ 320,500
========= ========= =========
</TABLE>
31
<PAGE> 34
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7 - INCOME TAXES (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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate (34.0)% (34.0)% 34.0%
Increase in taxes resulting from:
Unrealized deferred tax asset 106.5 -- --
State taxes, net of federal income tax benefit (6.1) (7.2) 6.6
Other .2 (2.1) 1.7
----- ----- ----
Effective tax rate 66.6% (43.3)% 42.3%
===== ===== ====
</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, 1997 and 1996 and their approximate tax effects, are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Assets:
Allowance for doubtful accounts $ 55,319 $ 65,820
Reserve for sales and returns 32,298 --
Inventory - uniform capitalization 78,590 43,526
Accrued vacation 36,848 18,676
Deferred rent 14,869 --
Non-cash stock compensation 39,907 96,765
Severance costs 65,095 78,720
-------- --------
Deferred tax assets 322,926 303,507
-------- --------
Liabilities:
Excess tax amortization of production
costs and depreciation over book amortization
and depreciation 343,223 458,347
-------- --------
Net deferred tax liability $ 20,297 $154,840
======== ========
</TABLE>
32
<PAGE> 35
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8 - 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 generally 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.
During the year ended December 31, 1997, 3,334 stock options
were exercised for an amount of $4,584.
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 generally 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.
Directors Stock Option Plan ("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.
33
<PAGE> 36
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8 - COMMON STOCK OPTIONS (Continued)
Nonstatutory Stock Options ("NSSO")
During 1997, the Company granted nonstatutory stock options to
purchase an aggregate of 600,000 shares of common stock to three individuals, as
an inducement to join the Company. These options are non-assignable and
non-transferable, are exercisable over a 7 year period from the date of grant
and vest in various increments through 2000. The Company also issued NSSO to
purchase 31,000 shares of common stock to the Chairman of the Board of the
Company, subject to shareholder approval. All such options have an exercise
price equal to the closing price of the Company's common stock on the date of
grant and were outside of any existing Company stock option plan.
Non-employee Options
Under the Company's Non-qualified Stock Option Plan and
Directors Stock Option Plan, the Company granted 7,500 and 193,500 shares to
non-employees during 1997 and 1996, respectively. As a result, the Company
recorded non-cash compensation expense related to these options of $43,112 and
$49,052 in 1997 and 1996 with 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 of common stock 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.
All options have an exercise price equal to the closing price of
the Company's common stock on the date of grant. The weighted average fair value
of options granted during the years are included in the option activity table
below.
34
<PAGE> 37
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8 - COMMON STOCK OPTIONS (Continued)
Option activity within each plan is as follows:
<TABLE>
<CAPTION>
Weighted
Incentive Non Qualified Directors Nonstatutory Average
Stock Option Stock Option Stock Option Stock Price
Plans Plans Plan Options Per Share
------------ ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance outstanding, January 1, 1995 242,000 109,000 -- -- $ 3.032
Options granted range from $2.375 to
$2.50 per share 66,000 -- 75,000 $ 2.441
Options cancelled range from $2.375 to
$3.875 per share (73,500) (3,000) -- -- $ 2.803
------- ------- ------ ------- ----------
Balance outstanding, December 31, 1995 234,500 106,000 75,000 -- $ 2.873
Options granted range from $1.375 to
$2.063 per share 314,500 171,000 92,500 -- $ 1.625
Options cancelled range from $2.00 to
$4.533 per share (232,500) (136,000) (82,500) -- $ 2.654
------- ------- ------ ------- ----------
Balance outstanding, December 31, 1996 316,500 141,000 85,000 -- $ 1.725
Options granted range from $1.375 to
$2.00 per share 50,000 69,000 7,500 631,000 $ 1.583
Options cancelled range from $1.375 to
$4.533 per share (93,000) (10,000) -- -- $ 2.367
------- ------- ------ ------- ----------
Balance outstanding, December 31, 1997 273,500 200,000 92,500 631,000 $ 1.580
======= ======= ====== ======= ==========
Options exercisable, December 31, 1997 158,007 74,334 35,833 91,667 $ 1.479
======= ======= ====== ======= ==========
</TABLE>
35
<PAGE> 38
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8 - COMMON STOCK OPTIONS (Continued)
Information relating to stock options at December 31, 1997
summarized by exercise price are as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------------- ----------------------------
Exercise Price Weighted Average Weighted Average
---------------------------------- ----------------------------
Per Share Shares Life (Months) Exercise Price Shares Exercise Price
- -------------- ------- ------------ -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
Incentive Stock Option Plan:
$1.375 223,500 82.6 $ 1.375 158,007 $ 1.375
$1.788 50,000 57.0 1.788 -- --
------- ---- ---------- ------- ----------
273,500 77.9 $ 1.450 158,007 $ 1.375
======= ==== ========== ======= ==========
Non Qualified Stock Option Plan:
$1.375 101,000 86.0 1.375 64,334 1.375
$1.625 69,000 117.0 $ 1.625 -- $ 1.625
$2.063 30,000 103.5 2.063 10,000 2.063
-------- ----- ---------- ------- ----------
200,000 99.3 $ 1.565 74,334 $ 1.468
======== ===== ========== ======= ==========
Directors Stock Option Plan:
$1.750 7,500 114.0 $ 1.750 -- $ --
$2.063 62,500 97.7 2.063 20,833 2.063
$2.500 22,500 90.0 2.500 15,000 2.500
-------- ----- ---------- ------- ----------
92,500 97.2 $ 2.144 35,833 $ 2.246
======== ===== ========== ======= ==========
Nonstatutory Stock Options:
$1.375 425,000 73.0 $ 1.375 91,667 $ 1.375
$1.625 31,000 117.0 1.625 -- --
$2.000 175,000 82.5 2.000 -- --
-------- ----- ---------- ------- ----------
631,000 77.8 $ 1.560 91,667 $ 1.375
======== ===== ========== ======= ==========
</TABLE>
36
<PAGE> 39
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8 - COMMON STOCK OPTIONS (Continued)
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 value of the grant dates
consistent with the method of SFAS 123, the Company's net loss and loss per
share for the years ended December 31, 1997 and 1996 would have been increased
to the pro forma amounts presented, and 1995 would have had no effect:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss), as reported $ (112,075) $ (544,292) $ 435,879
Net earnings (loss), pro forma $ (285,100) $ (626,242) $ 435,879
Basic net earnings (loss) per common share
as reported $ (0.02) $ (0.11) $ 0.09
Basic net earnings (loss) per common share
pro forma $ (0.06) $ (0.13) $ 0.09
Diluted net earnings (loss) per common share,
as reported $ (0.02) $ (0.11) $ 0.09
Diluted net earnings (loss) per common share,
pro forma $ (0.06) $ (0.13) $ 0.09
</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 1997 and 1996; expected life of
options of 7 years and 7 years, respectively, expected volatility of 12% and
20%, respectively, risk-free interest rate of 6.0% and 6.1%, respectively, and a
0% and 0% dividend yield, respectively. The weighted average fair value on the
date of grants for options granted during 1997 and 1996 was $.55 and $.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, 1996 and 1997.
NOTE 9 - 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.
37
<PAGE> 40
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 10 - 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 noncancelable portion of these leases having terms in excess of one year at
December 31, 1997 are presented in the schedule below.
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $237,402
1999 239,720
2000 244,955
2001 240,984
2002 25,428
--------
$988,489
========
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and
1995 was $311,864, $276,579 and $286,276.
Employment Agreements
Effective January 1995, the Company entered into an employment
agreement with an employee with an initial term of three years and compensation
of $90,000. This agreement was extended to December 31, 1998.
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 allowed 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. As of
the end of December 31, 1997, the employee had not requested the Company to
co-sign on a home loan.
On January 13, 1997, the Company entered into another employment
and compensation agreement with an Executive Vice President and Creative
Director. On January 30, 1998, this individual resigned from the Company. Upon
resignation, the employment and compensation agreement was cancelled and the
Company entered into a consulting agreement. The consulting agreement commences
in February 1998 for a period of twelve months at $12,500 per month.
38
<PAGE> 41
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 10 - COMMITMENTS (Continued)
On October 1, 1997, the Company entered into an employment
agreement and compensation agreement with the Chairman of the Board and Chief
Executive Officer. This agreement expires on September 30, 2000, unless further
extended or sooner terminated as provided in the agreement. The Company shall
pay the executive an initial annual salary of $250,000 subject to cost of living
increases and annual Board evaluation. The agreement also allows for an
additional payment of $60,000 annually in lieu of paying any life insurance
premiums which benefit the executive. Additionally, the agreement provides
$10,000 toward the cost of a long-term disability insurance policy. If such
policy is not available, this amount is to be paid to the executive at year end.
A provision for an auto allowance at $10,200 per year, as well as, reimbursement
for other related expenses is included in the agreement.
On November 13, 1997, the Company reached an agreement with a
new Executive Vice President and Chief Financial Officer for employment to begin
January 1998. The employment agreement effective January 19, 1998, was for an
initial term of three years with compensation of $175,000 in the first year,
$183,750 in the second year and $192,950 in the third year.
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.
NOTE 11 - SALES
Export sales accounted for approximately 52%, 40%, and 52% of
the Company's net sales for the years ended December 31, 1997, 1996 and 1995.
Sales by geographic area are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Geographic Area Percent Percent Percent
- --------------- ------- ------- -------
<S> <C> <C> <C>
Europe 32 28 34
Asia 13 8 12
Other 7 4 6
</TABLE>
Approximately 15% of sales was made to one customer in 1997, 25%
and 11% of sales in 1996 were made to two customers and 13% of sales in 1995 was
made to one customer. During the year ended December 31, 1997, approximately 31%
of the Company's sales were derived from three key customers.
39
<PAGE> 42
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 12 - PURCHASES
The Company does not have manufacturing facilities. Most of the
Company's products are manufactured by four printers located in Hong Kong,
Colombia, Singapore, and Thailand. The Company's operations are subject to the
customary risks of doing business abroad.
NOTE 13 - 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, 1997, 1996 and 1995 were $35,941, $64,344, and $81,994.
NOTE 14 - RELATED PARTY TRANSACTIONS
In May 1994, the Company entered into an agreement with an
affiliated entity, The Hunt Creative Group ("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 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 was $400,000 for each of the calendar years 1996 and 1995 and $0 for
1997. At December 31, 1997, 1996 and 1995, the Company had advance royalties
less royalties earned of $70,000, $239,000 and $20,000 to the Hunt Group.
The Hunt Creative Group Merger
Subsequent to year end, the Company signed an agreement and plan
of merger with Hunt Group, a related party, subject to shareholders approval and
other conditions, which allows the Company to acquire all of the outstanding
shares of the Hunt Group in exchange for shares of Company stock. The terms of
the agreement include the Hunt Group forgiving all royalties earned subsequent
to October 1, 1997 in exchange for 250,000 shares of the Company's stock to be
issued upon the effective date of the merger. This agreement requires that an
additional 78,000 contingent shares be issued to Mr. Hunt in three separate
amounts of 26,000 each when cumulative sales of Hunt Group developed products
exceed $5,000,000, $6,000,000 and $7,000,000, respectively. The agreement also
transfers the ownership of any and all copyrights or patents to the Company.
The Hunt Group was established in 1994 by Waldo Hunt, the
Company's founder and Chairman, to develop distinct products normally not
pursued by the Company. The Company and the Hunt Group entered into an agreement
in May 1994 where the Hunt Group would receive a 10% commission or royalty for
the life of Mr. Hunt on sales of all products it developed which were accepted
and sold by the Company. The Hunt Group developed approximately twelve different
series of products of which two were first released in late 1996 with six
shipping in 1997. The remainder of the projects are still under development for
possible future release.
40
<PAGE> 43
INTERVISUAL BOOKS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 15 - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1996, the Company recorded
adjustments which increased its loss 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 to the pursuit and evaluation of an
acquisition candidate of $94,000 and expenses related to hiring of a new
President and Vice President $30,000.
NOTE 16 - EARNINGS PER SHARE
The following is a reconciliation of the weighted average number
of shares used to compute basic and diluted earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic weighted average shares outstanding 4,782,937 4,782,798 4,782,798
Diluted effect of stock options -- -- 227,074
Diluted weighted average shares outstanding 4,782,937 4,782,798 5,009,872
</TABLE>
Options to purchase 1,197,000 shares were outstanding during the
year ended 1997 but were not included in the computation of diluted loss per
common share because the effect would be antidilutive.
41
<PAGE> 44
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,
1997 $161,000 $ 10,000 $(43,000) (a) $ 128,000
1996 158,000 100,000 (97,000) (a) 161,000
1995 56,000 110,000 (8,000) (a) 158,000
Accumulated amortization
of production costs
Year ended December 31,
1997 $12,936,064 $1,266,567 $ -- $14,202,631
1996 11,647,134 1,288,930 -- 12,936,064
1995 10,359,779 1,286,226 1,129 11,647,134
</TABLE>
(a) Write-off of uncollectible accounts.
42
<PAGE> 45
Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
43
<PAGE> 46
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 77 Chairman of the Board, Chief
Executive Officer, Director
Nathan N. Sheinman 48 President, Chief Operating
Officer, Director
Dan P. Reavis 48 Executive Vice President,
Chief Financial Officer,
Director
Gail A. Thornhill 45 Controller, Secretary
Gordon Hearne 74 Director
Leonard William Jaffe 79 Director
John J. McNaughton 75 Director
Peter Seymour 65 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 Directors 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
Creative 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.
44
<PAGE> 47
Dan P. Reavis became Executive Vice President and Chief Financial
Officer on January 19, 1998. Mr. Reavis joined the Board as a director in
February 1998. Prior to joining the Company, Mr. Reavis was the Executive Vice
President of Operations and Chief Financial Officer of Price Stern Sloan
Publishers for ten years before that company was acquired by the Putnam Berkeley
Group.
Gail A. Thornhill was appointed Secretary of the Company in 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.
Leonard W. Jaffe became a director of the Company in February 1998.
Prior to joining the Company, Mr. Jaffe was a director, Vice-Chairman and
Chairman of the Executive Committee of National Education Corporation ("NEC")
from 1976 until acquired by Harcourt General in June of 1997. He was a director
of Steck-Vaughn Publishing Company from 1993 until acquired by Harcourt General
in February 1998. He also serves as a consultant to various US and international
companies.
John J. McNaughton has been a director of the Company since September
1991. Mr. McNaughton was a member of the Board of Directors of National
Education Corporation ("NEC"), a company he founded in 1954 until NEC was
acquired by Harcourt General in June 1997. From 1954 to 1984, Mr. McNaughton was
the Chief Executive Officer and from 1954 to 1988 was the Chairman of the Board
of NEC.
Peter Seymour became 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.
45
<PAGE> 48
Effective January 30, 1998, Neil Stuart, formerly the Company's
Executive Vice President and Creative Director, resigned from 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 (i)Mr. Hunt filed two Form 4's in
March 1998 disclosing the grant of stock options and a gift of shares by Hunt,
which transactions should have been reported on a Form 5 before the 45th day
after the Company's fiscal year end, and (ii) Mr. Hunt filed in December 1997
after the 10th day of the month a Form 4 disclosing a sale which occurred in
November 1997.
46
<PAGE> 49
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 $100,000 for services rendered in all
capacities during the Company's last completed fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year(1) ($) ($) ($) (2) (#) ($)(3)
- ------------------- ------ ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt 1997 243,333 -- 68,414 150,000 4,750
Chairman, CEO 1996 1 -- -- -- --
1995 1 -- -- -- --
Nathan N. Sheinman 1997 233,974 -- -- 300,000 --
President, COO
Neil Stuart (4) 1997 163,782 -- -- 125,000 --
Executive Vice President
Creative Director
</TABLE>
- ----------------------
(1) Messrs. Sheinman and Stuart joined the Company in 1997 and, accordingly, no
information is disclosed with respect to prior years for these individuals.
In November 1996, Mr. Hunt assumed the role of Chief Executive Officer of
the Company upon the resignation of the Company's former President and CEO.
(2) The amount disclosed in this column includes $60,000 for a life insurance
policy.
(3) The amounts disclosed in this column represent contributions to
the company's 401(k) plan.
(4) Mr. Stuart's employment with the Company ceased on January 30, 1998. In
connection with his leaving the Company, Mr. Stuart agreed to provide
consulting service commencing February 1, 1998 for 12 months for a fee of
$12,500 per month.
47
<PAGE> 50
The following tables set forth certain information with respect to the
executive officers named in the Summary Compensation table in the prescribed
formats with respect to options granted and exercised under the Company's
various stock option plans during the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Potential Realizable
Securities Value at Assumed
Underlying % of Total Annual Rates of Stock
Options Options Granted Exercise Price Appreciation
Granted To Employees In Price Expiration for Option Term (2)
Name (#)(1) Fiscal Year (%) ($) Date 5% 10%
- ---- ---------- --------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt 100,000 13.3% $1.6250 2007 $102,195 $258,983
Waldo H. Hunt 50,000 6.7% $1.7875 2002 $14,323 $41,479
Nathan Sheinman 300,000 40.0% $1.3750 2004 $167,929 $391,346
Neil Stuart 125,000 16.7% $1.3750 2004 $69,970 $163,061
</TABLE>
- --------------------
(1) Of the options granted to Mr. Hunt, options to purchase 119,000 shares were
granted under the Company's existing stock option plans and options to
purchase 31,000 shares were granted pursuant to a separate agreement and
are subject to shareholder approval at the Company's 1998 annual meeting of
shareholders. All options granted to Mr. Hunt vest in three annual
increments of one third each. In connection with their employment with the
Company, Mr. Sheinman and Mr. Stuart entered into nonstatutory stock option
agreements with the Company pursuant to which Mr. Sheinman and Mr. Stuart
were granted options to purchase 300,000 and 125,000 shares of Company
common stock, respectively. Of the options granted to Mr. Sheinman, 66,667
shares were exercisable on December 31, 1997, 116,667 shares are
exercisable on December 31, 1998 and 116,666 shares are exercisable on
December 31, 1999. Of the options granted to Mr. Stuart, options to
purchase 75,000 shares became exercisable in connection with Mr. Stuart's
separation from the Company in January 1998 and the remaining options were
terminated. All options granted accelerate upon a change of control of the
Company as determined in accordance with the terms of the appropriate
agreement or stock option plan. The options are subject to earlier
termination in certain events related to the termination of the optionee's
employment and the Company's option plans grant 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 option term. Such
amounts are based on the assumption that the named persons hold the options
for their full term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission 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 Value Options at FY-End at FY-End(1)
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
---- ----------- -------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt None N/A 0 150,000 0 235,625
Nathan Sheinman None N/A 66,667 233,333 125,001 437,499
Neil Stuart None N/A 25,000 100,000 46,875 187,500
</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 1997
fiscal year-end and the option exercise prices.
48
<PAGE> 51
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. Under the Company's Non-employee Director Stock Option
Plan, non-employee directors receive an initial option grant to purchase 30,000
shares of common stock when such person is first elected or appointed as a
Company director and thereafter, on the date of each annual meeting of the
Company's shareholders, an additional grant to purchase 2,500 shares of common
stock (other than to directors who receive an initial grant during the calendar
year in which the annual meeting is held), provided that such non-employee
director continues in office after the annual meeting.
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 $275,000, 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. As of the end
of 1997, Mr. Sheinman had not requested the Company to co-sign on a home loan.
Pursuant to his Employment Agreement, Mr. Sheinman was granted options to
purchase 300,000 shares of the Company's common stock.
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 received an
initial annual salary of $175,000 per year, an automobile allowance, relocation
assistance and certain other benefits. Pursuant to his Employment Agreement, Mr.
Stuart was granted options to purchase 125,000 shares of the Company's common
stock. This agreement was cancelled effective January 30, 1998. In connection
with Mr. Stuart's resignation from the Company, a new agreement for consulting
services was entered into with Mr. Stuart at $12,500 per month for 12 months
commencing February 1998.
Effective October 1997, the Company entered into an Employment
Agreement with Waldo H. Hunt, the Company's Chairman of the Board and Chief
Executive Officer. This agreement expires on September 30, 2000, unless further
extended or sooner terminated as provided in the agreement. The Company shall
pay the executive an initial
49
<PAGE> 52
annual salary of $250,000 subject to cost of living increases and annual board
evaluation. The agreement also allows for lifetime additional annual payments of
$60,000 in lieu of paying any life insurance premiums which benefit Mr. Hunt.
Additionally, the agreement provides $10,000 toward the cost of a long term
disability insurance policy. If such policy is not available, this amount is to
be paid to Mr. Hunt at year end. A provision for an auto allowance at $10,200
per year as well as reimbursement for other related expenses and certain other
benefits are included in the agreement. Pursuant to his Employment Agreement,
Mr. Hunt was also granted options to purchase 150,000 share of the Company's
common stock.
In November 1997, the Company reached an agreement with a Dan P.
Reavis, for employment as the Company's Executive Vice President and Chief
Financial Officer to begin January 1998. The employment agreement effective
January 19, 1998, was for an initial term of three years with compensation of
$175,000 in the first year, $183,750 in the second year and $192,950 in the
third year. Pursuant to his Employment Agreement, Mr. Reavis was granted options
to purchase 175,000 shares of the Company's common stock.
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 27, 1998, 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 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 Beneficial Percent
Name Ownership(1)(2) of Class
- ---- ----------------- --------
<S> <C> <C>
Waldo H. Hunt/The Hunt Trust (3).................. 2,512,917 52.4
2716 Ocean Park Blvd. #2020
Santa Monica, CA 90405
BankAmerica Corporation .......................... 332,550(4) 7.0
555 California Street, Suite 2600
San Francisco, CA 94104
Dan P. Reavis .................................... 1,000 *
Nathan N. Sheinman ............................... 66,667 1.4
</TABLE>
50
<PAGE> 53
<TABLE>
<S> <C> <C>
Neil Stuart (5) .................................. 75,000 1.5
Gordon Hearne .................................... 20,000 *
Leonard W. Jaffe ................................. 1,000 *
John J. McNaughton ............................... 41,833 *
Peter Seymour .................................... 29,591 *
All directors and officers as a
group (9 persons) ............................. 2,769,092 54.9
</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 27, 1998 or within 60 days thereafter: Mr. Sheinman,
66,667; Mr. Stuart, 75,000; Mr. Hearne, 20,000; Mr. McNaughton, 40,833; Mr.
Seymour, 20,000; and all directors and executive officers as a group, 243,584.
(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 October 1, 1997 filed with the Securities and
Exchange Commission by BankAmerica Corporation and related parties, including
Robertson Stephens & Co. L.P. and Bayview Investors, Ltd., BankAmerica
Corporation and related entities have voting and dispositive power over such
shares.
(5) Mr. Stuart resigned his position with the Company on January 30, 1998. As
part of his resignation, 75,000 options became exercisable.
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 Creative Group ("Hunt Group"), a
company owned by Mr. Hunt. The Hunt Group created new products not normally
pursued by the Company in its day-to-day activities and under the letter
agreement, the Company received a right of first refusal on products developed
by the Hunt Group. Under the agreement, products developed by the Hunt Group and
accepted and subsequently sold by the Company earn a 10%
51
<PAGE> 54
royalty payable to the Hunt Group. At December 31, 1997, 1996 and 1995, the
Company had advance royalties less royalties earned of $70,000, $239,000 and
$20,000 to the Hunt Group.
In March 1998, the Company signed an Agreement and Plan of Merger with
the Hunt Group and the Hunt Family Trust pursuant to which the Hunt Group will
be merged with and into the Company. Consummation of the merger is subject to
shareholder approval at the Company's next annual meeting of the shareholders
and certain other conditions. Under the terms of the proposed transaction, Mr.
Hunt and the Hunt Group gave up rights to all commissions or royalties due after
October 1, 1997 on products developed by the Hunt Group and sold by the Company
in exchange for the issuance by the Company of 250,000 shares of the Company's
common stock on the effective date of the merger and the additional right to
receive up to 78,000 contingent shares of common stock. The 78,000 contingent
shares would be issued in three separate amounts of 26,000 shares each, provided
cumulative sales of the Hunt Group developed products exceed $5,000,000,
$6,000,000 and $7,000,000, respectively. The proposed merger is expected to be
submitted to the Company's shareholders for approval at the Company's 1998
annual meeting of shareholders.
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 18 hereof.
2. Financial Statement Schedule. The following
financial statement schedule of Intervisual Books,
Inc., for the years ended December 31, 1997, 1996,
and 1995 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
-------- ----
<S> <C>
II Valuation and Qualifying Accounts............. 42
</TABLE>
52
<PAGE> 55
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.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
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).)
53
<PAGE> 56
10.5* 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.)
10.6* 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.)
10.7* 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.)
10.8* Consulting Agreement between the Company and Charles E. Gates
(Incorporated by reference to Exhibit 10.13 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
10.9* Employment Agreement between the Company and Nathan N.
Sheinman(Incorporated by reference to Exhibit 10.15 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
10.10* Nonstatutory Stock Option Agreement to purchase 200,000 shares
of common stock between the Company Nathan N. Sheinman
(Incorporated by reference to Exhibit 10.16 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
10.11* Nonstatutory Stock Option Agreement to purchase 100,000 shares
of common stock between the Company and Nathan N. Sheinman
(Incorporated by reference to Exhibit 10.17 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
10.12* Employment Agreement between the Company and Neil Stuart
(Incorporated by reference to Exhibit 10.18 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
10.13* Nonstatutory Stock Option Agreement to purchase 75,000 shares
of common stock between the Company
54
<PAGE> 57
and Neil Stuart (Incorporated by reference to Exhibit 10.19 to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
10.14* Nonstatutory Stock Option Agreement to purchase 50,000 shares
of common stock between the Company and Neil Stuart
(Incorporated by reference to Exhibit 10.20 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
10.15 Office Lease between Watt Headquarters Limited Partnership and
the Company dated August 8, 1996 (Incorporated by reference to
Exhibit 10.21 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.)
10.16 Second Lease Addendum between Watt Headquarters Limited
Partnership and the Company dated December 3, 1996
(Incorporated by reference to Exhibit 10.22 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
10.17 Amendment to Lease Agreement between Watt Headquarters Limited
Partnership and the Company dated January 27, 1997
(Incorporated by reference to Exhibit 10.23 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1996.)
10.18* Form of Indemnification Agreement provided to Company's
executive officers and directors
10.19* Employment Agreement between the Company and Waldo H. Hunt
10.20* Nonstatutory Stock Option Agreement between the Company and
Waldo H. Hunt
10.21* Employment Agreement between the Company and Dan P. Reavis
10.22* Nonstatutory Stock Option Agreement between the Company and
Dan P. Reavis
10.23 Business Loan Agreement between the Company and Santa Monica
Bank
55
<PAGE> 58
10.24 Commercial Security Agreement between the Company and Santa
Monica Bank
10.25 Assignment of Copyright as Collateral for Line of Credit
between the Company and Santa Monica Bank
10.26 Promissory Note between the Company and Santa Monica Bank
10.27 Indemnification Agreement between the Company and Waldo Hunt
and The Hunt Family Trust
10.28 Severance Agreement and General Release between the Company
and Neil Stuart
10.29 Consulting Agreement between the Company and Neil Stuart
10.30 Agreement and Plan of Merger between the Company and The Hunt
Creative Group and The Hunt Family Trust
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
- --------------------------
* 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,
1997.
56
<PAGE> 59
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 30, 1998 By: /s/ Nathan N. Sheinman
---------------------------------
Nathan N. Sheinman, President,
Chief Operating Officer, Director
Date: March 30, 1998 By: /s/ Dan P. Reavis
---------------------------------
Dan P. Reavis, Executive Vice
President, Chief Financial Officer,
Director
Date: March 30, 1998 By: /s/ Gail A. Thornhill
---------------------------------
Gail A. Thornhill, Controller
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 Dan
P. Reavis, 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 March 30, 1998
- ------------------- Executive Officer,
WALDO H. HUNT Director
</TABLE>
57
<PAGE> 60
<TABLE>
<S> <C> <C>
/s/ Nathan N. Sheinman President, Chief March 30, 1998
- --------------------------- Operating Officer,
NATHAN N. SHEINMAN Director
/s/ Dan P. Reavis Executive Vice March 30, 1998
- --------------------------- President, Chief
DAN P. REAVIS Financial Officer,
Director
/s/Leonard W. Jaffe Director March 30, 1998
- ---------------------------
LEONARD WILLIAM JAFFE
/s/ Gordon Hearne Director March 30, 1998
- ---------------------------
GORDON HEARNE
Director March , 1998
- ---------------------------
JOHN J. MCNAUGHTON
/s/ Peter Seymour Director March 30, 1998
- ---------------------------
PETER SEYMOUR
</TABLE>
58
<PAGE> 61
INTERVISUAL BOOKS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
INDEX OF EXHIBITS FILED WITH REPORT
Exhibit
10.18* Form of Indemnification Agreement provided to Company's executive
officers and directors
10.19* Employment Agreement between the Company and Waldo H. Hunt
10.20* Nonstatutory Stock Option Agreement between the Company and Waldo H.
Hunt
10.21* Employment Agreement between the Company and Dan P. Reavis
10.22* Nonstatutory Stock Option Agreement between the Company and Dan P.
Reavis
10.23 Business Loan Agreement between the Company and Santa Monica Bank
10.24 Commercial Security Agreement between the Company and Santa Monica Bank
10.25 Assignment of Copyright as Collateral for Line of Credit between the
Company and Santa Monica Bank
10.26 Promissory Note between the Company and Santa Monica Bank
10.27 Indemnification Agreement between the Company and Waldo Hunt and The
Hunt Family Trust
10.28 Severance Agreement and General Release between the Company and Neil
Stuart
10.29 Consulting Agreement between the Company and Neil Stuart
10.30 Agreement and Plan of Merger between the Company and The Hunt Creative
Group and The Hunt Family Trust
59
<PAGE> 62
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
60
<PAGE> 1
EXHIBIT 10.18
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made the XXX day of XXX, 19XX, by
and between INTERVISUAL BOOKS, INC., a California corporation (the "Company")
and XXXXXX ("Indemnitee").
RECITALS
A. Indemnitee is now serving, or is considering serving, the
Company, or a subsidiary of the Company, in the capacity of Director and
Officer;
B. The parties hereto acknowledge that Indemnitee's service to the
Company in the capacity indicated above may expose Indemnitee to claims,
lawsuits and risk of liability;
C. The parties further recognize that the compensation or fees to
Indemnitee for the performance of such services may not be commensurate with the
potential risk involved; and
D. Accordingly, as an inducement to Indemnitee to serve or to
continue to serve the Company in the capacity indicated above, the company and
Indemnitee desire to enter into this Agreement pursuant to which the Company
undertakes to indemnify Indemnitee against such risks, to the extent that it is
permitted to do so under the laws of the State of California.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Definitions
1.1 Agent. The term "Agent" shall mean any person who is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or of
another enterprise at the request of such predecessor corporation.
1.2 Derivative Action. The term "Derivative Action" shall mean
a Proceeding brought by or in the right of the Company to procure a judgment in
favor of the Company.
1.3 Expenses. The term "Expenses" includes without limitation
attorneys' fees and all other costs, costs of investigation and costs of legal
1
<PAGE> 2
actions, claims or proceedings and appeals therefrom, and costs of attachment or
similar bonds.
1.4 Proceeding. The term "Proceeding" shall mean any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative.
2. Indemnification
2.1 Direct Actions. Subject to the provisions of Section 2.3
hereof, if Indemnitee was or is a party or is threatened to be made a party to
any Proceeding, other than a Derivative Action, by reason of the fact that
Indemnitee is or was an Agent of the Company, the Company shall indemnify and
hold harmless Indemnitee against Expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
Proceeding.
2.2 Derivative Actions. Subject to the provisions of Section
2.3 hereof, if Indemnitee was or is a party or is threatened to be made a party
to any threatened pending or completed Derivative Action by reason of the fact
that Indemnitee is or was an Agent of the Company, the Company shall indemnify
and hold harmless Indemnitee against Expenses, settlements and other amounts
actually and reasonably incurred by Indemnitee in connection with the defendant
or settlement of such action, provided, however, no indemnification shall be
made under this Section 2.2 for any of the following:
(a) In respect to any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Company in the
performance of his duty to the Company and its shareholders, unless and only to
the extent that the court in which such Proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnify for expenses and then
only to the extent that the court shall determine;
(b) Amounts paid in settling or otherwise disposing of
a pending action without court approval; and
(c) Expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval.
2.3 Limitations on Indemnification. Notwithstanding the
provision of Section 2.1 and 2.2 above, Indemnitee shall not be entitled to
indemnification as provided therein under any of the following circumstances:
(a) For acts or omissions that may involve intentional
misconduct or a knowing and culpable violation of law;
2
<PAGE> 3
(b) For acts or omissions that Indemnitee believes to
be contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of Indemnitee;
(c) For any transaction from which Indemnitee derived
an improper personal benefit;
(d) For acts or omissions that show a reckless
disregard for Indemnitee's duty to the Company or its shareholders in
circumstances in which Indemnitee was aware, or should have been aware, in the
ordinary course of performing Indemnitee's duties, of a risk or serious injury
to the Company or its shareholders;
(e) For acts or omissions that constitute an excused
pattern of inattention that amounts to an abdication of Indemnitee's duty to the
Company or its shareholders;
(f) Involving liability of a director under Section 310
or Section 316 of the Corporations Code of the State of California;
(g) For any act or omission occurring prior to the date
that the Company amended its Articles of Incorporation to incorporate provisions
permitted by Section 204(a)(11) of the Corporations Code of the State of
California; provided, however, nothing herein shall be construed to limit the
Company's ability to indemnify Indemnitee pursuant to the Company's Articles of
Incorporations, Bylaws or the law of the State of California as in effect prior
to such amendment;
(h) Under other circumstances, if any, in which
indemnity is expressly prohibited by Section 317 of the Corporations Code of the
State of California; and
(i) Under circumstances where it is determined by a
final judgment or other final adjudication that such indemnity is in violation
of law.
3. Advancement of Expenses
3.1 The Company shall pay for and on behalf of Indemnitee all
Expenses which Indemnitee actually and reasonably incurs in defending any
Proceeding prior to the final disposition of such Proceeding; provided that, in
connection with each such Proceeding, Indemnitee shall provide the Company with
an undertaking, in form and substance reasonably satisfactory to the Company, to
repay any such advances if it shall be determined ultimately that Indemnitee is
not entitled to be indemnified hereunder or as otherwise authorized under
California law. The Company shall perform its obligation under this Section 3.1
until such time as it may be determined that Indemnitee is not entitled to
indemnification by virtue of one or more of the exclusions set forth in Section
2.2 or Section 2.3 hereof.
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<PAGE> 4
3.2 Notwithstanding the provisions of Section 3.1 or any other
provision of this agreement, no advance shall be made by the Company if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum of disinterested directors, or (if such a quorum is
not obtainable or, even if obtainable, a quorum of disinterested directors so
directs) by independent legal counsel, that, based upon the facts known to the
Board or counsel at the time such determination is made, (i) Indemnitee acted in
bad faith or deliberately breached his duty to the Company or its shareholders,
and (ii) as a result of such actions by Indemnitee, it is more likely than not
that it will ultimately be determined that Indemnitee is not entitled to
indemnification under the terms of this Agreement.
4. Agreement - Not Exclusive
This Agreement and the Indemnification provided herein is not
exclusive of and shall not diminish any other rights to which Indemnitee may be
entitled under any provision of the Articles of Incorporation or Bylaws of the
Company, any other indemnification agreement or insurance provided by persons or
entities other than the Company, or under applicable law. Notwithstanding the
foregoing, the Company shall not be liable to Indemnitee to make any payment
with respect to any claim made against Indemnitee for which payment is actually
made to Indemnitee under a valid and collectible insurance policy, except with
respect to any excess beyond the amount of the payment under such policy.
5. Agreement to be Liberally Construed
The purpose of this Agreement is to induce Indemnitee either to
serve the Company, or to continue to serve the Company, in the capacity
indicated in Recital A, above. The Company acknowledges that, but for this
Agreement and the expectation by Indemnitee that the Company will perform each
of its obligations hereunder, Indemnitee may not consent to serve or to continue
to serve the Company in such capacity. Therefore, it is the intention of the
Company and Indemnitee that this Agreement be liberally construed so as to
achieve its purpose of protecting Indemnitee to the maximum extent permitted
under California law. In the case of any amendment to or change in California
law permitting the Company to indemnify Indemnitee in those situations where
indemnification is currently prohibited by law as outlined in Sections 2.2 and
2.3, it is the intention of the parties hereto that the Company provide
Indemnitee such broader or greater rights of indemnification than permitted to
the Company prior to such amendment or change and that this Agreement be
construed accordingly. The Company agrees that it will not do or fail to do any
fact which would or might prevent or hinder the performance by the Company of
its obligations under this Agreement.
6. Notice and Other Indemnification Procedures
4
<PAGE> 5
6.1 Notice to Company. Promptly after receipt by the
Indemnitee of notice of the commencement of or the threat of commencement of any
Proceeding, the Indemnitee shall, if the Indemnitee believes that
indemnification with respect thereto may be sought from the Company under this
Agreement, notify the Company in writing of the commencement or threat of
commencement thereof (but the failure to so notify the Company shall not relieve
the Company from any liability which it may have under this Agreement, except to
the extent that the Company has been prejudiced in any material respect by such
failure).
6.2 Choice of Counsel; Conduct of Defense. In the event the
Company shall be obligated to pay the Expenses of any Proceeding against the
Indemnitee, the Company, unless otherwise provided below, shall be entitled to
participate therein, or, upon the delivery to the Indemnitee of written notice
of its election to do so, to assume the defense of such Proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld).
After delivery of such notice, approval of such counsel by indemnitee and the
retention of such counsel by the Company, the Company will not be liable to the
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
the Indemnitee with respect to the same Proceeding, provided that (i) the
Indemnitee shall have the right to employ his or her own counsel in any
proceeding at the Indemnitee's expense; and (ii) if (a) the employment of
counsel by the Indemnitee has been previously authorized by the Company, (b) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of any such
defense or (c) the Company shall not within a reasonable period of time, in
fact, have employed counsel to assume the defense of such proceeding, Indemnitee
may employ its own counsel (subject to the Company's approval thereof which
shall not be unreasonably withheld) and the fees and expenses of such counsel
shall be paid by the Company. Notwithstanding any of the provisions of this
Agrement, the Company shall not be liable for any settlement of any claim or
action effected without its written consent which consent shall not be
unreasonably withheld.
7. Severability
This Agreement is intended to comply in all respects with
California law. In the event any provision of this Agreement is finally
determined by a court of competent jurisdiction to require the Company to do or
fail to do any act in violation of applicable law, such provision shall be
limited or modified in its application to the extent necessary to avoid a
violation of law, and as so limited or modified such provision and the balance
of this Agreement shall be enforceable in accordance with their terms.
8. Governing Law
This Agreement shall be governed by and construed in
accordance with California law.
5
<PAGE> 6
9. Successors and Assigns
The terms of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and the successors and assigns of the Company
and the Indemnitee's estate, heirs and personal representatives.
10. Modification and Waiver
No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by both the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any provision hereof nor shall such waiver constitute a
continuing waiver.
11. Attorneys' Fees
In the event that any action is instituted by Indemnitee under
this Agreement or to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action the court determined that each of the material
assertions made by Indemnitee as a part of such action was not made in good
faith or was frivolous. In the event any action is instituted by or in the name
of the Company under this Agreement or to enforce or interpret any term of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including reasonable attorneys' fees, incurred by Indemnitee in defense of such
action (including with respect to Indemnitee's counterclaims and cross-claims
made in such action), unless as a part of such action the court determines that
each of the Indemnitee's material defenses to such action was made in bad faith
or was frivolous.
IN WITNESS WHEREOF, the parties have executed this Indemnification
Agreement as of the date first above written:
"Company"
INTERVISUAL BOOKS, INC.
By:
-----------------------------------------------
Waldo H. Hunt, Chairman of the
Board and Chief Executive Officer
"Indemnitee":
-------------------------------
XXXXX
6
<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into
effective as of the 1st day of October, 1997, between INTERVISUAL BOOKS, INC., a
California corporation (the "Company"), and WALDO H. HUNT (the "Executive").
R E C I T A L S:
A. Executive has agreed to continue to be employed by the Company as
its Chairman of the Board and Chief Executive Officer.
B. The Board of Directors of the Company (the "Board") believes that
the continued employment of Executive by the Company will contribute to the
growth and success of the Company. The Board desires to provide for the
employment of Executive and to make Executive's employment arrangements in the
best interest of the Company and its shareholders so as to encourage Executive's
attention and dedication to the Company. Executive is willing to commit himself
to serve the Company, on the terms and conditions herein provided.
A G R E E M E N T:
NOW, THEREFORE, 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 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 October 1, 1997, and shall end on September 30, 2000,
unless further extended or sooner terminated as hereinafter provided. On
September 30, 1998 and on September 30 of each year thereafter (each an
"Extension Date"), the term of Executive's employment hereunder shall
automatically be extended for one additional year unless, prior to such
Extension Date, either party delivers written notice to the other party that the
term of Executive's employment hereunder will not be extended or that
Executive's employment is otherwise terminated pursuant to the terms of this
Agreement.
3. Position and Duties.
Executive shall serve as Chairman of the Board and, if he so
chooses as Chief Executive Officer of the Company. Before resigning as Chief
Executive Officer, Executive shall give the Company at least thirty (30) days
prior notice. Executive's resignation as Chief Executive Officer shall not
result in the reduction in his salary.
<PAGE> 2
4. Compensation and Related Matters.
(a) Salary. For the period of October 1, 1997 through March 31,
1999, the Company shall pay to the Executive a salary of $250,000 per annum in
semi-monthly installments in accordance with the Company's regular payroll
policies. Prior to April 1, 1999 and each April 1st thereafter during the term
of Executive's employment hereunder, the Company's Board of Directors shall
evaluate Executive's then current salary rate, and the Board of Directors by the
adoption of a formal resolution may adjust Executive's annual salary either
upward or downward as the Board determines in good faith. Any such adjustment
shall be made by the Board only after prior consultation with Executive. In the
event the Board of Directors fails to take formal action to adjust Executive's
annual salary prior to an applicable April 1, Executive's then current salary
shall continue in effect until the next April 1, subject to cost of living
increases as provided in the next paragraph.
Executive's salary shall be adjusted annually to reflect any
percentage increase (but not decrease) in the Consumer Price Index in effect on
each December 31 during the term hereof over the Consumer Price Index in effect
on the immediately preceding December 31. The Consumer Price Index referred to
herein shall be the "Los Angeles-Long Beach-Anaheim, California" area 1967-100,
Consumer Price Index published by the U.S. Bureau of Labor Statistics.
Compensation of Executive by salary payments shall not be deemed exclusive and
shall not prevent Executive from participating in any other compensation or
benefit plan of the Company. The salary payments (including any increased salary
payments) hereunder shall not in any way limit or reduce any other obligation of
the Company hereunder, and no other compensation, benefit or payment hereunder
shall in any way limit or reduce the obligation of the Company to pay
Executive's salary hereunder.
(b) Expenses. During the term of Executive's employment hereunder,
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by Executive in performing services hereunder, including all
expenses of travel and living expenses when away from home on business at the
request of and in the service of the Company, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures from
time to time established by the Company.
(c) Other Benefits. During the term of Executive's employment
hereunder, Executive shall be entitled to participate in the Company's 401(k)
plan, or such other plans established by the Company, and any general health
disability insurance plans from time to time generally applicable to executives
of the Company to the extent generally permitted by the terms of such plans.
(d) Vacations. Executive shall be entitled to five (5) weeks
(twenty-five (25) business days) vacation during any calendar year during the
term hereof, subject to proration for employment for less than the entire
calendar year. Executive shall also be entitled to accrue no more than twelve
(12) weeks (sixty (60) business days) of unused vacation days. Any unused
vacation days in excess of twelve (12) weeks (sixty (60) business days) shall be
deemed to be forfeited.
(e) Services Furnished. The Company shall furnish Executive with
office space, stenographic assistance and such other facilities and services as
shall be
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<PAGE> 3
reasonably suitable to Executive's position and reasonably adequate for the
performance of Executive's duties as set forth in Section 3 hereof.
(f) Annual Insurance Payment. In lieu of paying any life insurance
premiums for Executive during the term of Executive's employment and thereafter
during Executive's life, the Company shall pay to Executive an annual additional
payment of $60,000 which shall be paid to Executive on or before April 1 of each
year for so long as Executive shall remain alive (such payment shall be referred
to herein as the "Annual Insurance Payment"). This obligation shall continue as
long as Executive remains alive irrespective of the earlier termination of
Executive's employment or this Agreement.
(g) Automobile Allowance. During Executive's employment hereunder,
the Company shall:
(i) pay to Executive an automobile allowance of $850
per month, which automobile may be used by Executive for both
personal and business purposes;
(ii) 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 the Company adequate records for the
substantiation of such repairs as proper business expenses of the
Company; and
(iii) 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 shall conform to the Company's policies regarding the use of such
automobile.
(h) Disability Insurance. During the term of Executive's
employment hereunder, the Company shall pay the premiums, in amount not to
exceed $10,000 per year, for a long-term disability insurance providing benefits
to Executive in an amount equal to Executive's Annual Base Salary. In the event
the Company is not able to find a policy providing such coverage for Executive
for $10,000 or less per year, Company shall then pay $10,000 annually to
Employee on the last day of each year.
(i) Options. In consideration for Executive's entering into this
Agreement, the Company agrees to grant Executive stock options (consisting of
both incentive and nonstatutory options) to purchase 150,000 shares of the
Company's common stock. Such options shall vest in three equal annual
installments commencing one year from the grant date. Incentive stock options
granted to Executive shall have an exercise price of 110% of the fair market
value of the underlying common stock on the grant date and shall have a term of
five years while nonstatutory stock options shall have an exercise price equal
to the fair market value of the underlying common stock on the grant date and
shall have a term of ten years.
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<PAGE> 4
5. Offices.
During Executive's employment hereunder, Executive agrees to
serve without additional compensation as a director of the Company and, if
elected or appointed thereto, as a director of its subsidiaries (if any) and in
one or more executive offices of any of the Company's subsidiaries.
6. Confidential Information.
Executive acknowledges that by virtue of his employment with the
Company, he has knowledge of certain information which is confidential and
proprietary to the Company ("Proprietary Information"). Such information
includes, but is not limited to, (i) financial, legal, corporate, manufacturing,
marketing, competitive and other information available only to top management,
directors and officers of the Company; (ii) any and all other information
related to the Company of which Executive may become aware but which is not
generally known to outsiders; and (iii) other trade secrets which the Company
owns.
Executive shall not disclose any Proprietary Information directly or
indirectly, either during or after his employment with the Company, without the
prior written consent of the Board of Directors of the Company. All such
Proprietary Information, including without limitation, all files, records,
documents, specifications, equipment, customer lists and similar items relating
to the business of the Company, whether prepared by Executive or otherwise
coming into his possession, shall remain the sole and exclusive property of the
Company.
The parties hereto acknowledge that the extensive "pop up" book
collection, both antique and contemporary, which constitutes part of The Hunt
Museum is the sole property of Executive and the Company has no rights of
ownership to the books which constitute a part of the collection of the Hunt
Museum.
7. Termination and Benefits Upon Termination.
Executive's employment hereunder may be terminated without any breach
of this Agreement, under the following circumstances:
(a) Death.
(1) Executive's employment hereunder shall terminate automatically
upon Executive's death.
(2) If Executive's employment is terminated because of Executive's
death pursuant to this Section 7(a), then the Company shall have no further
obligation or liability to Executive except the Company shall pay to Executive's
spouse, or if Executive leaves no spouse, to Executive's estate, (i) the portion
of Executive's salary which has been earned up to the Date of Termination in
accordance with this Agreement, (ii) compensation for any accrued and unused
vacation up to the Date of Termination in accordance with this Agreement, and
(iii) reimbursement for business expenses properly incurred up to the Date of
Termination (collectively the "Minimum Payments"). In addition to the Minimum
Payments, Executive's spouse, or if Executive leaves no spouse, to Executive's
estate, shall be entitled to receive a death benefit equal
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<PAGE> 5
to eighteen (18) months of Executive's salary in effect upon termination. Such
death benefit shall be paid in equal monthly installments commencing on the last
day of the month immediately following the month during which Executive died and
continuing for eighteen (18) months.
(b) Disability.
(1) If, as a result of Executive's incapacity due to physical or
mental illness, Executive shall have been absent from his duties hereunder on a
full-time basis for an entire period of six (6) consecutive months, and within
thirty (30) days after written notice of termination is given by the Company to
Executive (which may occur before or after the end of such six (6) month
period), Executive shall not have returned to the performance of his duties
hereunder on a full-time basis, the Company may terminate Executive's employment
hereunder pursuant to this Section 7(b).
During any period of time during which the Executive fails to
perform Executive's duties hereunder as a result of incapacity due to physical
or mental illness and prior to such time as Executive's employment is
terminated, Executive shall continue to receive his full salary at the rate then
in effect for such period until his employment is terminated pursuant to this
Section 7(b), provided that the payments so made to Executive during any period
of disability or incapacity shall be reduced by the sum of the amounts, if any,
paid or payable to Executive at or prior to the time of any such payment of
salary under disability benefit plans of the Company and which were not
otherwise previously applied to reduce any such payment.
(2) If Executive's employment is terminated because of
Executive's incapacity or disability pursuant to this Section 7(b), then the
Company shall have no further obligation or liability to Executive, except that
(i) Executive shall be entitled to receive the Minimum Payments, (ii) the
Company shall continue Executive's base salary for a period of the lesser of
twelve (12) months or until Executive's death, and (iii) the Company shall
continue to pay the Annual Insurance Payment provided in for Section 4(f) of
this Agreement so long as Executive shall remain alive. In addition, the Company
shall provide (at the Company's expense) continuation coverage for Executive
under the Company's group health plan pursuant to COBRA for a period of eighteen
(18) months after Executive's termination and thereafter, the Company shall pay
to Executive each month for eighteen (18) additional months an amount equal to
the monthly cost to the Company of providing such continuation coverage at the
time such coverage ended.
(c) Cause.
(1) The Company through action of the Board may terminate
Executive's employment hereunder for "Cause." For purposes of this Agreement,
the Company shall have "Cause" to terminate Executive's employment hereunder
upon:
(i) The willful and continued failure by Executive
substantially to perform his duties hereunder (other
than any such failure resulting from Executive's
incapacity due to physical or mental illness), after
demand for substantial performance is delivered by the
Board of Directors that specifically identifies the
manner in which the Board of Directors believes
Executive has not substantially performed his duties;
or
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<PAGE> 6
(ii) The willful engaging by Executive in misconduct which
is materially injurious to the Company, monetarily or
otherwise, including the misuse of any Proprietary
Information (as that term is defined in Section 6
hereof).
For purposes of this subsection, no act or failure to
act on Executive's part shall be considered "willful" unless done, or omitted to
be done, by him not in good faith and without reasonable belief that his action
or omission was in the best interest of the Company. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
without (A) reasonable notice to Executive setting forth the reasons for the
Company's intention to terminate for Cause, (B) an opportunity for Executive,
together with his counsel, to be heard before the Board, and (C) delivery to
Executive of a Notice of Termination (as defined in subsection (e) hereof) from
the Board finding that in the good faith opinion of the Board, Executive was
guilty of conduct constituting Cause within the meaning of this subsection (c)
and specifying the particulars thereof in detail.
(2) If Executive's employment hereunder is
terminated for Cause pursuant to this Section 7(c), then the Company shall have
no further obligation or liability to Executive, except that (i) Executive shall
be entitled to receive the Minimum Payments, and (ii) the Company shall continue
to pay the Annual Insurance Payment provided for in Section 4(f) so long as
Executive shall remain alive.
(d) Termination by Company Other Than for Death, Disability, or
Cause.
(1) The Company shall, for any reason, be entitled to terminate
Executive's employment hereunder at any time other than on account of
Executive's death or disability and without Cause pursuant to this Section 7(d).
(2) If Executive's employment hereunder is terminated by the Company
pursuant to this Section 7(d), the Company shall have no further obligation or
liability to Executive, except that (i) Executive shall be entitled to receive
the Minimum Payments, (ii) the Company shall continue to pay the Annual
Insurance Payment provided for in Section 4(f) so long as Executive shall remain
alive, and (iii) the Company shall pay to Executive a severance payment
consisting of three (3) years of Executive's then current annual salary in
effect on termination. Such severance shall be payable in equal monthly
installments over a twenty-four (24) month period after termination. In
addition, the Company shall provide (at Company's expense) continuation coverage
for Executive under the Company's group health plan pursuant to COBRA for a
period of eighteen (18) months after Executive's termination and thereafter, the
Company shall pay to Executive each month for eighteen (18) additional months an
amount equal to the monthly cost to the Company of providing such continuation
coverage at the time such coverage ended.
(e) Termination by Executive for Good Reason.
(1) Executive may terminate Executive's employment
hereunder for Good Reason (as defined below) pursuant to this Section 7(e).
For purposes of this Agreement, "Good Reason" shall mean (A) the
failure by the Company to comply with any material provision of this Agreement
which has not been cured within forty-five (45) days after notice of such
non-compliance has been given
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<PAGE> 7
by Executive to the Company, (B) any purported termination of Executive's
employment by the Company, except pursuant to subsections 7(a), 7(b), 7(c) or
7(d) hereof or (C) without Executive's express written consent, the assignment
to Executive of any duties which would constitute a material reduction in the
importance of Executive's position, authority or responsibilities as
contemplated by Section 3 hereof or any other material adverse change in such
position, authority and responsibility.
(2) If Executive's employment hereunder is terminated
by Executive for Good Reason pursuant to this Section 7(e), then the Company
shall have no further obligation or liability to Executive, except (i) the
Executive shall be entitled to receive the Minimum Payments, (ii) the Company
shall continue to pay the Annual Insurance Payment provided for in Section 4(f)
so long as Executive shall remain alive, and (iii) the Company shall pay to
Executive a severance payment consisting of three years of Executive's then
current annual salary in effect on termination. Such severance shall be payable
in equal monthly installments over a twenty-four (24) month period after
termination. In addition, the Company shall provide (at the Company's expense)
continuation coverage for Executive under the Company's group health plan
pursuant to COBRA for a period of eighteen (18) months after Executive's
termination and thereafter, the Company shall pay to executive each month for
eighteen (18) additional months an amount equal to the Company's monthly cost of
providing such continuation coverage at the time such coverage ended.
(f) Resignation by Executive.
(1) Executive shall be entitled to terminate his
Employment for any reason at any time on thirty (30) days prior written notice
delivered by Executive to Company pursuant to this Section 7(f).
(2) If Executive's employment is terminated by
Executive pursuant to this Section 7(f), the Company shall have no further
obligation or liability to Executive, except (i) that Executive shall be
entitled to receive the Minimum Payments, (ii) Company shall continue to pay the
Annual Insurance Payment provided for in Section 4(f) so long as Executive shall
remain alive, and (iii) Company shall continue Executive's base salary for a
period of the lesser of twelve (12) months or Executive's death. In addition,
the Company shall continue (at the Company's expense) Continuation Coverage for
Executive under the Company's group health plan (or other similar plan) for a
period of eighteen (18) months after Executive's termination and thereafter, the
Company shall pay to Executive each month for six (6) additional months an
amount equal to the Company's monthly cost of providing such continuation
coverage at the time such coverage ended.
(g) Notice of Termination. Any termination of Executive's employment
by the Company or by Executive (other than termination for death pursuant to
subsection 7(a) above) shall be communicated by written a Notice of Termination
to the other party hereto. For purposes of this Agreement, "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon, shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provisions so indicated and shall set forth the
Date of Termination.
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<PAGE> 8
(h) Date of Termination. "Date of Termination" shall mean (i) if
Executive's employment is terminated by death, the date of death, (ii) if
Executive's employment is terminated by disability, the date of the
determination of the disability, or (iii) if Executive's employment is
terminated for any other reason, thirty (30) days after Notice of Termination is
given.
8. Additional Covenants.
(a) No Duty to Mitigate. Executive shall not be required to mitigate
the amount of any payment provided for in Section 7 by seeking other employment.
(b) Excess Parachute Payment. Notwithstanding anything in this
Agreement to the contrary, if and to the extent (but only to the extent) that
any payment made under this Agreement shall constitute an "excess parachute
payment" under Section 28OG of the Internal Revenue Code as currently in effect
(or, if at the time of any such "excess parachute payment" said Section 28OG
shall have been amended to provide more favorable treatment to Executive without
materially adversely affecting the Company under said amended Section 28OG),
such payment shall be reduced or extended over a longer period of time to the
extent necessary to reduce such "excess parachute payment" to zero.
9. Specific Performance.
In the event of the breach by Executive of any of the provisions
of Section 6 hereof, the Company, in addition and supplementary to all other
rights and remedies existing in its favor and notwithstanding the provisions of
Section 10 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.
10. 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), any dispute regarding Executive's termination
of employment from the Company, tort claims, claims for harassment or
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, California 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
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<PAGE> 9
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 the time
period of the statute of limitations applicable to the claim(s) if the claim(s)
had been filed in Court. 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 10 shall prevent the Company
from seeking and obtaining equitable relief in a court to enforce any of its
rights under Section 6 hereof.
11. 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.
12. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
12 or otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law.
(b) This Agreement and all rights of Executive hereunder shall inure
to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributes,
devisees and legatees. If Executive should die while any amounts would still be
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in
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<PAGE> 10
accordance with the terms of this Agreement to Executive's devisee, legatee or
other designee, or, if there be no such designee, to Executive's estate.
13. Notice.
For purposes of this Agreement, notices, demands and all other
communications provided for in this 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 or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to Executive: Waldo H. Hunt
16130 High Valley Place
Encino, California 91436
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.
14. Miscellaneous.
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Executive and by such officer of the Company as may be specifically
designated by the Board. 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. 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
Executive by the Company. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
15. 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.
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<PAGE> 11
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.
17. Survivability.
The provisions in Sections 4(f), 6, 8, 9 and 10 of this Agreement
shall survive any termination of this Agreement.
18. 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.
19. 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 have executed this Agreement as of
the day and year first above written.
"Company" INTERVISUAL BOOKS, INC., a
California corporation
By: /s/
-----------------------------------------------
Nathan Norman Sheinman
President and Chief Operating Officer
"Executive" /s/
-----------------------------------------------
Waldo H. Hunt
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<PAGE> 1
EXHIBIT 10.20
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "Agreement")
between INTERVISUAL BOOKS, INC., a California corporation (the "Company"), and
WALDO H. HUNT ("Employee") is entered into as of the 1st day of October, 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. This Agreement is being entered into between the Company and
Employee in partial fulfillment of the Company's obligation contained in Section
4(i) of the Employment Agreement between the Company and Employee dated on or
about the date hereof. Employee acknowledges that this option may not be
exercised by Employee until such time as the option has been approved by the
Company's shareholders.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant. The Company hereby grants to Employee the right to
purchase up to 31,000 shares of common stock of the Company at a price of $1.625
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.
2. Exercisability. Subject to the terms and conditions
contained herein, the option granted herein shall become exercisable at the
following times and in the following amounts:
<PAGE> 2
The option shall become exercisable in cumulative increments
of 10,333 shares on each of October 1, 1998 and October 1,
1999 and an increment of 10,334 shares on October 1, 2000. The
option granted hereunder shall lapse and expire on the tenth
(10th) 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 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
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<PAGE> 3
(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 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 7(h) 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 7(c) of the
Employment
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<PAGE> 4
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 "disability" (as determined under Section 7(b) 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 such 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 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,
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<PAGE> 5
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 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.
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<PAGE> 6
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.
11. 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, 2716 Ocean Park Boulevard, Suite 2020, 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 a different address for notice which shall be
substituted for that specified above.
12. 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.
13. 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.
14. 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.
15. Shareholder Approval. Notwithstanding anything contained in this
Agreement to the contrary, the options granted in this Agreement may not be
exercised until such time as this Agreement is approved by the Company's
shareholders and Employee's rights hereunder are subject to such shareholder
approval.
[Signature Page Follows]
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<PAGE> 7
IN WITNESS WHEREOF, this Agreement is executed as of the date
first written above.
INTERVISUAL BOOKS, INC.
By: /s/
-------------------------------
Name: Nathan Norman Sheinman
Title: President
EMPLOYEE:
/s/
---------------------------------
Waldo H. Hunt
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<PAGE> 1
EXHIBIT 10.21
Execution Copy
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of the 19th day of January, 1998, between INTERVISUAL BOOKS, INC., a California
corporation (the "Company"), and DAN P. REAVIS (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 19,1998, (the "Start Date"), and end on
January 19, 2001, 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. The Company and Executive shall attempt to negotiate in good faith between
July 1, 2000, and September 30, 2000, 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 Executive Vice President and Chief
Financial 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 President 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 and Board of Directors of the Company. Executive's
primary duties shall include, but not limited to, responsibility for the
financial management of the Company and such other duties as may from time to
time be prescribed by the Board of Directors and the President 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.
<PAGE> 2
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 as the
interests, needs, business and opportunities of the Company require or deem
advisable and only upon mutual agreement with 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 $175,000 per annum from the Start
Date through January 18, 1999 and a salary of $183,750 per annum from January
19, 1999 through January 18, 2000 and a salary of $192,950 per annum from
January 19, 2000 through January 18, 2001. 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 three 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 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
nonstatutory stock options to acquire 175,000 shares of the Company's common
stock at $2.00 per share pursuant to the Stock Option Agreement attached hereto
as Exhibits A. 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
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<PAGE> 3
plans from time to time generally applicable to and equivalent to that offered
to the President 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.
(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
(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
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<PAGE> 4
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 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
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<PAGE> 5
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
six (6) months salary based on executive's rate of pay at the date of
termination. Any amounts owed to Executive pursuant to subsection (ii) above
shall be paid semi-monthly through the company's regular payroll 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 the Minimum Payments.
(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
termination 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," manuals, confidential reports and communications, 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
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<PAGE> 6
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 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
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<PAGE> 7
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.
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
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<PAGE> 8
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 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 upon Executive, or (iii) violate any
applicable law or regulation.
(b) 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. 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.
15. 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.
16. 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:
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<PAGE> 9
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.
17. 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.
18. 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 and performance of this Agreement shall be governed
by the laws of the State of California.
19. 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.
20. 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.
21. Withholding of Taxes; Tax Reporting.
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<PAGE> 10
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> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INTERVISUAL BOOKS, INC.
By: /s/ Nathan N. Sheinman
--------------------------------------
Name: Nathan N. Sheinman
Title: President
EXECUTIVE
/s/ Dan P. Reavis
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<PAGE> 1
EXHIBIT 10.22
Execution Copy
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement") between INTERVISUAL BOOKS, INC.,
a California corporation (the "Company"), and Dan P. Reavis ("Employee") is
entered into as of the 13th day of November, 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 175,000 shares of common stock of the Company at a price of $2.00
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.
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
45,000 shares on each of (a) May 13, 1998, (b) December 31, 1998,
(c) December 31, 1999, and 40,000 shares on December 31, 2000.
The option granted hereunder shall lapse and expire on the
seventh (7th) anniversary of the date hereof.
<PAGE> 2
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 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.
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<PAGE> 3
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 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. The definition of cause
related to the Employee's or Employee's estate's entitlement to exercise this
option shall not include the Employee's unwillingness to be based beyond 25
miles from the Company's current location without the Employee's consent.
(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.
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<PAGE> 4
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 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 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.
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<PAGE> 5
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.
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
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<PAGE> 6
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, 2716 Ocean Park Boulevard, Suite 2020, 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 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/ Nathan N. Sheinman
--------------------------------------
Name: Nathan N. Sheinman
Title: President
EMPLOYEE:
/s/ Dan P. Reavis
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<PAGE> 1
EXHIBIT 10.23
BUSINESS LOAN AGREEMENT
Borrower: INTERVISUAL BOOKS, INC. (TIN: 95-2929217)
2716 OCEAN PARK BOULEVARD, SUITE 2020
SANTA MONICA, CA 90405
Lender: SANTA MONICA BANK
MAIN OFFICE
1251-4TH STREET
SANTA MONICA, CA 90401
================================================================================
THIS BUSINESS LOAN AGREEMENT BETWEEN INTERVISUAL BOOKS, INC. ("BORROWER") AND
SANTA MONICA BANK ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS
APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (a) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (b)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (c) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of JANUARY 15, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means INTERVISUAL BOOKS, INC.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended. CASH FLOW. The words
"Cash Flow" mean net income after taxes, and exclusive of extraordinary
gains and income, plus depreciation and amortization.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in connection
with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness may
be or hereafter may become barred by any statute of limitations; and whether
such Indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means SANTA MONICA BANK, its successors and
assigns.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations including but not
limited to letters of credit from Lender to Borrower, whether now or
hereafter existing, and however evidenced, including without limitation
those loans and financial accommodations described herein or described on
any exhibit or schedule attached to this Agreement from time to time.
<PAGE> 2
01-15-1998 BUSINESS LOAN AGREEMENT PAGE 2
LOAN NO. 200302376 (CONTINUED)
================================================================================
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics, warehousemen, or
carriers, or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property acquired or
held by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens
and security interests which to the best of Borrower's knowledge exist as of
the date of this Agreement and have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings
or other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but
including leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current assets,
excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence of
insurance as required below; and (e) any other documents required under this
Agreement or by Lender or its counsel, including without limitation any
guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note and the Related
Documents, and such other authorizations and other documents and instruments
as Lender or its counsel, in their sole discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth
in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Borrower's
incorporation and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and authority
to own its properties and to transact the businesses in which it is
presently engaged or presently proposes to engage. Borrower also is duly
qualified as a foreign corporation and is in good standing in all states in
which the failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not conflict
with, result in a violation of, or constitute a default under (a) any
provision of its articles of incorporation or organization, or bylaws, or
any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
<PAGE> 3
01-15-1998 BUSINESS LOAN AGREEMENT PAGE 3
LOAN NO. 200302376 (CONTINUED)
================================================================================
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender
truly and completely disclosed Borrower's financial condition as of the date of
the statement, and there has been no material adverse change in Borrower's
financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously disclosed
in Borrower's financial statements or in writing to Lender and as accepted by
Lender, and except for property tax liens for taxes not presently due and
payable, Borrower owns and has good title to all of Borrower's properties free
and clear of all Security Interests, and has not executed any security documents
or financing statements relating to such properties. All of Borrower's
properties are titled in Borrower's legal name, and Borrower has not used, or
filed a financing statement under, any other name for at least the last five (5)
years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5
through 7.7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that: (a)
During the period of Borrower's ownership of the properties, there has been no
use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on, under,
about or from any of the properties. (b) Borrower has no knowledge of, or reason
to believe that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened litigation
or claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances described
above. Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any inspections
or tests made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for cleanup or
other costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
occurring prior to Borrower's ownership or interest in the properties, whether
or not the same was or should have been known to Borrower. The provisions of
this section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration of
this Agreement and shall not be affected by Lender's acquisition of any interest
in any of the properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the Related
Documents are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance with
their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have
any liability complies in all material respects with all applicable requirements
of law and regulations, and (i) no Reportable Event nor Prohibited Transaction
(as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, (iii) no steps
have been taken to terminate any such plan, and (iv) there are no unfunded
liabilities other than those previously disclosed to Lender in writing.
INVESTMENT COMPANY ACT. Borrower is not an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
PUBLIC UTILITY HOLDING COMPANY ACT. Borrower is not a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
REGULATIONS G, T AND U. Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G, T and
U of the Board of Governors of the Federal Reserve
<PAGE> 4
01-15-1998 BUSINESS LOAN AGREEMENT PAGE 4
LOAN NO. 200302376 (CONTINUED)
================================================================================
System).
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 2716 OCEAN PARK BOULEVARD, SUITE 2020, SANTA MONICA,
CA 90405. Unless Borrower has designated otherwise in writing this location
is also the office or offices where Borrower keeps its records concerning
the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which such
information is dated or certified; and none of such information is or will
be incomplete by omitting to state any material fact necessary to make such
information not misleading.
CLAIMS AND DEFENSES. There are no defenses or counterclaims, offsets or
other adverse claims, demands or actions of any kind, personal or otherwise,
that Borrower, Grantor, or any Guarantor could assert with respect to the
Note, Loan, Indebtedness, this Agreement, or the Related Documents.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports with
respect to Borrower's financial condition and business operations as Lender
may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios: Except as provided above, all computations made to determine
compliance with the requirements contained in this paragraph shall be made
in accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Borrower
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest for the Loans, Borrower
will provide Lender with such loss payable or other endorsements as Lender
may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the name
of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (f) the expiration date of the policy. In addition, upon request
of Lender (however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors named
below, on Lender's forms, and in the amounts and under the conditions
spelled out in those guaranties.
<TABLE>
<CAPTION>
GUARANTORS AMOUNTS
<S> <C>
WALDO H. HUNT $2,000,000.00
HUNT FAMILY TRUST $2,000,000.00
</TABLE>
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so long as
(a) the legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books
<PAGE> 5
01-15-1998 BUSINESS LOAN AGREEMENT PAGE 5
LOAN NO. 200302376 (CONTINUED)
===============================================================================
adequate reserves with respect to such contested assessment, tax, charge,
levy, lien, or claim in accordance with generally accepted accounting
practices. Borrower, upon demand of Lender, will furnish to Lender evidence
of payment of the assessments, taxes, charges, levies, liens and claims and
will authorize the appropriate governmental official to deliver to Lender at
any time a written statement of any assessments, taxes, charges, levies,
liens and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
ENVIRONMENTAL STUDIES. Promptly conduct and complete, at Borrower's expense,
all such investigations, studies, samplings and testings as may be requested
by Lender or any governmental authority relative to any substance defined as
toxic or a hazardous substance under any applicable federal, state, or local
law, rule, regulation, order or directive, or any waste or by-product
thereof, at or affecting any property or any facility owned, leased or used
by Borrower.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds with
a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal and
state law which arise solely from their status as Shareholders
<PAGE> 6
01-15-1998 BUSINESS LOAN AGREEMENT PAGE 6
LOAN NO. 200302376 (CONTINUED)
================================================================================
of a Subchapter S Corporation because of their ownership of shares of stock
of Borrower, or (d) purchase or retire any of Borrower's outstanding shares
or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets other than in the ordinary course of business, (b) purchase, create
or acquire any interest in any other enterprise or entity other than in the
ordinary course of business, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
ADDITIONAL PROVISIONS. 1. Borrower will provide to Lender quarterly financial
statements and Form 10Q quarterly reports within 45 days of quarter-end, and the
annual audited statement and Form 10K annual report within 90 days of year-end.
2. Borrower will submit quarterly Accounts Receivables and Accounts Payable
Aging Reports to the Lender with the quarterly financial statement.
3. Borrower will maintain its Tangible Net Worth at a minimum of $6,000,000 and
its debt-to-tangible net worth ratio shall not exceed 1.20. Tangible Net Worth
will include amortized production cost.
4. Borrower will maintain its minimum working capital of $1,800,000.
5. Borrower will not repurchase any of its outstanding stock or sell or merge
without Lender's written consent.
6. Borrower will maintain all of its major depository accounts with Santa Monica
Bank.
7. The Guaranties required by the Guarantors Paragraph, above, shall become
effective upon the conditions that and at such time as Waldo Hunt and the Hunt
Family Trust's collective beneficial ownership of the shares of the Borrower
constitutes less than forty percent (40%) of the capital stock of Borrower, and
the Guaranties shall thereafter continue in full force and effect until the
Indebtedness shall have been fully and finally paid and satisfied,
notwithstanding that their beneficial ownership thereafter may exceed forty
percent (40%), unless otherwise agreed by Lender and Guarantors in writing
signed by each of them. No notice to Borrower is required.
8. Borrower agrees to notify Lender in writing upon the event that the Waldo
Hunt and the Hunt Family Trust's collective beneficial ownership of the shares
of Borrower constitutes less than forty percent (40%) of the capital stock of
Borrower. Failure to so notify the Lender as required herein shall constitiute
an event of default under this Agreement.
9. Borrower's capital expenditures shall not exceed $50,000.00 per expenditure,
or an aggregate of $200,000.00, during the term of this loan, without Lender's
prior written approval.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on
the Loans, on or before five (5) days of the date due under the terms of the
Note.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower, upon
Borrower or any Grantor's failure to cure default under this default clause
within fifteen (15) days of written notice from Lender to Borrower or
Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason, arising from Borrower's failure to perform any acts required
by the Security Agreement.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
<PAGE> 7
01-15-1998 BUSINESS LOAN AGREEMENT PAGE 7
LOAN NO. 200302376 (CONTINUED)
================================================================================
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or revokes or disputes the
validity of, or liability under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of forty percent (40%) or more
of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS
ANGELES COUNTY, THE STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender,
upon the condition that Lender first give Borrower thirty (30) day notice of
any agreement to sell or transfer any participation interest in the Loans.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to
such matters. Borrower waives any and all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of
such interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any
such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
BORROWER INFORMATION. Borrower consents to the release of information on or
about Borrower by Lender in accordance with any court order, law or
regulation and in response to credit inquiries concerning Borrower.
NON-LIABILITY OF LENDER. The relationship between Borrower and Lender is a
debtor and creditor relationship and not fiduciary in nature, nor is the
relationship to be construed as creating any partnership or joint venture
between Lender and Borrower. Borrower is exercising its own judgment with
respect to Borrower's business. All information supplied to Lender is for
Lender's protection only and no other party is entitled to rely on such
information. There is no duty for Lender to review, inspect, supervise, or
inform Borrower of any matter with respect to Borrower's business. Lender
and Borrower intend that Lender may reasonably rely on all information
supplied by Borrower to Lender, together with all representations and
warranties given by Borrower to Lender, without investigation or
confirmation by Lender and that any investigation or failure to investigate
will not diminish Lender's right to so rely.
NOTICE OF LENDER'S BREACH. Borrower must notify Lender in writing of any
breach of this Agreement or the Related Documents by Lender and any other
claim, cause of action or offset against Lender within thirty (30) days
after the occurrence of such breach or after the accrual of such claim,
cause of action or offset. Borrower waives any claim, cause of action or
offset for which notice is not given in accordance with this paragraph.
Lender is entitled to rely on any failure to give such notice.
BORROWER INDEMNIFICATION. Borrower shall indemnify and hold Lender harmless
from and against all claims, costs, expenses, losses, damages, and
liabilities of any kind, including but not limited to attorneys' fees and
expenses, arising out of any matter relating directly or indirectly to the
Indebtedness, whether resulting from internal disputes of the Borrower,
disputes between Borrower and any Guarantor, or whether involving any third
parties, or out of any other matter whatsoever related to this Agreement or
the Related Documents, but excluding any claim or liability which
<PAGE> 8
01-15-1998 BUSINESS LOAN AGREEMENT PAGE 8
LOAN NO. 200302376 (CONTINUED)
================================================================================
arises as a direct result of Lender's gross negligence or willful
misconduct. This indemnity shall survive full repayment and satisfaction of
the Indebtedness and termination of this Agreement.
COUNTERPARTS. This Agreement may be executed in multiple counterparts, each
of which, when so executed, shall be deemed an original, but all such
counterparts, taken together, shall constitute one and the same Agreement.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans and
to enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs,
in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required by
law), and shall be effective when actually delivered or when deposited with
a nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may change its
address for notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if there is
more than one Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes, Borrower will keep Lender informed at all
times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JANUARY 15, 1998.
BORROWER:
INTERVISUAL BOOKS, INC.
BY: /s/ WALDO H. HUNT
----------------------------------------------
WALDO H. HUNT,
CHAIRMAN OF THE BOARD/CHIEF EXECUTIVE OFFICER
LENDER:
SANTA MONICA BANK
BY: /s/ [SIG]
----------------------------------------------
AUTHORIZED OFFICER
================================================================================
<PAGE> 1
EXHIBIT 10.24
COMMERCIAL SECURITY AGREEMENT
Borrower: INTERVISUAL BOOKS, INC. (TIN:95-2929217)
2716 OCEAN PARK BOULEVARD, SUITE 2020
SANTA MONICA, CA 90405
Lender: SANTA MONICA BANK
MAIN OFFICE
1251-4TH STREET
SANTA MONICA, CA 90401
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN INTERVISUAL BOOKS,
INC. (REFERRED TO BELOW AS "GRANTOR"); AND SANTA MONICA BANK (REFERRED TO BELOW
AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL,
IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, EQUIPMENT, ACCOUNTS RECEIVABLES, GENERAL INTANGIBLES PLUS THE
FOLLOWING: ALL RIGHTS AND INTERESTS IN EXISTING AND FUTURE COPYRIGHTS OF
BOOKS, GAME BOARDS, AND PLAYSETS, INCLUDING THE COPYRIGHTS IDENTIFIED ON
EXHIBIT "A" HERETO, AND ANY AND ALL RIGHTS TO SECURE RENEWALS, REISSUES, AND
EXTENSIONS OF THE COPYRIGHTS, AND ALL CONTRACT RIGHTS THERETO, AS COLLATERAL
FOR THE INDEBTEDNESS; AND, ALL OF GRANTOR'S INTEREST AND RIGHTS IN, AND
COPYRIGHTS OF, WORKS TO BE CREATED, PRODUCED, AND/OR PUBLISHED BY GRANTOR
DURING THE TERM OF THE INDEBTEDNESS, AND AGREES AS TO EACH, AS FOLLOWS: (a)
ASSIGNOR WILL PROMPTLY REGISTER A COPYRIGHT ON EACH WORK WITH THE COPYRIGHT
OFFICE; (b) ASSIGNOR WILL NOTIFY ASSIGNEE IN WRITING WITHIN NO LATER THAN
THE TENTH (10TH) DAY AFTER THEN END OF EACH FISCAL QUARTER; AND, (c)
ASSIGNOR WILL EXECUTE ANY AND ALL DOCUMENTS THAT ASSIGNEE DEEMS NECESSARY TO
FILE ITS SECURITY INTEREST THEREIN WITH THE COPYRIGHT OFFICE, UPON REQUEST
OF ASSIGNEE AT ANY TIME, INCLUDING BUT NOT LIMITED TO REQUESTS AS TO
COPYRIGHTS REPORTED TO ASSIGNEE AT THE END OF EACH FISCAL QUARTER.
In addition, the word "Collateral" includes all the following, whether now owned
or hereafter acquired, whether now existing or hereafter arising, and wherever
located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions for
any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies, payments,
and all other rights, arising out of a sale, lease, or other disposition of
any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale, destruction,
loss, or other disposition of any of the property described in this
Collateral section.
(e) All records and data relating to any of the property described in this
Collateral section, whether in the form of a writing, photograph, microfilm,
microfiche, or electronic media, together with all of Grantor's right,
title, and interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"Events of Default."
GRANTOR. The word "Grantor" means INTERVISUAL BOOKS, INC., its successors and
assigns
GUARANTOR. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection with
the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by the
Note, including all principal and interest, together with all other indebtedness
and costs and expenses for which Grantor is responsible under this Agreement or
under any of the Related Documents. In addition, the word "Indebtedness"
includes all other obligations, debts and liabilities, plus interest thereon, of
Grantor, or any one or more of them, to Lender, as well as all claims by Lender
against Grantor, or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due, direct or indirect,
absolute or contingent, liquidated or unliquidated; whether Grantor may be
liable individually or jointly with others; whether Grantor may be obligated as
guarantor, surety, accommodation party or otherwise; whether recovery upon such
indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means SANTA MONICA BANK, its successors and assigns.
<PAGE> 2
01-15-1998 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO 200302376 (CONTINUED)
================================================================================
NOTE. The word "Note" means the note or credit agreement dated January 15,
1998, in the principal amount of $2,000,000.00 from INTERVISUAL BOOKS, INC.
to Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor, file
a carbon, photographic or other reproduction of any financing statement or
of this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor promptly
will notify Lender before any change in Grantor's name including any change
to the assumed business names of Grantor. THIS IS A CONTINUING SECURITY
AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY PART OF THE
INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF TIME GRANTOR
MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver to
Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such
other locations as are acceptable to Lender. Except in the ordinary course
of its business, including the sales of inventory, Grantor shall not remove
the Collateral from its existing locations without the prior written consent
of Lender. To the extent that the Collateral consists of vehicles, or other
titled property, Grantor shall not take or permit any action which would
require application for certificates of title for the vehicles outside the
State of California, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit or
permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or to
any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount of
the Collateral,
<PAGE> 3
01-15-1998 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO 200302376 (CONTINUED)
================================================================================
except in the ordinary course of its business.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness, or
upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and so
long as Lender's interest in the Collateral is not jeopardized in Lender's
sole opinion. If the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit with Lender cash,
a sufficient corporate surety bond or other security satisfactory to Lender
in an amount adequate to provide for the discharge of the lien plus any
interest, costs, attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof and
asbestos. The representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for hazardous wastes
and substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This obligation
to indemnify shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written notice
to Lender and not including any disclaimer of the insurer's liability for
failure to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person.
In connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any time
fails to obtain or maintain any insurance as required under this Agreement,
Lender may (but shall not be obligated to) obtain such insurance as Lender
deems appropriate, including if it so chooses "single interest insurance,"
which will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The reserve funds
shall be held by Lender as a general deposit and shall constitute a
non-interest-bearing account which Lender may satisfy by payment of the
insurance premiums required to be paid by Grantor as they become due. Lender
does not hold the reserve funds in trust for Grantor, and Lender is not the
agent of Grantor for payment of the insurance premiums required to be paid
by Grantor. The responsibility for the payment of premiums shall remain
Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which insurance
has been obtained and the manner of determining that value; and (f) the
expiration date of the policy. In addition, Grantor shall upon request by
Lender (however not more often than annually) have an independent appraiser
satisfactory to Lender determine, as applicable, the cash value or
replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall
<PAGE> 4
01-15-1998 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO 200302376 (CONTINUED)
================================================================================
be deemed to have exercised reasonable care in the custody and preservation of
the Collateral if Lender takes such action for that purpose as Grantor shall
request or as Lender, in Lender's sole discretion, shall deem appropriate under
the circumstances, but failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable care. Lender shall not
be required to take any steps necessary to preserve any rights in the Collateral
against prior parties, nor to protect, preserve or maintain any security
interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a going
business, the insolvency of Grantor, the appointment of a receiver for any
part of Grantor's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness, including
any prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or any
portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble the
Collateral and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of Grantor
to take possession of and remove the Collateral. If the Collateral contains
other goods not covered by this Agreement at the time of repossession, Grantor
agrees Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer, or
otherwise deal with the Collateral or proceeds thereof in its own name or that
of Grantor. Lender may sell the Collateral at public auction or private sale.
Unless the Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor reasonable
notice of the time after which any private sale or any other intended
disposition of the Collateral is to be made. The requirements of reasonable
notice shall be met if such notice is given at least ten (10) days, or such
lesser time as required by state law, before the time of the sale or
disposition. All expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall have
the following rights and remedies regarding the appointment of a receiver: (a)
Lender may have a receiver appointed as a matter of right, (b) the receiver may
be an employee of Lender and may serve without bond,
<PAGE> 5
01-15-1998 COMMERCIAL SECURITY AGREEMENT PAGE 5
LOAN NO 200302376 (CONTINUED)
================================================================================
and (c) all fees of the receiver and his or her attorney shall become part of
the Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a receiver,
may collect the payments, rents, income, and revenues from the Collateral.
Lender may at any time in its discretion transfer any Collateral into its own
name or that of its nominee and receive the payments, rents, income, and
revenues therefrom and hold the same as security for the Indebtedness or apply
it to payment of the Indebtedness in such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as Lender may determine,
whether or not Indebtedness or Collateral is then due. For these purposes,
Lender may, on behalf of and in the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on the
Indebtedness due to Lender after application of all amounts received from the
exercise of the rights provided in this Agreement. Grantor shall be liable for a
deficiency even if the transaction described in this subsection is a sale of
accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may be
amended from time to time. In addition, Lender shall have and may exercise any
or all other rights and remedies it may have available at law, in equity, or
otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of LOS
ANGELES County, the State of California. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of Lender's
costs and expenses, including attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may
pay someone else to help enforce this Agreement, and Grantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Grantor also
shall pay all court costs and such additional fees as may be directed by the
court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required by
law), and shall be effective when actually delivered or when deposited with
a nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may change its
address for notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if there is
more than one Grantor, notice to any Grantor will constitute notice to all
Grantors. For notice purposes, Grantor will keep Lender informed at all
times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing
or payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment
for the Collateral; (c) to settle or compromise any and all claims arising
under the Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any claim
or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or otherwise,
which in the discretion of Lender may seem to be necessary or advisable.
This power is given as security for the Indebtedness, and the authority
hereby conferred is and shall be irrevocable and shall remain in full force
and effect until renounced by Lender. Lender agrees not to exercise this
Power of Attorney except upon an Event of default under this Agreement.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
<PAGE> 6
01-15-1998 COMMERCIAL SECURITY AGREEMENT PAGE 6
LOAN NO 200302376 (CONTINUED)
================================================================================
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the
Indebtedness, Borrower irrevocably waives, disclaims and relinquishs all
claims against such other person which Borrower has or would otherwise have
by virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 15,
1998.
GRANTOR:
INTERVISUAL BOOKS, INC.
BY: /s/ WALDO H. HUNT
---------------------------------------------
WALDO H. HUNT,
CHAIRMAN OF THE BOARD/CHIEF EXECUTIVE OFFICER
================================================================================
<PAGE> 1
EXHIBIT 10.25
ASSIGNMENT OF COPYRIGHT AS COLLATERAL
FOR LINE OF CREDIT
AGREEMENT made this 26 day of January, 1998, by and between
Intervisual Books, Inc., a California corporation, hereafter referred to as
"Assignor," and Santa Monica Bank, a California corporation, hereafter referred
to as "Assignee."
RECITALS
1. Assignor is a company engaged in the business of creating and
producing a diversified line of pop-up, dimensional novelty items, including
books, game boards and playsets (collectively "Works").
2. Assignor is the owner of certain Works published by Assignor, and is
the owner of the copyrights on such Works, duly registered by the United States
Copyright Office ("Copyright Office"), as identified on the list attached hereto
as Exhibit "A" and incorporated herein by this reference.
3. At the time of the execution of this Assignment, Assignee has agreed
to extend a revolving line of credit in the sum of Two Million Dollars
($2,000,000.00) to Assignee, by Promissory Note of
even date hereof (the "Indebtedness").
4. To induce Assignee to extend the Indebtedness, Assignor has agreed to
assign the Works and copyrights thereof, identified on Exhibit "A" hereto, and
Works to be published during the term of the Indebtedness, as security for the
repayment of the Indebtedness.
NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, Assignor hereby agrees, as follows:
1. Recital Paragraphs 1 through 4, inclusive, are incorporated herein by
reference as though fully set forth in full.
2. Assignor hereby assigns to Assignee, and grants Assignee a security
interest in, all of Assignor's interest in the Works, and in the copyrights, as
identified on the list attached hereto as Exhibit "A", together with all rights
to secure renewals, reissues, and extensions of the copyrights, and all contract
rights thereto, as collateral for the Indebtedness.
3. Assignor hereby assigns to Assignee, and grants Assignee a security
interest in, all of Assignor's interest and rights in, and copyrights of, Works
to be created, produced and/or published by Assignee during the term of the
Indebtedness, and agrees as to each, as follows:
(a) Assignor will promptly register a copyright on each Work with the
Copyright Office;
(b) Assignor will notify Assignee in writing no later than the tenth
(10th) day after the end of each fiscal quarter, of any and all copyrights filed
with the Copyright Office during that fiscal
1
<PAGE> 2
quarter; and,
(c) Assignor will execute any and all documents that Assignee deems
necessary to file its security interest therein with the Copyright Office upon
request of Assignee at any time, including but not limited to requests as to
copyrights reported to Assignee at the end of each fiscal quarter.
4. Assignor hereby covenants, warrants, and represents to Assignee that:
(a) Assignor is the sole owner of and has the exclusive right to use the
Works and the copyrights identified in Exhibit "A" hereto, free and clear of any
liens, encumbrances, licenses, or claims of any nature, and has made no
agreement with respect to the Works or the copyrights that are in conflict with
this Agreement.
(b) Except as specified in Exhibit "A" hereto, no other copyright has
been effected, nor has any other registration relating to copyright protection
been made with respect to the Works identified on Exhibit "A" hereto.
(c) Assignor agrees to authorize and direct its agents, representatives,
employees, successors-in-interest, and assigns to make and execute any
instrument and perform any legal act that Assignee may think necessary to secure
the copyrights, or any renewal or extension of the copyrights.
(d) Each of the covenants contained in this Paragraph 4 shall be deemed
to be a separate covenant, representation, and warranty.
AGREED TO AND EXECUTED BY THE PARTIES at Santa Monica, California, on
January 26, 1998.
INTERVISUAL BOOKS, INC.,
a California corporation
By: /s/ WALDO H. HUNT
--------------------------------------
WALDO H. HUNT
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
SANTA MONICA BANK, a
California banking
corporation
By: /s/ GERALD B. BRUVER
--------------------------------------
GERALD B. BRUVER
SENIOR VICE PRESIDENT
2
<PAGE> 1
EXHIBIT 10.26
PROMISSORY NOTE
Borrower: INTERVISUAL BOOKS, INC. (TIN: 95-2929217)
2716 OCEAN PARK BOULEVARD, SUITE 2020
SANTA MONICA, CA 90405
Lender: SANTA MONICA BANK
MAIN OFFICE
1251-4TH STREET
SANTA MONICA, CA 90401
================================================================================
PRINCIPAL AMOUNT: $2,000,000.00 INITIAL RATE: 9.500% DATE OF NOTE: JANUARY 15,
1998
PROMISE TO PAY. INTERVISUAL BOOKS, INC. ("BORROWER") PROMISES TO PAY TO SANTA
MONICA BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF TWO MILLION & 00/100 DOLLARS ($2,000,000.00) OR
SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING
PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF
EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL
PLUS ALL ACCRUED UNPAID INTEREST ON APRIL 1, 1999. IN ADDITION, BORROWER WILL
PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING MARCH 1, 1998,
AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER
THAT. Interest on this Note is computed on a 365/365 simple interest basis; that
is, by applying the ratio of the annual interest rate over the number of days in
a year (366 during leap years), multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is outstanding.
Borrower will pay Lender at Lender's address shown above or at such other place
as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the BANK OF
AMERICA'S REFERENCE RATE (the "Index"). The Index is not necessarily the lowest
rate charged by Lender on its loans. If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute index after notice to
Borrower. Lender will tell Borrower the current Index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than each day. THE
INDEX CURRENTLY IS 8.500% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE
UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.000 PERCENTAGE
POINT OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 9.500% PER ANNUM. NOTICE:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
MINIMUM INTEREST CHARGE OF $100.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) A material adverse change occurs in Borrower's financial condition, or
Lender believes the prospect of payment or performance of the Indebtedness is
impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Borrower also
will pay any court costs, in addition to all other sums provided by law. THIS
NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF
CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF
CALIFORNIA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized as
<PAGE> 2
01-15-98 PROMISSORY NOTE PAGE 2
LOAN NO. 200302376 (CONTINUED)
================================================================================
provided in this paragraph to request advances under the line of credit until
Lender receives from Borrower at Lender's address shown above written notice of
revocation of their authority: WALDO H. HUNT, CHAIRMAN OF THE BOARD/CHIEF
EXECUTIVE OFFICER OR NATHAN N. SHEINMAN, PRESIDENT. ALL ADVANCES SHALL BE MADE
TO MY/OUR CHECKING ACCOUNT NUMBER: 02-045-257. Borrower agrees to be liable for
all sums either: (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of Borrower's accounts with Lender. The
unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; or (d) Borrower has
applied funds provided pursuant to this Note for purposes other than those
authorized by Lender.
MAKING ADVANCES. Unless otherwise directed, Santa Monica Bank may deposit any
advance under this note to Debtor's deposit account designated above in the
paragraph sub-titled "LINE OF CREDIT".
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by Lender
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
INTERVISUAL BOOKS, INC.
BY: /s/ WALDO H. HUNT
------------------------------------------------
WALDO H. HUNT,
CHAIRMAN OF THE BOARD/CHIEF EXECUTIVE OFFICER
================================================================================
<PAGE> 1
EXHIBIT 10.27
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is entered into
as of the 10th day of February, 1998 by and between INTERVISUAL BOOKS, INC.
("Company") and WALDO HUNT and THE HUNT FAMILY TRUST (Trust Agreement dated May
30, 1980, as amended) (collectively "Guarantors").
R E C I T A L S:
A. As a condition precedent to Santa Monica Bank ("Bank") making
loans to Company (the "Loans"), Bank has required Guarantors guarantee the
Loans. Guarantors have agreed to guarantee the Loans pursuant to certain
documents from Guarantors to Bank (the "Guarantees").
B. Guarantors have requested that Company indemnify them against
any liability to Bank as a result of such Guarantees and Company desires to
grant such indemnification.
A G R E E M E N T
1. Indemnification. Company hereby indemnifies Guarantors and
agrees to hold them harmless from any loss, cost or damage of any nature
whatsoever (including attorneys' fees) with respect to any claims, action,
litigation, administrative or other proceedings (collectively "Claims") arising
out of or related to the Guarantees. It is the intention of Company to indemnify
Guarantors, pursuant to the preceding sentence, to the fullest extent permitted
by law, and this indemnification will include all reasonable costs and expenses
incurred by Guarantors in good faith with respect to any such Claims.
2. Survival. This Agreement shall survive, and shall not be
affected, by any modifications or amendments to the Guarantees or any documents
evidencing the Loans.
3. Counterparts. This Agreement may be executed in any number of
counterparts and all counterparts taken together shall represent one and the
same Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this
INDEMNIFICATION AGREEMENT as of the day and year first above written.
"Company"
INTERVISUAL BOOKS, INC.
By: /s/ Nathan Norman Sheinman
-----------------------------------
Nathan Norman Sheinman,
President and Chief Operating Officer
"Guarantors"
/s/ Waldo H. Hunt
--------------------------------------
Waldo H. Hunt, an individual
The Hunt Family Trust
By: /s/ Walso H. Hunt
------------------------------------
Waldo H. Hunt, Trustee
-2-
<PAGE> 1
EXHIBIT 10.28
CONFIDENTIAL SEVERANCE AGREEMENT AND GENERAL RELEASE
INTERVISUAL BOOKS, INC., a California corporation ("Company")
and NEIL STUART ("Employee") hereby agree under this Confidential Severance
Agreement and General Release (this "Agreement") to amicably terminate their
employment relationship on the following basis:
1. The Company and Employee hereby mutually agree that
Employee's employment relationship with the Company shall terminate effective
January 30, 1998 according to this Agreement. Employee will be paid his normal
salary through that date. Employee has returned to the Company all files,
records, credit cards, keys, equipment and any other Company property or
documents maintained by him for the Company's use or benefit, and will submit
all business expense reimbursement requests with requisite verification, which
will be paid in accordance with Company policy within 14 days hereafter.
2. Employee's Employment Agreement between Employee and the
Company, dated January 13, 1997 (the "Employment Agreement"), and all rights
associated therewith is hereby terminated and the Company shall have no further
obligations of any nature whatsoever under the Employment Agreement. Employee
and the Company agree that Employee shall receive a Consulting Agreement in lieu
of the rights and obligations set forth in Paragraph 7(c) of the Employment
Agreement, which Consulting Agreement shall be executed concurrently with the
execution of this Agreement (the "Consulting Agreement"). The parties hereto
agree that there is good and adequate consideration for their respective
representations, warranties, covenants and agreements set forth in this
Agreement.
3. Employee's Nonstatutory Stock Option Agreement, dated
January 13, 1997, relating to a grant of an option to purchase 50,000 shares of
Company common stock, and all rights associated therewith is hereby terminated.
The Company acknowledges that Employee presently has a Nonstatutory Stock Option
Agreement, dated January 13, 1997, relating to the grant of an option to
purchase 75,000 shares of Company common stock and such option shall survive the
effectiveness of this Agreement and Employee shall have ninety (90) days from
January 30, 1998 in which to exercise such option in accordance with its terms
(the "Surviving Option").
4. Employee agrees, represents and warrants that he is
resigning voluntarily and is signing this Agreement voluntarily and with a full
understanding of and agreement with its terms.
5. In reliance on the agreements, representations and releases
in this Agreement, the Company will provide Employee with the following:
<PAGE> 2
a. a lump sum payment of $20,000, less legally required
deductions and withholdings, payable to Employee three
(3) days after the effective date of Employee's
resignation; and
b. the Consulting Agreement between Employee and the
Company.
In addition, in further reliance on the agreements,
representations and releases in this Agreement and provided that Employee moves
Employee's belongings out of Southern California within thirty (30) days from
the date of this Agreement, the Company will pay for Employee's reasonable and
customary moving expenses actually incurred in connection with one move from
Southern California. Employee shall submit to the Company two bids from
nationally recognized moving companies and the Company shall select the moving
company to be used. The Company shall pay the moving company directly after its
receipt and approval of original invoices from the moving company.
Notwithstanding the foregoing, the maximum liability to be incurred by the
Company in connection with such move shall not exceed $20,000.
Employee agrees that he is not entitled to receive,
and will not claim, any benefit, stock option, payment, bonus or compensation
other than what is expressly set forth in the Surviving Option and this
paragraph 5, and hereby expressly waives any claim to any benefit, stock option,
payment, bonus or compensation which is not expressly referenced in the
Surviving Option or this paragraph 5.
6. In exchange for the additional benefits pursuant to this
Agreement, Employee promises:
a. not to use or disclose any Company confidential
information, trade secrets, or financial, personnel,
or client information;
b. not to solicit or participate in or assist in any way
in the solicitation of any Company employee to cease
employment with the Company; and
c. not to pursue any legal or administrative claim of any
kind against the Company or the parties released under
paragraph 7 hereof.
7. Employee does hereby, for himself and his heirs, successors
and assigns, release, acquit and forever discharge the Company, and its
officers, directors, shareholders, managers, employees, representatives, related
entities, successors and assigns, of and from any and all claims, actions,
charges, complaints, causes of action, rights, demands, debts, damages, or
accountings of whatever nature, known or unknown, which he or his heirs may have
against such entities and persons based on any actions or events which occurred
prior to the effective date of this Agreement, including but not limited to
those related to, or arising from, Employee's employment with the Company or his
termination thereof.
-2-
<PAGE> 3
The Company does hereby, for itself and its successors
and assigns, release, acquit and forever discharge Employee of and from any and
all claims, actions, charges, complaints, causes of action, rights, demands,
debts, damages or accountings of whatever nature, known or unknown, which the
Company may have against Employee based on any actions or events which occurred
prior to the effective date of this Agreement, including but not limited to
those related to, or arising from, Employee's employment with the Company.
It is further understood and agreed that all rights
under Section 1542 of the Civil Code of the State of California are expressly
waived by Employee and the Company. Such Section reads as follows:
"A General Release does not extend to claims which a 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."
Notwithstanding Section 1542, and for the purpose of implementing a full and
complete release, Employee and the Company each expressly acknowledges that this
Agreement is intended to include and does include in its effect, without
limitation, all claims which Employee and the Company do not know about or
suspect to exist at the time of the execution of this Agreement, and that this
Agreement expressly contemplates the extinguishment of all such claims. It is
expressly agreed, however, that this Agreement shall not release any party
hereto from any violation of this Agreement.
8. Employee and the Company each agree that they shall keep
the amount and terms of this Agreement confidential and will not disclose
information concerning this Agreement to any person; provided, however, that
Employee may disclose this Agreement and its terms to members of his immediate
family and his tax, legal and accounting advisors and the Company may disclose
this Agreement and its terms to its directors, officers, and its tax, legal and
accounting advisors, so long as none of such additional parties disclose this
Agreement and the terms hereof to others except as required by law.
Notwithstanding the foregoing, Company may disclose this Agreement and the
Consulting Agreement and the terms hereof and thereof in its SEC filings and as
otherwise legally required or otherwise advisable and file such documents as
exhibits as may be required or advisable.
9. Employee represents and agrees that Employee will not
disparage the Company or any of its officers, directors, employees, business,
products and services. The Company's directors and officers shall not disparage
Employee.
10. In exchange for the promises contained herein and in
accordance with the Older Workers Benefit Protection Act, Employee hereby
knowingly and voluntarily waives and releases all rights and claims, known and
unknown, arising under the Age Discrimination In Employment Act of 1967, as
amended, which he might otherwise have had against the Company or its related
entities, officers, directors, managers or employees regarding any aspect of his
employment, including the termination of his employment relationship with the
Company.
-3-
<PAGE> 4
11. Employee understands that he is waiving legal rights by
signing this Agreement, and has consulted other persons to the full extent he
wanted to do so before signing this Agreement.
12. This Agreement contains all of the terms, promises,
representations, and understandings made between the parties supersedes any
previous representations, understandings, or agreements.
13. Any dispute regarding the validity or terms of this
Agreement or any aspects of Employee's employment or its termination and any
other disputes between these parties shall be resolved by a judicial arbitrator
selected in accordance with the procedures of J.A.M.S./ENDISPUTE in Orange
County, California as the exclusive remedy for any such dispute. Should Employee
pursue any other legal or administrative action against the Company, the Company
shall be entitled to return of all payments paid by it under this Agreement and
the Consulting Agreement and to recover all costs, expenses, and attorneys' fees
it incurs as a result of such action.
INTERVISUAL BOOKS, INC. NEIL STUART
By: /s/ Nathan N. Sheinman /s/ Neil Stuart
---------------------------------- ----------------------------------------
Name: Nathan N. Sheinman Date: January 28, 1998
--------------------------------- -------------------
Title: President, COO
--------------------------------
Date: Janaury 28, 1998
------------------------
-4-
<PAGE> 1
EXHIBIT 10.29
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into as of
this 28th day of January, 1998, by and between INTERVISUAL BOOKS, INC., a
California corporation ("Company") and NEIL STUART, an individual
("Consultant").
R E C I T A L S:
A. Prior to the date hereof, the Company and Consultant entered into that
certain Confidential Severance Agreement and General Release (the "Severance
Agreement") whereby Consultant and the Company amicably agreed to cease
Consultant's employment with the Company.
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 a
period of twelve (12) months commencing February 1, 1998, unless sooner
terminated as provided herein.
3. DUTIES OF CONSULTANT. Pursuant to this Agreement, Consultant shall agree
to be available upon request by the Company to provide consulting services to
the Company as reasonably requested. Such consulting services shall be scheduled
at reasonable times as may be agreed upon by the Company and Consultant.
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. Consultant represents that Consultant is an independent contractor
and not an agent, employee or servant of the Company. Consultant shall not be
entitled to any benefits from the Company. Nothing in this Agreement shall
prohibit Consultant from establishing relationships with any other company or
business entity.
4. FEES AND EXPENSES.
a. CONSULTING FEE. In consideration for the services to be provided
by Consultant hereunder, 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 during the term of Consultant's engagement
hereunder.
b. EXPENSES. The Company shall reimburse Consultant for reasonable
travel, lodging, out-of-pocket, legal and accounting expenses which have been
approved
<PAGE> 2
in advance by the Company and after receipt by the Company of appropriate
documentation of such expenses.
5. NONDISCLOSURE AND OWNERSHIP OF PROPRIETARY INFORMATION.
a. PROPRIETARY INFORMATION. Consultant agrees to hold confidential
and not to use any of the Company's confidential and/or proprietary information
or trade secrets. In furtherance thereof, the parties hereto agree that the
items and projects listed on Schedule A hereto (collectively, the "Projects")
were developed utilizing Company confidential information, proprietary
information or trade secrets and shall be held in the strictest confidence by
Consultant and shall not be used by Consultant.
b. OWNERSHIP. Consultant acknowledges and agrees that all right,
title and interest in and to the Projects shall be and shall remain the
exclusive property of the Company and Consultant has no right in or interest to
any of the Projects. Without limiting the foregoing, Consultant assigns to the
Company any and all right, title or interest which Consultant may have in all
Projects made, developed or conceived of in whole or in part by Consultant
during Consultant's employment by the Company and engagement hereunder.
c. AGREEMENT NOT TO SOLICIT EMPLOYEES. To protect the proprietary
information, confidential 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.
6. CROSS-DEFAULT. Any breach by Consultant of any provision contained in the
Severance Agreement shall be deemed a material breach of this Agreement.
7. TERMINATION OF ENGAGEMENT. This Agreement and Consultant's engagement by
the Company shall terminate and the obligations and covenants of the parties
hereunder shall be of no further force and effect, except that the provisions of
Sections 5, 9 and 10 shall survive the termination of this Agreement, ten (10)
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; provided, however, that if such material breach is capable of
being cured, this Agreement shall not terminate if the Breaching Party cures
such breach within ten (10) days of receiving such notice.
8. 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 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.
9. 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
-2-
<PAGE> 3
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.
10. 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 any dispute regarding any aspect of this Agreement or any act
which allegedly has or would violate any provision of this Agreement will be
submitted to arbitration in Orange County, California, before a retired judge
chosen through J.A.M.S./ENDISPUTE, as exclusive remedy for such claim or
dispute. Should Consultant pursue any other legal or administrative action, the
Company shall be entitled to the return of all payments paid by the Company
under this Agreement and to recover all costs, expenses and attorneys' fees it
incurs as a result of such action.
11. 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. No
provision of this Agreement shall be deemed waived, amended or modified by any
party, unless in writing and signed by the parties hereto.
12. MISCELLANEOUS. Any provision of this Agreement which is rendered
unenforceable 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 waive 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.
-3-
<PAGE> 4
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: /s/ Nathan N. Sheinman
--------------------------------------
Name: Nathan N. Sheinman
------------------------------------
Title: President, COO
-----------------------------------
Address: 2716 Ocean Park Blvd.
Suite 2020
Santa Monica, CA 90405
Fax: (310) 399-0419
"Consultant"
NEIL STUART, an individual
By: /s/ Neil Stuart
--------------------------------------
Name: NEIL STUART
Address: 66 Scout Hill Road
---------------------------------
Mahopac, New York 10541
---------------------------------
Fax: (914) 628-1662
-4-
<PAGE> 1
EXHIBIT 10.30
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is being signed
as of March 20, 1998 by and among INTERVISUAL BOOKS, INC., a California
corporation ("Intervisual"), THE HUNT CREATIVE GROUP, a California corporation
(the "Company") and THE HUNT FAMILY TRUST, dated May 30, 1980, as sole
shareholder of the Company (the "Shareholder"). Certain other capitalized terms
used herein are defined in Article X and throughout this Agreement.
RECITALS
A. The Board of Directors of Intervisual and the Board of Directors
and the Shareholder of the Company have determined that it is in their
respective best interests for Intervisual to acquire the Company upon the terms
and subject to the conditions set forth in this Agreement. To effectuate the
transaction, the parties have agreed, subject to the terms and conditions set
forth in this Agreement, to merge the Company with and into Intervisual so that
Intervisual continues as the surviving corporation.
B. Pursuant to a letter agreement effective as of May 12, 1994
between Waldo H. Hunt ("Hunt") and Intervisual (the "Letter Agreement"), the
Company was established to pursue the creation of new and distinct products not
normally pursued by Intervisual in its day-to-day activities. Pursuant to the
Letter Agreement, Intervisual agreed to pay commissions or royalties to the
Company on projects accepted by Intervisual and projects which have been
developed by the Company and accepted by Intervisual account for a significant
portion of sales by Intervisual.
C. As an inducement to Intervisual entering into this Agreement, Mr.
Hunt and the Company agree that the Letter Agreement is to be canceled and
terminated and Intervisual is to have no obligation to pay any commissions or
royalties to the Company under the Letter Agreement for any periods after
October 1, 1997.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement
and in accordance with the General Corporation Law of the State of California
(the "Corporations Code"), at the Effective Time (as defined below) the Company
shall be merged with and into Intervisual (the "Merger"). Promptly after the
execution of this Agreement, the parties agree to prepare an
- 1 -
<PAGE> 2
"Merger"). Promptly after the execution of this Agreement, the parties agree to
prepare an Agreement of Merger, which agreement shall be consistent with the
terms contained herein and shall be annexed hereto as Exhibit A (the "Agreement
of Merger"). The terms and conditions of the Agreement of Merger are
incorporated herein by reference as if fully set forth herein. As a result of
the Merger, the separate corporate existence of the Company shall cease and
Intervisual shall continue as the surviving corporation (the "Surviving
Corporation").
1.2 THE CLOSING. Subject to the terms and conditions of this
Agreement, the consummation of the Merger (the "Closing") shall take place as
soon as practicable after this Agreement has been approved by the shareholders
of Intervisual or such other time as the parties may otherwise agree. To
effectuate the Merger, the parties agree to execute and file the Agreement of
Merger and such certificates of officers as necessary under California law.
1.3 CONVERSION OF COMPANY SHARES IN THE MERGER. At the Effective
Time, by virtue of the Merger and without any action on the part of Shareholder,
each issued and outstanding share of Common Stock of the Company ("Company
Common Stock"), shall be converted into the right to receive, and become
exchangeable for, 2,500 shares of validly issued, fully paid and nonassessable
shares of common stock, no par value per share of Intervisual (the "Intervisual
Common Stock") for an aggregate number of 250,000 shares plus the right to
receive the Contingent Shares in accordance with Section 1.4 below.
1.4 CONTINGENT SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of any Shareholder, each issued and
outstanding share of Company Common Stock shall be converted into the right to
receive and become exchangeable for, 780 Contingent Shares of Intervisual Common
Stock for an aggregate of 78,000 additional shares of Intervisual Common Stock
(the "Contingent Shares") pursuant to this Section 1.4.
(a) Right to Receive Contingent Shares. The right to receive
the Contingent Shares shall be based upon the amount of net sales by Intervisual
of the books and projects contained on Exhibit B hereto (the "Applicable
Projects"). The parties agree that the list of Applicable Projects shall be
amended as mutually agreed by the parties to include those additional titles or
books which directly relate to an applicable series indicated on Exhibit B
hereto. For purposes of this Agreement, the term "net sales" shall mean net
invoices to customers by Intervisual for the Applicable Projects. Calculations
of the net sales shall be cumulative based upon the total of all net sales from
the Applicable Projects.
(b) Issuance of Contingent Shares. Intervisual shall issue to
Shareholder the Contingent Shares as and when net sales of the Applicable
Projects reach the following thresholds:
(i) 26,000 Contingent Shares when the Company's net
sales from the Applicable Projects exceed $5,000,000;
(ii) 26,000 Contingent Shares when the Company's net
sales from the Applicable Projects exceed $6,000,000; and
(iii) 26,000 Contingent Shares when the Company's net
sales from the Applicable Projects exceed $7,000,000.
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Within 60 days after the Effective Date of the Merger,
and then again within 60 days after the end of each fiscal year of the Company,
the Company shall calculate the net sales from the Applicable Projects and
deliver to the Shareholder a schedule indicating such sales. Based upon the
amount of net sales from the Applicable Projects indicated in such schedules,
the Company shall then issue to Shareholder the appropriate number of Contingent
Shares, if any, as the appropriate thresholds are reached.
1.5 FILING OF AGREEMENT OF MERGER. At the time of the Closing, the
parties shall cause the Merger to be consummated by filing the duly executed
Agreement of Merger with the Secretary of State of the State of California in
accordance with the relevant provisions of the Corporations Code (the date and
time of such filing is referred to herein as the "Effective Date" or "Effective
Time").
1.6 ISSUANCE OF SHARES; DELIVERY OF CERTIFICATES. At the Effective
Time, the Shareholder shall deliver the certificate representing all issued and
outstanding shares of Company Common Stock to Intervisual for cancellation and
conversion. As soon as reasonably practicable after the Effective Time,
Intervisual shall issue the certificates evidencing the Intervisual Common Stock
issuable pursuant to Section 1.3. The shares of Intervisual Common Stock
issuable by Intervisual in the Merger and the Contingent Shares referenced in
Section 1.4 are sometimes referred to herein as the "Intervisual Shares."
1.7 ACCOUNTING AND TAX TREATMENT. The parties hereto acknowledge and
agree that the transactions contemplated hereby shall be treated as a tax-free
reorganization under Section 368 of the Code for tax purposes.
1.8 ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS
(a) Articles of Incorporation. The Articles of Incorporation
of Intervisual in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with the provisions thereof and as provided by law.
(b) Bylaws. The Bylaws of Intervisual in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until amended in accordance with the provisions thereof and as provided by law.
(c) Directors and Officers. The directors and officers of
Intervisual shall be the directors and officers of the Surviving Corporation
until their resignations or until their respective successors are selected and
qualified.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF INTERVISUAL
Intervisual makes the following representations and warranties to the
Shareholder:
2.1 CORPORATE STATUS AND COMPANY RECORDS. Intervisual is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California.
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2.2 CORPORATE POWER AND AUTHORITY. Intervisual has the corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
Intervisual has taken all action necessary to authorize its execution and
delivery of this Agreement, the performance of its respective obligations
hereunder and the consummation of the transactions contemplated hereby, except
that shareholder approval of the Merger is required. This Agreement constitutes
a legal, valid and binding obligation of Intervisual, enforceable against
Intervisual in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
2.3 INTERVISUAL COMMON STOCK. Upon consummation of the Merger and the
issuance and delivery of certificates representing the Intervisual Shares to the
Shareholder in accordance with the terms hereof, the Intervisual Shares will be
validly issued, fully paid and non-assessable.
2.4 NO VIOLATION. The execution and delivery of this Agreement by
Intervisual and the performance of its obligations hereunder and the
consummation of the transactions contemplated by this Agreement will not: (a)
contravene any provision of the Articles of Incorporation or Bylaws of
Intervisual; (b) violate any law, injunction, judgment or order of any
Governmental Authority applicable to Intervisual; (c) result in any breach of,
or constitute a default under any material Contract applicable to Intervisual;
(d) result in the creation of any Lien upon the assets of Intervisual; or (e)
require the consent or authorization of any Governmental Authority.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER AND THE COMPANY
Each of the Shareholder and the Company jointly and severally makes
the following representations and warranties to Intervisual:
3.1 CORPORATE STATUS AND COMPANY RECORDS. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of California and has the requisite power and authority to own its
properties and to carry on its business as now being conducted. The Company does
not own any securities of or other interests in any other corporation, joint
venture or other business entity. The copies of the articles of incorporation,
bylaws, minute books, and stock ledgers of the Company provided to Intervisual
are true, accurate and complete.
3.2 POWER AND AUTHORITY. The Company has the corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The Company
has taken all action necessary to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. This Agreement is the legal, valid and
binding obligation of each of the Company and the Shareholder, enforceable
against each of them in accordance with its terms, except as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights
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<PAGE> 5
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.
3.3 CAPITALIZATION. The Company has authorized 100,000 shares of
common stock, no par value per share, of which 100 shares are issued and
outstanding as of the date hereof. All issued and outstanding shares of the
Company are validly issued, fully paid, and nonassessable and have been issued
in compliance with applicable securities laws. Shareholder owns all of the
issued and outstanding shares of the Company, free and clear of all liens,
restrictions and claims. There are no outstanding rights or other agreements
obligating the Company to issue any additional capital stock.
3.4 NO VIOLATION. The execution and delivery of this Agreement by the
Company and the Shareholder, the performance by them of their respective
obligations hereunder and the consummation by them of the transactions
contemplated by this Agreement will not: (a) contravene any provision of the
articles of incorporation or bylaws of the Company; (b) violate or conflict with
any law, injunction, judgment or order of any Governmental Authority which is
applicable to the Company or the Shareholder; (c) result in any breach of, or
constitute a default under any Contract applicable to the Company or the
Shareholder; (d) result in the creation of any Lien upon the assets of the
Company; or (e) require the consent or authorization of any Governmental
Authority.
3.5 FINANCIAL STATEMENTS. True and correct copies of the unaudited
balance sheet of the Company (the "Balance Sheet") as of September 31, 1997 (the
"Balance Sheet Date"), and the related unaudited statements of income and
retained earnings (collectively the "Financial Statements") have been previously
delivered to Intervisual. The Financial Statements fairly present the financial
position of the Company at the Balance Sheet Date and the results of operations
and cash flows for the periods covered thereby, and have been prepared in
accordance with GAAP consistently applied throughout the periods indicated,
except as specifically disclosed therein and except for normal year-end
adjustments and the absence of footnotes. The books and records of the Company
are sufficient to permit an audit in accordance with GAAP.
3.6 LIABILITIES OF THE COMPANY. The Company does not have any
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
except: (a) to the extent reflected or taken into account in the Balance Sheet
and not heretofore paid or discharged; (b) liabilities incurred in the ordinary
course of business consistent with past practice since the Balance Sheet Date
and (c) liabilities incurred in the ordinary course of business prior to the
Balance Sheet Date which, in accordance with GAAP consistently applied, were not
recorded thereon. The Company does not owe any amounts to the Shareholder and
Shareholder does not owe any amounts to the Company. All of the liabilities of
the Company do not, and as of the Closing will not, exceed $5,000. Since the
Balance Sheet Date there has not been any change in the financial condition or
operations of the Company, except changes in the ordinary course of business,
which have not been materially adverse.
3.7 LITIGATION. There is no action, suit, or other legal or
administrative proceeding or governmental investigation pending, or to the
Company's or the Shareholder's knowledge, threatened, anticipated or
contemplated against or affecting the Company, or its assets, or which questions
the validity or enforceability of this Agreement or the transactions
contemplated hereby. No outstanding orders, decrees or stipulations have been
issued by any Governmental Authority in any proceeding to which the Company is
or was a party.
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<PAGE> 6
3.8 GOOD TITLE TO AND CONDITION OF ASSETS. The Company has good and
marketable title to all of its Assets (as hereinafter defined), free and clear
of any Liens or restrictions on use. For purposes of this Agreement, the term
"Assets" means all of the properties and assets of the Company, whether tangible
or intangible, wherever located.
3.9 COMPLIANCE WITH LAWS. The Company has not received notice of any
violation of any applicable material federal, state, or local statute, law, or
regulation affecting the properties or the operation of its business (including,
but not limited to, environmental laws); and to the best knowledge of the
Company and the Shareholder, there are no such violations.
3.10 TAX MATTERS. The Company has provided Intervisual true and
correct copies of its federal income tax and California franchise tax returns
since incorporation. Within the times and in the manner prescribed by law, the
Company has filed all federal, state, and local tax returns required by law and
have paid all taxes, assessments, and penalties due and payable. The provisions
for taxes reflected in the Financial Statements are adequate for federal, state,
county, and local taxes for the period ending on the Balance Sheet Date and for
all prior periods, whether disputed or undisputed. There are no present disputes
about taxes payable by the Company. Prior to the Merger, the Company will have
paid all tax liabilities which may be owed to the California Franchise Tax Board
and shall deliver to the Company a "certificate of satisfaction" from the
California Franchise Tax Board stating that all tax liabilities of the Company
have been paid or secured.
3.11 LICENSES AND PERMITS. The Company possesses all material
licenses and required governmental or official approvals, permits or
authorizations (collectively, the "Permits") for its business and operations as
currently conducted. All such Permits are in full force and effect, and the
Company is in compliance with the respective requirements thereof.
3.12 INTELLECTUAL PROPERTY. All trademarks, service marks, trade
names, copyrights, know-how, patents, trade secrets, licenses (including
licenses for the use of computer software programs), and other intellectual
property used by the Company in the conduct of its business (the "Intellectual
Property") belong exclusively to the Company. Neither Hunt nor Shareholder has
any rights to or interest in the Company's Intellectual Property. The Company
has full legal right, title and interest in and to, or the right to use, the
Intellectual Property. The use and exploitation of the Company's Intellectual
Property does not infringe or misappropriate any rights held or asserted by any
Person, and to the Company's and the Shareholder's knowledge, no Person is
infringing on the Intellectual Property. No payments are required for the
continued use by the Company of the Intellectual Property. To the knowledge of
the Company and the Shareholder, none of the Intellectual Property has been
declared invalid or unenforceable, or is the subject of any pending or
threatened action for opposition, cancellation, infringement, invalidity, or
misappropriation or like claim.
3.13 CONTRACTS. True and correct copies of each material Contract to
which the Company is a party and which is material to its business, or prospects
(the "Designated Contracts"), have been provided to Intervisual. To the
knowledge of the Company and the Shareholder, the Company has not violated any
of the material terms or conditions of any Designated Contract, and all of the
material covenants to be performed by any other party thereto have been
performed in all material respects and there are no claims for breach,
indemnification or termination under any Designated Contract. No event has
occurred which constitutes, or after notice or the passage of time would
constitute, a material default by the Company under any Designated Contract.
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<PAGE> 7
3.14 ACTIVE BUSINESS; EMPLOYEES. Except for the receipt of commission
or royalty payments from Intervisual, the Company is not actively engaged in a
trade or business. The Company does not currently have any employees and will
not hire any employees prior to the Effective Time. All employment taxes and
other obligations relating to employees have been satisfied.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company shall not, between the date of this Agreement and the Effective Time do
or agree to do any of the following:
(a) amend its articles of incorporation or bylaws;
(b) (i) issue, sell, dispose of, or encumber of any shares of
its capital stock, or any options, convertible securities or other rights to
acquire any shares of such capital stock, or (ii) sell, dispose of, or encumber
its assets, tangible or intangible, except in the ordinary course of business
consistent with past practice;
(c) declare, make or pay any dividend or other distribution
with respect to any of its capital stock or pay any bonuses to the Shareholder;
(d) reclassify, combine, split, redeem, purchase or otherwise
acquire any of its capital stock;
(e) incur any indebtedness or assume, guarantee or endorse or
become responsible for, the obligations of any Person, or make any loans or
advances;
(f) pay, discharge or satisfy any existing claims, liabilities
or obligations, other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of due and payable
liabilities reflected or reserved against in its financial statements, as
appropriate, or liabilities incurred after the date hereof in the ordinary
course of business and consistent with past practice;
(g) actively engage in a trade or business; or
(h) agree to take or authorize any of the foregoing actions or
any action which would make any representation or warranty in Article III untrue
or incorrect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary to carry
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<PAGE> 8
out the terms of this Agreement and the transactions contemplated hereby. Each
of the parties agrees to cooperate with the other in the preparation and filing
of all forms, reports and information required pursuant to any law or regulation
or The Nasdaq Stock Market in connection with the transactions contemplated by
this Agreement.
5.2 CANCELLATION OF LETTER AGREEMENT. Subject to the consummation of
the Merger Hunt agrees that the Letter Agreement is terminated without any other
action on the part of the parties to such agreement. Subject to the consummation
of the Merger, Hunt further agrees that Intervisual shall have no obligation for
any commissions or royalties payable by Intervisual under the Letter Agreement
attributable to periods after October 1, 1997.
5.3 ASSIGNMENT OF INTELLECTUAL PROPERTY. Hunt agrees and acknowledges
that Hunt has no interest in the Intellectual Property of the Company and agrees
to take such actions and execute such additional documents as reasonably
requested by Intervisual to effectuate the transfer, assignment and delivery to
Intervisual of all Intellectual Property as of Effective Date.
5.4 VOTING OF SHARES. The Shareholder agrees to vote all of its
shares of Intervisual Common Stock in favor of approving this Agreement, the
Merger and the transactions contemplated hereby when such matter is put to a
vote of Intervisual's shareholders. From the date of this Agreement until such
approval by Intervisual's shareholders, the Shareholder agrees not to sell or
otherwise dispose of any of its shares of Intervisual Common Stock so that the
Shareholder would hold less than a majority of Intervisual's issued and
outstanding shares of Common Stock.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF INTERVISUAL
The obligations of Intervisual to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions, any or all of which may be waived in whole or in part by
Intervisual:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Shareholder and the
Company contained in this Agreement shall be true and correct at and as of the
Effective Time. The Company and the Shareholder shall have performed and
complied with all of their respective obligations required by this Agreement to
be performed or complied with at or prior to the Effective Time.
6.2 NO MATERIAL ADVERSE CHANGE. Between the date hereof and the
Effective Time there shall have been no Material Adverse Change to the Company,
and there shall have been delivered to Intervisual a certificate to that effect,
dated the Effective Date and signed by or on behalf of the Company and the
Shareholder.
6.3 COMPANY LIABILITIES. All the liabilities of the Company in the
aggregate shall not be greater than $5,000.
6.4 NO ADVERSE LITIGATION. There shall not be pending or threatened
any action or proceeding before any court or governmental body seeking to
restrain, prohibit, invalidate or collect damages arising out of the Merger or
any other transaction contemplated hereby.
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<PAGE> 9
6.5 FAIRNESS OPINION. Intervisual shall have received a fairness
opinion from a firm engaged in the business of advising others as to the value
of properties, businesses or securities indicating that the consideration to be
received by Intervisual in the Merger is fair from a financial point of view to
the Intervisual shareholders, exclusive of the Shareholder and Hunt.
6.6 SHAREHOLDER APPROVAL. The Agreement and the transactions
contemplated hereby shall have been approved by the requisite vote of the
shareholders of Intervisual under applicable law.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND THE SHAREHOLDER
The obligations of the Company and the Shareholder to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following conditions, any or all of which may be waived in whole or in part
by the Company and the Shareholder:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Intervisual contained in this
Agreement shall be true and correct at and as of the Effective Time. Intervisual
shall have performed and complied with all of its obligations required by this
Agreement to be performed or complied with at or prior to the Effective Time.
7.2 NO ADVERSE LITIGATION. There shall not be pending or threatened
any action or proceeding before any court or governmental body seeking to
restrain, prohibit, invalidate or collect damages arising out of the Merger or
any other transaction contemplated hereby.
7.3 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
there shall not have occurred with respect to Intervisual, any Material Adverse
Change.
ARTICLE VIII
INDEMNIFICATION
8.1 AGREEMENT BY THE SHAREHOLDER TO INDEMNIFY. The Shareholder agrees
to indemnify and hold Intervisual harmless from and against all expenses,
losses, costs, deficiencies, liabilities and damages (including, without
limitation, reasonable attorneys' fees) incurred or suffered by Intervisual
arising out of or resulting from: (a) any inaccuracy of a representation or
warranty made by the Shareholder or the Company in this Agreement; (b) any
breach of the covenants or agreements made by the Shareholder or the Company in
this Agreement; or (c) any inaccuracy in any certificate delivered by the
Shareholder or the Company pursuant to this Agreement.
8.2 AGREEMENT BY THE INTERVISUAL TO INDEMNIFY. Intervisual agrees to
indemnify and hold Shareholder harmless from and against all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation,
reasonable attorneys' fees) incurred or suffered by
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<PAGE> 10
Shareholder arising out of or resulting from: (a) any inaccuracy of a
representation or warranty made by Intervisual in this Agreement; (b) any breach
of the covenants or agreements made by the Intervisual in this Agreement; or (c)
any inaccuracy in any certificate delivered by Intervisual pursuant to this
Agreement.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Company, Intervisual and the
Shareholder in this Agreement or pursuant hereto shall survive for a period of
two years after the Effective Time. Notwithstanding the previous sentence, the
representations and warranties contained in Section 3.10 shall survive the
applicable statute of limitations.
8.4 LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything
contained in this Article VIII to the contrary, neither Intervisual nor
Shareholder shall obligated to indemnify the other until the aggregate of all
amounts to be paid as a result of such indemnification equals or exceeds
$10,000, in which event the full amount of such obligation (relating back to the
first dollar) and all additional obligations shall be due and owing.
ARTICLE IX
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other
disposition after the Effective Time of the Intervisual Shares:
9.1 DISPOSITION OF SHARES. The Shareholder represents and warrants
that the Intervisual Shares being acquired by the Shareholder hereunder are
being acquired and will be acquired for the Shareholder's own account and will
not be sold or otherwise disposed of, except pursuant to an exemption from the
registration requirements under the Securities Act. Shareholder is acquiring the
Intervisual Shares for investment purposes only and not for resale or
distribution. Hunt, trustee of the Shareholder, is the current Chairman of the
Board and Chief Executive Officer of Intervisual and the Shareholder has had the
opportunity to obtain such information pertaining to Intervisual as the
Shareholder deems necessary or advisable. The Shareholder has such knowledge and
experience in business or financial matters that the Shareholder is capable of
evaluating the merits and risks of an investment in the Intervisual Shares.
Shareholder acknowledges that the Intervisual Shares are "restricted" securities
and have not been registered for resale.
9.2 LEGEND. The certificates representing the Intervisual Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO,
OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
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ARTICLE X
DEFINITIONS
10.1 DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"Contract" means any agreement, contract, lease, note, mortgage,
loan agreement, covenant, employment agreement, license, instrument,
purchase and sales order, commitment, undertaking, obligation, whether
written or oral, express or implied.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in effect
in the United States of America from time to time.
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited to, any
conditional sale or other title retention agreement, any lease in the
nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code or comparable law or any
jurisdiction in connection with such mortgage, pledge, security interest,
encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties, assets,
liabilities, rights, obligations, operations, business or prospects which
change (or effect) individually or in the aggregate, is materially adverse
to such condition, properties, assets, liabilities, rights, obligations,
operations, business or prospects.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, estate, trust, unincorporated association,
joint venture, Governmental Authority or other entity, of whatever nature.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
10.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise
requires.
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<PAGE> 12
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) Unless otherwise expressly indicated herein, all matters of
an accounting nature in connection with this Agreement and the transactions
contemplated hereby shall be determined in accordance with GAAP applied on
a basis consistent with prior periods, where applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
ARTICLE XI
TERMINATION
11.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by mutual written consent of all of the parties hereto at
any time prior to the Closing; or
(b) by Intervisual in the event of a material breach by the
Company or the Shareholder of any provision of this Agreement; or
(c) by the Company in the event of a material breach by
Intervisual of any provision of this Agreement; or
(d) by either Intervisual or the Company if the Closing shall
not have occurred by July 30, 1998.
11.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 11.1, this Agreement shall forthwith become void
and of no further force and effect and the parties shall be released from any
and all obligations hereunder; provided, however, that (i) nothing herein shall
relieve any party from liability for damages resulting from the willful breach
of any of its representations, warranties, covenants or agreements set forth in
this Agreement and (ii) no termination of this Agreement shall nullify the
cancellation of the Letter Agreement contained in Section 5.2 above.
ARTICLE XII
GENERAL PROVISIONS
12.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed overnight
delivery, or facsimile transmission if such transmission is confirmed
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by delivery by certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery, to the following addresses and telecopy numbers
(or to such other addresses or telecopy numbers which such party shall designate
in writing to the other party):
(a) IF TO INTERVISUAL TO:
Intervisual Books, Inc.
2716 Ocean Park Blvd., Suite 2020
Santa Monica, California 90405
Attn: President
Telecopy: (310) 399-0419
WITH A COPY TO:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, CA 92626
Attn: Stephen D. Cooke, Esq.
Telecopy: (714) 979-1921
(b) IF TO THE COMPANY AND/OR THE SHAREHOLDER
TO:
The Hunt Family Trust
Attn: Waldo H. Hunt
16130 High Valley Place
Encino, CA 91436
WITH A COPY TO:
Freeman, Freeman & Smiley, LLP
Penthouse, Suite 1200
3415 Sepulveda Blvd.
Los Angeles, CA 90034
Attn: Douglas K. Freeman, Esq.
Telecopy: (310) 391-4042
Notice shall be deemed given on the date sent if sent by overnight
delivery or facsimile transmission and on the date delivered (or the date of
refusal of delivery) if sent by certified or registered mail.
12.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matter and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter. The
Exhibits and Schedules constitute a part hereof as though set forth in full
above.
- 13 -
<PAGE> 14
12.3 EXPENSES. Except as otherwise provided herein, the parties shall
pay their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated hereby.
12.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
supplemented, canceled or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties.
12.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by the Company or the Shareholder without the
prior written consent of Intervisual.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.7 HEADINGS. The headings contained herein and on the schedules are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or the schedules.
12.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws of the State of
California applicable to contracts executed and to be wholly performed within
such State.
12.9 MANDATORY ARBITRATION. Any controversy or claim between or among
the parties hereto including, but not limited to, those arising out of or
relating to this Agreement or any related agreements or instruments, excluding
any claim based on or arising from an alleged intentional tort or fraud, shall
be determined by binding arbitration in Orange County, California in accordance
with the Rules of Practice and Procedure for the Arbitration of Commercial
Disputes of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.).
Judgment upon any arbitration award may be entered in any court having
jurisdiction. Any party to this Agreement may bring an action, including a
summary or expedited proceeding, to compel arbitration of any controversy or
claim to which this Agreement applies in any court having jurisdiction over such
action.
- 14 -
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
INTERVISUAL BOOKS, INC., a California
corporation
By: /s/
---------------------------------------------------
Nathan Norman Sheinman
President and Chief Operating Officer
THE HUNT CREATIVE GROUP, a California
corporation
By: /s/
---------------------------------------------------
Waldo H. Hunt, President
THE HUNT FAMILY TRUST
/s/
---------------------------------------------------
Waldo H. Hunt, Trustee
/s/
---------------------------------------------------
Patricia E. Hunt, Trustee
For the purposes of agreeing to Sections 5.2 and 5.3, Waldo H. Hunt hereby
executes this Agreement in his individual capacity.
/s/
---------------------------------------------------
Waldo H. Hunt, an individual
- 15 -
<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>
1997 1996 1995
----------- ----------- -----------
Basic:
<S> <C> <C> <C>
Common stock outstanding, beginning of year 4,782,798 4,782,798 4,782,798
Weighted average number of shares for
options exercised 139 -- --
----------- ----------- -----------
Basic weighted average number of shares
outstanding, end of year 4,782,937 4,782,798 4,782,798
=========== =========== ===========
Net income (loss) $ (112,075) $ (544,242) $ 435,879
=========== =========== ===========
Basic earnings (loss) per share $ (0.02) $ (0.11) $ 0.09
=========== =========== ===========
Diluted:
Common stock outstanding, beginning of year 4,782,798 4,782,798 4,782,798
Weighted average number of shares for
options exercised 139 -- --
Contingent shares relating to:
Nonstatutory stock options -- -- 227,074
----------- ----------- -----------
Diluted weighted average number of shares
outstanding, end of year 4,782,937 4,782,798 5,009,872
=========== =========== ===========
Net income (loss) $ (112,075) $ (544,242) $ 435,879
=========== =========== ===========
Diluted earnings (loss) per share $ (0.02) $ (0.11) $ 0.09
=========== =========== ===========
</TABLE>
All earnings per share amounts reported in the accompanying
statements of income have been rounded to the nearest $.01.
43
<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. 33-548990, SEC file no. 333-04784, SEC file no.
333-34009 and SEC file no. 333-34015) of our report dated February 20, 1998
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,
1997.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Date: March 30, 1998
Los Angeles, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF DECEMBER 31, 1997, AND STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997, AND STATEMENTS OF OPERATIONS FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS REPORTED ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,382
<SECURITIES> 0
<RECEIVABLES> 5,596
<ALLOWANCES> 128
<INVENTORY> 1,267
<CURRENT-ASSETS> 9,868
<PP&E> 1,083
<DEPRECIATION> 838
<TOTAL-ASSETS> 13,470
<CURRENT-LIABILITIES> 6,451
<BONDS> 0
0
0
<COMMON> 4,049
<OTHER-SE> 2,950
<TOTAL-LIABILITY-AND-EQUITY> 6,999
<SALES> 18,733
<TOTAL-REVENUES> 18,733
<CGS> 14,645
<TOTAL-COSTS> 14,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (67)
<INCOME-TAX> 45
<INCOME-CONTINUING> (112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
