<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
Intervisual Books, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPY
INTERVISUAL BOOKS, INC.
2716 OCEAN PARK BOULEVARD, SUITE 2020
SANTA MONICA, CALIFORNIA 90405
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 4, 1999
To the Shareholders of INTERVISUAL BOOKS, INC.:
The Annual Meeting of Shareholders of Intervisual Books, Inc. (the
"Company") will be held on Wednesday, August 4, 1999, at 10:00 a.m., local time,
at the Company's corporate headquarters located at 2716 Ocean Park Boulevard,
Suite 2020, Santa Monica, California 90405, for the following purposes:
1. To elect nine directors to serve until the next annual meeting of
shareholders and until their successors are chosen;
2. To consider and act upon a proposal to approve the Company's
Amended and Restated Certificate of Incorporation;
3. To consider and act upon a proposal to approve the Company's 1999
Stock Option Plan;
4. To consider and act upon a proposal to ratify the selection of BDO
Seidman, LLP as independent auditors of the Company for 1999; and
5. To transact such other business as may properly come before the
meeting and any postponements or adjournments thereof.
Only shareholders of record at the close of business on July 2, 1999 shall
be entitled to notice of and to vote at the meeting and any postponements and
adjournment(s) thereof.
A proxy solicited by the Company's Board of Directors, together with a
proxy statement and a copy of the Company's 1998 annual report to security
holders are enclosed herewith. Please sign, date and return the proxy promptly
in the enclosed reply envelope. If you attend the meeting and wish to vote in
person, you may do so by withdrawing your proxy prior to the meeting.
By Order of the Board of Directors
GAIL A. THORNHILL
Secretary
Santa Monica, California
July [ ], 1999
WHETHER YOU OWN A FEW OR MANY SHARES OF STOCK AND WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, YOU ARE URGED TO DATE, SIGN AND RETURN YOUR PROXY
PROMPTLY SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND IN
ORDER THAT THE PRESENCE OF A QUORUM MAY BE ASSURED.
<PAGE> 3
PRELIMINARY COPY
INTERVISUAL BOOKS, INC.
2716 OCEAN PARK BOULEVARD, SUITE 2020
SANTA MONICA, CALIFORNIA 90405
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, AUGUST 4, 1999
This proxy statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Intervisual Books, Inc. (the "Company")
for use at the Annual Meeting of Shareholders of the Company and any
postponements or adjournments thereof (the "Annual Meeting"). The Annual Meeting
will be held on Wednesday, August 4, 1999 at 10:00 a.m., local time, at the
Company's corporate headquarters located at 2716 Ocean Park Boulevard, Suite
2020, Santa Monica, California 90405. The approximate date on which this proxy
statement and the enclosed form of proxy are first being sent or given to
shareholder is July [ ], 1999.
At the Annual Meeting, the Company's shareholders will consider and act
upon proposals to (i) elect nine directors to serve until the next annual
meeting of shareholders and until their successors are chosen; (ii) approve and
adopt the Company's Amended and Restated Certificate of Incorporation; (iii)
approve and adopt the Company's 1999 Stock Option Plan; (iv) ratify the
selection of BDO Seidman, LLP as independent auditors of the Company for 1999;
and (v) transact such other business as may properly come before the meeting and
any postponements or adjournments thereof.
The close of business on July 2, 1999 has been fixed as the record date
(the "Record Date") for determining the holders of the Company's common stock,
no par value (the "Common Stock") who are entitled to notice of and to vote at
the Annual Meeting. As of the Record Date, there were 5,885,115 shares of Common
Stock outstanding and entitled to vote.
Copies of solicitation materials will be furnished to brokerage houses and
other fiduciaries for forwarding to beneficial owners of shares of the Company's
Common Stock. The costs of soliciting proxies related to the Annual Meeting,
including the cost of preparing and mailing this proxy statement, will be paid
by the Company. In addition to solicitations by mail, directors and regular
employees of the Company may solicit proxies in person or by telephone or
telegraph without receiving any compensation in addition to their regular
compensation as directors or employees.
Any proxy which is returned by a shareholder properly completed and which
is not revoked will be voted at the meeting in the manner specified therein.
Unless contrary instructions are given, the persons designated as proxyholders
in the accompanying proxy card(s) (or their substitutes) will vote FOR the
election of the Board of Directors' nominees, FOR Proposals 2, 3 and 4, and in
the proxyholders' discretion with respect to such other business or matters
which might otherwise properly come before the meeting. Any proxy given pursuant
to this solicitation may be revoked prior to the meeting at any time by
delivering an instrument revoking it, or a duly executed proxy bearing a later
date, to the Secretary of the Company. Any proxy given pursuant to this
solicitation may also be revoked by any shareholder who attends the meeting and
gives oral notice of his or her election to vote in person, without compliance
with any other formalities.
The presence at the meeting, in person or by proxy, of a majority of the
shares of Common Stock outstanding on the Record Date will constitute a quorum
at the meeting. Votes cast by proxy or in person at the Annual Meeting will be
counted by the persons appointed by the Company to act as the inspectors of
election for the meeting. Inspectors of election will treat shares represented
by proxies that reflect abstentions or include "broker non-votes" as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions or "broker non-votes" do not constitute a vote "for" or
"against" any
<PAGE> 4
matter and thus will be disregarded in any calculation of "votes cast", except
in the case of Proposal 2 where abstentions and "broker non-votes" will be
treated as "no" votes. Any unmarked proxies, including those submitted by
brokers or nominees, will be voted in favor of the nominees for the Board of
Directors and the proposals, as indicated in the accompanying proxy card.
Each share of Common Stock is entitled to one vote on all matters voted on
at the meeting and, in the election of directors, each shareholder has the right
to cumulate his or her votes and give one nominee a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which his
or her shares are entitled, or to distribute his or her votes on the same
principle among as many nominees as he or she desires, and the nominees
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected. This right to cumulate votes will exist only if the
candidate's name has been placed in nomination prior to the voting and any
shareholder gives notice of that shareholder's intention to cumulate his or her
votes at the meeting prior to the voting.
CERTAIN BENEFICIAL OWNERSHIP
The following table sets forth certain information concerning beneficial
ownership of the Common Stock of the Company by any person who is known by the
Company to be the beneficial owner of more than five (5%) percent of the Common
Stock, by each director of the Company, each nominee for election as a director,
each executive officer named in the Summary Compensation Table, and by all
current directors and officers as a group. Except as otherwise noted, the
following shareholders have sole voting and investment power with respect to the
shares except to the extent that authority is shared by spouses under applicable
law.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OWNERSHIP(1)(2) OF CLASS
---- ----------------- --------
<S> <C> <C>
Waldo H. Hunt/the Hunt Family Trust(3)...................... 2,934,916(4) 49.5%
2716 Ocean Park Blvd. #2020
Santa Monica, CA 90405
Steven D. Ades/the Steven Ades and.......................... 614,940(4) 10.5%
Laurie Levit Revocable Family Trust(5)
2716 Ocean Park Blvd. #2020
Santa Monica, CA 90405
Nathan N. Sheinman.......................................... 183,334 3.0%
Dan P. Reavis............................................... 95,000 1.6%
Dr. Neil G. Berkman......................................... 0 *
Gordon Hearne............................................... 32,166 *
Leonard W. Jaffe............................................ 17,000 *
John J. McNaughton.......................................... 56,499 *
Peter Seymour............................................... 40,424 *
All directors and officers as a group (12 persons).......... 4,094,945 64.4%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated in the following footnotes, all such information
is as of July 2, 1999. Information relating to beneficial ownership of
shares of Common Stock is based upon the rules set forth under the
Securities Exchange Act of 1934 (the "Exchange Act"). Under such rules, more
than one person may be deemed to be a beneficial owner of the same
securities.
(2) Includes the following number of shares of Common Stock that may be
purchased upon the exercise of options granted by the Company which are
exercisable on July 2, 1999 or within 60 days thereafter: Mr. Hunt, 49,999;
Mr. Sheinman, 183,334, Mr. Reavis, 90,000; Mr. Hearne, 31,666; Mr. Jaffe,
10,000; Mr. McNaughton, 52,499; Mr. Seymour, 30,833; and all directors and
executive officers as a group, 476,248.
2
<PAGE> 5
(3) Such shares are owned of record by Waldo H. Hunt individually and by Waldo
H. Hunt and Patricia E. Hunt, Trustees of The Hunt Family Trust UTA May 30,
1980 (the "Hunt Trust"), of which both Trustees have shared voting and
investment power.
(4) In connection with the merger of Fast Forward Marketing, Inc. ("Fast
Forward") into a subsidiary of the Company (the "Merger"), the Hunt Trust
entered into a voting agreement (the "Voting Agreement") with Steven Ades
and Trustees of the Steven Ades and Laurie Levit Revocable Family Trust UTA
April 18, 1991 (the "Ades Trust"). Under this agreement, the Hunt Trust
agreed to vote a sufficient number of shares of Common Stock owned by the
Hunt Trust in such a manner as to elect Steven Ades and a second outside
independent director mutually acceptable to Mr. Ades and the Company's Board
of Directors to the Company's Board. Dr. Berkman is the second designated
nominee under the Voting Agreement. Under the Voting Agreement, Mr. Ades and
the Ades Trust agreed to vote all shares of Common Stock owned by them in
favor of those director nominees recommended by the Company's Board of
Directors. The Voting Agreement terminates upon the occurrence of certain
events, including Mr. Ades' cessation of employment with the Company.
(5) Such shares are owned of record by Mr. Ades individually or by the trustees
of the Ades Trust, both of which have shared voting and investment power.
3
<PAGE> 6
PROPOSAL NO. 1
ELECTION OF DIRECTORS
A board of nine directors is to be elected at the meeting. Directors are
elected by a plurality of the votes cast at the Annual Meeting in person or by
proxy by the holders of shares entitled to vote in the election. The Board of
Directors is informed that all of the nominees are willing to serve as
directors, but if any of them should decline or be unable to act as a director,
the persons designated as proxyholders in the accompanying proxy card(s) (or
their substitutes) will vote for such substitute nominee or nominee(s) as may be
designated by the Board of Directors unless the Board reduces the number of
directors accordingly.
NOMINEES
The following information has been furnished by the respective nominees for
election as directors:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Waldo H. Hunt....................... 78 Chairman of the Board, Chief Executive Officer 1975
Nathan N. Sheinman.................. 50 President, Chief Operating Officer 1997
Dan P. Reavis....................... 49 Executive Vice President, Chief Financial Officer 1998
Steven D. Ades...................... 50 President of the Video and New Media Division n/a
Dr. Neil G. Berkman................. 49 President, Neil G. Berkman Associates n/a
Gordon Hearne....................... 75 Director 1996
Leonard W. Jaffe.................... 81 Director 1998
John J. McNaughton.................. 77 Director 1991
Peter Seymour....................... 66 Director 1996
</TABLE>
Waldo H. Hunt has been a director and the Chairman of the Board of the
Company since its organization in 1975. In November 1996, he assumed the
additional role of Chief Executive Officer. From 1994 through December 1996, Mr.
Hunt also served as Chairman of The Hunt Group, a company founded by Mr. Hunt
(the "Hunt Group"). Mr. Hunt is the founder of the Company and is considered by
many to be the father of the modern-day pop-up industry.
Nathan N. Sheinman become President and Chief Operating Officer of the
Company in January 1997. Mr. Sheinman joined the Board in March 1997. Prior to
joining the Company, Mr. Sheinman was employed by Penguin USA serving as Senior
Vice President of Special Sales, Publisher of Looney Tunes books and
co-publisher of Penguin USA's Packaging Division from March 1990 to December
1996. From 1986 to February 1990, Mr. Sheinman was Vice President Sales/Special
Markets and Vice President Marketing and Director of Sales, Special Markets for
Penguin Books Canada.
Dan P. Reavis became Executive Vice President and Chief Financial Officer
in January 1998. Mr. Reavis joined the Board of 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 his resignation from that company in December 1995. From January
1996 to January 1998, Mr. Reavis' principal occupation was that of a consultant
and investor.
Steven D. Ades was the President and a director of Fast Forward since its
organization in 1987. From 1984 to 1987, Mr. Ades was the national accounts
manager for Prism Entertainment, a publisher and distributor of video
programming. In connection with the Merger, Mr. Ades joined the Company as
President of the Company's Video and New Media Division in May 1999. Mr. Ades is
being nominated to the Company's Board of Directors in accordance with the terms
of the Voting Agreement.
Dr. Neil G. Berkman is President of Neil G. Berkman Associates, a firm he
founded in 1988 that provides investor relations, financial consulting and
crisis management services to public company clients. From 1981 until 1988 Dr.
Berkman was with The Wall Street Group/California, Inc., where he served as
President from 1984 to 1988. From 1977 to 1981, Dr. Berkman was an economist
with the Federal Reserve Bank of Boston. He earned a Ph.D. in Economics from the
University of California, Berkeley, in 1977.
4
<PAGE> 7
Dr. Berkman is being nominated to the Company's Board of Directors in accordance
with the Voting Agreement.
Gordon Hearne joined the Board in February 1996. Mr. Hearne is a principal
of Hearne & Spector, an advertising agency formed in March 1995. Mr. Hearne was
previously employed by the Company as director of its commercial division and
later marketing director of the division from June 1985 to June 1991 when the
commercial division was sold to R.R. Donnelley. After such sale, he continued as
a consultant to an affiliate of R.R. Donnelley until February 1995.
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 NEC was acquired by Harcourt General in June 1997. He was a director of
Steck-Vaughn Publishing Company from 1993 until that company was acquired by
Harcourt General in February 1998. He serves as a consultant to various
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 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 director of the Company in February of 1996. He was
the Company's Vice President and Editorial Director from January 1991 until his
retirement in June 1995. Mr. Seymour had been employed by the Company since
October 1988 as Editorial Director, and from 1980 to October 1988, he was a
consultant and free-lance editor for the Company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met three times during 1998 to consider matters
related to the Company's business. The Board of Directors has an Audit Committee
and a Compensation Committee. The Company does not presently have a Nomination
Committee. Each director attended more than 75% of the aggregate of the total
number of meetings of the Board and the committees on which he is a member
during 1998, except for Messrs. Hearne and McNaughton each of which attended 67%
of the meetings.
The Audit Committee reviews significant financial and accounting issues and
the services performed by and the reports of, the Company's independent auditors
and makes recommendations to the Board with respect to these and related
matters. Members of the Audit Committee, which did not meet in 1998, are Messrs.
McNaughton and Seymour.
The Compensation Committee makes decisions as to the compensation and
benefits of the Company's officers and key employees when such decisions are not
made by the Company's Board of Directors. The members of the committee are
Messrs. Hearne and McNaughton. The Compensation Committee did not meet during
1998.
5
<PAGE> 8
COMPENSATION OF OFFICERS AND DIRECTORS
CASH COMPENSATION
The following table sets forth in the prescribed format the compensation
paid to all persons serving as the Company's Chief Executive Officer and the
other executive officers of the Company which received total annual salary and
bonus in excess of $100,000 for services rendered in all capacities during the
Company's last completed fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR(1) ($) ($) ($)(2) (#) ($)(3)
------------------ ------- ------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt................. 1998 235,416 69,179 0 3,125
Chairman, CEO 1997 243,333 0 68,414 150,000 4,750
1996 1 0 0 0 0
Nathan N. Sheinman............ 1998 258,958 0 0 0 5,115
President, COO 1997 233,974 0 0 300,000 0
Dan Reavis.................... 1998 156,939 0 0 0 0
Executive Vice President 1997 175,000
Chief Financial Officer
</TABLE>
- ---------------
(1) Mr. Sheinman and Mr. Reavis joined the Company in 1997 and 1998,
respectively, 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.
(2) The amount disclosed in this column includes $60,000 in lieu of paying any
life insurance premiums which benefit Mr. Hunt.
(3) The amounts disclosed in this column represent contributions to the
Company's 401(k) plan.
STOCK OPTIONS
The following tables set forth certain information with respect to the
executive officers named in the Summary Compensation Table in the prescribed
formats with respect to options granted and exercised under the Company's
various stock option plans during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#)(1) FISCAL YEAR(%) ($) DATE 5% 10%
---- --------------- ---------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt............... 0 -- -- -- -- --
Nathan Sheinman............. 0 -- -- -- -- --
Dan Reavis.................. 170,000 47.7% $1.50 2004 $341,724 $451,748
</TABLE>
- ---------------
(1) In connection with his employment with the Company, Mr. Reavis entered into
a nonstatutory stock option agreement with the Company pursuant to which Mr.
Reavis was granted options to purchase 170,000 shares of Common Stock at an
original exercise price of $2.00 per share. In July 1998, the Company
amended the option agreement to reduce the exercise price to $1.50 per
share, which price equalled the fair market value of the Company's Common
Stock on July 16, 1998, the date of the amendment. Such options vest in four
increments. The options automatically accelerate upon a change of
6
<PAGE> 9
control of the Company as determined in accordance with the terms of the
agreement. The options are subject to earlier termination upon the
occurrence of certain events related to the termination of the optionee's
employment.
(2) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. Such amounts are
based on the assumption that the named persons hold the options for their
full term. These numbers are calculated based on the requirements
promulgated by the SEC and do not reflect the Company's estimate of future
stock price growth.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END AT FY-END(1)
ACQUIRED VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) (#) (#) ($) ($)
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt.................. None n/a 49,999 100,001 0 0
Nathan N. Sheinman............. None n/a 183,334 116,666 0 0
Dan Reavis..................... None n/a 90,000 85,000 0 0
</TABLE>
- ---------------
(1) The closing market price of the Common Stock at the Company's 1998 fiscal
year-end exceeded the option exercise prices, and none of the options were
in-the-money.
EMPLOYMENT AGREEMENTS
In 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 receives an annual salary
of $275,000, an automobile allowance, relocation assistance and certain other
benefits. Pursuant to his employment agreement, Mr. Sheinman was granted options
to purchase 300,000 shares of the Common Stock.
In 1997, the Company entered into an employment agreement with Mr. 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 annual
salary of $250,000 subject to cost of living increases and annual board
evaluation. The agreement also provides 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 granted options to purchase 150,000 shares of Common Stock.
In 1997, the Company reached an agreement with a Mr. Reavis, for employment
as the Company's Executive Vice President and Chief Financial Officer beginning
in January 1998. The employment agreement provides 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 agreement, Mr. Reavis was
granted options to purchase 175,000 shares of Common Stock.
In connection with the Merger, the Company entered into an employment
agreement in May 1999 with Mr. Ades whereby Mr. Ades is employed as President of
the Company's Video and New Media Division. The agreement provides for an
initial term of three years with an annual salary of $275,000, an automobile
allowance and certain benefits. Pursuant to his employment agreement, Mr. Ades
was granted an option to purchase 140,000 shares of Common Stock. Also in
connection with the Merger, the Company entered into employment agreements with
Steven Selsky and Steven Wallace whereby the Company agreed to employ
7
<PAGE> 10
Mr. Selsky as the Company's Senior Vice President of Finance and Operations and
Mr. Wallace as the Company's Senior Vice President of Sales and Marketing.
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 (the "Director
Option Plan"), non-employee directors receive an initial option grant to
purchase 30,000 shares of Common Stock when they are first elected or appointed
as a 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.
When he joined the Company as a director in February 1998, Mr. Jaffe was
granted an option to purchase 30,000 shares of Common Stock at an exercise price
of $2.75 per share under the Company's Director Option Plan. In July 1998,
options covering 25,000 of such shares were cancelled and the Company entered
into a new separate option agreement with Mr. Jaffe granting Mr. Jaffe options
to purchase 25,000 shares of the Company's Common Stock at an exercise price of
$1.50 per share. Such options vest in one-third increments on each of February
10, 1999, 2000 and 2001. The options expire on the last day of the tenth year
after the date of the agreement or earlier in the event Mr. Jaffe ceases to be a
member of the Company's Board of Directors.
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 (the "Hunt Group"), a
company which was owned by the Hunt Trust. The Hunt Group created new products
not normally pursued by the Company in its day-to-day activities and under the
agreement, the Company received a right of first refusal on products developed
by the Hunt Group. In July 1998, the Company's shareholders approved a proposal
by which the Hunt Group was merged into the Company. In connection with this
transaction, 328,000 shares of Common Stock were issued to the Hunt Trust.
In connection with the Merger, in May 1999 the Company acquired all of the
issued and outstanding securities of Fast Forward in exchange for 670,000 shares
of the Company's Common Stock and certain additional cash rights. Of the shares
issued by the Company in the Merger, 594,940 shares were issued to the Ades
Trust and 75,060 shares were issued to certain employees of Fast Forward
(including Mr. Wallace and Mr. Selsky) in settlement of deferred compensation
arrangements. In connection with the Merger, the Hunt Trust and Mr. Ades and the
Ades Trust entered into the Voting Agreement. As an inducement to join the
Company, the Company entered into employment contracts and option agreements
with Mr. Ades, Mr. Selsky and Mr. Wallace.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Although the Company has a Compensation Committee, in 1998 decisions on
executive compensation for the Company were made by the Board of Directors. As
of December 31, 1998, the Board consisted of Messrs. Hunt, Sheinman, Reavis,
Hearne, Jaffe, McNaughton and Seymour.
EXECUTIVE COMPENSATION PHILOSOPHY
In designing its compensation programs, the Board of Directors believes
that compensation should reflect the value created for shareholders while
supporting the business strategies and long-range plans of the Company. The
Board reviews and determines the compensation of the executive officers of the
Company with this philosophy on compensation as its basis, subject to the
Company's obligations arising under various employment agreements. The Board of
Directors also takes into account individual performance, performance of the
operations directed by such individual, and the overall corporate performance of
the Company.
8
<PAGE> 11
EXECUTIVE COMPENSATION COMPONENTS
The Company's executive compensation is based on the following components:
Base Salary. Base salary is intended to be set at a level which is
competitive to amounts paid to executive officers of similar business structure,
size and marketplace orientation.
Annual Incentives and Bonuses. Annual bonuses may be granted based on the
Company's performance and each executive's individual performance. Based upon
the Company's revenues and loss for 1998, no bonuses were awarded to any Company
employee for the Company's 1998 fiscal year.
Stock Options. Executive officers are eligible to receive grants of stock
options. Generally, option awards are intended to motivate employees to improve
long-term stock market performance. Awards are granted at the fair market value
of the underlying common stock at the date of grant. Stock options vest in
installments as determined by the Board of Directors or the Compensation
Committee.
CHIEF EXECUTIVE OFFICER COMPENSATION
In recognition of his accepting the responsibilities of Chief Executive
Officer in December 1996 and his efforts on the Company's behalf, effective
October 1997 the Company entered into an Employment Agreement with Mr. Hunt
employing Mr. Hunt as the Company's Chairman of the Board and Chief Executive
Officer. Under the agreement, Mr. Hunt is to receive an initial annual salary of
$250,000, subject to cost of living increases and annual Board evaluation. The
agreement also provides for lifetime additional annual payments of $60,000 in
lieu of paying any life insurance premiums which would otherwise benefit Mr.
Hunt, plus other benefits. Pursuant to his Employment Agreement, Mr. Hunt was
granted options to purchase 150,000 shares of the Company's Common Stock and he
receives other benefits, including an automobile allowance.
OTHER MATTERS
The Omnibus Reconciliation Act of 1993 (OBRA) limited deductible senior
officer annual compensation to $1,000,000, unless the compensation qualifies as
"performance-based" compensation under Internal Revenue Code Section 162(m)
("Code Section 162(m)"). In general, the Company does not believe the
compensation payable to the Company's senior officers will exceed $1,000,000,
however, the Company will continue to evaluate the requirements of the Code
Section 162(m) and seek the deductibility of senior officer compensation.
Waldo H. Hunt
Nathan N. Sheinman
Dan P. Reavis
Gordon Hearne
Leonard W. Jaffe
John J. McNaughton
Peter Seymour
9
<PAGE> 12
REPORT OF BOARD OF DIRECTORS ON REPRICING
In July 1998, the Board of Directors decided to amend the outstanding stock
options granted to Mr. Reavis and two other individuals who had recently joined
the Company to reduce the exercise price of such options to $1.50 per share. All
such stock options were originally granted as inducements to the individuals to
join the Company and had exercise prices of between $2.00 and $2.8125 per share.
By July 1998, the Board of Directors determined that the imbalance between the
exercise prices for these option grants compared to the lower market value that
prevailed for the Common Stock in the Summer of 1998 was not an incentive to the
individuals who were granted the options to exert their best efforts to achieve
the Company's long-term goals. The Board also believed that amending the
exercise prices for these options would reduce the risk of losing the services
of the employees during a critical time for the Company. Accordingly, the
outstanding options were amended to lower their exercise prices to $1.50 per
share, the fair market value on the date the action was taken. Except for the
amendment to the option exercise price, each option continues to be governed by
the same terms which applied prior to the option repricing.
Waldo H. Hunt
Nathan N. Sheinman
Dan P. Reavis
Gordon Hearne
Leonard W. Jaffe
John J. McNaughton
Peter Seymour
The following chart describes all repricings of options held by an
executive officer during the completed fiscal years subsequent to the date on
which the Company became a reporting company.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF MARKET PRICE LENGTH OF ORIGINAL
SECURITIES OF STOCK OPTION TERM
UNDERLYING AT TIME OF EXERCISE PRICE REMAINING AT
OPTIONS/SARS REPRICING AT TIME OF NEW DATE
REPRICED OR EXERCISE OR REPRICING OR EXERCISE OF REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
---- ------- ------------ ------------ -------------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Dan P. Reavis 7/18/98 170,000 $1.50 $2.00 $1.50 78
Executive Vice
President, Chief
Financial Officer
</TABLE>
10
<PAGE> 13
PERFORMANCE GRAPH
The following graph shows a comparison of total return to shareholders for
the Company, the NASDAQ Market Index and the Company's SIC Code (book
publishing) for the Company's last five fiscal years.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG INTERVISUAL BOOKS, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
<TABLE>
<CAPTION>
INTERVISUAL BOOKS, NASDAQ MARKET
INC. INDUSTRY INDEX INDEX
------------------ -------------- -------------
<S> <C> <C> <C>
'1993' 100.00 100.00 100.00
'1994' 79.17 119.16 104.99
'1995' 77.08 108.95 136.18
'1996' 54.17 187.98 169.23
'1997' 108.33 246.04 207.00
'1998' 37.50 410.48 291.96
</TABLE>
The cumulative total return calculation assumes $100 invested on December
31, 1993 and dividend reinvestments. The graph above is calculated through the
fiscal year ended December 31, 1998.
11
<PAGE> 14
PROPOSAL NO. 2
PROPOSAL TO
ADOPT THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF INCORPORATION
The Board of Directors has approved a proposal to amend and restate the
Company's Articles of Incorporation and the entire text of the proposed Amended
and Restated Articles of Incorporation as proposed is included as Exhibit A to
this proxy statement and shareholders are encouraged to read the Amended and
Restated Articles of Incorporation carefully. If approved by the Company's
shareholders, the Amended and Restated Articles of Incorporation will become
effective upon filing with the Secretary of State of the State of California.
The filing is expected to occur as soon as reasonably practicable at the Annual
Meeting.
INCREASE IN AUTHORIZED COMMON STOCK
The Board of Directors believes that it is in the Company's best interest
to increase the number of shares of authorized Common Stock in order to have
additional authorized but unissued shares available for issuance to meet needs
as they may arise. The proposed Amended and Restated Articles of Incorporation
would increase the number of authorized shares of Common Stock from 10,000,000
to 12,000,000. As of the Record Date, 5,885,115 shares of Common Stock were
issued and outstanding. Of the remaining authorized but unissued shares of
Common Stock, 2,046,683 shares were reserved for issuance upon the exercise of
options previously granted or available to be granted under the Company's option
plans and 2,068,202 shares remain unissued and unreserved and available for
future corporate purposes.
The availability of additional shares for issuance, without the delay and
expense of obtaining the approval of the shareholders, will afford the Company
greater flexibility in acting on opportunities in the future. The Company may
utilize additional shares in connection with future employee benefit plans,
stock splits and stock dividends, to raise additional capital and enable the
Company to obtain additional financing. Such shares could also be used to take
advantage of future business opportunities such as acquisitions and mergers. The
additional shares would be identical to the shares of the Company's Common Stock
now authorized. Holders of the Common Stock do not have preemptive rights to
subscribe for additional securities which may be issued by the Company and the
issuance of additional securities may have a dilutive effect on existing
stockholders. The Company has no agreements, understandings or plans at the
present time for the issuance or use of the additional shares of common stock.
Although the Company has no present intention to issue shares of Common Stock,
future issuances of Common Stock could have the effect of making acquisition of
control of the Company by others more difficult. This proposal is not being made
in response to any specific takeover threat known to the Company's Board of
Directors.
PREFERRED STOCK
The Company's current articles of incorporation do not authorize the
issuance of preferred stock. If this proposal is adopted by the shareholders,
the Company's Board of Directors will be empowered, without the necessity of
further shareholder approval, to cause the Company to issue up to 3,000,000
shares of preferred stock from time to time in one or more series, and with such
dividend rates and rights, liquidation preferences, voting rights, conversion
rights, and redemption rights and such other terms and rights as determined by
the Board of Directors. Within the limits and restrictions established by the
Board of Directors in any resolution, the Board will be able to increase or
decrease (but not below the number of any series then outstanding) the number of
shares of any series subsequent to the issue of shares of that series.
The purpose of authorizing preferred stock is to give the Board of
Directors greater flexibility in connection with possible future financing
requirements and other corporate matters. The Board of Directors believes that
the complexity of modern business financing and possible future transactions
require greater flexibility in the Company's capital structure than currently
exists. If this proposal is approved, the Board of Directors would be permitted
to issue preferred stock from time to time for any proper corporate purpose
including acquisitions of other businesses or properties and raising of
additional capital. Shares of preferred stock could be issued publicly or
privately, in one or more series, and each series of preferred stock will rank
12
<PAGE> 15
senior to the common stock with respect to various rights. The Company does not
presently have any agreements, understandings or arrangements regarding the
possible issuance of any preferred stock subject to approval under this
proposal.
Possible overall effects on the Company's current shareholders of this
proposal include the dilution of such shareholders' ownership in the Company,
the prevention of mergers with or business combinations by the Company and in
the discouragement of possible tender offers for shares of the Company's Common
Stock. On the conversion into Common Stock of shares of preferred stock issued
with conversion rights, the common shareholders' voting power and percentage
ownership of the Company would be diluted and such issuances could have an
adverse effect on the market price of the Company's common stock. In addition,
the issuance of shares of preferred stock with certain rights, preferences and
privileges senior to those held by the common stock could diminish the common
shareholders' rights to receive dividends declared by the Board of Directors and
to receive payments upon the liquidation of the Company.
If shares of preferred stock are issued, approval by such shares, voting as
a separate class, could be required prior to certain mergers with or business
combinations by the Company. These factors could discourage attempts to purchase
or control the Company even if a change in control might be beneficial to the
common shareholders. Moreover, the issuance of voting preferred stock to persons
friendly to existing management could make it more difficult to remove incumbent
management and managers from office even if such changes might be favorable to
the shareholders generally. This proposal is not intended as an anti-takeover
device and it is not proposed in response to any specific takeover threat known
to the Board of Directors. Furthermore, this proposal is not part of a plan by
the Board of Directors to adopt anti-takeover devices.
The Board of Directors feels that the flexibility offered by this proposal
outweighs its disadvantages. To the extent the proposal may have anti-takeover
effects, the proposal may encourage persons seeking to acquire the Company to
negotiate directly with the Board of Directors, enabling the Board to consider
the proposed transaction in a nondisruptive atmosphere and to discharge
effectively the obligation to act on the proposed transaction in a manner that
best serves all of the shareholders' interests. It is the view of the Board of
Directors that the existence of additional shares of common stock and the
authorization of blank check preferred stock should not discourage anyone from
proposing a merger or other transaction at a price reflective of the true value
of the Company and which is in the best interests of all of the shareholders.
OTHER PROVISIONS
Other than the increase in the number of authorized shares of common stock
and the authority to issue shares of preferred stock, the proposed Amended and
Restated Articles of Incorporation are not intended to make other substantive
changes to the Company's current articles of incorporation. The Amended and
Restated Articles of Incorporation do not change the Company's name and while
they seek to limit the liability of the Company's directors for monetary damages
to the fullest extent permitted by law and authorize the Company to indemnify
its agents in excess of the indemnification otherwise provided by Section 317 of
the California Corporations Code, the Company's current articles of
incorporation already contain similar provisions.
VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of Common
Stock is required for approval of this proposal to adopt the Company's Amended
and Restated Articles of Incorporation. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
13
<PAGE> 16
PROPOSAL NO. 3
PROPOSAL TO ADOPT THE COMPANY'S 1999 STOCK OPTION PLAN
In June 1999 the Board of Directors adopted the Intervisual Books, Inc.
1999 Stock Option Plan (the "Plan") and at the Annual Meeting the Company's
shareholders will be asked to approve the Plan. The entire text of the Plan is
included as Exhibit "B" to this proxy statement and the shareholders are
encouraged to read the Plan carefully.
The Plan is intended to provide incentive to employees, directors, advisors
and consultants of the Company to encourage proprietary interests in the
Company, to encourage employees to remain in the employment of the Company and
to encourage directors, advisors and consultants to remain in the service of the
Company. The Plan is also intended to help the Company attract new qualified
employees, directors, advisors and consultants.
As of the Record Date, the Company had issued and outstanding options to
purchase 1,479,584 shares of Common Stock pursuant to the Company's existing
option plans and separate stock option agreements. Also as of the Record Date,
the Company still had available unissued options to purchase 247,099 shares of
Common Stock under the Company's current incentive and nonqualified stock option
plans, including 195,000 options available to be granted under the Company's
nonemployee directors stock option plan. The Board of Directors believes that
options are an important factor in attracting, retaining and motivating
officers, employees, advisors, directors and consultants of the Company and its
subsidiaries. In light of the limited number of options which remain available
for grant under the Company's existing stock option plans, the Board of
Directors approved the Plan and unanimously recommends that the shareholders
approve the Plan. If the Plan is approved by the shareholders, the Board of
Directors intends to cause the shares of Common Stock that will become available
for issuance pursuant to options granted under the Plan to be registered on a
Form S-8 Registration Statement to be filed with the Securities and Exchange
Commission at the Company's expense.
ADMINISTRATION
The Plan is to be administrated either by the Board of Directors or, in the
discretion of the Board by a committee consisting of two or more non-employee
directors (the Board or in the alternative the committee of directors, is
referred to as the "Administrator"). The Administrator has discretion to select
the optionees who are to be granted options, determine the number of shares to
be subject to options and to designate options as either incentive or
nonstatutory stock options. The Administrator has full power and authority to
operate, manage and administer the Plan and interpret and construe the Plan and
the terms of all option agreements.
ELIGIBILITY
Options can be granted under the Plan to employees (who may be officers,
whether or not they are directors) of the Company or its subsidiaries and
non-employees to whom the offer of employment has been extended. Options may
also be granted to directors, advisors and consultants of the Company. As of the
Record Date, approximately 55 employees, 4 non-employee directors and 4
consultants and advisors were eligible to receive options under the Plan. The
specific options to be awarded to any participant under the Plan are not
determinable in advance. The Administrator retains discretion to award options
to any participant under the Plan and no options have been granted under the
Plan as of the date of this proxy statement.
As a condition of granting options, the Administrator may require that a
participant surrender for cancellation options which had been previously granted
to that person. A grant of an option which is conditional upon such surrender
may have an option price which is lower or higher than the exercise price of the
surrendered option and the new option shall cover such number of shares and
other terms as the Administrator deems appropriate.
Individuals who hold more than 10% of the total combined voting power of
all classes of the Company's outstanding stock are ineligible to receive options
under the Plan unless the exercise price of the options is at least 110% of the
fair market value of such shares on the grant date.
14
<PAGE> 17
PLAN LIMITS
The maximum shares of Common Stock with respect to which options may be
granted under the Plan shall not exceed 500,000 shares and no single individual
is to be granted options which exceed 400,000 shares. These limits are subject
to adjustment for stock splits, stock dividends, recapitalizations and other
similar events as provided for in the Plan. If the purchase price of an option
or a tax liability is satisfied by the transfer or relinquishment to the Company
of shares, then there shall be deemed to have been issued or transferred under
the Plan only the net number of shares actually issued or transferred by the
corporation. In the event an option granted under the Plan expires or is
otherwise canceled or terminated, the shares allocable to the unexercised
portion of such option shall again be available to be granted under the Plan,
subject to certain limitations under Section 162(m) of the Internal Revenue
Code.
OPTION GRANTS
Both incentive and nonstatutory stock options can be granted under the
Plan. The exercise price for incentive stock options shall not be less than 100%
of the fair market value on the grant date. The exercise price for a
nonstatutory stock option shall not be less than 85% of the fair market value on
the grant date. In the case of options granted to individuals holding 10% or
more of the Company's outstanding stock, the exercise price shall not be less
than 110% of the fair market value on the grant date. As of the Record Date, the
closing bid price of the Company's Common Stock on The Nasdaq Stock Market was
[$ ] per share.
To the extent that the aggregate fair market value (determined as of the
option grant date) of the shares with respect to which incentive stock options
are exercisable for the first time by any optionee during any calendar year
under the Plan and all other plans maintained by the Company or its parent
exceeds $100,000, such excess options will be treated as nonstatutory stock
options. An option agreement authorized under the Plan may contain such terms
and provisions not inconsistent with the terms of the Plan as the Administrator
shall deem advisable in its sole and absolute discretion.
The Administrator may establish the vesting and other terms of each option
provided, however, in any event, options shall be exercisable at a minimum rate
of at least 20% per year over a period of five years from the grant date; except
in the case of options granted to directors, consultants, advisors or officers
of the Company, where the options may become exercisable at any time during the
period established by the Administrator. Within the limits of the Plan, the
Administrator may modify an option, extend or renew outstanding options or
accept the cancellation of outstanding options for the granting of new options
in substitution therefor.
The purchase price of the options is payable in cash; provided, however, if
the applicable option agreement provides or the Administrator otherwise
approves, the purchase price may be paid by the surrender of shares having a
fair market value on the date of exercise equal to the purchase price, or in any
combination of cash and shares equal to the purchase price. In the event the
Company determines that state or federal income taxes are required to be
withheld, as a condition to exercise the optionee must make arrangements
satisfactory to the Company to enable it to satisfy the withholding
requirements. Payment of withholding requirements may be made by cash, delivery
of shares or a combination of cash and shares.
TERM AND TRANSFERABILITY
No option granted under the Plan may be exercisable after ten years from
the grant date (or less, in the discretion of the Administrator). No incentive
stock option granted to an individual who holds more than 10% of the voting
power of all classes of the Company's outstanding stock shall be exercisable
after the expiration of five years (or less, in the discretion of the
Administrator) from the grant date. During the lifetime of an optionee, the
option shall be exercisable only by the optionee or the optionee's guardian or
legal representative and shall not be assignable or transferable. The option
shall not be transferable by the optionee other than by will or the laws of
descent and distribution.
15
<PAGE> 18
CESSATION OF SERVICE
If an optionee's employment or service with the Company ceases, other than
as a result of death, disability or retirement, the optionee shall have 90 days
after such cessation to exercise the option to the extent it was exercisable on
the date of the optionee's cessation of employment or service. In the event an
optionee's employment or service ceases by reason of death or disability, the
optionee shall have 12 months after cessation by reason of death or disability
to exercise the option to the extent it was exercisable on the date of
cessation. If an optionee's employment or service with the corporation ceases by
reason of retirement, the optionee shall have 90 days after the date of
retirement to exercise the option to the extent it was exercisable on the date
of retirement.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain federal income tax consequences
of certain transactions under the Plan. This summary is not intended to be
complete and does not describe state or local tax consequences.
Nonstatutory Stock Options. In general no income will be recognized by the
optionee at the time a nonstatutory stock option is granted. At the time the
option is exercised, ordinary income will be recognized by the optionee in an
amount equal to the difference between the option price paid for the shares and
the fair market value of the shares on the exercise date. At the time of sale of
shares acquired pursuant to the exercise of a nonstatutory stock option, the
appreciation (or depreciation) in value of the shares after the date of exercise
will be treated either as short-term or long-term capital gain (or loss)
depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
employee upon the grant or exercise of an incentive stock option. There are no
tax consequences to the optionee upon exercise of an incentive stock option,
except the amount by which the fair market value of the shares at the time of
exercise exceeds the option exercise price is a tax preference item possibly
giving rise to an alternative minimum tax. If the shares of Common Stock
acquired are not disposed of within two years from the date the incentive stock
option was granted and within one year after the shares are transferred to the
optionee, any gain realized upon the subsequent disposition of the shares will
be characterized as long-term capital gain and any loss will be characterized as
long-term capital loss. If all requirements other than the above-described
holding period requirements are met, then a "disqualifying disposition" occurs
and gain in an amount equal to the lesser of (i) the fair market value of the
shares on the date of exercise minus the option exercise price or (ii) the
amount realized on disposition minus the option exercise price (except for
certain "wash" sales, gifts or sales to related persons), is taxed as ordinary
income to the optionee and the Company is entitled to a corresponding deduction
in an amount equal to the optionee's ordinary income at that time. A gain in
excess of this amount, if any, will be characterized as long-term capital gain
if the optionee held the shares for more than one year.
General Tax Law Considerations. The preceding paragraphs are intended to be
merely a summary of the most important federal tax law consequences concerning a
grant of options under the Plan and the disposition of shares of Common Stock
issued thereunder in existence as of the date of this proxy statement.
Participants in the Plan should review the current tax treatment with their
individual tax advisors at the time of grant, exercise or any other transaction
relating to an option or underlying stock issued under the Plan.
EFFECT OF CERTAIN CHANGES
The Administrator shall make or provide for adjustments in the total number
of shares available for grant under the Plan, the exercise price and in the
number or kind of shares or other securities covered by the Plan and outstanding
options as it determines in its good faith to be required as a result of stock
dividends, stock splits, combination of shares, issuances of rights, mergers,
consolidations, changes in the Company's capital structure, liquidations, or
other corporate transactions or events having an effect similar to the
foregoing. In the event of such a transaction or event, the Administrator may
provide in substitution for any or all outstanding options under the Plan such
alternative consideration as it may in good faith determine to be equitable
under the circumstances and may require in connection therewith the surrender of
options so replaced. In addition, in the event of a change in control (as
defined in the Plan), the Administrator may in its
16
<PAGE> 19
sole discretion, (i) accelerate the exercise dates of outstanding options or
make options fully vested and exercisable, (ii) pay cash to the owners of
options in exchange for the cancellation of their options, or (iii) make
adjustments or amendments to the Plan and outstanding options and substitute new
options for outstanding options.
AMENDMENT OF PLAN
The Administrator may, with respect to shares at the time not subject to
options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever except that without the approval of the Company's shareholders no
such revision or amendment shall (i) be made if shareholder approval is required
by applicable law, regulation or the requirements of the Nasdaq Stock Market or
any exchange or interdealer network where the Company's shares are trading or
(ii) increase the number of shares which may be issued under the Plan. Without
limiting the foregoing, the Administrator is entitled to amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations.
VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of the Common Stock
present in person or by proxy at the Annual Meeting and voting on the proposal
is required for the approval of this proposal to approve and adopt the Company's
1999 Stock Option Plan. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR THIS PROPOSAL.
17
<PAGE> 20
PROPOSAL NO. 4
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected BDO Seidman, LLP to be the independent
auditors of the Company for the fiscal year ending December 31, 1999, and
proposes that the shareholders ratify this selection at the Annual Meeting. BDO
Seidman, LLP also acted as independent auditors of the Company for 1998.
Representatives of BDO Seidman, LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
Ratification of the selection of BDO Seidman, LLP requires the affirmative
vote of a majority of the shares voting on such proposal (i.e., shares voting
for or against the proposal).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors, and persons who own more than ten-percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than ten-percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of the copies of
such forms furnished to the Company and certain written representations, the
Company believes that during the last fiscal year all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with the exception that Mr. Reavis filed in July
1998 after the 10th day of the month a Form 4 disclosing a purchase of shares of
Common Stock which occurred in June 1998.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals by shareholders for presentation at the 2000 Annual Meeting must
be received by the Company not later than March 17, 2000 in order to be included
in the Company's Proxy Statement and form of proxy relating to that meeting.
Such proposals should be in writing and addressed to Gail A. Thornhill,
Secretary, Intervisual Books, Inc., 2716 Ocean Park Boulevard, Suite 2020, Santa
Monica, California 90405.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which are
to be brought before the meeting. However, if any such other matters should be
presented for consideration and voting, it is the intention of the persons named
in the enclosed form of proxy to vote the proxy in accordance with their best
judgment.
By order of the Board of Directors
Gail A. Thornhill
Secretary
Santa Monica, California
July [ ], 1999
18
<PAGE> 21
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INTERVISUAL BOOKS, INC.
and certify that:
1. They are the President and the Secretary, respectively, of Intervisual
Books, Inc., a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated in their entirety to read as follows:
I
The name of this corporation is Intervisual Books, Inc.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
III
The total number of shares of all classes of stock which the
corporation shall have the authority to issue is Fifteen Million
(15,000,000), consisting of Twelve Million (12,000,000) shares of common
stock ("Common Stock") and Three Million (3,000,000) shares of preferred
stock ("Preferred Stock").
The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, powers (including voting powers),
preferences, privileges and restrictions granted to and imposed upon any
wholly unissued series of Preferred Stock, and to fix the number of shares
of any series of Preferred Stock and the designation of any such series of
Preferred Stock and any other relative, participating, optional or other
special powers, preferences, rights, and the qualifications, limitations or
restrictions thereof, all as shall be determined from time to time by the
Board of Directors and shall be stated in the resolution or resolutions
providing for the issuance of such Preferred Stock. The Board of Directors,
within the limits and restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number
of any series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
IV
The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
V
This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) through
bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors or otherwise, in excess of the indemnification
otherwise permitted by
A-1
<PAGE> 22
Section 317 of the California Corporations Code, subject only to the
applicable limits set forth in Section 204 of the California Corporations
Code with respect to actions for breach of duty to this corporation and its
shareholders.
3. The foregoing amendment and restatement of the Articles of Incorporation
have been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of the Articles of Incorporation
have been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
Common Stock of this corporation is . The number of shares voting
in favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding shares.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: , 1999
--------------------------------------
, President
--------------------------------------
, Secretary
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<PAGE> 23
EXHIBIT B
INTERVISUAL BOOKS, INC.
1999 STOCK OPTION PLAN
1. Purpose. The Plan is intended to provide incentive to employees,
directors, advisors and consultants of the Corporation to encourage proprietary
interest in the Corporation, to encourage such employees to remain in the employ
of the Corporation or such directors, advisors and consultants to remain in the
service of the Corporation, and to attract new employees, directors, advisors
and consultants with outstanding qualifications.
2. Definitions. Unless otherwise defined herein or the context otherwise
requires, the capitalized terms used herein shall have the following meanings:
(a) "Administrator" shall mean the Board or the Plan Committee of the
Board, whichever shall be administering the Plan from time to time in the
discretion of the Board, as described in Section 4 of the Plan.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Change of Control" shall mean, a change of control of a nature that
would be required to be reported in response to Item 1 of Form 8-K required to
be filed pursuant to the Exchange Act; provided that, without limitation, such a
Change of Control shall be deemed to have occurred if:
(i) 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
(ii) any "person" (as such term is used in Section 13(d) and 14(d) of
the Exchange Act), other than the Company or any "person" who as of the date
this Plan is adopted by the Board, 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 Exchange Act), 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 of Control"
of the Company:
(a) 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);
(b) any acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company; or
(c) upon the death of any person who as of the date of this
Agreement is a director or officer of the Company, the transfer (x) by
testamentary disposition or the laws of intestate succession to the estate or
the legal beneficiaries or heirs of such person, or (y) by the provisions of any
living trust to the named current income beneficiaries thereof of the securities
of the Company beneficially owned by such director or officer of the Company; or
(iii) during any period of two consecutive years during the term of
this Plan, individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such period
has been approved in advance by directors representing at least two-thirds of
the directors then in office who were directors at the beginning of the period;
or
(iv) the shareholders of the Company approve the dissolution 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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(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Commission" shall mean the Securities and Exchange Commission.
(f) "Common Stock" shall mean the common stock of the Corporation and
any class of shares into which such common stock hereafter may be converted or
reclassified.
(g) "Corporation" shall mean Intervisual Books, Inc., a California
corporation.
(h) "Disability" shall mean a medically determinable physical or mental
impairment which has made an individual incapable of engaging in any substantial
gainful activity. A condition shall be considered a Disability only if (i) it
can be expected to result in death or has lasted or it can be expected to last
for a continuous period of not less than twelve (12) months, and (ii) the
Administrator, based upon medical evidence, has expressly determined that
Disability exists.
(i) "Employee" shall mean an individual who is employed (within the
meaning of Section 3401 of the Code and the regulations thereunder) by the
Corporation.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Administrator, at which an Option may be exercised.
(l) "Fair Market Value" shall mean the value of one (1) Share of Common
Stock, determined as follows:
(i) If the Shares are (A) listed on an exchange, the closing price as
reported for composite transactions on the date of valuation, or, if no sale
occurred on that date, then the mean between the closing bid and asked prices on
such exchange on such date, or (B) traded over-the-counter on the National
Market System (the "NMS") of The Nasdaq Stock Market, Inc. ("NASDAQ"), the last
sale price on the business day immediately prior to the date of valuation, or,
if no sale occurred on such date, then the mean between the highest bid and
lowest asked prices as of the close of business on the business day immediately
prior to the date of valuation, as reported in NASDAQ;
(ii) If the Shares are not traded on an exchange or the NMS but are
otherwise traded over-the-counter, the mean between the highest bid and lowest
asked prices quoted in NASDAQ as of the close of business on the date of
valuation, or, if on such day such Shares are not quoted in NASDAQ, the mean
between the representative bid and asked prices on such date in the domestic
over-the-counter market as reported by the National Quotation Bureau, Inc., or
any similar successor organization; or
(iii) If neither clause (i) nor (ii) above applies, the Fair Market
Value shall be determined by the Administrator in good faith. Such determination
shall be conclusive and binding on all persons.
(m) "Grant Date" shall mean the date on which the granting of an Option
is authorized by the Administrator or such other date as prescribed by the
Administrator.
(n) "Incentive Stock Option" shall mean an option described in Section
422 of the Code.
(o) "Nonstatutory Stock Option" shall mean an option that does not meet
the requirements of Section 422(b) of the Code or is not intended to be an
Incentive Stock Option.
(p) "Option" shall mean any stock option granted pursuant to the Plan.
An Option shall be granted as of the Grant Date.
(q) "Option Agreement" shall mean a written stock option agreement
evidencing the grant of an Option.
(r) "Option Limit" shall have the meaning assigned to it in Section 6.
(s) "Optionee" shall mean a Participant who has received an Option.
(t) "Participant" shall have the meaning assigned to it in Section 5(a)
hereof.
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<PAGE> 25
(u) "Plan" shall mean this Intervisual Books, Inc. 1999 Stock Option
Plan, as it may be amended from time to time.
(v) "Plan Committee" shall mean a committee of two or more directors
appointed by the Board to administer the Plan.
(w) "Purchase Price" shall mean the Exercise Price multiplied by the
number of Shares with respect to which an Option is exercised.
(x) "Retirement" shall mean the voluntary termination of employment by
an employee after qualifying for early or normal retirement under any pension
plan or profit sharing or benefit plan of the Corporation or its Subsidiaries.
If an employee is not covered by any such plan, "Retirement" shall mean
voluntary termination of employment after the employee has attained age
sixty-five (65) and after the employee has attained the tenth (10th) anniversary
of his or her last preceding date of hire, or as otherwise determined in the
Administrator's sole discretion.
(y) "Section 16 Participant" shall mean a Participant who is (or, in the
opinion of the Administrator, may be) generally subject to the Section 16
Requirements with respect to purchases and sales of Common Stock or other equity
securities of the Corporation.
(z) "Section 16 Requirements" shall mean the those obligations and
requirements imposed on officers and directors by Sections 16(a) and 16(b) of
the Exchange Act and the rules of the Commission promulgated thereunder.
(aa) "Securities Act" shall mean the Securities Act of 1933, as amended.
(bb) "Subsidiary" shall mean any subsidiary corporation as defined in
Section 425(f) of the Code.
(cc) "Share" shall mean one share of Common Stock, adjusted in
accordance with Section 10 of the Plan (if applicable).
(dd) "Transfer Agent" shall mean a third-party organization retained by
the Corporation to maintain the stock transfer records of the Corporation.
3. Effective Date. The Plan was adopted by the Board effective June 23,
1999. Options granted prior to obtaining shareholder approval in accordance with
Section 16 of the Plan shall be granted subject to such shareholder approval and
must be rescinded if such approval is not obtained in accordance with such
section.
4. Administration.
(a) Administrator. Subject to subsection (c) below, the Plan shall be
administered, in the discretion of the Board from time to time, by the Board or
by a Plan Committee which shall be appointed by the Board as provided in the
Corporation's Bylaws. The Board may from time to time remove members from, or
add members to, the Plan Committee. Vacancies on the Plan Committee, however
caused, shall be filled by the Board. The Board shall appoint one of the members
of the Plan Committee as Chairman. The Administrator shall hold meetings at such
times and places as it may determine. Acts of a majority of the Administrator at
which a quorum is present, or acts reduced to or approved in writing by the
unanimous consent of the members of the Administrator, shall be the valid acts
of the Administrator.
(b) Powers of Administrator. The Administrator shall from time to time at
its discretion select the Optionees who are to be granted Options, determine the
number of Shares to be subject to Options to be granted to each Optionee and
designate such Options as Incentive Stock Options or Nonstatutory Stock Options.
The Administrator shall have full power and authority to operate, manage and
administer the Plan and interpret and construe the Plan and the terms of all
Option Agreements. The interpretation and construction by the Administrator of
any provision of the Plan or of any Option or Option Agreement shall be final.
No member of the Administrator shall be liable for any action or determination
made in good faith with respect to the Plan or any Option.
(c) Disinterested Administration. If the Common Stock is registered under
the Exchange Act and Section 16 Participants are to receive Options hereunder,
this Plan shall be administered by the Board or by a
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<PAGE> 26
Plan Committee consisting solely of two or more directors each of whom shall be
a "non-employee director" within the meaning of Rule 16b-3(b)(3) of the Exchange
Act and an "outside director" within the meaning of Section 162(m) of the Code.
5. Participation.
(a) Eligibility. The Optionee shall be such persons (collectively,
"Participants"; individually a "Participant") as the Administrator may select
from among the following classes of persons, subject to the terms and conditions
of Section 5(b) below:
(i) Employees (who may be officers, whether or not they are directors)
of the Corporation or of a Subsidiary and non-employees to whom an offer of
employment has been extended; and
(ii) directors, advisors and consultants of the Corporation or a
Subsidiary.
Notwithstanding provisions of the first paragraph of this Section 5(a), the
Administrator may at any time or from time to time designate one or more
directors as being ineligible for selection as Participants in the Plan for any
period or periods of time. The Administrator may, in its sole discretion and
upon such terms as it deems appropriate, require as a condition of the grant of
an Option to a Participant that the Participant surrender for cancellation some
or all of the Options which have been previously granted to such person under
this Plan or otherwise. An Option, the grant of which is conditioned upon such
surrender, may have an option price lower (or higher) than the exercise price of
such surrendered Option, may cover the same (or a lesser or greater) number of
shares as such surrendered Option, may contain such other terms as the
Administrator deems appropriate, and shall be exerciseable in accordance with
its terms, without regard to the number of shares, price, exercise period or any
other term or condition of such surrendered Option.
(b) Ten-Percent Shareholders. A Participant who, at the time of grant, owns
more than ten percent (10%) of the total combined voting power of all classes of
outstanding stock of the Corporation or its parent shall not be eligible to
receive an Option unless (i) the Exercise Price of the Shares subject to such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
such Shares on the Grant Date.
(c) Stock Ownership. For purposes of Section 5(b) above, in determining
stock ownership, a Participant shall be considered as owning the stock owned,
directly or indirectly, by or for his or her brothers and sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or for
a corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries. Stock
with respect to which such Participant holds an Option shall not be counted.
(d) Outstanding Stock. For purposes of Section 5(b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant of the Option to the Optionee. "Outstanding stock" shall not include
Shares authorized for issue under outstanding Options held by the Optionee or by
any other person.
6. Stock. The stock subject to Options granted under the Plan shall be
Shares of the Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued upon exercise of Options
under the Plan at any time shall not exceed 500,000 Shares (the "Option Limit"),
subject to adjustment as provided for in this Plan. Notwithstanding the
foregoing, upon the full or partial payment of any Purchase Price by the
transfer to the Corporation of Shares or upon satisfaction of tax withholding
provisions in connection with any such exercise or any other payment made or
benefit realized under this Plan by the transfer or relinquishment of Shares,
there shall be deemed to have been issued or transferred under this Plan only
the net number of Shares actually issued or transferred by the Corporation. In
the event any outstanding Option granted under this Plan for any reason expires
or is canceled or terminated, the Shares allocable to the unexercised portion of
such Option shall again be available to be granted as Options under this Plan.
Notwithstanding the previous sentence, to the extent required by Section 162(m)
of the Code, Shares subject to Options which are canceled continue to be counted
against the Option Limit and if, after an Option grant, the price of Shares
subject to such Option is reduced, the transaction is treated as a cancellation
of the Option and a grant of a New Option and both the Option deemed to be
canceled and the Option deemed to be granted are counted against the Option
Limit. The limitations established by this
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<PAGE> 27
Section 6 shall be subject to adjustment in the manner provided in Section 10
hereof upon the occurrence of an event specified in Section 10.
7. Terms and Conditions of Options.
(a) Stock Option Agreements. Each Option shall be evidenced by an Option
Agreement in such other form as the Administrator shall from time to time
determine. Such Option Agreements need not be identical but shall comply with
and be subject to the terms and conditions set forth in this Section 7.
(b) Nature of Option. Each Option shall state whether it is an Incentive
Stock Option or a Nonstatutory Stock Option.
(c) Optionee's Undertaking. Each Optionee shall agree to remain in the
employ or service of the Corporation and to render services for a period as
shall be determined by the Administrator, from the Grant Date of the Option or
such other date agreed to by the Optionee and the Corporation, but such
agreement shall not impose upon the Corporation any obligation to retain the
Optionee in their employ or service for any period.
(d) Number of Shares. Each Option shall state the number of Shares to which
it pertains and shall provide for the adjustment thereof in accordance with the
provisions of Section 10 hereof.
(e) Exercise Price; Exercise of Options. Each Option shall state the
Exercise Price. The Exercise Price in the case of an Option granted to an
Optionee described in Section 5(b) hereof, shall not be less than one hundred
ten percent (110%) of the Fair Market Value on the Grant Date. The Exercise
Price in the case of any Nonstatutory Stock Option, shall not be less than
Eighty-five percent (85%) of the Fair Market Value on the Grant Date. The
Exercise Price in the case of any Incentive Stock Option granted to persons
other than to an Optionee described in Section 5(b) hereof, shall not be less
than the Fair Market Value on the Grant Date. At the sole discretion of the
Administrator, any Option granted under this Plan to any Participant may be
exercisable in whole or in part immediately upon the grant thereof, or only
after the occurrence of a specified event and/or only in installments, which
installments may be equal or otherwise, and which installments may vary as to
the number thereof as well as to whether any unexercised installments are
cumulative through the life of a particular Option; provided that, in any event,
such Option shall be exercisable at a minimum rate of at least twenty percent
(20%) per year over the period five years from the Grant Date for the Option in
question; however, in the case of an Option granted to a Participant who is a
director, consultant, advisor or officer of the Corporation, the Administrator
may provide that the Option may become fully exercisable, subject to reasonable
conditions such as continued employment or service to the Corporation, at any
time or during any period established by the Administrator.
(f) Medium and Time of Payment; Notice. The Purchase Price shall be payable
in full in United States dollars upon the exercise of the Option; provided,
however, that if the applicable Option Agreement so provides, or the
Administrator in its sole discretion otherwise approves thereof, the Purchase
Price may (to the extent permitted by applicable law) be paid by the surrender
of Shares in good form for transfer, owned by the person exercising the Option
and having a Fair Market Value on the date of exercise equal to the Purchase
Price.
In the event the Corporation determines that it is required to withhold
state or Federal income tax as a result of the exercise of an Option, as a
condition to the exercise thereof, an Optionee must make arrangements
satisfactory to the Corporation to enable it to satisfy such withholding
requirements before the Optionee shall be permitted to exercise the Option.
Payment of such withholding requirements may be made, in the discretion of the
Administrator, (i) in cash, (ii) by delivery of Shares registered in the name of
the Optionee, or by the Corporation not issuing such number of Shares subject to
the Option, having a Fair Market Value at the time of exercise equal to the
amount to be withheld or (iii) any combination of (i) and (ii) above.
The Optionee shall exercise an Option by completing and delivering to the
Corporation, concurrently with the payment of the Purchase Price in the manner
described above, an exercise notice in such form as the Administrator shall from
time to time determine.
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<PAGE> 28
(g) Term and Non-Transferability of Options. Each Option shall state the
time or times when all or part thereof becomes exercisable. No Option shall be
exercisable after the expiration of ten (10) years (or less, in the discretion
of the Administrator) from the Grant Date; except that no Incentive Stock Option
granted to an Optionee described in Section 5(b) hereof shall be exercisable
after the expiration of five (5) years from the Grant Date (or less, in the
discretion of the Administrator). During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee or the Optionee's guardian or
legal representative and shall not be assignable or transferable. The Option
shall not be transferable by the Optionee other than by will or the laws of
descent and distribution. Any other attempted alienation, assignment, pledge,
hypothecation, attachment, execution or similar process, whether voluntary or
involuntary, with respect to all or any part of any Option or right thereunder,
shall be null and void and, at the Corporation's option, shall cause all of the
Optionee's rights under the Option to terminate.
(h) Cessation of Employment (Except by Death, Disability or Retirement). If
an Optionee's employment or service with the Corporation ceases for any reason
or no reason, whether voluntarily or involuntarily, with or without cause, other
than pursuant to death, Disability or Retirement, such Optionee shall have the
right, subject to the restrictions referred to in Section 7(g) above, to
exercise the Option at any time within ninety (90) days after such cessation,
but, except as otherwise provided in the applicable Option Agreement, only to
the extent that, at the date of such cessation, the Optionee's right to exercise
such Option had accrued pursuant to the terms of the applicable Option Agreement
and had not previously been exercised.
For purposes of this Section 7(h), the employment relationship shall be
treated as continuing intact while the Optionee is on military leave, sick leave
or other bona fide leave of absence (to be determined in the sole discretion of
the Administrator). The foregoing notwithstanding, in the case of an Incentive
Stock Option, employment shall not be deemed to continue beyond the ninetieth
(90th) day after the Optionee ceased active employment, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
(i) Death of Optionee. If an Optionee's employment or service with the
Corporation ceases by reason of the Optionee's death, or after ceasing to be a
Participant but during the period in which he or she could have exercised the
Option under this Section 7, and has not fully exercised the Option, then the
Option may be exercised in full, subject to the restrictions referred to in
Section 7(g) above, at any time within twelve (12) months after the Optionee's
death by the executor or administrator of his or her estate or by any person or
persons who have acquired the Option directly from the Optionee by bequest or
inheritance, but, except as otherwise provided in the applicable Option
Agreement, only to the extent that, at the date of death, the Optionee's right
to exercise such Option had accrued and had not been forfeited pursuant to the
terms of the applicable Option Agreement and had not previously been exercised.
(j) Disability of Optionee. If an Optionee's employment or service with the
Corporation ceases by reason of the Optionee's Disability, such Optionee shall
have the right, subject to the restrictions referred to in Section 7(g) above,
to exercise the Option at any time within twelve (12) months after such
cessation by reason of Disability, but, except as provided in the applicable
Option Agreement, only to the extent that, at the date of such cessation, the
Optionee's right to exercise such Option had accrued pursuant to the terms of
the applicable Option Agreement and had not previously been exercised.
(k) Retirement of Optionee. If an Optionee's employment or service with the
Corporation ceases by reason of the Optionee's Retirement, such Optionee shall
have the right, subject to the restrictions referred to in Section 7(g) above,
to exercise the Option at any time within ninety (90) days after the date of
Retirement, but only to the extent that, at the date of such cessation, the
Optionee's right to exercise such Option had accrued pursuant to the terms of
the applicable Option Agreement and had not previously been exercised.
(l) Time of Cessation of Service. For purposes of this Plan, the Optionee's
employment or service shall be deemed to have ceased or be terminated on the
date when the Optionee's employment or service in fact ceased or Optionee is in
fact terminated.
(m) Rights as a Shareholder. No one shall have rights as a shareholder with
respect to any Shares covered by an 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
B-6
<PAGE> 29
or other rights for which the record date is prior to the date such stock
certificate is issued, except as expressly provided in Section 10 hereof.
(n) Modification, Extension and Renewal of Options. Within the limitations
of the Plan, the Administrator may modify an Option, extend or renew outstanding
Options or accept the cancellation of outstanding Options (to the extent not
previously exercised) for the granting of new Options in substitution therefor.
The foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair any rights or obligations under any
Option previously granted. With the consent of the affected Optionee, the
Administrator may cancel any agreement evidencing Options. In the event of such
cancellation, the Administrator may authorize the granting of new Options, which
may or may not cover the same number of Shares that have been the subject of the
prior award, at such Exercise Price and subject to such terms, conditions and
discretions as would have been applicable under this Plan had the canceled
Options not been granted.
(o) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Corporation acquires (whether by
purchase, merger or otherwise) all or substantially all of outstanding capital
stock or assets of another corporation or of any reorganization or other
transaction qualifying under Section 424 of the Code, the Administrator may, in
accordance with the provisions of that Section, substitute Options under the
Plan for options under the plan of the acquired company; provided, however, that
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.
(p) Other Provisions. An Option Agreement authorized under the Plan may
contain such terms and provisions not inconsistent with the terms of the Plan
(including, without limitation, restrictions upon the exercise of the Option) as
the Administrator shall deem advisable in its sole and absolute discretion.
8. Limitation on Annual Awards.
(a) Limitation on Incentive Stock Options. To the extent that the aggregate
Fair Market Value (determined as of the Grant Date) of the Shares with respect
to which Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year under the Plan and all other plans maintained
by the Corporation or its parent, exceeds $100,000, such excess Options shall be
treated as Nonstatutory Stock Options. For the purposes of this Section 8,
Incentive Stock Options shall be taken into account in the order in which they
were granted.
(b) Limitation on Total Options Granted. As long as the Plan is in effect,
at no time will Options granted to any Participant pursuant to the Plan exceed
400,000 Shares, subject to adjustment as provided for in Section 10.
9. Term of Plan. Options may be granted pursuant to the Plan until the
expiration of the Plan ten (10) years after the effective date referred to in
Section 3.
10. Effect of Certain Events.
(a) Adjustments Upon Changes in Stock. The Administrator shall make or
provide for such adjustments in the Option Limit, the Exercise Price and in the
number or kind of shares or other securities (including shares or other
securities of another issuer) covered by this Plan and outstanding Options as
the Administrator in its sole discretion, exercised in good faith, shall
determine is equitably required to prevent dilution or enlargement of rights of
optionees that would otherwise result from (a) any stock dividend, stock split,
combination of shares, issuance of rights or warrants to purchase stock,
spin-off, recapitalization or other changes in the capital structure of the
Corporation, (b) any merger, consolidation, reorganization or partial or
complete liquidations, or (c) any other corporate transaction or event having an
effect similar to any of the foregoing. The Administrator also shall make or
provide for such adjustment in the number or kind of shares of the Corporation's
capital stock or other securities (or in shares or other securities of another
issuer) which may be acquired pursuant to Options granted under the Plan and the
number of such securities to be awarded
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<PAGE> 30
to each Optionee as the Administrator in its sole discretion, shall determine is
appropriate to reflect any transaction or event described in the preceding
sentence. In the event of any such transaction or event, the Administrator may
provide in substitution for any or all outstanding Options under the Plan such
alternative consideration (including securities of any surviving entity) as it
may in good faith determine to be equitable under the circumstances and may
require in connection therewith the surrender of all Options so replaced. In any
case, such substitution of securities shall not require the consent of any
person who is granted Options pursuant to the Plan. The determination of the
Administrator as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
(b) Change of Control. In addition to the rights set forth in Section 10(a)
above, in the event of a Change of Control, the Administrator may in its sole
discretion, without obtaining shareholder approval or the consent of any person
granted Options under the Plan, take one or more of the following actions:
(i) Accelerate the exercise dates of any outstanding Option, or make the
Option fully vested and exercisable;
(ii) Pay cash to any or all owners of Options in exchange for the
cancellation of their outstanding Options; or
(iii) Make any other adjustments or amendments to the Plan and
outstanding Options and substitute new Options for outstanding Options.
(c) Adjustment Determination. To the extent that the foregoing adjustments
relate to securities of the Corporation, such adjustments shall be made by the
Administrator, whose determination shall be conclusive and binding on all
persons.
(d) Limitation on Rights. Except as expressly provided in this Section 10,
the Optionee 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 or consolidation or spinoff of assets or
stock of another corporation, and any issue by the Corporation 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 or Exercise Price of Shares subject to an Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of
the Corporation 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.
11. Securities Law Requirements.
(a) Legality of Issuance. No Shares shall be issued upon the exercise of
any Option unless and until the Corporation has determined that:
(i) it and the Optionee have taken all actions required to register the
offer and sale of the Shares under the Securities Act, or to perfect an
exemption from the registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange on which
the Common Stock is listed has been satisfied; and
(iii) any other applicable provision of state or Federal law has been
satisfied.
(b) Restrictions on Transfer; Representations of Optionee;
Legends. Regardless of whether the offering and sale of Shares under the Plan
has been registered under the Securities Act or has been registered or qualified
under the securities laws of any state, the Corporation may impose restrictions
upon the sale, pledge or other transfer of such Shares (including the placement
of appropriate legends on stock certificates) if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable in
order to achieve compliance with the provisions of the Securities Act, the
securities laws of any state or any other law. In the event that the sale of
Shares under the Plan is not registered under the Securities Act but an
exemption is available which requires an investment representation or other
representation, each Optionee shall be required to represent that such Shares
are being acquired for investment, and not with a view to the sale or
B-8
<PAGE> 31
distribution thereof, and to make such other representations as are deemed
necessary or appropriate by the Corporation and its counsel. Stock certificates
evidencing Shares acquired under the Plan pursuant to an unregistered
transaction shall bear the following restrictive legend and such other
restrictive legends as are required or deemed advisable under the provisions of
any applicable law:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE "ACT"). ANY TRANSFER OR
PLEDGE OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL
FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER
OR PLEDGE TO COMPLY WITH THE ACT."
Any determination by the Corporation and its counsel in connection with any
of the matters set forth in this Section 11 shall be conclusive and binding on
all persons.
(c) Registration or Qualification of Securities. The Corporation may, but
shall not be obligated to, register or qualify the sale of Shares under the
Securities Act or any other applicable law. The Corporation shall not be
obligated to take any affirmative action in order to cause the sale of Shares
under the Plan to comply with any law.
(d) Exchange of Certificates. If, in the opinion of the Corporation and its
counsel, any legend placed on a stock certificate representing Shares sold under
the Plan is no longer required, the holder of such certificate shall be entitled
to exchange such certificate for a certificate representing the same number of
Shares but without such legend.
12. Amendment of the Plan. The Administrator may from time to time, with
respect to any Shares at the time not subject to Options, suspend or discontinue
the Plan or revise or amend it in any respect whatsoever except that, without
the approval of the Corporation's shareholders, no such revision or amendment
shall:
(a) Be made if shareholder approval is required by applicable law,
regulation or the requirements of The Nasdaq Stock Market or any exchange or
interdealer network where the Shares are trading;
(b) Increase the number of Shares which may be issued under the Plan;
(c) Amend this Section 12 to defeat its purpose.
Without limiting the generality of the foregoing, the Administrator may
amend this Plan to eliminate provisions which are no longer necessary as a
result of changes in tax or securities laws or regulations, or in the
interpretation thereof.
13. Financial Statements. Each Optionee shall receive financial statements
of the Corporation not less than annually.
14. Application of Funds. The proceeds received by the Corporation from the
sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes.
15. Approval of Shareholders. The Plan must be approved by the affirmative
vote of the holders of a majority of the Corporation's outstanding shares of
capital stock on or before the date twelve (12) months from the date the Plan
was adopted by the Board.
16. Governing Law. This Plan, and the Option Agreements, shall be governed
by and enforced and construed in accordance with the internal substantive laws
(and not the laws of conflicts of laws) of the State of California.
B-9
<PAGE> 32
To record the adoption of the Plan by the Board as of June 23, 1999, the
Board has caused its authorized officers to sign the Plan and affix the
corporate seal hereto.
INTERVISUAL BOOKS, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title: President
By:
--------------------------------------
Name:
--------------------------------------
Title: Secretary
B-10
<PAGE> 33
PRELIMINARY COPY
PROXY PROXY
INTERVISUAL BOOKS, INC.
ANNUAL MEETING OF SHAREHOLDERS, AUGUST 4, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Waldo H. Hunt and Nathan N. Sheinman and each
of them, with full power of substitution, as proxies of the undersigned, to
represent the undersigned and to vote the common stock as specified below at the
Annual Meeting of Shareholders of Intervisual Books, Inc. to be held on August
4, 1999 at 10:00 a.m., (local time) at the Company's headquarters, located at
2716 Ocean Park Boulevard, Suite 2020, Santa Monica, California 90405, and at
any adjournments or postponements thereof, upon the following matters and in
accordance with their best judgment with respect to any other matters which may
properly come before the meeting, all as more fully described in the proxy
statement for said Annual Meeting (receipt of which is hereby acknowledged).
<TABLE>
<S> <C>
------------------------ ------------------------
Account Number Common
</TABLE>
<TABLE>
<S> <C> <C>
1. Election of [ ]FOR all nominees listed below (except as marked [ ]WITHHOLD AUTHORITY to vote for all nominees
directors to the contrary below) listed below
</TABLE>
Nominees: Waldo H. Hunt, Nathan N. Sheinman, Dan P. Reavis, Steven D. Ades, Dr.
Neil G. Berkman, Gordon Hearne, Leonard W. Jaffee, John J. McNaughton, Peter
Seymour
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.)
- --------------------------------------------------------------------------------
2. Approval of the Company's Amended and Restated Certificate of Incorporation
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the Company's 1999 Stock Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed and dated on reverse side)
<PAGE> 34
4. Ratification of selection of BDO Seidman, LLP as independent auditors of the
Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, on such other matters as may properly come before the
meeting and any postponements or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED FOR ALL NOMINEES FOR DIRECTORS LISTED IN PROPOSAL 1 AND FOR
PROPOSALS 2, 3 AND 4. IF ANY OF THE NOMINEES FOR DIRECTOR ARE UNABLE TO SERVE OR
FOR GOOD CAUSE WILL NOT SERVE, THE PROXYHOLDER WILL VOTE FOR SUCH OTHER PERSON
OR PERSONS AS THE BOARD OF DIRECTORS MAY RECOMMEND.
NOTE: Please date and sign
this Proxy exactly as name
appears. When signing as
attorney, trustee,
administrator, executor or
guardian, please give your
title as such. In the case
of joint tenants, each joint
owner must sign.
Dated: , 1999
---------------
----------------------------
Signature
----------------------------
Signature (if held jointly)
VOTES MUST BE INDICATED (X)
IN INK. [X]
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
