<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-10916
INTERVISUAL BOOKS, INC.
(Exact Name of Registrant as Specified in its Charter)
California 95-2929217
(State of Incorporation or Organization) (I.R.S. Employer I.D. No.)
2716 Ocean Park Boulevard, Suite 2020
Santa Monica, California 90405
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (310) 396-8708
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, No par value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No__
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
The aggregate market value of the common stock held by non-affiliates of
the registrant as of February 29, 2000, was approximately $4,856,294. The
aggregate market value was based on the closing price of the common stock as
quoted by The Nasdaq Stock Market on such date.
Number of shares outstanding of common stock:
5,915,617 shares as of February 29, 2000.
Documents incorporated by reference: None
================================================================================
<PAGE> 3
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934. ACTUAL RESULTS AND EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED
AS A RESULT OF THE FACTORS SET FORTH IN OR IMPLIED BY THE STATEMENTS CONTAINED
IN THIS REPORT.
PART I
Item 1. BUSINESS
Introduction
Intervisual Books, Inc. (the "Company") was incorporated in California
in 1975. The Company is engaged in the business of creating and producing a
diversified line of pop-up and dimensional novelty books, which it sells to
domestic retailers and international and US publishers. To a lesser extent, the
Company also produces pop-up and dimensional game boards and playsets, as well
as cloth books.
The Company, as a packager, develops its own books and may grant the
exclusive publishing rights to one publisher in each country. It also develops
books in partnership with publishers to produce pop-up versions of existing
titles owned by the publishers, including the works of key artists or writers
controlled by the publishers. In some cases, the Company will self-publish
certain titles and offer them directly to retailers. In substantially all cases,
the Company retains the exclusive right to produce these books.
The Company may decide that in order to maximize a title's potential it
should be self-published. The Company sells and markets its self-published
titles under the imprints "Piggy Toes Press" and "Pop-up Press." When a title
is self-published, the Company maintains all North American rights. Foreign
sales of a self-published title are handled the same as a packaged product. The
product is offered to one or more foreign publishing partners who are given the
right to sell and market the specific item in a given territory. The Company
retains manufacturing rights and delivers finished product to the customer
usually on a non-returnable basis. In North America, self-published titles are
manufactured and brought into inventory for sale to retailers or distributors
by the Company's own sales force. The Company determines the quantity of
product to produce based upon estimates of the first year's sales. This
inventory is stored and shipped from a public warehouse located in the Chicago
area. Self-publishing sales for the most part are made by the Company's sales
force directly to book, toy, gift and specialty chains and independent
retailers. The Company's customer base also includes the price clubs and mass
markets. In most cases, self-publishing titles are sold on a returnable basis.
The Company has the risk for unsold inventory, which is mitigated by the
liquidity of book products, which can usually be sold to closeout buyers.
In May of 1999, the Company acquired all the outstanding shares of Fast
Forward Marketing, Inc. (FFM) for cash and shares of the Company's common stock.
FFM, a California company established in 1987, is an independent distributor of
video and audio products for major motion picture studios and independent
producers. FFM has built an account base of over 4,000 retailers, including
national chains such as Musicland, Toys R Us, Blockbuster, Target, Borders and
Best Buy, as well as specialty retailers such as The Store of Knowledge. As a
result of this acquisition, the Company through its FFM division is now engaged
in the distribution of video and audiotapes and other products. The Company also
believes this acquisition gives it more direct control over its sales and
marketing of its self-published titles and adds operational infrastructure
needed to continue the transition toward becoming more of a traditional
publisher.
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Types of Product
Books
The Company endeavors to combine the finest of children's contemporary
book illustration with high quality color printing and paper engineering which
achieves dramatic paper-folding effects. The Company's products incorporate
dimensional and movable features where illustrations come to life through
multiple movements activated by pull tabs and turning wheels. Pop-up paper
scenes are created when printed paper pieces are glued onto a page in such a way
that when the pages are opened, a complex three-dimensional model erects itself.
The model then folds itself neatly away when the page is turned or when the book
is closed. The Company also incorporates electronic audio and musical chips,
lights, stuffed animals and other elements into some of its works.
Although the Company has produced pop-up versions of many popular
children's books, such as Madeline, Good Night Moon Room, Paddington, Clifford,
Tales of Peter Rabbit, and fairy tale classics, approximately half of the
Company's books are non-fiction educational books. The Human Body, a book with
anatomical pop-ups, and a series of "Learn About" books, which teach children
about such things as colors, shapes, sizes, numbers, etc. and were translated
into 13 languages are examples of such educational books. The Company publishes
several pop-up books by Jan Pienkowski including Haunted House which is probably
the world's best selling pop-up book with over 1,200,000 copies in print. In the
last three years, the Company sold over 600,000 copies of the interactive
playset Choo Choo Charlie.
The Company has produced "electronic" books with micro-chip components
that play the music to songs such as Twinkle, Twinkle Little Star, Happy
Birthday, Silent Night, Jingle Bells, Lullaby and Goodnight, etc.; as well as
other books which have electronic sounds such as those created by a car horn,
telephone, doorbell, and a toilet flushing. To date, approximately 3,800,000
copies of electronic books have been sold by the Company.
The Company's creative department includes book designers, writers, and
highly trained and specialized "paper engineers" who conceive and design the
books and other products at the Company's offices in Santa Monica, California.
The books, most of which require printing and labor-intensive hand-assembly are
manufactured for the Company on a subcontracted basis by printers in Colombia,
Singapore, Thailand, China and Hong Kong.
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Video
FFM distributes video and audio products for motion picture studios,
including Walt Disney, Warner Bros., Universal, Paramount and 20th Century Fox,
as well as independent producers. FFM has access to titles on subjects ranging
from blockbuster studio releases to exercise and children's products. FFM also
sells and services the direct mail catalog industry. FFM has its own sales force
who access a sales database that provides current information on product
availability and pricing. This sales database contains information on over
50,000 titles. Based upon confirmed orders, FFM places orders from its
suppliers. Finished goods are either drop-shipped directly to the customer or
received in an independent warehouse, consolidated and then shipped to the
customer. The Company does not generally maintain an inventory of products.
Approximately 50% of video sales are sold on a returnable basis. Most of FFM's
suppliers have predetermined return caps, which the Company uses to set return
limits with its customers. This substantially reduces the Company's exposure to
excess inventory.
Publishing Agreements
Approximately 60% of the books produced by the Company are
conceived and developed by the Company's creative department. After the Company
conceives an idea and makes a dummy book, key publishers are consulted to
determine if they have an interest in publishing and marketing the book. In such
cases, the Company and publisher sign an agreement which stipulates that the
publisher will purchase a specified quantity of their edition for the right to
control distribution and set pricing to sell the book. In addition, the
publishing agreement allows the Company, on most titles, to recapture publishing
rights if the publisher does not continue to reorder books. Normally the Company
is also given the exclusive right in perpetuity to produce all future print
orders of book titles.
The Company often contracts with publishers to produce and market
internationally a pop-up version of a classic title owned by the publisher. In
such cases, the Company enters into a co-publishing agreement which requires the
Company to provide, at its expense, paper engineering, dimensional design, art
production and color separations. The publisher, who has contracted to order a
set number of books, provides the funds which enable the Company to guarantee
the quality of the final printing, hand assembly and binding of the book. The
agreement also provides that the Company receives the right to sell the books in
all world markets. In most
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<PAGE> 6
cases, a royalty is paid to the co-publishing partner for all international
sales.
Where the Company has contracted with a publisher to produce a book, the
Company does not normally incur the expense of final printing and assembly of
books without firm publishers' orders in hand. Approximately half of the
Company's revenues are derived from such co-editions.
Most of the co-published works are authored and/or illustrated by top
international children's book authors and illustrators with the publisher or are
recognized classics still in copyright with the publisher. Examples of these
books include: Peter Rabbit by Beatrix Potter, Winnie-the-Pooh by A. A. Milne,
Good Night Moon Room by Margaret Wise Brown and The Little Engine That Could by
Watty Piper. Because of the Company's reputation, prominent authors and/or
illustrators have been attracted to produce their books with the Company. The
Company has produced works authored and/or illustrated by Tomie DePaola, Jan
Pienkowski, Tasha Tudor, Eric Carle, David Carter, Babette Cole, Mary
Engelbreit, Jane Hissey, Mick Inkpen, Kees Moerbeek, and others.
Customers
In 1999, 1998, and 1997, approximately 67%, 56%, and 48%, respectively,
of the Company's sales were to US customers; the balance of its sales are
international co-editions sold primarily in the United Kingdom, France,
Australia, Italy and Japan. In 1999, the Company sold books to 101 different
publishers in 25 countries. In 1999, no single customer accounted for 10% or
more of the Company's total sales, while in 1998, sales from the Penguin Group
accounted for 13% of the Company's total sales.
Foreign sales accounted for 35%, 44%, and 52%, respectively, of the
Company's net sales for the years ended December 31, 1999, 1998 and 1997. The
Company sells in US dollars to all customers and, accordingly, currency
fluctuations which increase the price of the Company's products to its foreign
customers can adversely impact the level of the Company's export sales from time
to time. The following table breaks down revenues attributed to export sales in
the geographic areas indicated as well as each area's percent of total sales:
4
<PAGE> 7
Export Sales as a Percentage of Total Revenues
(000's omitted)
<TABLE>
<CAPTION>
Geographic Area 1999 % 1998 % 1997 %
- --------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Europe $4,028 22 $3,387 30 $5,932 32
Asia 1,212 7 448 4 2,404 13
Other 1,094 6 1,127 10 1,374 7
</TABLE>
Because all sales are generated through the Company's US headquarters,
the Company does not distinguish operating profit or loss between US sales and
foreign sales. The Company has no identifiable assets attributable to foreign
sales.
Marketing and Direct Distribution
The Company's primary marketing activities take place with the
presentation of its books at the International Children's Book Fair in
Bologna, Italy, each April and at the Frankfurt International Book Fair in
Germany each October. The Company also attends the Book Expo America held in a
US city each June. The sales executives of the Company also market its products
by calling directly on major publishers, both in the United States and
internationally. In 1999, the Company introduced a total of 78 new titles, with
first run printing averaging 32,000 copies per title. Of these new titles, 19
were also added to the Company's self-publishing program.
From the Fall of 1997 until June of 1999, the Company used an outside
distributor, Andrews McMeel, located in Kansas City, Missouri, to sell, market,
invoice and distribute its self-published book titles to retailers. Effective as
of this date, the Company moved the self-publishing sales and marketing in house
and began using the sales staff acquired as part of the Fast Forward Marketing
transaction. Under a new three year agreement, warehousing and fulfillment was
transferred by December 31, 1999 from Andrews McMeel to Ware-Pak, an independent
facility in the Chicago area. In early 2000, the Company added nine independent
sales groups to sell and market self-published books and video titles. This will
add approximately 50 people to the Company's sales efforts. The Company feels
that in addition to reducing costs, these moves will give it better direct
control over sales and marketing to retailers. The Company purchases and owns
the inventory required to support its self-published book sales.
5
<PAGE> 8
Seasonality of Business
The Company's business is seasonal, as is the publishing and video
business as a whole, with the major volume of sales occurring in the last six
months of the year. This is due primarily to the increase in retail sales during
the "back-to-school" season, Thanksgiving, and Christmas holidays. It is not
unusual for the Company's sales volume in the last half of the year to exceed by
50% or more its sales volume for the first six months of the year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Competition
Books
The Company operates in the highly competitive book selling industry and
its products compete generally with the entire publishing industry to attract
retail buyers. Pop-up and novelty books represent a relatively small percentage
of total US retail sales of juvenile hardcover books. While the Company believes
it is currently the largest pop-up packager in the world, it realizes that other
packagers have established a competitive presence in the United States and the
United Kingdom. The Company estimates that there are currently approximately
three companies who compete with the Company as packagers of quality pop-up and
labor intensive novelty books.
Video
As a distributor of non-IBI proprietary product, the FFM division
competes in the traditional home video distribution marketplace along with other
video distributors, such as Ingram Entertainment and Baker & Taylor. In some
cases, the Company also competes with its product suppliers. While the ongoing
consolidation of traditional video distributors creates opportunities for FFM,
the competition the Company faces for retail shelf space has intensified. The
major studios, FFM's largest suppliers, historically sell most major FFM
traditional video accounts on a direct basis. While FFM handles the smaller
specialty accounts and catalogs on behalf of the studios, there have been
occasions of these accounts getting large enough that the studio elects to
handle them directly and forego the service that FFM provides. Additionally, the
Company is affected by the ongoing supplier side consolidation that is occurring
in the home video industry. Smaller independent producers, whom FFM has a much
broader distribution base, are susceptible to being acquired by larger companies
and studios who already have direct relationships with the Company's customers.
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<PAGE> 9
Backlist
In the calendar year after a new book has been shipped, the book is
classified as a "backlist" title. In 1999, 1998 and 1997, approximately 41%,
63%, and 53%, respectively, of the Company's net book sales were derived from
the Company's backlist. As of the date of this Report, the Company has
approximately 1,200 backlist titles with 350 titles on its "active" backlist
(titles for which the Company has received orders within the last 24 months).
Paper Engineers
Management believes its pool of paper engineers is the most experienced
in the world. In the creation of pop-up books, the paper engineer has the
responsibility to design dramatic pop-up effects which are sturdy and durable,
yet can be hand-assembled with ease and at a reasonable cost. Paper engineering
is a skill rarely taught in schools; it is usually learned by doing. The Company
employs 4 paper engineers.
Printers
The Company does not engage in any of its own printing, binding,
hand-assembly, manufacturing, or shipping, but contracts such services from
independent suppliers. The Company primarily utilizes printers in Colombia, Hong
Kong, Singapore, China and Thailand to perform the printing, hand-assembly,
binding, and shipping of its products. The Company supplies its printers with
color separated printing films and, for certain projects, components are
procured by the Company and provided to the printer to complete assembly.
Because pop-up books are usually printed on 10 and 12 point board stock,
not paper, the production operations required for pop-up books demand that the
printers have top-quality die cutting, printing, box making, and packaging
capabilities. The hand-assembly of the bits and pieces of the movable parts of
the books requires skilled labor similar to the level required to assemble
precision electronic products and cannot be automated. Workers must apply the
right amount of glue and assemble the parts together properly to enable the
moving parts to function perfectly; one failed glue point could be the cause for
book rejection.
Hua Yang Printing, located in Hong Kong maintains its printing operation
and hand-assembly plant in China and was responsible for 46% of the Company's
production in 1999. Carvajal, one of the Company's primary producers, is located
in Colombia and is a major
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<PAGE> 10
international printer. Carvajal operates two hand-assembly plants, one in
Colombia and the other in Ecuador, and produced 15% of the Company's product in
1999. Tien Wah Press maintains its printing facilities in Singapore and its
hand-assembly plants in Malaysia and Indonesia. In 1999, the Company produced
11% of its product at Tien Wah Press. Production on the Company's cloth book
line was handled by Pal-Up Taiwan Co. with silk screening, embroidery and hand
assembly in China. The balance of the Company's 1999 production was handled by
Sirivatana in Thailand, Excel Printing Co. and Winner Offset Printing located in
Hong Kong with hand assembly plants in China and two other smaller suppliers.
The Company has no long-term contracts with its printers but enters into
contracts on an order-by-order basis. The Company has been working with Carvajal
and Tien Wah Press for over 20 years and with Hua Yang Printing for over 10
years. The Company has not experienced any material difficulties in
manufacturing its products or achieving acceptable levels of quality control
through these printers and believes its relationships with them to be excellent.
Backlog
The Company backlog consists of anticipated revenues from sales of books
and videos for which the Company has confirmed orders which have not been
manufactured and shipped. The backlog at February 29, 2000 was approximately
$3,100,000 as compared to $3,300,000 at February 10, 1999. The backlog at
February 29, 2000 consisted of confirmed orders for delivery in 2000. The
Company believes that backlog as of any date is not necessarily indicative of
future revenues.
Employees
As of March 17, 2000, the Company had 48 full-time employees. These
employees include members of the administrative, creative, production and
marketing departments. None of the Company's employees are covered by a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes its labor relations are satisfactory. The Company also
contracts with people on an independent contractor basis, particularly in the
performance of such functions as graphic design, finished art, art production,
and specialized writing.
Item 2. PROPERTIES
The Company's approximately 13,900 square foot executive offices are
located in Santa Monica, California. The lease rate is
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approximately $22,180 per month through the remainder of the lease and is
subject to adjustment only for increases in annual operating expenses and taxes.
The lease expires on January 31, 2002, subject to an option to extend for an
additional five years at an adjusted rental based on 95% of the prevailing rates
for comparable space.
The Company believes that its physical properties are adequate for its
current needs.
Item 3. LEGAL PROCEEDINGS
As of the date hereof, the Company is not a party to any material legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
Information regarding the Company's executive officers is found in Part
III, Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT of this Annual
Report on Form 10-K.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's common stock is traded under the symbol "IVBK" and was
traded on the Nasdaq Small Cap Market System during 1999. The following table
sets forth the high and low quotations from The Nasdaq Small Cap Market System
for the Company's common stock for the periods indicated. Quotations do not
include retail markups, markdowns or commissions and may not necessarily
represent actual transactions.
COMMON STOCK PRICE
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
First Quarter - 1998 $ 3-3/8 $ 2-1/2
Second Quarter - 1998 3 1-3/8
Third Quarter - 1998 2-1/2 1
Fourth Quarter - 1998 1-15/16 11/16
First Quarter - 1999 4-11/16 1
Second Quarter - 1999 1-9/16 7/8
Third Quarter - 1999 1-7/16 1-1/16
Fourth Quarter - 1999 3-7/16 15/16
</TABLE>
The number of record holders of the Company's common stock as of
February 29, 2000, was 180, several of which represent "street accounts" of
securities brokers. The Company has not paid a dividend with respect to its
common stock nor does the Company anticipate paying dividends in the foreseeable
future.
Item 6. SELECTED FINANCIAL DATA
The following table summarizes certain financial data for the Company
for the fiscal years ended December 31, 1999, 1998, 1997, 1996, and 1995 which
should be read in conjunction with the Financial Statements of the Company and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this Report.
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The consolidated financial statements also reflect the accounts of FFM
from May 14, 1999, the date it was acquired. The acquisition was accounted for
under the purchase method of accounting. In addition, the acquisition of FFM may
impact comparibility.
SELECTED FINANCIAL DATA
INTERVISUAL BOOKS, INC.
Statements of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 17,674,697 $ 11,191,681 $ 18,711,596 $ 16,766,292 $ 19,494,405
Rights income 599,183 205,844 321,834 - -
------------ ------------ ------------ ------------ ------------
Total revenue 18,273,880 11,397,525 19,033,430 16,766,292 19,494,405
Cost of sales 13,967,516 9,592,013 14,585,457 12,939,669 14,897,013
------------ ------------ ------------ ------------ ------------
Gross profit 4,306,364 1,805,512 4,447,973 3,826,623 4,597,392
Selling, general, and
administrative expenses 5,012,035 4,797,460 4,515,067 4,698,957 3,990,802
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (705,671) (2,991,948) (67,094) (872,334) 606,590
Interest expense (287,400) (63,820) - (4,513) -
Other income 46,436 70,956 56,211 116,650 228,542
------------ ------------ ------------ ------------ ------------
Income (loss) before income
tax expense (benefit) (946,635) (2,984,812) (10,883) (760,197) 835,132
Income tax expense (benefit) - (700,000) 62,682 (347,382) 355,908
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (946,635) $ (2,284,812) $ (73,565) $ (412,815) $ 479,224
============ ============ ============ ============ ============
Earnings (loss) per share:
Basic $ (0.17) $ (0.45) $ (0.02) $ (0.08) $ 0.10
============ ============ ============ ============ ============
Diluted $ (0.17) $ (0.45) $ (0.02) $ (0.08) $ 0.09
============ ============ ============ ============ ============
Weighted average shares outstanding:
Basic 5,633,121 5,110,317 5,036,132 5,032,798 5,032,798
============ ============ ============ ============ ============
Diluted 5,633,121 5,110,317 5,036,132 5,032,798 5,259,872
============ ============ ============ ============ ============
Dividends on common stock - - - - -
============ ============ ============ ============ ============
Balance Sheet Data:
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $15,504,016 $10,415,134 $13,725,574 $12,438,665 $14,265,175
Total liabilities $10,883,234 $ 5,491,838 $ 6,615,263 $ 5,330,318 $ 6,663,191
Working capital $ 958,379 $ 950,736 $ 3,482,308 $ 4,040,873 $ 4,558,293
Shareholders' equity $ 4,620,784 $ 4,923,296 $ 7,110,311 $ 7,108,347 $ 7,601,984
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and notes thereto appearing elsewhere in this Report.
General
The Company's inventory consists of finished books for promotional
purposes, materials purchased for production, and finished books for its
self-publishing program. The Company typically retains limited rights to publish
the books it creates and the Company has the rights to publish approximately
1,200 books that are considered part of its "backlist" (titles that were
originally manufactured and sold in previous years). Sales of titles from the
Company's backlist accounted for approximately $4,853,000 or 41% of book sales
in 1999, $7,081,000 or 63% of book sales in 1998, and $9,830,000 or 53% of book
sales in 1997.
Production costs related to books include amounts incurred for design,
art, editorial services, paper engineering, cutting dies, and color separations.
The costs for books are stated at cost and are capitalized and amortized using
the sum-of-the-years-digits method over a five-year projected sales life. These
costs are evaluated each year based on management's estimates of future sales of
related products. These costs are written off when management believes they
provide no future benefit. Costs of products which have an anticipated sales
life of one year or less are written off in the first year of sale.
Production costs related to videos include amounts incurred for
duplication, editing, and packaging. The costs are stated at the lower of cost
or net realizable value and are amortized over the greater of the number of
units sold divided by total units estimated to be sold or straight line over the
life of the product.
Total production costs, net of accumulated amortization, were
approximately $3,417,000 at December 31, 1999, and $3,426,000 at December 31,
1998.
The Company recognizes income upon shipment of books and videos.
Historically, the Company, which has a December 31 year-end, has recognized a
significant portion of its sales in the last six months of each year, resulting
from the year-end holiday season and the spring season of the following year
which is often shipped
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in December. The Company achieved approximately 70%, 57%, and 71%, respectively,
of its total sales during the last six months of 1999, 1998, and 1997.
On March 20, 1998, the Company signed an agreement and plan of merger
with the Hunt Creative Group, a related party. The merger was accounted for as a
combination of entities under common control, which was accounted for in a
similar manner as a pooling of interest, and all financial numbers have been
restated to include the results of the Hunt Group.
On May 14, 1999, the Company completed the acquisition of Fast Forward
Marketing, Inc., (Fast Forward). The transaction was completed under the terms
and conditions of a definitive agreement signed March 29, 1999. Under this
agreement, the Company acquired all the outstanding shares of Fast Forward for
670,000 shares of its common stock valued at $489,100, a contingent cash payment
of up to $200,000 due May 1, 2000, and a cash payment of $150,000 due May 1,
2001 subject to reduction for the payment by the Company of certain tax
withholdings, in exchange for the net book value of Fast Forward of ($948,000).
The contingent cash payment of up to $200,000 or a lesser prorated amount is due
if Fast Forward achieves between 70% and 90% of its 1999 projected gross margin,
provided a minimum gross margin requirement is met. The contingent payment of
$200,000 will not be paid as the terms of the original agreement were not met.
Of the 670,000 shares issued, 594,940 are restricted for three years so that no
more than 10% can be sold in any one year. The remaining 75,060 shares valued at
$89,130 were issued to certain employees under a pre-existing Fast Forward
Phantom Stock Plan. The transferability of these shares is restricted for the
period the employee remains with the Company or three years, whichever is less.
In connection with the acquisition of Fast Forward, the Hunt Family Trust agreed
to vote its shares in favor of the election to the Company's Board of Directors
of Steven Ades and a second nominee, mutually acceptable to the Company and Mr.
Ades, for as long as Mr. Ades is employed by the Company. This transaction was
accounted for as a purchase. This resulted in goodwill of $1,587,000 which is
being amortized over the estimated useful life of 20 years.
Results of Operations
Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
1998. Net sales for the year ended December 31, 1999, were $17,675,000 as
compared to $11,192,000 for the same period in 1998, an increase of $6,483,000
or 58%. The sales increase can be attributed to increases of $1,006,000 in
foreign sales and
13
<PAGE> 16
$5,477,000 in domestic sales. Included in the 1999 figures were $5,951,000 of
video sales in the US from Fast Forward acquired in mid-May. Sales increases in
Japan and the UK of 114% and 48%, respectively, were primarily responsible for
the increase in foreign sales. On the domestic side, sales were negatively
affected by a decline in the Company's net sales from its self-publishing
business which was offset by the addition of video sales.
Rights income for the year ended December 31, 1999 was $599,000 as
compared to $206,000 for the year ended December 31, 1998. This income is
primarily derived from the Company's sales of worldwide direct marketing rights
on nine titles in 1999 and two titles in 1998.
Gross profit margin as a percent of sales (including video sales, but
excluding the effect of rights income) for the year ended December 31, 1999, was
21% as compared to 14.3% in 1998. Profit margins increased on its sales to
publishers to 34.4% in 1999 from 28.8% in 1998 and on its sales to retailers
from its self-publishing program to 67% in 1999 from 37% in 1998. The margin on
self-publishing titles in 1998 was lower mainly because of one time charges
taken to establish a future reserve for inventory markdowns combined with the
sales in 1998 of excess inventory at lower than expected margins. Contributing
to improved margins on book sales was the Company's ongoing efforts to obtain
better prices from its customers and lower costs from its printers. Video sales
by Fast Forward Marketing traditionally have gross margins between 16% to 19%.
Offsetting 1999 margins realized on the sales of book products was a 19% profit
margin on video sales. Cost of sales consists primarily of manufacturing and
shipping costs, book development amortization, and royalties. Manufacturing and
shipping costs were $12,079,000 or 68.3% of sales for 1999 as compared to
$7,749,000 or 69.2% of sales for 1998. The amortization of book development
costs was $1,432,000 for 1999 compared to $1,455,000 for 1998. Royalties for the
year ended December 31, 1999 were $457,000 as compared to $395,000 in 1998. The
increase in royalties is largely related to the mix of titles sold.
Selling, general and administrative expenses for the year ended December
31, 1999 were $5,012,000 compared to $4,797,000 for the year ended December 31,
1998, an increase of $215,000 or 4.5%. Included in the 1999 figures were
$1,353,000 of overhead expenses from Fast Forward incurred from the date of the
acquisition. Excluding the Fast Forward expenses, selling, general and
administrative expenses, which include personnel costs, decreased $1,138,000
from the prior year. Personnel expenses, excluding Fast Forward, were $1,437,000
in 1999 as compared to $2,161,000 in 1998.
14
<PAGE> 17
This decrease of $724,000 can be attributed primarily to salary and staff
reductions and the expiration of a consulting agreement. Personnel expenses
including Fast Forward were $2,419,000 in 1999. Selling expenses in 1999 were
$1,209,000 versus $1,546,000 in 1998 for a decrease of $337,000. This decrease
was primarily related to decreases in distribution related costs due to lower
sales and decreases in delivery, travel & entertainment, and show expenses which
were partially offset by increased expenses relating to the addition of a UK
sales representative. Selling expenses for 1999 including Fast Forward were
$1,399,000. Administrative expenses were $1,013,000 in 1999 as compared to
$1,090,000 in 1998. The decrease of $77,000 was primarily attributable to
decreases in bad debt allowance and legal expenses partially offset by increases
in rent and amortization of acquisition costs and goodwill. Administrative
expenses for 1999 including Fast Forward were $1,191,000.
Other income for the year ended December 31, 1999 was $46,000 as
compared to $71,000 in the prior year. Interest expense was $287,000 in 1999
versus $64,000 in 1998. The increase in interest expense was a result of
increased borrowings on the Company's lines of credit.
The Company experienced a loss before income taxes for the year ended
December 31, 1999 of $947,000 compared to a loss of $2,985,000 for the
comparable period in 1998, a decrease of $2,038,000. As a result of the
application of the Statement of Financial Accounting standards (SFAS) No. 109,
"Accounting for Income Taxes" (see Notes to the financial statement) the Company
recognized an income tax benefit net of applicable income taxes of $700,000 in
1998, but was unable to recognize an additional tax benefit for 1999. As a
result of these factors, the Company's net loss was $947,000 in 1999 as compared
to net loss of $2,285,000 in 1998.
The Company was in a loss carryforward position primarily due to the
operating losses incurred during the year ended December 31, 1999 and 1998. At
December 31, 1999, the Company had federal net operating loss carryforward
available to offset future taxable income of approximately $2,900,000 that
expires on various dates beginning in 2018.
The major temporary tax differences that are expected to reverse next
year are allowance for doubtful accounts, reserves for sales and returns,
accrued vacations, and uniform capitalization of inventory. However, the Company
expects new temporary differences to be established in these years which will
either reduce or exceed the reversing temporary differences.
15
<PAGE> 18
For the year ended December 31, 1999, the Company has a net deferred tax
asset of $443,200. The Company evaluated the gross deferred tax asset of
$1,629,800 taking into consideration projected operating results and determined
that a valuation allowance of $1,186,600 should be established. The Company
believes it is more likely than not that the deferred tax asset of $443,200 will
be realized.
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997. Net sales for the year ended December 31, 1998, were $11,192,000 as
compared to $18,712,000 for the same period in 1997, a decrease of $7,520,000 or
40%. The sales decrease was attributed to decreases of $4,925,000 in foreign
sales and $2,595,000 in domestic sales. Several factors affected the Company's
sales for the year ended December 31, 1998. The strength of the US dollar
against the currencies of major international countries, especially Japan, UK
and Germany, had an adverse impact on the Company's ability to meet costing
requirements with many of its foreign customers which resulted in lower foreign
sales. Additionally, the continuing Asian economic crisis materially affected
sales to customers in Japan which was traditionally the Company's third largest
market. Sales to Japan, the UK and Germany were over 60% lower for 1998 versus
1997. On the domestic side, sales continued to be negatively affected by
consolidations within the US publishing industry with 1998 sales in the US
declining by 29% over 1997. This was partially offset by a 51% increase in the
Company's net sales from its self publishing business. Sales backlog was
$3,300,000 at February 10, 1999 as well as February 2, 1998.
Rights income for the year ended December 31, 1998 was $206,000 as
compared to $322,000 for the year ended December 31, 1997. This income was
primarily derived from the Company's sales of worldwide direct marketing rights
on some of its products.
Gross profit margin as a percent of sales (excluding the effect of
rights income) for the year ended December 31, 1998, was 14.3% as compared to
21.4% in 1997. As the Company's self-publishing sales continued to expand, the
need to establish an adequate reserve for returns and a reserve for inventory
write-offs became necessary. In 1998, the Company recorded additional expenses
to increase these reserves. The additional expense taken had the effect of
reducing 1998 gross margins. The gross margin in 1998 without these charges
would have been approximately 19.1%. Once established, these reserves offset
charges in future periods for returns associated with 1998 sales which will
increase gross
16
<PAGE> 19
profit margins. Cost of sales consists primarily of manufacturing and shipping
costs, book development amortization, and royalties. Manufacturing and shipping
costs were $7,749,000 or 69.2% of sales for 1998 as compared to $12,881,000 or
68.8% of sales for 1997. Also affecting gross profit margin in 1998 were sales
of close out inventory of $175,000 which were sold below cost. The amortization
of book development costs was $1,455,000 for 1998 compared to $1,331,000 for
1997. Royalties for the year ended December 31, 1998 were $395,000 as compared
to $498,000 in 1997. Both the increase in amortization and decrease in royalties
were related to the acquisition of the Hunt Group in March 1998.
Selling, general and administrative expenses for the year ended December
31, 1998 were $4,797,000 compared to $4,515,000 for the year ended December 31,
1997, an increase of $282,000 or 6%. Included in the above was distribution fees
related to self publishing of $627,000 for 1998 as compared to $280,000 in 1997.
Without these fees, selling, general and administrative expenses were nominally
lower. Personnel expenses were $2,161,000 in 1998 as compared to $2,083,000 in
1997. Selling expenses (including distribution fees) in 1998 were $1,546,000
versus $1,225,000 in 1997 for an increase of $321,000. This increase was
primarily related to increases in distribution related costs, promotion
prototypes, and field rep expenses partially offset by decreases in delivery,
travel & entertainment, show expenses and catalog expenses. Administrative
expenses were $1,090,000 in 1998 as compared to $1,207,000 in 1997. The decrease
of $117,000 was primarily comprised of decreases in rent, moving, legal and
accounting expenses partially offset by increases in bad debt allowance and
other expenses. In 1998 in response to the Company's lower sales, a plan
consisting of staff reductions, pay cuts, and salary freezes was put in place.
The full effect of these reductions was realized in 1999.
Other income for the year ended December 31, 1998 was $71,000 as
compared to $56,000 in the prior year. Interest expense was $64,000 in 1998 as a
result of borrowings on the Company's line of credit. There were no borrowings
in 1997, and accordingly, no expense for the year.
The Company experienced a loss before income taxes for the year ended
December 31, 1998 of $2,985,000 compared to a loss of $11,000 for the comparable
period in 1997, a decrease of $2,974,000. As a result of the application of the
Statement of Financial Accounting standards (SFAS) No. 109, "Accounting for
Income Taxes" (see Notes to the financial statement) the Company recognized an
income tax benefit net of applicable income taxes of
17
<PAGE> 20
$700,000 in 1998 and income tax expense of $63,000 in 1997. As a result of these
factors, the Company's net loss was $2,285,000 in 1998 as compared to net loss
of $74,000 in 1997.
The Company was in a loss carryforward position primarily due to the
operating losses incurred during the year ended December 31, 1998. At December
31, 1998, the Company had federal net operating loss carryforward available to
offset future taxable income of approximately $990,000 that expires in 2018.
The major temporary tax differences that were expected to reverse the
following year were allowance for doubtful accounts, reserves for sales and
returns and uniform capitalization of inventory. However, the Company expected
new temporary differences to be established in those years which will either
reduce or exceed the reversing temporary differences.
For the year ended December 31, 1998, the Company recorded a net
deferred tax asset of $443,200. The Company evaluated the gross deferred tax
asset of $775,000 taking into consideration projected operating results and
determined that a valuation allowance of $331,800 should be established. The
Company believed it was more likely than not that the deferred tax asset of
$443,200 would be realized.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased to $644,000 at
December 31, 1999 from $1,561,000 at December 31, 1998. At December 31, 1999,
working capital was $958,000 compared to $951,000 at December 31, 1998.
Net cash used in operations was $1,195,000 in 1999 as compared to
$1,353,000 in 1998. The $158,000 change in cash from operations was primarily
attributable to an increase in accounts receivable partially offset by an
increase in accounts payable and the decreased net loss for the year, all of
which resulted from the increased sales for the year, with most of the increase
in sales coming from Fast Forward Marketing.
Net cash used in investing activities amounted to $1,354,000 in 1999 as
compared to cash provided of $1,238,000 during 1998. Changes in cash from
investing activities related primarily to the costs associated with the Fast
Forward Marketing acquisition and an increase in production costs, offset by the
cash acquired by the FFM acquisition.
18
<PAGE> 21
Net cash provided by financing activities in 1999 was $1,632,000 as
compared to $1,769,000 in 1998. This difference was primarily attributable to
the borrowings against the Company's subordinated and bank lines of credit
partially offset by repayments to the Company's bank line of credit. There was
also an increase in the proceeds from the exercise of the Company's stock
options.
The Company has a revolving line of credit facility with a bank that
provides a credit line of up to $2,500,000 subject to certain covenants. The
Company may borrow against this line, as well as issue letters of credit.
Advances under the facility bear interest at prime (8.5% as of December 31,
1999) plus 2.5% and are secured by the Company's assets. This facility which was
originally scheduled to expire on May 1, 2000 has been extended to May 1, 2001,
subject to the following: (1) the bank's approval of the results of a bank audit
of the Company's operations and collateral, (2) reaffirmation of certain
guaranties, and (3) affirmation of the agreement with the Company's private
subordinated lender. At December 31, 1999 and 1998, the Company had an
outstanding indebtedness with its bank of $1,474,000 and $1,700,000,
respectively, as well as $76,400 and $75,000, in outstanding letters of credit.
The Company was in compliance of all financial statement covenants as of
December 31, 1999, as amended.
In May 1999, the Company entered into a subordinated revolving line of
credit agreement with a private party that provides for a line of credit of up
to $2,300,000. This line is subordinated to the bank line of credit. Advances
under this line bear interest at 5% above LIBOR (6.085% at December 31, 1999).
This agreement expires May 13, 2000 with the Company having the option to extend
the line for an additional year under the same terms and conditions. To extend
this line of credit, the agreement requires that warrants for 150,000 shares of
the Company's common stock be issued. The warrants are exercisable for up to two
years after the issue date at a price equal to the average trading price of the
Company's stock for the 20 day period prior to May 13, 2000 (the extension
date). At December 31, 1999, the Company had an outstanding indebtedness of
$2,200,000. The Company was in compliance with all covenants at December 31,
1999. On March 23, 2000, the Company exercised their option to extend the line
of credit for an additional twelve months to May 13, 2001. As such, the Company
reclassified the outstanding debt at December 31, 1999 to long-term. In
addition, the Company will grant warrants to purchase 150,000 shares of the
Company's stock based on the average trading price of the stock for the 20 day
period prior to the extension date to be amortized over the remaining term of
the loan.
Management expects positive cash flow from operations in 2000, but will
utilize its ability to borrow against its lines of credit
19
<PAGE> 22
as needed. No assurances can be given that these results from operations will
occur.
As of February 29, 2000, the Company did not have commitments for any
material capital expenditures for 2000 or beyond. Management of the Company
believes that the existing levels of funds and its ability to borrow, combined
with the Company's ability to generate cash, are adequate to finance current and
expected levels of activity as well as anticipated capital expenditures of the
Company for at least the next twelve months.
This Section and this entire Report on Form 10-K contain forward-looking
statements and include assumptions concerning the Company's operations, future
results and prospects. These forward-looking statements are based on current
expectations and are subject to a number of risks, uncertainties and other
factors. In connection with the Private Securities Litigation Reform Act of
1995, the Company provides the following cautionary statements identifying
important factors which, among other things, could cause the actual results and
events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions contained in this Section and
in this entire Report. Such factors include, but are not limited to: product
demand and market acceptance risks; the effect of economic conditions; the
impact of competitive products and pricing; changes in foreign exchange rates;
product development and commercialization difficulties; capacity and supply
constraints or difficulties; availability of capital resources; general business
and economic conditions; and changes in government laws and regulations,
including taxes.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All sales by the Company are denominated in US dollars and, accordingly,
the Company does not enter into hedging transactions with regard to any foreign
currencies. Currency fluctuations can, however, increase the price of the
Company's products to its foreign customers which can adversely impact the level
of the Company's export sales from time to time. The majority of the Company's
cash equivalents are bank accounts and money markets, and the Company does not
believe it has significant market risk exposure with regard to its investments.
The Company's primary market risks include fluctuation in interest rates
and variability in interest rate spread relationships (i.e. prime to LIBOR
spreads). The Company's
20
<PAGE> 23
management believes that fluctuations in interest rates in the near term would
not materially affect the Company's consolidated operating results, financial
position or cash flows as the Company has limited risks related to interest rate
fluctuations.
Year 2000 Update
Many existing computer systems and applications use only two digits to
identify a year in the date field without considering the impact of the
upcoming change in the century. As a result, such systems and applications could
fail or create erroneous results unless corrected so that they can process data
related to the Year 2000. The Company relies on its systems and applications in
operating and monitoring all major aspects of its business, including financial
systems, such as general ledger, accounts receivable and accounts payable and
embedded computer chips, networks and telecommunications equipment and end
products. The Company also relies, directly and indirectly, on external systems
of business enterprises such as its suppliers, creditors and financial
organizations for accurate exchange of data. Following the Year 2000 transition,
the Company has not experienced any known disruption to its business as a result
of Year 2000. The cost of the Company's Year 2000 programs have not been
material to the Company's financial position or results of operations. Although
the Company's business systems were Year 2000 compliant by December 31, 1999,
the Company makes no assurances regarding Year 2000 compliance of third party
systems.
21
<PAGE> 24
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements prepared in accordance with
Regulation S-X are set forth beginning at page 24 hereof.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants. . . . . 23
Consolidated Balance Sheets as of December 31, 1999
and 1998. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Operations for the year
Ended December 31, 1999, 1998 and 1997. . . . . . . . . . . 25
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1999, 1998 and 1997. . . . . . 26
Consolidated Statements of Cash Flows for the years
Ended December 31, 1999, 1998 and 1997. . . . . . . . . . . 27
Summary of Accounting Policies. . . . . . . . . . . . . . . 28
Notes to Consolidated Financial Statements. . . . . . . . . 32
Schedule II - Valuation and Qualifying Accounts . . . . . . 46
</TABLE>
22
<PAGE> 25
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL MATERIAL
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE> 26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Intervisual Books, Inc. and Subsidiary
Santa Monica, California
We have audited the accompanying consolidated balance sheets of Intervisual
Books, Inc. and Subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. We have also
audited the schedule listed in the accompanying index. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Intervisual Books,
Inc. and Subsidiary at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO SEIDMAN, LLP
Los Angeles, California
March 10, 2000, except for Note 6 and 7,
as to which the date is March 28, 2000
23
<PAGE> 27
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
ASSETS (Note 6)
CURRENT:
Cash and cash equivalents $ 643,765 $ 1,560,533
Accounts receivable, net (Notes 2 and 12) 6,094,484 2,246,151
Inventories (Note 3) 1,778,738 1,634,581
Prepaid expenses 354,406 241,842
Royalty and commission advances 446,766 351,981
Income taxes receivable - 117,281
Other current assets 209,088 205,676
-------------------------------
TOTAL CURRENT ASSETS 9,527,247 6,358,045
PRODUCTION COSTS, net of accumulated amortization of $4,996,406
and $3,564,270 3,416,564 3,426,390
PROPERTY AND EQUIPMENT, net (Note 4) 265,661 187,488
DEFERRED INCOME TAXES (Note 8) 443,211 443,211
GOODWILL, net of accumulated amortization of $46,229 (Note 20) 1,540,965 -
OTHER ASSETS 310,370 -
-------------------------------
$ 15,504,018 $ 10,415,134
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable (Notes 2 and 12) $ 6,241,550 $ 3,131,232
Accrued royalties 581,139 281,952
Accrued expenses (Note 11) 208,515 226,145
Customer deposits (Notes 5 and 9) 62,664 67,980
Line of credit with bank (Note 6) 1,475,000 1,700,000
-------------------------------
TOTAL CURRENT LIABILITIES 8,568,868 5,407,309
OTHER LIABILITIES (Note 11) 114,366 84,529
-------------------------------
LINE OF CREDIT WITH PRIVATE PARTY (Note 7) 2,200,000 -
TOTAL LIABILITIES 10,883,234 5,491,838
-------------------------------
COMMITMENTS AND CONTINGENCIES
(Notes 1, 6, 7, 11, 14 and 15)
STOCKHOLDERS' EQUITY (Notes 10, 17 and 20):
Preferred stock, shares authorized 3,000,000, none issued - -
Common stock, no par, shares authorized 12,000,000; issued and
outstanding 5,915,617 and 5,164,531 5,331,935 4,731,029
Additional paid-in capital 373,129 329,912
Accumulated deficit (1,084,280) (137,645)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,620,784 4,923,296
-------------------------------
$ 15,504,018 $ 10,415,134
===============================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
24
<PAGE> 28
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
NET SALES (Note 12 and 18) $ 17,674,697 $ 11,191,681 $ 18,711,596
RIGHTS INCOME (Note 9) 599,183 205,844 321,834
---------------------------------------------------
TOTAL REVENUE 18,273,880 11,397,525 19,033,430
COST OF SALES (Notes 12 and 13) 13,967,516 9,592,013 14,585,457
---------------------------------------------------
GROSS PROFIT 4,306,364 1,805,512 4,447,973
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,012,035 4,797,460 4,515,067
---------------------------------------------------
LOSS FROM OPERATIONS (705,671) (2,991,948) (67,094)
INTEREST EXPENSE (287,400) (63,820) -
OTHER INCOME 46,436 70,956 56,211
---------------------------------------------------
LOSS BEFORE INCOME TAXES (946,635) (2,984,812) (10,883)
INCOME TAX PROVISION (BENEFIT) (Note 8) - (700,000) 62,682
---------------------------------------------------
NET LOSS $ (946,635) $ (2,284,812) $ (73,565)
===================================================
NET LOSS PER SHARE
Basic and Diluted $ (.17) $ (.45) $ (.02)
===================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Note 17)
Basic and Diluted 5,633,121 5,110,317 5,036,132
---------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
25
<PAGE> 29
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------------------ Paid-In Earnings
Shares Amount Capital (Deficit) Total
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 5,032,798 $ 4,569,266 $ 258,302 $ 2,308,612 $ 7,136,180
Stock-based compensation (Note 10) - - 43,112 - 43,112
Exercise of stock options (Note 10) 3,334 4,584 - - 4,584
Net loss for the year - - - (73,565) (73,565)
-----------------------------------------------------------------------
BALANCE, December 31, 1997 5,036,132 4,573,850 301,414 2,235,047 7,110,311
Stock-based compensation (Note 10) - - 28,498 - 28,498
Exercise of stock options (Note 10) 50,399 69,299 - - 69,299
Issuance of contingent shares (Note 15) 78,000 87,880 - (87,880) -
Net loss for the year - - - (2,284,812) (2,284,812)
-----------------------------------------------------------------------
BALANCE, December 31, 1998 5,164,531 4,731,029 329,912 (137,645) 4,923,296
Stock-based compensation (Note 10) - - 43,217 - 43,217
Exercise of stock options (Note 10) 81,086 111,806 - - 111,806
Acquisition of Fast Forward Marketing, Inc. ("FFM") 670,000 489,100 - - 489,100
(Note 20)
Net loss for the year - - - (946,635) (946,635)
-----------------------------------------------------------------------
BALANCE, December 31, 1999 5,915,617 $ 5,331,935 $ 373,129 $(1,084,280) $ 4,620,784
=======================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
26
<PAGE> 30
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (NOTE 19)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (946,635) $ (2,284,812) $ (73,565)
Adjustments to reconcile net loss to net cash
provided by (used in) operating
activities:
Depreciation and amortization 1,657,984 1,550,887 1,425,870
Provision for losses on accounts receivable (64,402) 66,000 10,000
Provision for inventory write-offs (57,000) 121,500 -
Loss on disposal of property and equipment 6,335 - -
Amortization of deferred income - 47,229 (15,734)
Deferred income taxes - (604,167) (116,653)
Stock-based compensation expense 43,217 28,498 43,112
Increase (decrease) from changes in, net of
business acquired:
Accounts receivable (1,866,521) 3,155,700 (819,247)
Inventories (87,157) (488,923) (612,961)
Prepaid expenses (156,072) (110,836) 85,496
Royalty and commission advances 110,749 35,333 112,422
Income taxes receivable 117,281 (117,281) -
Other current assets 9,384 (42,550) (35,630)
Accounts payable 9,223 (2,409,688) 1,870,546
Accrued royalties 259,906 (97,028) (351,027)
Accrued expenses (105,887) (103,687) (73,287)
Income taxes payable - (130,275) 130,275
Other liabilities (120,162) - -
Customer deposits (5,317) 30,980 (34,211)
----------------------------------------------
Net cash provided by (used in) operating activities (1,195,074) (1,353,120) 1,545,406
----------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (20,934) (35,098) (215,467)
Additions to production costs (1,354,229) (1,203,262) (1,610,712)
Additions to acquisition cost (283,116) - -
Cash acquired from FFM acquisition 304,779 - -
Purchases of marketable securities available for
sale - - (12,868,361)
Proceeds from sales and maturities of marketable
securities available for sale - - 14,903,345
----------------------------------------------
Net cash provided by (used in) investing activities (1,353,500) (1,238,360) 208,805
----------------------------------------------
Cash flows from financing activities:
Proceeds from bank line of credit 1,320,000 1,700,000 -
Proceeds from subordinated line of credit 2,200,000 - -
Repayment on bank line of credit (2,000,000) - -
Proceeds from exercise of stock options 111,806 69,299 4,584
Payments on officer loan - - (97,131)
----------------------------------------------
Net cash provided by (used in) financing activities 1,631,806 1,769,299 (92,547)
----------------------------------------------
Net increase (decrease) in cash and cash equivalents (916,768) (822,181) 1,661,664
Cash and cash equivalents, beginning of year 1,560,533 2,382,714 721,050
----------------------------------------------
Cash and cash equivalents, end of year $ 643,765 $ 1,560,533 $ 2,382,714
==============================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
27
<PAGE> 31
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
BUSINESS
Intervisual Books, Inc. ("IBI") was incorporated in California in 1975. IBI is
engaged in creating, packaging and producing of pop-up and dimensional novelty
books for domestic and international distribution. IBI distributes through many
publishers in the United States. In May 1999, IBI acquired Fast Forward
Marketing, ("FFM"). Per the merger agreement, FFM became a wholly owned
subsidiary of IBI. FFM provides sales and marketing services in the video, audio
and book publishing industries throughout the United States. FFM purchases its
product from major motion picture studios and/or independent video producers and
sells directly to video retailers including children's educational stores, gift
shops, museum stores, educational distributors, and direct mail catalogs.
As used herein, the term the "Company" means Intervisual Books, Inc. and
Subsidiaries, and the term "IBI" means Intervisual Books, Inc., exclusive of
such subsidiaries.
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts of IBI
and FFM. All significant intercompany transactions and balances have been
eliminated.
The accompanying consolidated financial statements reflect the acquisition of
the Hunt Creative Group, which was merged into the Company in a manner similar
to a pooling of interests for all periods presented. The merger was approved by
the Company's shareholders on July 22, 1998 (see also Note 15).
The accompanying consolidated financial statements also reflect the accounts and
transactions of FFM from May 14, 1999, the date it was acquired. The acquisition
was accounted for under the purchase method of accounting.
REVENUE RECOGNITION
The Company recognizes revenues upon shipment of product. The Company records a
provision for estimated future returns.
PRODUCTION COSTS AND AMORTIZATION
Production costs related to books include amounts incurred for design, art,
editorial services, paper engineering, dies and color separation. The costs for
pop-up books are stated at the lower of cost or net realizable value and are
amortized using the sum-of-the-years-digits method over a five year projected
sales life. These costs are periodically evaluated each year based on
management's estimates of future sales of related products. These costs are
written off when management believes they provide no future benefit. Costs of
products which have an anticipated useful life of one year or less are charged
to operations in the year the sales occur.
Production costs related to videos include amounts incurred for duplication,
editing, and packaging. The costs are stated at the lower of cost or net
realizable value and are amortized over the greater of the number of units sold
divided by total units estimated to be sold or straight line over the life of
the product.
Amortization of book and video production costs included in cost of sales for
1999, 1998 and 1997 was $1,432,137, $1,454,923 and $1,330,503.
28
<PAGE> 32
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
INVENTORY
Inventory, which consists of materials and finished goods, is valued at the
lower of cost or market. Cost is determined by the first-in, first-out (FIFO)
method.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed using the
straight line and accelerated methods over the estimated useful lives of the
assets. The Company periodically reviews such assets for possible impairments
and expected losses, if any, are recorded currently.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired and is being amortized on a straight-line basis over twenty
years. The Company periodically evaluates the recoverability of goodwill. The
measurement of possible impairment is based primarily on the Company's ability
to recover the unamortized balance of the goodwill from expected future
operating cash flows on an undiscounted basis.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109
requires a company to use the asset and liability method of accounting for
income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities
and result primarily from differences in methods used to amortize production
costs. A valuation allowance is provided when management cannot determine
whether it is more likely than not that the deferred tax asset will be realized.
Under SFAS 109, the effect on deferred income taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
29
<PAGE> 33
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
EARNINGS (LOSS) PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," during 1997. SFAS No.
128 requires presentation of basic and diluted earnings per share. Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the reporting period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts, such as stock
options, to issue common stock were exercised or converted into common stock,
but does not include the impact of these dilutive securities that would be
antidilutive. During the three years ended December 31, 1999, these dilutive
securities were antidilutive.
STOCK-BASED COMPENSATION
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), as of January 1, 1996,
which establishes a fair value method of accounting for stock-based compensation
plans. In accordance with SFAS 123, the Company has chosen to continue to
account for stock-based compensation utilizing the intrinsic value method
prescribed in APB 25. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market price of the Company's stock
at the date of grant over the amount an employee must pay to acquire the stock.
Also, in accordance with SFAS 123, the Company has provided footnote disclosure
with respect to stock-based employee compensation. The cost of stock-based
employee compensation is measured at the grant date based on the value of the
award and recognize this cost over the service period. The value of the
stock-based award is determined using a pricing model whereby compensation cost
is the excess of the fair value of the stock as determined by the model at grant
date or other measurement date over the amount an employee must pay to acquire
the stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS
A description of the methods and assumptions used to estimate the fair value of
each class of the Company's financial instruments is as follows:
Cash, receivables, and accounts payable are recorded at carrying amounts which
approximate fair value due to the short maturity of these instruments.
The fair value of the Company's lines of credit approximates their carrying
value due to the interest rates on these instruments which approximates the rate
the Company could borrow at December 31, 1999.
30
<PAGE> 34
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
COMPREHENSIVE INCOME
During the year ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income," ("SFAS
130") issued by the FASB as it is effective for financial standards with fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is comprised of
net income and all changes to stockholders' equity except those due to
investments by owners and distribution to owners. Adoption of SFAS 130 did not
have an impact on the Company's financial position, results of operations and
cash flows, and no additional disclosure was necessary.
SEGMENTS OF AN ENTERPRISE
During the year ended December 31, 1999, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS 131") issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. SFAS 131 requires that public companies report certain information
about operating segments, products, services and geographical areas in which
they operate and their major customers. Adoption of SFAS 131 did not have an
impact on the Company's financial position or results of operations. Adoption of
SFAS 131 resulted in expanded disclosures for the year and all prior periods.
See Note 18, Segment Information.
RECLASSIFICATIONS
Certain reclassifications have been made to conform the prior year's amounts to
the current year's presentation.
31
<PAGE> 35
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - LIQUIDITY
At December 31, 1999, the Company had an outstanding indebtedness of $3,675,000,
$1,475,000 with a bank and $2,200,000 subordinated debt with a private party.
Bank line of credit expires May 1, 2000 while the subordinated debt expires May
13, 2000. The Company was in compliance with all financial covenants. The
Company, at its sole discretion, may extend the line of credit with the private
party under the same terms and conditions for an additional twelve months. If an
extension is requested, the Company will grant up to 150,000 warrants with an
exercise price equal to the average twenty day trading price prior to the
extension date. These warrants would have a term of two years from the date of
grant. The Company is anticipating that it will extend the option. On March 23,
2000, the Company decided to exercise their option to extend the line of credit
with the private party for an additional twelve months. As such, the Company
will grant warrants to purchase 150,000 shares of common stock at a price equal
to the average trading price of the Company's stock for the 20 day period prior
to May 13, 2000 (the extension date), to be amortized over the remaining term of
the loan. On March 28, 2000, the Company obtained an extension on the line of
credit with the bank for an additional year.
For the past three years, the Company reported a loss of ($946,635),
($2,284,812) and ($73,565) in 1999, 1998, and 1997 and an accumulated deficit of
($1,084,280) at December 31, 1999. However, management expects positive cash
flow from operations in 2000, but will utilize its ability to borrow against its
lines of credit as needed. No assurance can be given that these results from
operations or transactions will occur.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable relates to sales to traditional publishing customers as well
as sales under the IBI self-publishing program and FFM sales to video retailers.
Sales under the self-publishing program and videos are subject to returns. FFM
has an agreement with its customers and suppliers that allows for returns of
merchandise. Accordingly, a reserve for accounts receivable and payable has been
provided. The reserve accounts require the use of significant estimates.
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Accounts receivable $ 6,668,439 $ 2,905,151
Less: Allowance for possible losses (173,857) (175,300)
Less: Allowance for sales returns (400,098) (483,700)
------------------------------
Accounts receivable, net $ 6,094,484 $ 2,246,151
==============================
</TABLE>
NOTE 3 - INVENTORY
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Materials $ 440,786 $ 594,382
Finished goods 1,402,452 1,177,099
Less: Allowance for obsolete inventory (64,500) (136,900)
------------------------------
Total inventory $ 1,778,738 $ 1,634,581
==============================
</TABLE>
32
<PAGE> 36
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
The major classes of property and equipment and the related estimated useful
lives are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------- Estimated
1999 1998 Useful Lives
-------------------------------------------
<S> <C> <C> <C>
Computers $1,284,250 $ 552,497 5 years
Office furniture and equipment 581,482 518,813 5-7 years
Leasehold improvements 68,151 68,151 5 years
--------------------------
1,933,883 1,139,461
Less accumulated depreciation 1,668,222 951,973
--------------------------
$ 265,661 $ 187,488
==========================
</TABLE>
Depreciation expense on property and equipment was $161,771, $95,964 and $92,627
for the years ended December 31, 1999, 1998 and 1997.
NOTE 5 - CUSTOMER DEPOSITS
Customer deposits of $62,664 and $67,980 recorded at December 31, 1999 and 1998
consist of cash advances received from publishers prior to printing, assembly
and shipping of the related products.
NOTE 6 - LINE OF CREDIT WITH A BANK
The Company has a revolving line of credit facility with a bank that provides a
credit line of up to $2,500,000, subject to certain covenants. The Company may
borrow against this line, as well as issue letters of credit. Advances under the
facility bear interest at prime (8.5% as of December 31, 1999) plus 2.5%, and
are secured by the Company's assets. On March 28, 2000 the Company obtained an
extension on the line of credit with the bank for an additional year.
At December 31, 1999 and 1998, the Company had an outstanding indebtedness of
$1,475,000 and $1,700,000, respectively, as well as $76,400 and $75,000, in
outstanding letters of credit. The Company was in compliance with all financial
statement covenants as of December 31, 1999.
NOTE 7 - LINE OF CREDIT WITH A PRIVATE PARTY
In May 1999, the Company entered into a subordinated revolving line of credit
agreement with a private party that provides for a line of credit of up to
$2,300,000. This line is subordinated to the bank line of credit discussed in
Note 6. Advances under this line bear interest at 5% above LIBOR (6.085% at
December 31, 1999). This agreement expires May 13, 2000 with the Company having
the option to extend the line for an additional year under the same terms and
conditions. To extend this line of credit, the agreement requires that warrants
for 150,000 shares of the Company's common stock to be issued. The warrants are
exercisable for up to two years after the issue date at a price equal to the
average trading price of the Company's stock for the 20 day period prior to May
13, 2000 (the extension date). At December 31, 1999, the Company had an
outstanding indebtedness of $2,200,000. The Company was in compliance with all
covenants at December 31, 1999.
33
<PAGE> 37
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LINE OF CREDIT WITH A PRIVATE PARTY (CONTINUED)
On March 23, 2000, the Company exercised their option to extend the line of
credit for an additional twelve months. As such, the Company reclassed the
outstanding debt at December 31, 1999 to long-term. In addition, the Company
will grant warrants to purchase 150,000 shares of common stock based on the fair
market value at the date of extension, to be amortized over the remaining term
of the loan.
NOTE 8 - INCOME TAXES
Provisions (benefit) for income taxes included in the accompanying statements of
operations consist of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $ - $(117,300) $ 98,068
State - 800 32,207
---------------------------------------
- (116,500) 130,275
---------------------------------------
Deferred:
Federal - (463,100) (52,702)
State - (120,400) (14,891)
---------------------------------------
- (583,500) (67,593)
---------------------------------------
Income tax provision (benefit) $ - $(700,000) $ 62,682
=======================================
</TABLE>
The effective tax rate on loss before income taxes differed from the federal
statutory tax rate. The following summary reconciles income taxes at the federal
statutory tax rate with the actual taxes and effective tax rate:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Federal statutory tax rate (34.0)% (34.0)% (34.0)%
Increase in taxes resulting from:
Unrealized deferred tax asset 27.7 11.1 655.3
State taxes, net of federal income tax benefit 4.7 .5 39.2
Other 1.6 (1.1) (84.5)
-------------------------------
Effective tax rate - % (23.5)% 576.0%
===============================
</TABLE>
34
<PAGE> 38
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (CONTINUED)
The types of temporary differences between the tax bases of assets and
liabilities that give rise to the net deferred tax balance at December 31, 1999
and 1998 and their approximate tax effects, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
Assets:
Deferred revenue $ 25,000 $ 20,000
Allowance for doubtful accounts 70,000 70,000
Reserve for sales and returns 160,000 193,000
Inventory - uniform capitalization 165,000 149,000
Accrued vacation 54,000 44,000
Deferred rent 4,800 10,500
Depreciation 20,000 -
Severance costs 27,000 43,000
Inventory reserves 26,000 54,500
Net operating loss carryforwards 1,200,000 375,000
------------------------------
Deferred tax assets 1,751,800 959,000
------------------------------
Liabilities:
Excess tax amortization of production costs and depreciation
over book amortization and depreciation (117,000) (171,000)
Royalties payable (5,000) (13,000)
------------------------------
Deferred tax liabilities (122,000) (184,000)
------------------------------
Net deferred tax asset before valuation allowance 1,629,800 775,000
Less: Valuation allowance (1,186,600) (331,800)
------------------------------
Net deferred tax asset $ 443,200 $ 443,200
==============================
</TABLE>
At December 31, 1999, the Company had federal net operating loss carryforward
available to offset future taxable income of approximately $2,900,000 that
expires in various dates beginning in 2018.
The Company evaluated the gross deferred tax asset of $1,629,800, taking into
consideration projected operating results, and determined that a valuation
allowance of $1,186,600 should be established. The Company believes it is more
likely than not that the deferred tax asset of $443,200 will be realized.
NOTE 9 - RIGHTS INCOME
During 1999, 1998 and 1997, the Company sold the direct marketing rights to a
third party to produce and sell nine, two and three of the Company's titles for
a non-refundable fee of approximately $600,000, $200,000 and $300,000,
respectively. The Company fulfilled all obligations under these agreements prior
to recognizing revenue.
35
<PAGE> 39
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMON STOCK OPTIONS
Incentive Stock Option Plans ("ISOP")
Under the terms of the Company's ISOP, under which options to purchase 550,000
shares of common stock can be issued, all key employees are eligible to receive
non-assignable and non-transferrable options to purchase shares. The exercise
price of any option may not be less than the fair market value of the shares on
the date of grant; provided, however, that the exercise price of any option
granted to an eligible employee owning more than 10% of the outstanding common
stock may not be less than 110% of the fair market value of the shares
underlying such option on the date of grant. No options granted may be
exercisable prior to six months from the date of grant, nor more than ten years
after the date of grant. The options granted generally vest evenly over a three
year period, beginning from the date of grant.
Non Qualified Stock Option Plans ("NQSOP")
Under the terms of the Company's NQSOP, options to purchase 200,000 shares of
common stock can be issued to attract and retain qualified persons for positions
of substantial responsibility, such as key officers, directors, and consultants.
Options of the plan are established in the same manner as the ISOPs, are
non-assignable and non-transferrable (for employees of the Company), and are
exercisable over a 10-year period from the date of grant. Each option lapses, if
not previously exercised, on the 10th anniversary of the date of grant. The
options granted generally vest evenly over a three year period, beginning from
the date of grant.
Directors Stock Option Plan ("DSOP")
Under the terms of the Company's DSOP, options to purchase 300,000 shares of
common stock can be issued to directors who are not employees of the Company.
The exercise price of any option may not be less than the fair market value of
the shares on the date of grant. Each person who becomes a director receives an
initial grant to purchase 30,000 shares. Thereafter, on the date of each annual
meeting of the Company's shareholders, each director will receive options to
purchase 2,500 shares. Options are non-assignable and non-transferrable and are
exercisable over a 10-year period from the date of grant or until the director
ceases to be a member of the Board. The options granted vest evenly over a three
year period beginning from the date of grant.
Nonstatutory Stock Options ("NSSO")
During 1997, the Company granted nonstatutory stock options to purchase an
aggregate of 600,000 shares of common stock to three individuals, as an
inducement to join the Company, of which 125,000 have expired. These options are
non-assignable and non-transferable, are exercisable over a seven year period
from the date of grant and vest in various increments through 2000. The Company
also issued NSSO to purchase 31,000 shares of common stock to the Chairman of
the Board of the Company, subject to shareholder approval which was obtained in
1998. During 1998, the Company granted 100,000 NSSO of which 2,500 was exercised
in 1999 to two individuals as an inducement to join the Company. During 1999,
the Company granted 25,000 NSSO to a director of the Company. Due to the
acquisition of FFM in May 1999, the Company issued NSSO to purchase 350,000
shares of common stock to three individuals who were employees of FFM. Company
also issued 75,000 NSSO to an outside consultant of the Company. All such
options have an exercise price equal to the closing price of the Company's
common stock on the date of grant and were outside of any existing Company stock
option plan.
36
<PAGE> 40
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMON STOCK OPTIONS (CONTINUED)
1999 Stock Option Plan "SOP"
Under the terms of the Company's SOP, options to purchase 500,000 shares of
common stock can be issued to attract and retain the best available personnel
for positions of substantial responsibility as officers, directors, consultants,
employees and others who perform valuable services. The plan terminates on June
23, 2009, unless the Board decides to terminate at an earlier date. The exercise
price of options granted under the Plan shall be not less than 110% of the fair
market value of the shares for grants to holders owning more than 10% or more of
the outstanding stock. The options granted under the Plan shall vest at a
minimum rate of 20% per year over the period of five years from the grant date.
Non-employee Options
Under the Company's Non-qualified Stock Option Plan, Directors Stock Option Plan
and Non-Statutory Stock Options, the Company granted 112,500, 37,500 and 7,500
shares to non-employees during 1999, 1998 and 1997, respectively. As a result,
the Company recorded non-cash compensation expense related to these options of
$43,217, $28,498 and $43,112 in 1999, 1998 and 1997 with a corresponding credit
to additional paid-in capital.
All options have an exercise price equal to the closing price of the Company's
common stock on the date of grant. In November 1999, the Company's Board of
Directors amended the exercise price of $1.50 to $1.25 per share for 506,000
options granted to three employees of the Company. The weighted average fair
value of options granted during the years are included in the option activity
table below.
Option activity within each plan is as follows:
<TABLE>
<CAPTION>
Non- Weighted
Incentive Non Qualified Directors Statutory Average
Stock Option Stock Option Stock Option Stock Price
Plans Plans Plan Options Per Share
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance outstanding, January 1, 1997 316,500 141,000 85,000 - $ 1.73
Options granted range from
$1.375 to $2.00 per share 50,000 69,000 7,500 631,000 $ 1.58
Options cancelled range from
$1.375 to $3.875 per share (96,334) (10,000) - - $ 1.62
----------------------------------------------------------------------
Balance outstanding, December 31, 1997 270,166 200,000 92,500 631,000 $ 1.58
Options granted range from
$1.50 to $2.75 per share 92,250 - 12,500 125,000 $ 2.05
Options expired range from
$1.375 to $2.75 per share (73,999) - - (125,000) $ 1.56
----------------------------------------------------------------------
Balance outstanding, December 31, 1998 288,417 200,000 105,000 631,000 $ 1.61
</TABLE>
37
<PAGE> 41
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMON STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
Non- Weighted
Incentive Non Qualified Directors Statutory Average
Stock Option Stock Option Stock Option Stock Price
Plans Plans Plan Options Per Share
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options granted range from
$1.25 to $1.38 50,000 69,000 37,500 966,000 $ 1.25
Options expired range from
$1.375 to $2.75 (47,582) - - - 2.29
Options exercised range from
$1.375 to $1.50 (48,586) (30,000) - (2,500) 1.38
Options cancelled range from
$1.38 to $1.625 per share (50,000) (69,000) - (506,000) 1.48
------------------------------------------------------------------------
BALANCE OUTSTANDING,
December 31, 1999 192,249 170,000 142,500 1,088,500 $ 1.41
========================================================================
BALANCE EXERCISABLE,
December 31, 1999 141,420 146,999 94,164 538,949 $ 1.28
========================================================================
</TABLE>
Information relating to stock options at December 31, 1999 summarized by
exercise price are as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------- ------------------------
Weighted Average Weighted Average
-----------------------------------------------------------
Exercise Price Life Exercise Exercise
Per Share Shares (Months) Price Shares Price
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Incentive Stock Option Plan:
$1.38 90,999 61.7 $ 1.38 90,999 $ 1.38
$1.25 50,000 33.0 1.25 33,334 1.25
$2.75 51,250 97.5 2.75 17,087 2.75
-----------------------------------------------------------
192,249 63.8 $ 1.71 141,420 $ 1.51
===========================================================
Non Qualified Stock Option
Plan:
$1.38 71,000 54.6 $ 1.38 71,000 $ 1.38
$1.25 69,000 90.0 1.25 45,999 1.25
$2.06 30,000 79.5 2.06 30,000 2.06
-----------------------------------------------------------
170,000 73.4 $ 1.45 146,999 $ 1.48
===========================================================
Directors Stock Option Plan:
$1.75 7,500 90.0 $ 1.75 4,998 $ 1.75
$2.06 62,500 73.5 2.06 62,500 2.06
$2.50 22,500 66.0 2.50 22,500 2.50
$2.75 5,000 97.5 2.75 1,667 2.75
$2.19 7,500 103.0 2.19 2,499 2.19
$1.38 37,500 97.5 1.38 - -
-----------------------------------------------------------
142,500 86.5 $ 1.97 94,164 $ 2.17
===========================================================
Nonstatutory Stock Options:
$1.25 966,000 65.7 $ 1.25 483,166 $ 1.25
$1.50 122,500 63.1 1.50 55,833 1.50
-----------------------------------------------------------
1,088,500 65.4 $ 1.28 538,999 $ 1.28
===========================================================
</TABLE>
38
<PAGE> 42
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - COMMON STOCK OPTIONS (CONTINUED)
All stock options issued to employees have an exercise price not less than the
fair market value of the Company's common stock on the date of the grant, and in
accordance with accounting for such options utilizing the intrinsic value method
there is no related compensation expense recorded in the Company's consolidated
financial statements. Had compensation cost for stock-based compensation been
determined based on the fair value of the grant dates consistent with the method
of SFAS 123, the Company's net loss and loss per share for the years ended
December 31, 1999, 1998 and 1997 would have been increased to the pro forma
amounts presented:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Net loss, as reported $ (946,635) $ (2,284,812) $ (73,565)
Net loss, pro forma $ (1,123,462) $ (2,564,154) $ (246,590)
Basic and diluted net loss per common share, as reported $ (.17) $ (.45) $ (0.02)
Basic and diluted net loss per common share, pro forma $ (.19) $ (.50) $ (0.05)
</TABLE>
The fair value of option grants is estimated on the date of grant utilizing the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1999, 1998 and 1997; expected life of options was 7
years, expected volatility of 18%, 15% and 12%, respectively, risk-free interest
rate of 6.0%, 6.0% and 6.0%, respectively, and a 0% dividend yield. The weighted
average fair value on the date of grants for options granted during 1999, 1998
and 1997 was $.47, $.75 and $.57 per option.
NOTE 11 - COMMITMENTS
Operating Leases
The Company leases its facilities and certain equipment under various operating
leases which expire at various dates through January 31, 2002. The facility
lease has a renewal option to extend the lease for an additional five years at
an agreed upon rental amount. Future minimum lease payments under the
noncancelable portion of these leases having terms in excess of one year at
December 31, 1999 are presented in the schedule below.
<TABLE>
<CAPTION>
Year Amount
- ---- --------
<S> <C>
2000 $235,424
2001 235,424
2002 25,428
--------
$496,276
========
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was $285,243,
$248,622 and $311,864.
39
<PAGE> 43
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS (CONTINUED)
Employment Agreements
Effective January 1995, the Company entered into an employment agreement with an
employee with an initial term of three years and compensation of $90,000. This
agreement was extended to December 31, 2000, with annual compensation of
$105,000.
On January 13, 1997, the Company entered into an employment and compensation
agreement with a new President and Chief Operating Officer. This agreement
originally expired on December 31, 1999, but was extended to January 31, 2002.
The minimum aggregate obligation under this agreement in 2000 is $292,200.
On October 1, 1997, the Company entered into an employment agreement and
compensation agreement with the Chairman of the Board and Chief Executive
Officer. This agreement expires on September 30, 2000, unless further extended
or sooner terminated as provided in the agreement. The Company shall pay the
executive an initial annual salary of $250,000 subject to cost of living
increases and annual Board evaluation. The agreement also allows for an
additional payment of $60,000 annually in lieu of paying any life insurance
premiums which benefit the executive. Additionally, the agreement provides
$10,000 toward the cost of a long-term disability insurance policy. If such
policy is not available, this amount is to be paid to the executive at year end.
On November 13, 1997, the Company reached an agreement with a new Executive Vice
President and Chief Financial Officer for employment to begin January 1998. The
employment agreement effective January 19, 1998, was for an initial term of
three years with compensation of $175,000 in the first year, $183,750 in the
second year and $192,950 in the third year.
On May 11, 1999, the Company entered into an employment and compensation
agreement with the President of Video and New Media Division. This agreement
expires May 11, 2002, unless further extended or sooner terminated as provided
in the agreement. The Company shall pay the executive $275,000 per annum.
On May 12, 1999, the Company entered into an employment and compensation
agreement with a Senior Vice President of Sales and Marketing. This agreement
expires May 12, 2001, unless further extended or sooner terminated as provided
in the agreement. The Company shall pay executive $162,500 per annum plus a
commission of 3/4% of the amount of sales from the book division in excess of
$15,000,000, plus 1/2% of the amount of sales from the video division in excess
of $15,000,000. Additionally, the agreement provides for $1,500 per year toward
the cost of life insurance policy.
On May 13, 1999, the Company entered into an employment and compensation
agreement with a Senior Vice President of Finance and Operations. This agreement
expires May 13, 2001, unless further extended or sooner terminated as provided
in the agreement. The Company shall pay executive $180,000 per annum plus a
monthly car allowance of $600 per month.
40
<PAGE> 44
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS (CONTINUED)
Consulting Agreement
On November 1, 1996, the Company entered into a consulting agreement with the
former President. This consulting agreement expires on December 31, 2001. The
minimum annual obligation under this agreement is $120,000.
NOTE 12 - BUSINESS AND CREDIT CONCENTRATIONS
The Company had one customer who accounted for approximately 13% of net sales in
1998.
The Company had one customer who accounted for approximately 16% of accounts
receivable as of December 31, 1999 and two customers who accounted for
approximately 27% and 13% of accounts receivable as of December 31, 1999.
The Company had two vendors who accounted for approximately 35% of net purchases
for the year ended December 31, 1999 and three vendors who accounted for
approximately 72% of net purchases for the year ended December 31, 1998.
The Company had two vendors who accounted for approximately 11% and 28% of
accounts payable as of December 31, 1999 and three vendors who accounted for
approximately 30%, 38% and 12% as of December 31, 1998.
NOTE 13 - PURCHASES
The Company does not have manufacturing facilities. Most of the Company's
products are manufactured by four printers located in Hong Kong, Colombia,
Thailand, and Singapore. The Company's operations are subject to the customary
risks of doing business abroad.
NOTE 14 - EMPLOYEE BENEFIT PLAN
The Company maintains a qualified defined contribution employee benefit plan
(the "401(k) plan") covering substantially all employees who have been employed
for greater than one year and are at least 21 years of age. The Company may make
a matching contribution of an amount equal to a specified percentage of employee
contributions. In addition, the Board of Directors may further elect to make
discretionary contributions. As of June 1, 1998, the Company's matching
contribution was suspended. Total contributions made by the Company to the
401(k) plan during the years ended December 31, 1999, 1998 and 1997 were $0,
$19,421 and $35,941.
41
<PAGE> 45
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - RELATED PARTY TRANSACTIONS
MERGER WITH THE HUNT CREATIVE GROUP
On March 20, 1998, the Company signed an agreement and plan of merger with the
Hunt Group, a related party, pursuant to which the Hunt Group was merged with
and into the Company. The merger was approved by the Company's shareholders at
its annual meeting on July 22, 1998. The merger was accounted for as a
combination of entities under common control, which is accounted for in a
similar manner as a pooling of interests and the financial statements were
restated to include the results of the Hunt Group for all periods presented.
Under the terms of the agreement, the Company issued to the Hunt Family Trust,
sole shareholder of the Hunt Group, 250,000 shares of the Company's stock for
all the outstanding stock of the Hunt Group. Additionally, the agreement called
for an additional 78,000 contingent shares to be issued to the Hunt Family Trust
in three separate increments of 26,000 each when cumulative sales of the Hunt
Group developed products exceed $5,000,000, $6,000,000 and $7,000,000,
respectively. As of December 31, 1998, cumulative sales of the Hunt Group
developed products exceeded $7,000,000, and accordingly, an additional 78,000
shares of the Company stock were issued to the Hunt Family Trust and were
included in weighted average shares outstanding based on the date the
contingency was met. These shares are restricted securities and thus are not
registered for resale unless provided for in a registration statement. The
agreement also transfers the ownership of any and all copyrights or patents to
the Company. The agreement also included the Hunt Group forgiving all royalties
earned subsequent to October 1, 1997.
Combined and separate results of Intervisual Books, Inc. and the Hunt Creative
Group for periods prior to the combination are as follows:
<TABLE>
<CAPTION>
1997
------------
<S> <C>
REVENUES:
Intervisual Books, Inc. $ 19,033,430
Hunt Creative Group 123,947
Eliminations (123,947)
------------
$ 19,033,430
============
NET INCOME (LOSS):
Intervisual Books, Inc. (112,075)
Hunt Creative Group 38,510
------------
$ (73,565)
============
</TABLE>
Operating results of the Hunt Creative Group were not significant for the period
January 1 through March 19, 1998.
42
<PAGE> 46
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 1998, the Company recorded net adjustments that
increased its net loss by approximately $525,000, which principally consists of
$155,000 write-off of various accounts receivable, $63,000 write-off of
inventory materials, recording $121,500 inventory reserves, $43,000 write-off of
book production costs, and $99,500 write-off of royalty advances. The Company
believes it is impracticable to determine which quarterly period the
aforementioned adjustments relate to.
NOTE 17 - EARNINGS PER SHARE
The following is a reconciliation of the weighted average number of shares used
to compute basic and diluted earnings per share:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic and diluted weighted average shares outstanding 5,633,121 5,110,317 5,036,132
========== ========== ==========
</TABLE>
Options to purchase 1,593,249, 1,224,417 and 1,193,666 shares were outstanding
during the years ended 1999, 1998 and 1997, respectively, but were not included
in the computation of diluted loss per common share because the effect would be
antidilutive.
NOTE 18 - SEGMENT INFORMATION
The Company's operations are classified into two principal reportable industry
segments: (a) video distribution sales which involves the sales and marketing to
video retailers including children's educational stores, gift shops, museum
stores and educational distributors and (b) sales from the production of pop-up
and dimensional novelty books for domestic and international distribution.
<TABLE>
<CAPTION>
December 31, 1999 Video Book Combined
- ----------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Net sales to unaffiliated customers $ 5,951,350 $ 11,723,347 $ 17,674,697
Operating loss (197,771) (507,900) (705,671)
Total assets 2,174,730 11,788,323 13,963,053
Depreciation and amortization 81,378 1,576,606 1,657,984
Interest expense 14,609 272,791 287,400
</TABLE>
For the years ended December 31, 1998 and 1997, the Company operated as one
segment.
Export sales account for a significant portion of the Company's revenues are
summarized by geographic areas as follows. All sales are derived from the book
segment of the Company.
<TABLE>
<CAPTION>
For the year December 31, 1999 1998 1997
- ---------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Europe $ 4,028,000 $ 3,387,000 $ 5,932,000
Asia 1,212,000 448,000 2,404,000
Other 1,094,000 1,127,000 1,374,000
----------- ----------- -----------
Total export sales $ 6,334,000 $ 4,962,000 $ 9,710,000
=========== =========== ===========
</TABLE>
43
<PAGE> 47
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - SUPPLEMENTAL CASH FLOW DISCLOSURES
(a) Cash paid:
During the years ended December 31, 1999, 1998, and 1997, the Company paid
interest of $284,129, $51,186, and $0.
The Company paid state income taxes of $800 for the three years ended December
31, 1999, 1998, and 1997.
(b) Non-cash transactions:
On May 14, 1999, the Company entered into a merger agreement to acquire Fast
Forward Marketing, "FFM". Under this agreement, the Company issued 670,000
shares of its common stock, valued at $489,100 and a cash payment of $150,000.
NOTE 20 - ACQUISITION OF FAST FORWARD MARKETING
On May 14,1999, the Company completed the acquisition of Fast Forward Marketing,
Inc., ("FFM"). The transaction was completed under the terms and conditions of a
definitive agreement signed March 29, 1999. Under this agreement, the Company
acquired all the outstanding shares of Fast Forward for 670,000 shares of its
common stock, a contingent cash payment of up to $200,000 due May 1, 2000, and a
cash payment of $150,000 due May 1, 2001 subject to reduction for the payment by
the Company of certain tax withholdings. The contingent cash payment of up to
$200,000 or a lesser prorated amount is due if Fast Forward achieves between 70%
and 90% of its 1999 projected gross margin, provided a minimum gross margin
requirement is met. Of the 670,000 shares issued, 594,940 are restricted for
three years so that no more than 10% can be sold in any one year. The remaining
75,060 shares were issued to certain employees valued at $89,130 under a
pre-existing Fast Forward Phantom Stock Plan. The transferability of these
shares is restricted for the period the employee remains with the Company or
three years whichever is less. This transaction has been accounted for as a
purchase. The estimated fair value of assets acquired and liabilities assumed
relating to the FFM acquisition is summarized below:
-------------------------------------------------------------
<TABLE>
<S> <C>
Working capital, excluding note payable $ (688,471)
Property, plant and equipment 195,378
Goodwill 1,587,194
Note payable (455,000)
</TABLE>
=============================================================
44
<PAGE> 48
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - ACQUISITION OF FAST FORWARD MARKETING (CONTINUED)
The following unaudited supplemental information is provided on a pro forma
basis as if the acquisition occurred on January 1, 1998. The pro forma
information does not necessarily reflect the actual results that would have
occurred nor is it necessarily indicative of future results of operations of the
combined companies.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Revenues $ 22,194,000 $ 28,008,865
Loss from operations (971,000) (3,601,492)
Net loss (1,258,000) (2,909,787)
Net loss per share, basic and diluted (0.22) (0.50)
</TABLE>
45
<PAGE> 49
INTERVISUAL BOOKS, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- ----------------------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and at End of
Description of year Expenses (b) Deductions(a) Year
----------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for possible losses on receivables
Year ended December 31,
1999 $ 175,000 $ 173,000 $ (174,000) $ 174,000
1998 128,000 66,000 (19,000) 175,000
1997 161,000 10,000 (43,000) 128,000
Allowance for sales returns
Year ended December 31,
1999 $ 484,000 $ 1,216,000 $(1,300,000) $ 400,000
1998 75,000 409,000 - 484,000
1997 - 75,000 - 75,000
Allowance for inventory write-offs
Year ended December 31,
1999 $ 136,900 $ - $ (72,400) $ 64,500
1998 - 136,900 - 136,900
1997 - - - -
</TABLE>
(a) Write-off of uncollectible accounts and adjustments to reserve.
(b) Additions also include reserve from FFM.
46
<PAGE> 50
Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
47
<PAGE> 51
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Waldo H. Hunt 79 Chairman of the Board, Chief
Executive Officer, Director
Nathan N. Sheinman 50 President, Chief Operating
Officer, Director
Dan P. Reavis 50 Executive Vice President,
Chief Financial Officer,
Director
Steven D. Ades 51 President, Video and New Media
Division, Director
Steven Selsky 56 Senior Vice President-Finance
and Operations
Steven F. Wallace 46 Senior Vice President-Sales and
Marketing
Gail A. Thornhill 47 Controller, Secretary
Dr. Neil G. Berkman 50 Director
Gordon Hearne 76 Director
Leonard William Jaffe 81 Director
John J. McNaughton 77 Director
</TABLE>
Directors of the Company hold office until the next annual meeting of
the stockholders, and until their successors are duly elected and qualified.
Officers serve at the pleasure of the Board of Directors subject to the
provisions of their employment contracts, if any.
Waldo H. Hunt has been a director and the Chairman of the Board of the
Company since its organization in 1975. In November 1996, he assumed the
additional role of Chief Executive Officer. He previously served as its Chief
Executive Officer and Chief Financial Officer from 1975 to January 1992. From
1994 through December 1996, Mr. Hunt also served as Chairman of The Hunt
Creative Group, a company founded by Mr. Hunt in 1994 (the "Hunt Group"). Mr.
Hunt is the founder of the Company and is considered by many to be the father of
the modern-day pop-up industry.
Nathan N. Sheinman became President and Chief Operating Officer of the
Company on January 27, 1997. Mr. Sheinman joined the Board as a director in
March 1997. Prior to joining the
48
<PAGE> 52
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.
Dan P. Reavis became Executive Vice President and Chief Financial
Officer on January 19, 1998. Mr. Reavis joined the Board as a director in
February 1998. Prior to joining the Company, Mr. Reavis was the Executive Vice
President of Operations and Chief Financial Officer of Price Stern Sloan
Publishers for ten years before that company was acquired by the Putnam Berkeley
Group.
Gail A. Thornhill was appointed Secretary of the Company in February
1993. Ms. Thornhill has been employed by the Company since 1980 in various
capacities and has served as its Controller and Chief Accounting Officer since
February 1992.
Steven D. Ades became President of the Company's Video and New Media
Division in connection with the Company's acquisition of FFM in May 1999. Mr.
Ades joined the Board as a director in August 1999. Prior to the Merger, Mr.
Ades was the President and a director of Fast Forward since its organization in
1987.
Steven Selsky became Senior Vice President of Finance and Operations in
connection with the Company's acquisition of FFM in May 1999. Prior to the
Merger, Mr. Selsky was Chief Financial Officer of Fast Forward Marketing since
January 1993. From 1991 to 1993, Mr. Selsky was a financial consultant to
various companies.
Steven F. Wallace became Senior Vice President of Sales and Marketing in
connection with the Company's acquisition of FFM in May 1999. Prior to the
Merger, Mr. Wallace was Vice President of Sales of Fast Forward Marketing since
January 1994. From 1979 to 1993, Mr. Wallace was Senior Vice President of Sales
for Price Stern Sloan Publishers.
Dr. Neil G. Berkman became a director of the Company in August 1999. He
is the 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.
He earned a Ph.D. in Economics from the University of California, Berkeley, in
1977.
Gordon Hearne became a director of the Company in February 1996. He is a
principal of Hearne & Spector, an
49
<PAGE> 53
advertising agency formed in March 1995. Mr. Hearne was previously employed by
the Company as director of its commercial division and later as marketing
director of the division from June 1985 to June 1991 when the commercial
division was sold to R.R. Donnelley. After such sale, he continued working as a
consultant to an affiliate of R. R. Donnelly until February 1995.
Leonard W. Jaffe became a director of the Company in February 1998.
Prior to joining the Company, Mr. Jaffe was a director, Vice-Chairman and
Chairman of the Executive Committee of National Education Corporation ("NEC")
from 1976 until acquired by Harcourt General in June of 1997. He was a director
of Steck-Vaughn Publishing Company from 1993 until acquired by Harcourt General
in February 1998. He also serves as a consultant to various US and international
companies.
John J. McNaughton has been a director of the Company since September
1991. Mr. McNaughton was a member of the Board of Directors of National
Education Corporation ("NEC"), a company he founded in 1954 until NEC was
acquired by Harcourt General in June 1997. From 1954 to 1984, Mr. McNaughton was
the Chief Executive Officer and from 1954 to 1988 was the Chairman of the Board
of NEC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on a review of copies of such forms
furnished to the Company and certain written representations, the Company
believes that during the last fiscal year all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10-percent beneficial
owners were complied with the exception that Mr. Hunt filed in October 1999
after the 10th day of the month a Form 4 disclosing a purchase of Company stock
through Mr. Hunt's 401(k) plan account which occurred in September 1999 and Mr.
Hunt, Mr. Reavis, and Mr. Sheinman filed late in February Form 5's concerning
stock options.
Item 11. EXECUTIVE COMPENSATION
50
<PAGE> 54
Cash Compensation
The following table sets forth in the prescribed format the compensation
paid to all person's serving as the Company's Chief Executive Officer and the
other four most highly compensated executive officers of the Company for
services rendered in all capacities during the Company's last three fiscal
years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year(1) ($) ($) ($)(2) (#)(4) ($)(3)
------------------ ------- --- --- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Waldo H. Hunt 1999 215,625 - 66,120 150,000 -
Chairman, CEO 1998 235,416 - 69,179 - 3,125
1997 243,333 - 68,414 150,000 4,750
Nathan N. Sheinman 1999 238,958 - - 300,000 -
President,COO 1998 258,958 - - - 5,115
1997 233,974 - - 300,000 -
Dan P. Reavis 1999 165,833 - - 175,000 -
Executive Vice President 1998 156,939 - - - -
CFO 1997 175,000
Steven Ades 1999 158,125 140,000
President, New Media Div
Steven Selsky 1999 105,000 - - 145,000 -
Sr Vice President-Finance
</TABLE>
- ----------
(1) Mr.Reavis joined the Company in 1998, and, accordingly, no information
is disclosed with respect to prior years for this individual. Mr.Ades
and Mr. Selsky joined the Company in May 1999 as part of the acquisition
of Fast Forward Marketing, and no information is disclosed with respect
to prior years for these executives.
(2) The amount disclosed in this column includes $60,000 for a life
insurance policy and auto allowances.
(3) The amounts disclosed in this column represent contributions relating to
the Company's 401(k) plan.
(4) In November 1999, the option agreements for Mr. Hunt, Mr. Sheinman, and
Mr.Reavis were amended to reduce the exercise price to $1.25 per share,
which price exceeded the fair market value of the Company's Common Stock
on the date of the amendment. In the case of Mr. Hunt, certain options
were cancelled and an equal number of replacement options with an
exercise price of $1.25 were granted.
51
<PAGE> 55
The following tables set forth certain information with respect to the
executive officers named in the Summary Compensation table in the prescribed
formats with respect to options granted and exercised under the Company's
various stock option plans during the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Potential Realizable
Securities Value at Assumed
Underlying % of Total Annual Rates of Stock
Options Options Granted Exercise Price Appreciation
Granted To Employees In Price Expiration for Option Term
Name (#) Fiscal Year (%)(1) ($) Date 5% 10%
- ---- --- ------------------ --- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt 100,000 10.3% $ 1.25 2007 $ 78,612 $199,218
Waldo H. Hunt 50,000 5.1% $ 1.25 2002 $ 17,268 $ 38,157
Nathan Sheinman 300,000 30.8% $ 1.25 2005 $152,663 $355,769
Dan Reavis 175,000 17.9% $ 1.25 2004 $ 89,053 $207,532
Steven Ades 140,000 14.4% $ 1.25 2006 $ 71,243 $166,025
Steven Selsky 110,000 11.3% $ 1.25 2006 $ 55,976 $130,449
Steven Selsky 35,000 3.6% $ 1.25 2006 $ 17,811 $ 41,506
</TABLE>
- ----------
(1) In November 1999, the option agreements for Mr. Hunt, Mr. Sheinman, and
Mr. Reavis were amended to reduce the exercise price to $1.25 per share,
which price exceeded the fair market value of the Company's Common Stock
on the date of the amendment. In the case of Mr. Hunt, certain options
were cancelled and an equal number of replacement options with an
exercise price of $1.25 were granted.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value Options at FY-End at FY-End(1)
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
---- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Waldo H. Hunt None N/A 99,999 50,001 12,500 6,250
Nathan Sheinman None N/A 300,000 0 37,500 0
Dan P. Reavis None N/A 135,000 40,000 16,875 5,000
Steven Ades None N/A 0 140,000 0 17,500
Steven Selsky None N/A 27,500 82,500 3,437 10,313
Steven Selsky None N/A 0 35,000 0 4,375
</TABLE>
- ----------
(1) The amounts in this column are calculated using the difference between
the closing market price of the Company's common stock at the Company's
1999 fiscal year-end and the option exercise prices. The closing market
price of the Company's common stock was more than the option exercise
prices.
Director Compensation. Each director who is not an employee receives a
$5,000 annual retainer, $1,000 for each Board meeting attended in person, $500
for each meeting of a committee of the Board which is separate from a Board
meeting attended in person, and $250 for each Board or committee meeting
attended by telephone. Under the Company's Non-employee Director Stock Option
Plan, non-employee directors receive an initial option grant to purchase 30,000
shares of common stock when such person is first elected or appointed as a
Company director and thereafter, on the date of each
52
<PAGE> 56
annual meeting of the Company's shareholders, an additional grant to purchase
2,500 shares of common stock (other than to directors who receive an initial
grant during the calendar year in which the annual meeting is held), provided
that such non-employee director continues in office after the annual meeting.
Employment Agreements. The Company has an Employment Agreement with Mr.
Sheinman employing Mr. Sheinman as the Company's President and Chief Operating
Officer. This agreement was renewed in January 2000 and expires in January 2002.
Under his agreement, Mr. Sheinman is to receive an initial annual salary of
$275,000, an automobile allowance, and certain other benefits.
The Company also has 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 pays the executive an annual salary of
$250,000. The agreement also allows for lifetime additional annual payments of
$60,000 in lieu of paying any life insurance premiums which benefit Mr. Hunt.
Additionally, the agreement provides $10,000 toward the cost of a long-term
disability insurance policy. If such policy is not available, this amount is to
be paid to Mr. Hunt at year end. A provision for an auto allowance as well as
reimbursement for other related expenses and certain other benefits are included
in the agreement.
The Company employs Mr. Reavis, for employment as its Executive Vice
President and Chief Financial Officer pursuant to an Employment Agreement. The
employment agreement was for an initial term of three years with compensation of
$175,000 in the first year, $183,750 in the second year and $192,950 in the
third year.
In May 1999, the Company entered into a three-year Employment Agreement
with Mr. Ades employing Mr. Ades as the Company's President of the Video and New
Media Division. Under his agreement, Mr. Ades is to receive an annual salary of
$275,000, an automobile allowance and certain other benefits. Pursuant to his
Employment Agreement, Mr. Ades was granted options to purchase 140,000 shares of
the Company's common stock.
In May 1999, the Company entered into a two-year Employment Agreement
with Mr. Selsky employing Mr. Selsky as the Company's Senior Vice President of
Finance and Operations. Under this agreement, Mr. Selsky is to receive an annual
salary of $180,000, an automobile allowance and certain other benefits. Pursuant
to
53
<PAGE> 57
his Employment Agreement, Mr. Selsky was granted options to purchase 110,000
shares of the Company's common stock.
In May 1999, the Company entered into a two-year Employment Agreement
with Mr. Wallace employing Mr. Wallace as the Company's Senior Vice President of
Sales and Marketing. Under this agreement, Mr. Wallace is to receive an annual
salary of $162,500, an automobile allowance and certain other benefits. Pursuant
to his Employment Agreement, Mr. Wallace was granted options to purchase 100,000
shares of the Company's common stock.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information concerning beneficial
ownership of common stock of the Company as of February 29, 2000, by any person
who is known by the Company to be the beneficial owner of more than five (5%)
percent of the Company's common stock, by each director of the Company, each
executive officer named in the Summary Compensation Table, and by all current
directors and officers as a group. Except as otherwise noted, the following
shareholders have sole voting and investment power with respect to the shares
indicated except to the extent that authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent
Name Ownership(1)(2) of Class
- ---- --------------- --------
<S> <C> <C>
Waldo H. Hunt/The Hunt Trust (3) . . . . 2,956,916 49.2
2716 Ocean Park Blvd. #2020
Santa Monica, CA 90405
Dan P. Reavis . . . . . . . . . . . . . . 140,000 2.3
Nathan N. Sheinman. . . . . . . . . . . . 300,000 4.8
Steven D. Ades. . . . . . . . . . . . . . 614,940 10.4
Steven Selsky . . . . . . . . . . . . . . 121,349 2.0
Gordon Hearne . . . . . . . . . . . . . . 32,999 *
Leonard W. Jaffe. . . . . . . . . . . . . 27,000 *
John J. McNaughton. . . . . . . . . . . . 56,499 1.0
All directors and executive officers
as a group (6 persons). . . . . . . . . 4,282,787 65.0
</TABLE>
- ---------------
* Less than 1%
(1) Information relating to beneficial ownership of shares of Company common
stock is based upon the rules set forth under the Securities Exchange Act of
1934. Under such rules, more than one
54
<PAGE> 58
person may be deemed to be a beneficial owner of the same securities.
(2) Includes the following number of shares of common stock that may be
purchased upon the exercise of options granted by the Company which are
exercisable on February 29, 2000 or within 60 days thereafter: Mr. Hunt, 99,999;
Mr. Reavis, 135,000; Mr. Sheinman, 300,000; Mr. Selsky, 27,500; Mr. Hearne,
32,499; Mr. Jaffe, 20,000; Mr. McNaughton, 52,499; and all directors and
executive officers as a group, 700,581.
(3) All such shares are owned of record either by Mr. Hunt or by Waldo H. Hunt
and Patricia E. Hunt, Trustees of The Hunt Trust, UTA May 30, 1980, of which
both Trustees have shared voting and investment power.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1999, the Company acquired Fast Forward Marketing. (See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report.
1. Financial Statements. A list of financial statements is
contained in "Index to Financial Statements" on page 22
hereof.
2. Financial Statement Schedule. The following financial
statement schedule of Intervisual Books, Inc., for the
years ended December 31, 1999, 1998, and 1997 is filed
as a part of this Report and should be read in
conjunction with the Financial Statements of Intervisual
Books, Inc.
<TABLE>
<CAPTION>
Schedule Page
-------- ----
<S> <C>
II Valuation and Qualifying Accounts............. 46
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to
55
<PAGE> 59
be set forth therein is indicated in the Financial Statements or Notes thereto.
3. Exhibits.
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to Registrant's Form 10-Q for the quarter ended
September 30, 1999.)
3.2 Amended and Restated Bylaws as adopted January 21, 2000
10.1* Incentive Stock Option Plan and Form of Incentive Stock Option Agreement
(Incorporated by reference to Exhibit 10.1 to Registrant's Registration
Statement on Form S-18 (No. 33-43068-LA).)
10.2* 1993 Incentive Stock Option Plan (Incorporated by reference to Exhibit
4.3 to Registrant's Registration Statement on Form S-8 (No. 33- 58990).)
10.3* Non-Qualified Stock Option Plan and Form of Non-Qualified Stock Option
Agreement (Incorporated by reference to Exhibit 10.5 to Registrant's
Registration Statement on Form S-18 (No. 33-43068-LA).)
10.4* 1993 Non-Qualified Stock Option Plan (Incorporated by reference to
Exhibit 4.3 of Registrant's Registration Statement on Form S-8 (No.
33-58990).)
10.5* Employment Agreement between the Company and Rodger Smith (Incorporated
by reference to Exhibit 10.27 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.)
10.6* Non-employee Directors Stock Option Plan (Incorporated by reference to
Exhibit 10.28 to
56
<PAGE> 60
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
10.7* Consulting Agreement between the Company and Charles E. Gates
(Incorporated by reference to Exhibit 10.13 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.)
10.8* Nonstatutory Stock Option Agreement to purchase 200,000 shares of common
stock between the Company Nathan N. Sheinman (Incorporated by reference
to Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
10.9* Nonstatutory Stock Option Agreement to purchase 100,000 shares of common
stock between the Company and Nathan N. Sheinman (Incorporated by
reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.)
10.10 Office Lease between Watt Headquarters Limited Partnership and the
Company dated August 8, 1996 (Incorporated by reference to Exhibit 10.21
to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
10.11 Second Lease Addendum between Watt Headquarters Limited Partnership and
the Company dated December 3, 1996 (Incorporated by reference to Exhibit
10.22 to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
10.12 Amendment to Lease Agreement between Watt Headquarters Limited
Partnership and the Company dated January 27, 1997 (Incorporated by
reference to Exhibit 10.23 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.)
10.13* Form of Indemnification Agreement provided to Company's executive
officers and directors (Incorporated by reference to Exhibit 10.18 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.)
10.14* Employment Agreement between the Company and Waldo H. Hunt (Incorporated
by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K
for the
57
<PAGE> 61
fiscal year ended December 31, 1997.)
10.15* Nonstatutory Stock Option Agreement between the Company and Waldo H.
Hunt (Incorporated by reference to Exhibit 10.20 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.)
10.16* Employment Agreement between the Company and Dan P. Reavis (Incorporated
by reference to Exhibit 10.21 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.)
10.17* Nonstatutory Stock Option Agreement between the Company and Dan P.
Reavis (Incorporated by reference to Exhibit 10.22 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.)
10.18 Indemnification Agreement between the Company and Waldo Hunt and The
Hunt Family Trust (Incorporated by reference to Exhibit 10.27 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.)
10.19* Nonstatutory Stock Option Agreement between the Company and Leonard
William Jaffe (Incorporated by reference to Exhibit 10.29 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
10.20 Agreement and Plan of Merger dated March 29, 1999 among Intervisual
Books, Inc., FFM Acquisition Corp., Fast Forward Marketing, Inc., Steven
D. Ades and Laurie Levit as Trustees of the Levit Revocable Family
Trust. (Incorporated by reference to Exhibit 2.1 of Form 8-K filed May
27, 1999.)
10.21 Amendment No. 1 to Agreement and Plan of Merger dated April 29, 1999
among Intervisual Books, Inc., FFM Acquisition Corp., Fast Forward
Marketing, Inc., Steven D. Ades and Steven D. Ades and Laurie Levit as
Trustees of the Levit Revocable Family Trust. (Incorporated by reference
to Exhibit 2.2 of Form 8-K filed May 27, 1999.)
58
<PAGE> 62
10.22 Amended and Restated Voting Agreement dated May 19, 1999 among Steven D.
Ades, Steven Ades and Laurie Levit, Trustees of the Levit Revocable
Family Trust and Waldo H. Hunt, Trustee of The Hunt Family Trust.
(Incorporated by reference to Exhibit 2.3 of Form 8-K filed May 27,
1999.)
10.23 Restricted Stock Agreement dated May 13, 1999 among Intervisual Books,
Inc., Steven Ades and Laurie Levit, Trustees of the Levit Revocable
Family Trust, Rhonda Saperstein, Barbara Abella, Steven Selsky and
Steven Wallace. (Incorporated by reference to Exhibit 2.4 of Form 8-K
filed May 27, 1999.)
10.24 Loan and Security Agreement dated May 13, 1999 among Zindart Limited,
Intervisual books, Inc. and FFM Acquisition Corp. (Incorporated by
reference to Exhibit 10.1 of Form 8-K filed May 27, 1999.)
10.25 Intellectual Property Security Agreement dated May 13, 1999 between
Intervisual Books, Inc. and Zindart Limited. (Incorporated by reference
to Exhibit 10.2 of Form 8-K filed May 27, 1999.)
10.26 Intellectual Property Security Agreement dated May 13, 1999 between Fast
Forward Marketing and Zindart Limited. (Incorporated by reference to
Exhibit 10.3 of Form 8-K filed May 27, 1999.
10.27 Subordination Agreement dated as of May 12, 1999 among Santa Monica
Bank, Zindart Limited, Intervisual Books, Inc. and FFM Acquisition Corp.
(Incorporated by reference to Exhibit 10.4 of Form 8-K filed May 27,
1999.)
10.28 Loan and Security Agreement dated May 13, 1999 among Intervisual Books,
Inc., FFM Acquisition Corp. and Santa Monica Bank. (Incorporated by
reference to Exhibit 10.5 of Form 8-K filed May 27, 1999.)
10.29 Secured Promissory Note dated as of May 12, 1999. (Incorporated by
reference to Exhibit 10.6 of Form 8-K filed May 27, 1999.)
10.30 Amendment Agreement Number One to Loan and Security Agreement between
the Company and Santa Monica Bank dated September 30, 1999.
(Incorporated by reference
59
<PAGE> 63
to Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended
September 30, 1999.)
10.31* Employment Agreement between the Company and Steven D. Ades dated May
11, 1999
10.32* Nonstatutory Stock Option Agreement between the Company and Steven D.
Ades dated May 11, 1999
10.33* Employment Agreement between the Company and Steven Selsky dated May 13,
1999
10.34* Nonstatutory Stock Option Agreement between the Company and Steven
Selsky dated May 13, 1999
10.35* Employment Agreement between the Company and Steven Wallace dated May
12, 1999
10.36* Nonstatutory Stock Option Agreement between the Company and Steven
Wallace dated May 12, 1999
10.37 Amendment Agreement Number Two to Loan and Security Agreement between
the Company and Santa Monica Bank dated November 17, 1999
10.38 Amended and Restated Secured Promissory Note between the Company and
Santa Monica Bank dated November 17, 1999
10.39 Amendment to Lease Agreement between Watt Headquarters Limited
Partnership and the Company dated June 21, 1999
10.40* 1999 Stock Option Plan
10.41* Amendment of Nonstatutory Stock Option Agreement between the Company and
Waldo H. Hunt
10.42* Amendment of Nonstatutory Stock Option Agreement between the Company and
Dan P. Reavis
10.43* Employment Agreement between the Company and Nathan N. Sheinman
10.44* Amendment of Nonstatutory Stock Option Agreement between the Company and
Nathan N. Sheinman
60
<PAGE> 64
10.45 Extension Notice between the Company and Zindart Limited dated March 23,
2000
23. Consent of Independent Certified Public Accountants
24. Power of Attorney (contained on signature page)
27. Financial Data Schedule
- --------------------------
* Indicates management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
None
61
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
INTERVISUAL BOOKS, INC.
Date: March 30, 2000 By: /s/ NATHAN N. SHEINMAN
---------------------------------
Nathan N. Sheinman, President,
Chief Operating Officer, Director
Date: March 30, 2000 By: By: /s/ DAN P. REAVIS
------------------------------------
Dan P. Reavis, Executive Vice
President, Chief Financial Officer,
Director
Date: March 30, 2000 By: By: /s/ GAIL A. THORNHILL
------------------------------------
Gail A. Thornhill, Controller
Chief Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Waldo H. Hunt, Nathan N. Sheinman and Dan P.
Reavis, or any of them, his attorney-in-fact, each with the power of
substitution in any and all capacities, to sign any amendments to this Report
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ WALDO H. HUNT Chairman, Chief Executive March 30, 2000
- ------------------- Officer, Director
WALDO H. HUNT
</TABLE>
62
<PAGE> 66
<TABLE>
<S> <C> <C>
/s/ Nathan N. Sheinman President, Chief March 30, 2000
- ---------------------- Operating Officer,
NATHAN N. SHEINMAN Director
/s/ DAN P. REAVIS Executive Vice March 30, 2000
- ----------------- President, Chief
DAN P. REAVIS Financial Officer,
Director
/s/ STEVEN D. ADES President, Video March 30, 2000
- ------------------ and New Media Division,
STEVEN D. ADES Director
/s/ NEIL G. BERKMAN Director March 30, 2000
- ----------------------
NEIL G. BERKMAN
/s/ LEONARD W. JAFFE Director March 30, 2000
- --------------------
LEONARD WILLIAM JAFFE
/s/ GORDON HEARNE Director March 30, 2000
- ----------------------
GORDON HEARNE
/s/ JOHN J. MCNAUGHTON Director March 30, 2000
- ----------------------
JOHN J. MCNAUGHTON
</TABLE>
63
<PAGE> 67
INTERVISUAL BOOKS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
INDEX OF EXHIBITS FILED WITH REPORT
Exhibit
- -------
3.2 Amended and Restated Bylaws as adopted January 21, 2000
10.31* Employment Agreement between the Company and Steven D. Ades dated May
11, 1999
10.32* Nonstatutory Stock Option Agreement between the Company and Steven D.
Ades dated May 11, 1999
10.33* Employment Agreement between the Company and Steven Selsky dated May 13,
1999
10.34* Nonstatutory Stock Option Agreement between the Company and Steven
Selsky dated May 13, 1999
10.35* Employment Agreement between the Company and Steven Wallace dated May
12, 1999
10.36* Nonstatutory Stock Option Agreement between the Company and Steven
Wallace dated May 12, 1999
10.37 Amendment Agreement Number Two to Loan and Security Agreement between
the Company and Santa Monica Bank dated November 17, 1999
10.38 Amended and Restated Secured Promissory Note between the Company and
Santa Monica Bank dated November 17, 1999
10.39 Amendment to Office Lease Agreement between Watt Headquarters Limited
Partnership and the Company dated June 21, 1999
10.40* 1999 Stock Option Plan
10.41* Amendment of Nonstatutory Stock Option Agreement between the Company and
Waldo H. Hunt
10.42* Amendment of Nonstatutory Stock Option Agreement between the Company and
Dan P. Reavis
64
<PAGE> 68
10.43* Employment Agreement between the Company and Nathan N. Sheinman
10.44* Amendment of Nonstatutory Stock Option Agreement between the Company and
Nathan N. Sheinman
10.45 Extension Notice between the Company and Zindart Limited dated March 23,
2000
23. Consent of Independent Certified Public Accountants
24. Power of Attorney (contained on signature page)
27. Financial Data Schedule
65
<PAGE> 1
AMENDED AND RESTATED BYLAWS
OF
INTERVISUAL BOOKS, INC.
a California corporation
As adopted by the
Board on 1/21/00
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I OFFICES......................................................... 1
Section 1. PRINCIPAL OFFICES............................................... 1
Section 2. OTHER OFFICES................................................... 1
ARTICLE II MEETINGS OF SHAREHOLDERS........................................ 1
Section 1. PLACE OF MEETINGS............................................... 1
Section 2. ANNUAL MEETING.................................................. 1
Section 3. SPECIAL MEETING................................................. 1
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS................................ 2
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................... 2
Section 6. QUORUM.......................................................... 3
Section 7. ADJOURNED MEETING; NOTICE....................................... 3
Section 8. VOTING.......................................................... 4
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT
SHAREHOLDERS.................................................... 4
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING............................................... 5
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING
AND GIVING CONSENTS............................................. 6
Section 12. PROXIES......................................................... 6
Section 13. INSPECTORS OF ELECTION.......................................... 7
ARTICLE III DIRECTORS....................................................... 7
Section 1. POWERS.......................................................... 7
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS........................... 8
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS........................ 8
Section 4. VACANCIES....................................................... 9
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE..................... 9
Section 6. ANNUAL MEETING................................................. 10
Section 7. OTHER REGULAR MEETINGS......................................... 10
Section 8. SPECIAL MEETINGS............................................... 10
Section 9. QUORUM......................................................... 10
Section 10. WAIVER OF NOTICE............................................... 11
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 11. ADJOURNMENT.................................................... 11
Section 12. NOTICE OF ADJOURNMENT.......................................... 11
Section 13. ACTION WITHOUT MEETING......................................... 11
Section 14. FEES AND COMPENSATION OF DIRECTORS............................. 11
ARTICLE IV COMMITTEES..................................................... 11
Section 1. COMMITTEES OF DIRECTORS........................................ 11
Section 2. MEETINGS AND ACTION OF COMMITTEES.............................. 12
ARTICLE V OFFICERS....................................................... 13
Section 1. OFFICERS....................................................... 13
Section 2. ELECTION OF OFFICERS........................................... 13
Section 3. SUBORDINATE OFFICERS........................................... 13
Section 4. REMOVAL AND RESIGNATION OF OFFICERS............................ 13
Section 5. VACANCIES IN OFFICES........................................... 13
Section 6. CHAIRMAN OF THE BOARD.......................................... 14
Section 7. CHIEF EXECUTIVE OFFICER........................................ 14
Section 8. PRESIDENT...................................................... 14
Section 9. VICE PRESIDENTS................................................ 14
Section 10. SECRETARY...................................................... 14
Section 11. CHIEF FINANCIAL OFFICER........................................ 15
Section 12. APPROVAL OF LOANS TO OFFICERS.................................. 15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS..................................... 16
ARTICLE VII RECORDS AND REPORTS................................................... 16
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER................... 16
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS........................... 17
Section 3. MAINTENANCE AND INSPECTION OF OTHER
CORPORATE RECORDS.............................................. 17
Section 4. INSPECTION BY DIRECTORS........................................ 17
Section 5. ANNUAL REPORT TO SHAREHOLDERS.................................. 17
Section 6. FINANCIAL STATEMENTS........................................... 17
ARTICLE VIII GENERAL CORPORATE MATTERS............................................. 19
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE
AND VOTING..................................................... 19
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS...................... 19
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED....................................................... 19
Section 4. CERTIFICATES FOR SHARES........................................ 19
Section 5. LOST CERTIFICATES.............................................. 20
Section 6. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS................................................... 20
Section 7. CONSTRUCTION AND DEFINITIONS................................... 20
ARTICLE IX AMENDMENT OF BYLAWS............................................ 21
Section 1. AMENDMENT BY SHAREHOLDERS...................................... 21
Section 2. AMENDMENT BY DIRECTORS......................................... 21
CERTIFICATE OF ADOPTION OF BYLAWS.................................................... 22
</TABLE>
-iii-
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
INTERVISUAL BOOKS, INC.,
a California corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this State, and the corporation has one or more business offices
in this State, the Board of Directors shall fix and designate a principal
business office in the State of California.
Section 2. OTHER OFFICES. The Board of Directors or the Chief Executive
Officers may at any time establish branch or subordinate offices at any place or
places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of California designated by the Board of
Directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be
held each year on a date and at a time designated by the Board of Directors. At
each annual meeting directors shall be elected, and any other proper business
may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders may be
called at any time by the Board of Directors, or by the Chairman of the Board,
or by the President or by one or more shareholders holding shares in the
aggregate entitled to cast not less that 10% of the votes at that meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the
<PAGE> 6
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board, the President, any Vice President, or
the Secretary of the Corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 4 and 5 of this Article II, that a meeting will
be held at the time requested by the person or persons calling the meeting, not
less than thirty-five (35) nor more than sixty (60) days after the receipt of
the request. If the notice is not given within twenty (20) days after receipt of
the request, the person or persons requesting the meeting may give the notice.
Nothing contained in this paragraph of this Section 3 shall be construed as
limiting, fixing or affecting the time when a meeting of shareholders called by
action of the Board of Directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the Board of Directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the Articles of Incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of that Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of
that Code, the notice shall also state the general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either personally or by
first-class mail or telegraphic or other written communication, charges prepaid,
addressed to the shareholder at the address of that shareholder appearing on the
books of the corporation or given by the shareholder to the corporation for the
purpose of notice. If no such address appears on the corporation's books or is
given, notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.
-2-
<PAGE> 7
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the shareholder on
written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the holders of
a majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual
or special, whether or not a quorum is present, may be adjourned from time to
time by the vote of the majority of the shares represented at that meeting,
either in person or by proxy, but in the absence of a quorum, no other business
may be transacted at that meeting, except as provided in Section 6 of this
Article II.
When any meeting of shareholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than forty- five (45) days from the date set for the
original meeting, in which case the Board of Directors shall set a new record
date. Notice of any such adjourned meeting shall be given to each shareholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Sections 702 to 704, inclusive,
of the Corporations Code of California (relating to voting shares held by a
fiduciary, in the name of a corporation, or in joint ownership). The
shareholders' vote may be by voice vote or by ballot; provided, however, that
any election for directors must be by ballot if demanded
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by any shareholder before the voting has begun. On any matter other than
elections of directors, any shareholder may vote part of the shares in favor of
the proposal and refrain from voting the remaining shares or vote them against
the proposal, but, if the shareholder fails to specify the number of shares
which the shareholder is voting affirmatively, it will be conclusively presumed
that the shareholder's approving vote is with respect to all shares that the
shareholder is entitled to vote. If a quorum is present, the affirmative vote of
the majority of the shares represented at the meeting and entitled to vote on
any matter (other than the election of directors) shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by California General Corporation Law or by the Articles of
Incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless the candidates' names have been placed in nomination prior to
commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT
SHAREHOLDERS. The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to a holding of the
meeting, or an approval of the minutes. The waiver of notice or consent need not
specify either the business to be transacted or the purpose of any annual or
special meeting of shareholders, except that if action is taken or proposed to
be taken for approval of any of those matters specified in the second paragraph
of Section 4 of this Article II, the waiver of notice or consent shall state the
general nature of the proposal. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
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Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. In the case of election of
directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy on the
Board of Directors that has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holders, or
a transferee of the shares or a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article
II. In the case of approval of (i) contracts or transactions in which a director
has a direct or indirect financial interest, pursuant to Section 310 of the
Corporations Code of California, (ii) indemnification of agents of the
corporation; pursuant to Section 317 of that Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Code, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to corporate action without a
meeting, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting nor more than sixty (60) days before any such action without a
meeting, and in this event only shareholders of record on the date so fixed who
are entitled to vote are entitled to notice and to vote or to give consents, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the
California General Corporation Law.
If the Board of Directors does not so fix a record date:
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a. The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
b. The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the Board has been taken, shall
be at the close of business on the day on which the Board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Sections 705(e) and 705(f) of the Corporations Code of California.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the Chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
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a. Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
b. Receive votes, ballots, or consents;
c. Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
d. Count and tabulate all votes or consents;
e. Determine when the polls shall close;
f. Determine the result; and
g. Do any other acts that may be proper to conduct the election
or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
a. Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the articles of incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service.
b. Change the principal executive office or the principal
business office in the State of California from one location to another; cause
the corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or without the State of
California; and designate any place within or without the State of California
for the holding of any shareholders' meeting, or meetings, including annual
meetings.
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c. Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
d. Authorize the issuance of shares of stock of the corporation
on any lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities canceled, or tangible or intangible
property actually received.
e. Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors of the Corporation shall be not less than five
(5) nor more than nine (9). The exact number of directors shall be eight (8)
until changed, within the limits specified above, by the Board of Directors or
by approval of the shareholders.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of the shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
Any or all of the directors may be removed without cause if such
removal is approved by a majority of the outstanding voting shares, except that
no director may be removed (unless the entire board of directors is removed)
when the votes cast against removal, or not consenting in writing to such
removal, would be sufficient to elect such director if voted cumulatively at an
election at which the same total number of votes were cast (or, if such action
is taken by written consent, all shares entitled to vote were voted) and the
entire number of directors authorized at the time of the director's most recent
election were then being elected.
Section 4. VACANCIES. Vacancies in the Board of Directors may be filled
by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director, except that a vacancy created by the removal of a
director by the vote or written consent of the shareholders or by court order
may be filled only by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of all shares entitled to vote for the election of
directors. Each director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected and
qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind
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by an order of court or convicted of a felony, or if the shareholders fail, at
any meeting of shareholders at which any director or directors are elected, to
elect the number of directors to be voted for at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
chairman of the Board, the President, the Secretary, or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE.
Regular meetings of the Board of Directors may be held at any place within or
outside the State of California that has been designated from time to time by
resolution of the Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the Board shall be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or there is no notice, at the principal executive office of
the corporation. Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another, and all such directors shall
be deemed to be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the Board
of Directors shall be held without call at such time as shall from time to time
be fixed by the Board of Directors. Such regular meetings may be held without
notice.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
for any purpose or purposes may be called at any time by the Chairman of the
Board or the President or any Vice President or the Secretary or any two
directors.
Notice of the time and place of special meetings shall be (i) delivered
personally or by telephone (including a voice messaging system or other system
or technology
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designed to record and communicate messages), telegraph, facsimile, electronic
mail, or other electronic means, to each director at least forty-eight (48)
hours before the time of the holding of the meeting or (ii) sent by first-class
mail at least four (4) days before the time of the holding of the meeting,
charges prepaid, addressed to each director at that director's address as it is
shown on the records of the corporation. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Directors, subject to
the provisions of Section 310 of the Corporations Code of California (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of that Code (as to
appointment of committees), and Section 317(e) of that Code (as to
indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for that meeting.
Section 10. WAIVER OF NOTICE. The transactions of any meeting of the
Board of Directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting before or at its commencement, the lack
of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner specified
in Section 8 of this Article III, to the directors who were not present at the
time of the adjournment.
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Section 13. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and effect
as a unanimous vote of the Board of Directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
Board of Directors. This Section 14 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more other committees, each consisting of two or more
directors, to serve at the pleasure of the Board. The Board may designate one or
more directors as alternate members of any such committee, who may replace any
absent member at any meeting of the committee.
Any committee, to the extent provided in the resolution of the Board,
shall have all the authority of the Board, except with respect to:
a. The approval of any action which, under the General
Corporation Law of California, also requires shareholders' approval or approval
of the outstanding shares;
b. The filling of vacancies on the Board of Directors or in any
committee;
c. The fixing of compensation of the directors for serving on the
Board or on any committee;
d. The amendment or repeal of bylaws or the adoption of new
bylaws;
e. The amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
f. A distribution to the shareholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
Board of Directors; or
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g. The appointment of any other committees of the Board of
Directors or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without
meeting), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the Board of Directors and its
members, except that the time of regular meetings of committees may be
determined either by resolution of the Board of Directors or by resolution of
the committee; special meetings of committees may also be called by resolution
of the Board of Directors; and notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the Board of Directors, a chairman of the board, as
chief executive officer, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V. Any
number of offices may be held by the same person. The salaries of all officers
of the Corporation shall be fixed from time to time by the Board of Directors.
Section 2. ELECTION OF OFFICERS. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article V, shall be chosen by the Board of Directors, and
each shall serve at the pleasure of the Board, subject to the rights, if any, of
an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and
may empower the president, or chief executive officer, if any, to appoint, such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the bylaws or as the Board of Directors may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors, at any regular
or special
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meeting of the Board, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to that
office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
bylaws. If there is no chief executive officer or president, the chairman of the
board shall in addition be the chief executive officer of the corporation and
shall have the powers and duties prescribed in Section 7 of this Article V.
Section 7. CHIEF EXECUTIVE OFFICER. The chief executive officer, if such
an officer be elected, shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and affairs of
the corporation. In the absence or disability of the chairman of the board, or
if no such officer is elected, the chief executive officer shall preside at all
meetings of shareholders and the Board of Directors. The chief executive officer
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation, and shall have such other powers and
duties with respect to the administration of the business and affairs of the
corporation as may from time to time prescribed by the Board of Directors or the
bylaws.
Section 8. PRESIDENT. Subject to such supervisory powers as may be given
by the Board of Directors to the chairman of the board or the chief executive
officer, if there be such officers, the president shall have the general powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may from time to time
be prescribed by the Board of Directors or chief executive officer, if any, or
as prescribed by the bylaws. If there is no chief executive officer, the
president shall be the chief executive officer of the corporation and shall have
the powers and duties prescribed in Section 7 of this Article V, until such time
as the Board of Directors elects a new chief executive officer.
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Section 9. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the bylaws, and the president, or the chairman of the
board.
Section 10. SECRETARY. The secretary shall keep or cause to be kept, at
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at directors' meetings or committee meetings, the number of
shares present or represented at shareholders' meetings, and the proceedings.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required by the bylaws or by
law to be given, and he shall keep the seal of the corporation if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by the bylaws.
Section 11. CHIEF FINANCIAL OFFICER. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the corporation with such depositories as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have other powers and perform such other duties as may be
prescribed by the board of directors or the bylaws.
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Section 12. APPROVAL OF LOANS TO OFFICERS. The corporation may, upon the
approval of the Board of Directors alone, guarantee the obligations of any
officer of the corporation or its parent or subsidiary, whether or not a
director, or adopt an employee benefit plan or plans authorizing such loans or
guarantees provided that (i) the Board of Directors determines that such a loan
or guarantee or plan may reasonably be expected to benefit the corporation, (ii)
the corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the California Corporations Code) on
the date of approval by the Board of Directors, and (iii) the approval of the
Board of Directors is by a vote sufficient without counting the vote of any
interested director or directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
The corporation shall, to the maximum extent permitted by the California
General Corporation Law, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding arising by reason of the fact any such person
is or was an agent of the corporation. For purposes of this Section, an "agent"
of the corporation includes any person who is or was a director, officer,
employee, or other agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, or was a
director, officer, employee, or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER.
The corporation shall keep at its principal executive office, or at the office
of its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five days prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who
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are entitled to vote for the election of directors, and their shareholdings, as
of the most recent record date for which that list has been compiled or as of a
date specified by the shareholder after the date of demand. This list shall be
made available to any such shareholder by the transfer agent on or before the
later of five (5) days after the demand is received or the date specified in the
demand as the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection on the written demand of any
shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section 1 may be made in person or by an agent or attorney of
the shareholder or holder of a voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The
corporation shall keep at its principal executive office, or if its principal
executive office is not in the State of California, at its principal business
office in this state, the original or a copy of the bylaws as amended to date,
which shall be open to inspection by the shareholders at all reasonable times
during office hours. If the principal executive office of the corporation is
outside the State of California and the corporation has no principal business
office in this state, the Secretary shall, upon the written request of any
shareholder, furnish to that shareholder a copy of the bylaws as amended to
date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER
CORPORATE RECORDS. The accounting books and records and minutes of
proceedings of the shareholders and the board of directors and any committee or
committees of the board of directors shall be kept at such place or places
designated by the board of directors, or, in the absence of such designation, at
the principal executive office of the corporation. The minutes shall be kept in
written form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection upon
the written demand of any shareholder or holder of a voting trust certificate,
at any reasonable time during usual business hours, for a purpose reasonably
related to the holder's interests as a shareholder or as the holder of a voting
trust certificate. The inspection may be made in person or by an agent or
attorney, and shall include the right to copy and make extracts. These rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
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Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the board of directors from issuing annual or other periodic reports
to the shareholders of the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding an examination of any such statement or a copy
shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the chief financial
officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of the request. If
the corporation has not sent to the shareholders its annual report for the last
fiscal year, this report shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
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ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend, distribution, or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED. The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation, and this authority may be general or confined to specific
instances; and, unless so authorized or ratified by the board of directors or
within the agency power of an officer, no officer, agent, or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chairman of the board or vice chairman of the board or
the president or vice president and by the chief financial officer or an
assistant treasurer or the secretary or any assistant secretary, certifying the
number of
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shares and the class or series of shares owned by the shareholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed on a certificate shall have ceased to be that officer, transfer
agent, or registrar before that certificate is issued, it may be issued by the
corporation with the same effect as if that person were an officer, transfer
agent, or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the corporation and canceled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS. The chairman of the board, the president, or any vice president,
or any other person authorized by resolution of the board of directors or by any
of the foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations, foreign
or domestic, standing in the name of the corporation. The authority granted to
these officers to vote or represent on behalf of the corporation any and all
shares held by the corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person authorized to do
so by a proxy duly executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENT OF BYLAWS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these
Bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote, except as otherwise
provided by law, these Bylaws, or the Articles of Incorporation; provided,
however, that if the Articles of Incorporation of the Corporation set forth the
number of authorized
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directors of the Corporation, the authorized number of directors may be changed
only by an amendment of the Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS. In addition to the rights of the
shareholders as provided in Section l of this Article IX to adopt, amend, or
repeal bylaws, bylaws may be adopted, amended, or repealed by the Board of
Directors, provided, how ever, that the Board of Directors may adopt a bylaw or
amendment of a bylaw changing the authorized number of directors only for the
purpose of fixing the exact number of directors within the limits specified in
the Articles of Incorporation or in Section 2 of Article III of these bylaws.
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CERTIFICATE OF ADOPTION OF BYLAWS
I hereby certify that I am the duly elected and acting Secretary
of INTERVISUAL BOOKS, INC., a California corporation, and that the foregoing
Amended and Restated Bylaws constitute the duly adopted Bylaws of said
corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name as of
January 21, 2000.
[corporate seal] /s/ Gail A. Thornhill
------------------------------------
GAIL A. THORNHILL, Secretary
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EXHIBIT 10.31
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of the 11th day of May, 1999, between INTERVISUAL BOOKS, INC., a California
corporation (the "Company"), and Steven Ades (the "Executive").
In consideration of the promises and covenants set forth below,
the parties hereto agree as follows:
1. Employment.
The Company hereby agrees to employ Executive, and Executive
hereby agrees to accept such employment with the Company, on the terms and
conditions set forth herein.
2. Term.
The employment of Executive by the Company as provided in
this Agreement will commence on May 11, 1999 (the "Start Date"), and end on May
11, 2002, unless sooner terminated as hereinafter provided. The Company and
Executive shall attempt to negotiate in good faith between May 1, 2001, and
October 30, 2001 the terms of employment of Executive by the Company for a
period following the expiration of this Agreement.
3. Position and Duties.
Executive shall serve as President of the Company's Video and
New Media Division, or such other position or positions as may be agreed upon by
Executive and the Board of Directors. Executive shall at all times perform his
duties and obligations faithfully and diligently and shall devote all his
business time and best efforts exclusively to the business of the Company.
Executive shall at all times industriously perform his duties under the
supervision of and report to the Board of Directors, the Chairman of the Board
and the Chief Executive Officer of the Company and shall accept and comply with
all directions from and all policies established from time to time by the
Chairman of the Board, Board of Directors and Chief Executive Officer of the
Company. Executive's primary duties shall include but are not limited to, the
responsibility for the overall operations of the Video and New Media Division
including Internet Marketing and maintaining business relationships with the
studios. Executive's primary duties shall also include the development of new
business in Video and the Internet or other such reasonable duties (considering
the Executive's position)as may be assigned by the CEO or Chairman.
<PAGE> 2
Executive shall promote the trade and business of the Company
to the best of his ability and shall not willingly do anything to the prejudice
of the Company's trade or business. Executive shall not at any time
intentionally make any untrue statement regarding the Company and shall not
after the termination of employment by the Company represent himself as being
employed or connected with the Company. Executive shall not directly or
indirectly render any services of a business, commercial or professional nature
to any other person, entity or organization, whether for compensation or
otherwise, without the prior written consent of the Company's Board of
Directors. Executive shall adhere to all of the Company's policies and
procedures applicable to Company's employees generally.
4. Place of Performance.
In connection with Executive's employment by the Company and
except for required travel on Company business, Executive shall be based at the
principal executive offices of the Company or such other place or places as the
interests, needs, business and opportunities of the Company require or deem
advisable but in any case no further than 20 miles from the company's current
location.
5. Compensation and Related Matters.
(a) Salary. During the term of Executive's employment
hereunder, the Company shall pay to Executive a salary of $275,000.
(b) Payment. Such salary shall be paid in equal semi-monthly
installments (or such shorter intervals as the Company may elect) and shall
accrue from day to day. Such salary shall be subject to any withholding or taxes
the Company is required by law to make or pay.
(c) Vacations. During the term of Executive's employment
hereunder, Executive shall be entitled to four weeks of vacation in each
calendar year, and to compensation with respect to earned but unused vacation
days determined in accordance with the Company's vacation policy. Executive's
vacation shall be scheduled by mutual agreement between the Executive and the
Company's Chairman of the Board and Chief Executive Officer.
(d) Other Bonus or Compensation Benefits. During the term of
Executive's employment hereunder, Executive shall be entitled to participate in
any merit bonus or stock option programs that from time to time are approved by
the Board of Directors on a level equal with other Senior Executives of the
company.
(e) Air Travel. Except for commuter flights, all air travel
on company business shall be business class or if no business is available class
first class provided that other Executives at the same level or above are flying
similar classes of service.
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<PAGE> 3
(f) Expenses. During the term of Executive's employment
hereunder, Executive shall be entitled to receive reimbursement expenses
(incurred by Executive in performing Executive's services hereunder) for all
reasonable out-of-pocket travel (excluding ordinary commuting expenses) and
other expenses including the cost to setup and maintain a home office not to
exceed an initial amount of $3,000 for equipment and an annual payment during
the term of this agreement of $1,400. Executive also shall be entitled to
receive a monthly amount not to exceed $175, provided that:
i) Each such expenditure is of a nature qualifying it as a
proper business expenditure of the Company and is approved by the
Company; and
ii) Executive furnishes to the Company adequate records and
other documentary evidence required by the Company for the
substantiation of such expenditures as proper business expenditures of
the Company, and Executive otherwise complies with general Company
policies with respect to expense reimbursement.
(g) Stock Options. Executive acknowledges that, as additional
compensation for Executive's employment hereunder, Executive will be granted
nonstatutory stock options to acquire 140,000 of the shares of Company's common
stock pursuant to the Stock Option Agreement attached hereto as Exhibit A. The
terms of such stock options shall be governed by the provisions of the Stock
Option Agreements (including Executive's right to exercise such options upon
termination.)
(h) Medical Insurance. During the term of Executive's
employment hereunder, Executive will be entitled to participate in any medical
insurance plans from time to time generally applicable to full-time employees of
the Company.
(i) 401(k). During the term of Executive's employment
hereunder, Executive will be entitled to participate in the Company's 401(k)
plan, or other similar plans established by the Company, generally applicable to
full-time employees of the Company.
(j) Automobile Allowance. During Executive's employment
hereunder, the Company shall: Pay Executive an automobile allowance and
reimburse Executive, at standard rates and in accordance with the Company's
policies, for repair and maintenance expenses (including gasoline, insurance and
oil) regarding such automobile incurred by Executive in performance of his
responsibilities hereunder, in an amount equal to Executive's monthly automobile
lease payment and related auto expenses, but not to exceed a sum equal to the
average monthly amount paid to the Executive by Fast Forward Marketing, Inc. for
1998.on or
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about the last day of each month, provided that Executive maintains all
necessary records as required by the Company and the Internal Revenue Service;
and Executive furnishes to the Company adequate records and other documentary
evidence required for the substantiation of such payments as proper business
expenses of the Company and not as deductible compensation to Executive; and
Executive acknowledges that the personal use portion of such automobile
allowance will be accounted for by the Company as income paid to Executive,
based on the records maintained by Executive and standard IRS tables. Executive
shall conform to the Company's policies regarding the use of such automobile.
6. Termination.
(a) Cause. The Company may at any time upon written notice to
Executive terminate this Agreement and Executive's employment hereunder for
Cause pursuant to the provisions of this Section 6(a). Executive shall be given
written notice by the Board of Directors of its intention to terminate Executive
for Cause, which notice shall state the acts or omissions that constitute
grounds on which the proposed termination for Cause is based. In the Board of
Director's reasonable business judgment, the Board may permit Executive an
opportunity to address the Board or a committee of one or more directors
regarding the grounds on which the proposed termination for Cause is based. In
every case, the judgment of an arbitrator (as defined and selected as per
section 11 herein), shall be conclusive as to whether Cause for termination
exists.
For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon:
(i) The breach by Executive of any material provision or covenant
of this Agreement, and if such breach is susceptible to cure by Executive, the
failure to effect such cure within twenty (20) days after written notice of such
breach is given to the Executive; or
(ii) The willful failure or neglect of Executive to perform
Executive's duties hereunder or the gross negligence of Executive in the
performance of such duties, and if such failure or gross negligence is
susceptible to cure by Executive, the failure to effect such cure by Executive
within twenty (20) days after written notice of such failure or gross negligence
is given to Executive; or
(iii) Except as permitted hereunder, Executive's unexplained and
regular absences from the Company; and if such is susceptible to cure by
Executive, the failure to effect such cure by Executive within twenty (20) days
after written notice of such absences negligence is given to Executive; or
(iv) Executive's use of alcohol or illegal drugs, which use
interferes with the performance of Executive's duties hereunder; or
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<PAGE> 5
(v) Executive's conviction of a crime or for theft, embezzlement,
fraud, misappropriation of funds or any other alleged act of dishonesty by
Executive or Executive's conviction for any other felony or other crime
involving moral turpitude; or
(vi) Executive's violation of any law or ethical rule relating to
Executive's employment by the Company, including, but not limited to a violation
by Executive of Executive's fiduciary duty of loyalty to the Company which
Executive owes to the Company as an officer and/or director.
For purposes of this Agreement, an action shall be considered
"willful" if it is done intentionally, purposely or knowingly.
(b) Death. This Agreement and Executive's employment
hereunder shall terminate automatically upon Executive's death.
(c) Incapacity. If Executive becomes incapacitated during
Executive's employment hereunder, this Agreement and Executive's employment
hereunder shall terminate on the date of determination by the Board of Directors
of the Company of such incapacity. As used herein, "incapacity" shall mean any
physical or mental illness or disability, or both, which renders Executive
incapable of performing substantially all of his managerial and executive
services hereunder for 120 days or more in the aggregate during any calendar
year, and which at any time after such 120 days the Company's Board of Directors
shall determine continues to render Executive incapable of performing
substantially all of his managerial and executive services hereunder. In every
case, any determination by an arbitrator (as defined and selected as per section
11 herein) , shall be conclusive and binding upon Executive.
(d) Without Cause. The Company shall be entitled to terminate
this Agreement and Executive's employment hereunder at any time without Cause.
(e) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive (other than termination pursuant to
subsection 6(b) above) shall be communicated by a written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" means a notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth the circumstances which
provide a basis for termination of Executive's employment under the provisions
so indicated, and (iii) if the termination date is other than the date of
receipt of such notice, specifies the termination date of this Agreement (which
date shall not be more than 30 days after the giving of such notice).
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<PAGE> 6
(f) Date of Termination. "Date of Termination" shall mean the
date of death, the date of receipt of the Notice of Termination or the date
specified therein, as the case may be.
(g) Arbitration Rights. Nothing contained in this Section 6
shall contravene the Company and Executive's right and obligation to arbitrate
disputes as provided for in Section 11 of this Agreement.
7. Obligations of the Company Upon Termination.
(a) Termination for Cause. If this Agreement is terminated
pursuant to Section 6(a), the Company shall have no further obligation or
liability to Executive, except that Executive shall be entitled to receive only
(i) the portion of Executive's salary as set forth in Section 5(a) which has
been earned up to the Date of Termination, (ii) compensation for any accrued and
unused vacation up to the Date of Termination, and (iii) reimbursement, subject
to the requirements set forth in Section 5(c), for business expenses incurred up
to the Date of Termination (collectively, the "Minimum Payments").
(b) Termination for Death or Disability. If this Agreement is
terminated pursuant to Sections 6(b) or 6(c), the Company shall have no further
obligation or liability to Executive, except that Executive shall be entitled to
receive only the Minimum Payments.
(c) Termination Without Cause. If this Agreement is
terminated by the Company pursuant to Section 6(d), the Company shall have no
further obligation or liability to Executive, except that Executive shall be
entitled to receive only (i) the Minimum Payments, and (ii) an amount equal to
the unpaid portion as of the Date of Termination of the remaining payments due
under the initial term of this Agreement. (ii) above shall be paid monthly at
the monthly rate in effect as of the Date Termination until paid in full.
(d) Exclusivity of Payments. Upon termination of Executive's
employment hereunder, Executive shall not be entitled to any severance payments
or severance benefits from the Company or any payments by the Company on account
of any claim for wrongful termination, including but not limited to claims under
any federal, state or local human and civil rights or labor laws, other than the
payments provided in this Section 7, except for any benefits which may be due to
Executive in the normal course under any employee benefit plan of the Company
which provides for benefits after termination of employment. Executive agrees
that any right to receive payments hereunder upon termina-
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<PAGE> 7
tion of employment will cease if Executive breaches any provision of Sections 8
or 9 below.
8. Proprietary Information.
(a) Definition. Executive hereby acknowledges that Executive
possesses and may make use of, acquire, create, develop or add to certain
confidential and/or proprietary information regarding the Company and its
business (whether in existence prior to, as of or after the date hereof,
collectively, "Proprietary Information"), which Proprietary Information shall
include, without limitation, all of the following materials and information
(whether or not reduced to writing and whether or not patentable or protected by
copyright): trade secrets, inventions, processes, formulae, programs, technical
data, "know-how," procedures, manuals, confidential reports and communications,
marketing methods, product sales or cost information, new product ideas or
improvements, new packaging ideas or improvements, research and development
programs, identities or lists of suppliers, vendors or customers, financial
information and financial projections of the Company of any nature whatsoever,
or any other confidential or proprietary information relating to the Company
and/or its business. The term "Proprietary Information" does not include any
information that (i) at the time of disclosure is generally available to and
known by the public (other than as a result of its disclosure by Executive),
(ii) was available to Executive prior to disclosure by the Company, provided
that the person who was the source of such information was not known by
Executive to be subject to an obligation of confidentiality to the Company, or
(iii) becomes available to Executive on a non-confidential basis from a person
other than the Company or its representatives, provided that the source of such
information was not known by Executive to be subject to an obligation of
confidentiality to the Company.
(b) Nondisclosure. During the term of this Agreement and
thereafter, Executive will not, without the prior express written consent of the
Board of Directors, disclose or make any use of any Proprietary Information
except as may be required in the course of the performance of Executive's
services under this Agreement.
(c) Ownership. Executive acknowledges and agrees that all
right, title and interest in and to any Proprietary Information shall be and
shall remain the exclusive property of the Company. Without limiting the
foregoing, Executive shall assign to the Company any and all right, title or
interest which Executive may have in all Proprietary Information made, developed
or conceived of in whole or in part by Executive during his employment
hereunder.
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(d) Agreement Not to Solicit Customers. To protect the
Proprietary Information and trade secrets of the Company, Executive agrees,
during the term of this Agreement and for a period of one year after termination
of this Agreement, not to, directly or indirectly, either on Executive's own
behalf or on behalf of any other person or entity, attempt to intentionally
persuade any customer of the Company to cease to do business or to reduce the
amount of business which any customer of the Company has customarily done or
contemplates doing with the Company. Executive agrees that the covenants
contained in this paragraph are reasonable and desirable.
(e) Agreement Not to Solicit Employees. To protect the
Proprietary Information and trade secrets of the Company, Executive agrees,
during the term of this Agreement and for a period of one year after termination
of this Agreement, not to, directly or indirectly, either on Executive's own
behalf or on behalf of any other person or entity, solicit or employ any person
who is an employee of the Company. Executive agrees that the covenants contained
in this paragraph are reasonable and desirable.
(f) Proprietary Information Agreement. By execution of this
Agreement, Executive agrees and acknowledges that he shall be bound by all of
the terms of the Company's Proprietary Information Agreement attached hereto as
Exhibit B. Executive has reviewed such Proprietary Information Agreement and
agrees that any breach by Executive of any term or covenant contained therein
shall constitute a breach by Executive of this Agreement.
9. Protection of Property.
All records, files, manuals, documents, specifications, lists
of customers, banks, forms, materials, supplies, computer programs and other
materials furnished to the Executive by the Company, used on its behalf or
generated or obtained during the course of the performance of the Executive's
services hereunder, shall be and remain the property of the Company. Executive
shall be a holder thereof for the sole use and benefit of the Company, and shall
safely keep and preserve such property, except as consumed in the normal
business operations of the Company. Executive acknowledges that this property is
not readily accessible to the Company's competitors. Upon termination of
Executive's employment with the Company for any reason, Executive shall
immediately deliver to the Company, or its authorized representative, all such
property, including all copies, remaining in Executive's possession or control.
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10. Specific Performance.
In the event of the breach by Executive of any of the
provisions of Sections 8 or 9, the Company, in addition and supplementary to all
other rights and remedies existing in its favor and notwithstanding the
provisions of Section 11 hereof, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions thereof.
11. Arbitration.
The parties hereto acknowledge that it is in their best
interests to facilitate the informal resolution of any disputes arising out of
this Agreement or otherwise by mutual cooperation and without resorting to
litigation. As a result, if any party has a dispute arising hereunder or
otherwise, including but not limited to any claim for breach of any contract or
covenant (express or implied), tort claims, claims for discrimination
(including, but not limited to, race, sex, religion, national origin, age,
handicap or disability), claims for compensation or benefits (except where a
benefit plan or pension plan or insurance policy specifies a different claims
procedure) and claims for violation of any federal, state or other governmental
law, statute, regulation or ordinance (except for claims involving workers'
compensation benefits), and the parties are unable to reach agreement among
themselves, then a settlement conference must be held within thirty (30) days
upon receipt of a notice by the complaining party describing in detail the
complaint and setting forth a proposed solution to the complaint. The settlement
conference will be held in any Los Angeles office of the Judicial Arbitration
and Mediation Services, Inc. ("JAMS"). The complaining party must contact JAMS
to schedule the conference and the parties must agree on a retired judge from
the JAMS panel. If the parties are unable to agree upon such a retired judge,
JAMS shall provide a list of three available judges and each party may strike
one judge. The remaining judge will serve as the mediator at the settlement
conference.
If the dispute is not settled by the above-described format,
the parties agree to submit the dispute to JAMS for binding arbitration. A
three-judge panel will be selected to arbitrate the dispute. JAMS will provide
the names of five potential arbitrators, giving each party the opportunity to
strike one name. The remaining three arbitrators will serve as the arbitration
panel. The parties agree that the arbitration must be initiated within six
months after the claimed breach occurred and that failure to initiate
arbitration within the six-month period constitutes an absolute bar from the
institution of any new proceedings. Arbitration may be initiated by the
aggrieved party by sending written notice of an intent to arbitrate by
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<PAGE> 10
registered certified mail to all parties and to JAMS. The notice must contain a
description of the dispute, the amount involved and the remedies sought. If and
when a demand for arbitration is made by either party, the parties agree to
execute a Submission Agreement provided by JAMS, setting forth the rights of the
parties if the case is arbitrated and rules and procedures to be followed at the
arbitration hearing.
Nothing contained in this Section 11 shall prevent the
Company from seeking and obtaining equitable relief in a court to enforce any of
its rights under Sections 8 or 9 hereof.
12. Additional Covenants of the Company.
(a) The Company shall nominate Executive to its Board of
Directors at the first meeting of the Board of Directors after the Start Date.
13. Additional Covenants, Representations and Warranties of
Executive.
(a) Executive hereby represents and warrants that the
execution, delivery and performance of this Agreement by Executive does not (i)
breach, or result in a default under, any agreement to which Executive is a
party or by which Executive is bound, (ii) breach or otherwise violate any
order, writ, judgment or decree binding upon Executive, or (iii) violate any
applicable law or regulation.
(b) Upon Executive's cessation of employment with the Company
for any reason whatsoever, Executive shall thereupon be deemed to have resigned
from the Board of Directors of the Company, every parent or subsidiary of the
Company on which he is then serving as a director, and any other company on
which Executive is then serving as a director at the request of the Company, in
each case effective as of the date of cessation of employment.
14. Representation by Counsel.
Executive acknowledges that he has been represented by legal
counsel in connection with this Agreement and has consulted with such legal
counsel. The Company shall reimburse Executive for all reasonable attorneys'
fees and expenses actually incurred by Executive, but not to exceed $2,500, in
connection with the negotiation and preparation of this Agreement.
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15. Reimbursement of Expenses.
Executive shall promptly furnish to the Company adequate
records and other documentary evidence as requested by the Company to
substantiate any costs or expenses for which reimbursement is sought hereunder.
16. Successors.
This Agreement is personal to the Executive and is not
assignable by the Executive otherwise than by will or the laws of descent and
distribution without the prior written consent of the Company's Board of
Directors. This Agreement shall inure the benefit of and be enforceable by
Executive's legal representatives. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
17. Notice.
For purposes of this Agreement, notices, demands and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Executive: Executive's address as on file with the
Company
If to Company: Intervisual Books, Inc.
2716 Ocean Park Blvd., #2020
Santa Monica, California 90405
Attention: Chairman of the Board
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt thereof.
18. Entire Agreement.
This Agreement, together with the documents referenced
herein, contains the entire agreement of the parties hereto with respect to the
subject matter hereof. It supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the employment of
Employee by the Company. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, written, oral or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be valid or binding.
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19. Amendment; Waiver; Governing Law.
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by Executive and by such officer of the Company as may be
specifically designated by the Company's Board of Directors. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to conflict of law
principles.
20. Validity.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
21. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
22. Attorneys' Fees.
In the event of any dispute arising out of the subject matter
of this Agreement, the prevailing party shall be entitled to recover from the
nonprevailing party its costs and expenses (including reasonable attorneys'
fees) incurred in arbitrating or otherwise resolving such dispute.
23. Withholding of Taxes; Tax Reporting.
The Company may withhold from any amounts payable under this
Agreement all such Federal, state, city and other taxes, and may file with
appropriate governmental authorities all such information, returns or other
reports with respect to the tax consequences of any amounts payable under this
Agreement, as may, in its reasonable judgment, be required by law.
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IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
---------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EXECUTIVE:
/s/ Steven Ades
------------------------------------
Steven Ades
13
<PAGE> 1
EXHIBIT 10.32
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement") between INTERVISUAL BOOKS,
INC., a California corporation (the "Company"), and STEVEN ADES ("Employee") is
entered into as of the 11TH day of May, 1999.
RECITALS
A. Pursuant to an Employment Agreement bearing even date herewith
between the Company and Employee (the "Employment Agreement"), the Company has
agreed to grant to Employee this option to purchase shares of the Company's
common stock.
B. As a condition precedent to the effectiveness of this Agreement,
Employee must commence full time employment with the Company pursuant to the
terms of the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
I. Grant. The Company hereby grants to Employee the right to
purchase up to 140,000 shares of common stock of the Company at a price of $1.25
per share (which price equals the fair market value of the Company's common
stock as of the date of the grant), on the terms and conditions set forth
herein. This option is not intended to qualify as an incentive stock option
under Section 422 of the Internal Revenue Code, as amended, and is not made
pursuant to any Company stock option plan. Employee agrees that Employee and any
other person who may be entitled hereunder to exercise this option shall be
bound by all terms and conditions of this Agreement.
This Agreement and the grant of the option herein shall not be
effective unless and until Employee commences full time employment with the
Company pursuant to the terms of the Employment Agreement. If Employee does not
commence full time employment with the Company pursuant to the terms of the
Employment Agreement, this Agreement and the option granted herein shall be null
and void, and the parties hereto shall be deemed to have no rights or
obligations under this Agreement whatsoever.
II. Exercisability. The option granted herein shall become
exercisable at the following times and in the following amounts:
<PAGE> 2
The option shall become exercisable in cumulative increments of
46,667 shares on each of May 11, 2000, and May 11, 2001 and
46,666 shares on May 11, 2002. The option granted hereunder shall
lapse and expire on the seventh (7th) anniversary of the date
hereof.
If Employee does not purchase the full number of shares he is
entitled to purchase in any one year, the right to purchase such shares carries
over to the subsequent years during the term of this option.
Notwithstanding the foregoing, this option shall
automatically become fully exercisable upon a "Change in Control of the
Company," as such term is defined below.
For purposes of this Agreement, a "Change in Control of the
Company" shall be deemed to have occurred if:
a. the shareholders of the Company approve a definitive
agreement to sell, transfer, or otherwise dispose of all or substantially all of
the Company's assets and properties; or
b. any "person" (as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934), other than the Company or any "person"
who as of the date this Agreement is a director or officer of the Company
(including any trust of such director or officer), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company's then outstanding
securities; provided, however, that the following shall not constitute a "Change
in Control" of the Company:
(1) 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);
(2) any acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
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<PAGE> 3
(3) upon the death of any person who as of the date of this
Agreement is a director or officer of the Company, the transfer (A) by
testamentary disposition or the laws of intestate succession to the
estate or the legal beneficiaries or heirs of such person, or (B) by the
provisions of any trust to the beneficiaries thereof of the securities
of the Company beneficially owned by such director or officer of the
Company; or
c. the shareholders of the Company approve the dissolution or
liquidation of the Company or a definitive agreement to merge or consolidate the
Company with or into another entity in which the Company is not the continuing
or surviving corporation or pursuant to which any shares of the Company's stock
would be converted into cash, securities or other property of another entity,
other than a merger of the Company in which holders of the Company's common
stock immediately prior to the merger have the same proportionate ownership of
common stock (or equivalent securities) of the surviving entity immediately
after the merger as immediately before.
III. Exercise. This option may be exercised on the terms and
conditions contained herein by giving ten (10) days' prior written notice of
exercise to the Company, specifying the number of shares to be purchased and the
price to be paid therefor and by delivering a check in the amount of the
purchase price payable to the Company. The purchase price may also be paid, in
whole or in part, by delivery to the Company of outstanding shares of the
Company's common stock previously held by the Employee valued at "Fair Market
Value".
For the purposes of this Agreement, "Fair Market Value" as of
a certain date (the "Determination Date") means: (a) the closing price of a
share of the Company's common stock on the principal exchange on which shares of
the Company's common stock are then trading, if any, on the Determination Date,
or, if shares were not traded on the Determination Date, then on the nearest
preceding trading day during which a sale occurred; or (b) if such stock is not
traded on an exchange but is quoted on NASDAQ or a successor quotation system,
(i) the last sales price (if the stock is then listed as a National Market Issue
under The Nasdaq National Market System) or (ii) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
Determination Date as reported by NASDAQ or such successor quotation system; or
(c) if such stock is not publicly traded on an exchange and not quoted on NASDAQ
or a successor quotation system, the
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<PAGE> 4
mean between the closing bid and asked prices for the stock, on the
Determination Date, as determined in good faith by the Board; or (d) if the
Company's stock is not publicly traded, the fair market value established in
good faith by the Board.
IV. Termination of Employment.
(a) Termination by Employee. If Employee's employment is
terminated by Employee, Employee shall have ninety (90) days following the "Date
of Termination" (as defined in Section 6(f) of the Employment Agreement) to
exercise this option, but only to the extent that this option was exercisable on
such Date of Termination.
(b) Termination for Cause. If Employee's employment is
terminated by the Company for "Cause" (as defined in Section 6(a) of the
Employment Agreement), neither Employee nor his estate shall be entitled to
exercise this option after the Date of Termination.
(c) Death or Incapacity. If Employee's employment is
terminated for death or "Incapacity" (as defined in Section 6(c) of the
Employment Agreement), Employee or Employee's estate, as the case may be, shall
have the right for six (6) months following the Date of Termination to exercise
this option, but only to the extent that this option was exercisable on such
Date of Termination.
(d) Other. If Employee's employment is terminated for any
reason other than as set forth in Sections 4(a), (b) and (c) above, this option
shall automatically become fully exercisable on the Date of Termination, and
Employee shall have ninety (90) days following such Date of Termination to
exercise this option.
V. Transferability. This option except transfer to the "Ades
Family Trust" shall be transferable only by will or by the law of descent and
distribution to the estate (or other personal representative) of Employee and
shall be exercisable during Employee's lifetime only by him. Except as otherwise
provided herein, any attempt at alienation, assignment, pledge, hypothecation,
transfer, sale, attachment, execution or similar process, whether voluntary or
involuntary, with respect to all or any part of this option or any right under
this Agreement, shall be null and void and, at the Company's option, shall cause
Employee's rights under this Agreement to terminate.
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<PAGE> 5
VI. Withholding Requirements. In the event the Company
determines that it is required to withhold state or Federal income taxes as a
result of the exercise of this option, Employee shall be required, as a
condition to the exercise hereof, to make arrangements satisfactory to the
Company to enable it to satisfy such withholding requirements.
VII. Rights as a Stockholder. Employee, or any permitted
transferee of Employee, shall have no rights as a stockholder with respect to
any shares covered by this option until the date of the issuance of a stock
certificate for such shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8 of this Agreement. This
Agreement shall not confer upon Employee any right of continued employment by
the Company or interfere in any way in the Company's right to terminate
Employee.
VIII. Recapitalization. Subject to any required action by
stockholders, the number of shares of Common Stock covered by this option and
the exercise price thereof shall be proportionately adjusted for any increase or
decrease in the number of issued shares of common stock resulting from a
subdivision or consolidation of such shares or the payment of a stock dividend
(but only of common stock) or any other increase or decrease in the number of
issued shares of common stock effected without receipt of consideration by the
Company. Subject to any required action by stockholders, if the Company is the
surviving corporation in any merger or consolidation, this option shall pertain
and apply to the securities to which a holder of the number of shares of common
stock subject to the option would have been entitled.
The foregoing adjustments shall be made by the Company's
Board of Directors, whose determination shall be conclusive and binding on the
Company and Employee.
Except as expressly provided in this Section 8, Employee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, consolidation or spin-off of assets or stock
of another corporation, and any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason
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<PAGE> 6
thereof shall be made with respect to, the number of shares subject to this
option or the exercise price thereof.
This option shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
IX. Securities Act and Other Regulatory Requirements. This
option is not exercisable, in whole or in part, and the Company is not obligated
to sell any shares of the Company's common stock subject to this option, if such
exercise or sale, in the opinion of counsel for the Company, would violate the
Securities Act of 1933 (or any other federal or state statutes having similar
requirements) as it may be in effect at that time.
Further, the Board of Directors of the Company may require as
a condition of issuance of any shares under this option that Employee furnish a
written representation that he is acquiring the shares for investment and not
with a view to distribution to the public. The certificate evidencing any shares
issued pursuant to this option shall bear such restrictive legends as required
by federal or state law.
Further, the Board of Directors of the Company may decide, in
its sole discretion, that the listing or qualification of the shares of stock
subject to the option under any securities exchange requirements or under any
applicable law is necessary or desirable. If such a decision is made, this
option shall not be exercisable in whole or in part unless and until such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions that are not acceptable to the Board of Directors of the
Company.
X. Effect of Exercise. Upon the exercise of all or any part of
this option, the number of shares of common stock subject to the option under
this Agreement shall be reduced by the number of shares with respect to which
such exercise is made.
XI. Right of First Refusal. If Employee desires to transfer
(except for a transfer to the "Ades Family Trust") any shares of common stock
which he has acquired pursuant to the exercise of the option granted herein
("Shares"), Employee shall deliver to the Company written notice of his
intention to transfer such Shares (the "Notice") together with either a copy of
a signed and binding offer by the proposed transferee (a "Negotiated
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<PAGE> 7
Sale") or a statement that such Shares are to be sold into the public market at
Fair Market Value at the time of sale (a "Market Sale"). The Notice for a
Negotiated Sale shall state the name and address of the proposed transferee, the
number of Shares to be transferred, the price per Share, and the other terms of
such transfer. The Notice for a Market Sale shall state the expected date of the
proposed sale and the number of Shares to be sold. For fifteen (15) days
following delivery of the Notice, the Company shall have the option to purchase
all (but not less than all) of the Shares proposed to be sold by Employee at the
price and terms stated in the Notice. In the event of a Market Sale, such
purchase price shall be the Fair Market Value of the Shares on the day the
Company exercises its option but not less than Fair Market Value of the Shares
on the first applicable day after receipt of writen notice of the Employee's
intention to transfer such Shares. The "applicable day" is defined as the first
day after dilvery of notice to the Company that the Employee could have sold the
Shares on the open market.Such option shall be exercisable by delivery of
written notice to Employee within such fifthteen (15) day period. Any Shares not
purchased by the Company may, for a period of sixty (60) days commencing on the
expiration of the Company's option to purchase such Shares, be sold to the
proposed transferee at the price and upon the terms specified in the Notice.
Shares which are not transferred by Employee within such sixty (60) day period
shall again become subject to the notice and option provisions of this Section
11. The certificate evidencing any Shares issued pursuant to this option shall
bear a restrictive legend stating that such Shares are subject to the right of
first refusal set forth in this Section 11.
XII. Notices. Any notice or other communication required or
permitted hereunder or by law shall be validly given or made only if in writing
and delivered in person to an officer or duly authorized representative of the
other party, or deposited in the United States mail, duly certified or
registered, return receipt requested, postage prepaid, and addressed to the
party to whom intended. If sent to the Company, it shall be addressed in care of
the President, 2850 Ocean Park Boulevard, Suite 225, Santa Monica, California
90405, and if sent to Employee, it shall be addressed to Employee's address on
file with the Company on the date of such notice. If sent by mail, notice shall
be deemed given two days after deposit of such notice in the mail and in
accordance with this section. Any party may from time to time, by written notice
to the other, designate a different address for notice which shall be
substituted for that specified above.
XIII. Choice of Law; Counterparts. This Agreement, and all
rights and obligations hereunder, shall
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<PAGE> 8
be governed by the laws of the State of California without the regard to
conflict of law principles. This Agreement may be executed in one or more
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
XIV. Successor. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, heirs,
beneficiaries, executors and administrators.
XV. Paragraph Headings; Employment. Paragraph headings are for
convenience only and are not part of the context. This Agreement shall not
obligate the Company or any affiliate to employ Employee for any period of time
nor does this Agreement constitute a contract or agreement for employment.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first written above.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
---------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EMPLOYEE:
/s/ STEVEN ADES
------------------------------------
Steven Ades
8
<PAGE> 1
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of the 13th day of May, 1999, between INTERVISUAL BOOKS, INC., a California
corporation (the "Company"), and Steve Selsky (the "Executive").
In consideration of the promises and covenants set forth below,
the parties hereto agree as follows:
1. Employment.
The Company subject to the final negotiation and signing of a
definitive agreement to acquire Fast Forward Marketing, Inc, and the subsequent
closing and acquisition of Fast Forward Marketing, Inc., hereby agrees to employ
Executive, and Executive hereby agrees to accept such employment with the
Company, on the terms and conditions set forth herein.
2. Term.
The employment of Executive by the Company as provided in this
Agreement will commence on May 13th 1999, (the "Start Date"), and end on May
13th, 2001, unless sooner terminated as herein after provided. As a condition
precedent to the effectiveness of this Agreement, Executive shall report for
work at the principal executive or other offices of the Company on the Start
Date. The Company and Executive shall attempt to negotiate in good faith between
October 31, 2000, and, May 13th, 2001, the terms of employment of Executive by
the Company for a period following the expiration of this Agreement.
3. Position and Duties.
Executive shall serve as Senior Vice President Finance and
Operations of the Company, or such other position or positions as may be agreed
upon by the Executive and the President of the Company or the Board of
Directors. Executive shall at all times perform his duties and obligations
faithfully and diligently and shall devote all his business time and best
efforts exclusively to the business of the Company Executive shall at all times
industriously perform his duties and report to the President of the Company and
shall accept and comply with all directions from and all policies established
from time to time by the President, or the Chairman of the Board and Board of
Directors of the Company. Executive's primary duties include but are not limited
to, oversee and manage all accounting functions of Intervisual Books, Inc. and
Fast For-ward Marketing including, cash management, budgets, monthly financial
statements and SEC reporting, and other duties as may from time to time be
prescribed by the President of the Company or the Board of Directors.
Executive shall promote the trade and business of the Company to
the best of his ability and shall not willingly do anything to prejudice the
Company's trade or business. Executive shall not at any time intentionally make
any untrue statement regarding the Company and shall not after the termination
of employment by the Company represent himself as being employed or connected
with the Company. Executive shall not directly or indirectly render any services
of a business, commercial or professional nature to any other person, entity or
organization, whether for compensation or otherwise, without the prior written
consent of the Company's Board of Directors.
<PAGE> 2
Executive shall adhere to all of the Company's policies and procedures
applicable to Company's employees generally.
4. Place of Performance.
In connection with Executive's employment by the Company and
except for required travel on Company business, Executive shall be based at the
principal executive offices of the Company or such other place or places as the
interests, needs, business and opportunities of the Company require or deem
advisable and only upon mutual agreement with Executive.
5 . Compensation and Related Matters.
(a) Salary. During the term of Executive's employment hereunder,
the Company shall pay to Executive a salary of $180,000 per annum. Such salary
shall be paid in equal semi-monthly installments (or such shorter intervals as
the Company may elect) and shall accrue from day to day. Such salary shall be
subject to any withholding or taxes the Company is required by law to make or
pay.
(b) Vacations. During the term of Executive's employment
hereunder, Executive shall be entitled to four weeks of vacation in each
calendar year, and to compensation with respect to earned but unused vacation
days determined in accordance with the Company's vacation policy. Executive's
vacation shall be scheduled by mutual agreement between the Executive and the
Company's President.
(c) Expenses. During the term of Executive's employment
hereunder, Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket travel and other expenses (excluding ordinary commuting
expenses) incurred by Executive in performing Executive's services hereunder,
provided that:
(i) Each such expenditure is of a nature qualifying it as a
proper business expenditure of the Company and is approved by the Company; and
(ii) Executive furnishes to the Company adequate records and
other documentary evidence required by the Company for the
substantiation of such expenditures as proper business expenditures of
the Company, and Executive otherwise complies with general Company
policies with respect to expense reimbursement.
(d) Stock Options. Executive acknowledges that, as additional
compensation for Executive's employment hereunder, Executive will be granted
nonstatutory stock options to acquire 110,000 shares of the Company's common
stock at $1.25 per share pursuant to the Stock Option Agreement attached hereto
as Exhibits A. The terms of such stock options shall be governed by the
provisions of the Stock Option Agreements (including Executive's right to
exercise such options upon termination.)
(e) Medical Insurance. During the term of Executive's employment
hereunder, Executive and family will be entitled to participate in any medical
insurance plans from time to time generally applicable to and equivalent to that
offered to other Senior Executives at the same level during the term of
Executive's employment hereunder.
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<PAGE> 3
(f) 401(k). During the term of Executive's employment hereunder,
Executive will be entitled to participate in the Company's 401 (k) plan, or
other similar plans established by the Company, generally applicable to
full-time employees of the Company.
(g) Car Allowance. During the term of Executive's employment
hereunder, Executive will be entitled to a monthly car allowance of $600 per
month.
(6) Termination.
(a) Cause. The Company may at any time upon written notice to
Executive terminate this Agreement and Executive's employment hereunder for
Cause pursuant to the provisions of this Section 6(a). Executive shall be given
written notice by the Board of Directors of its intention to terminate Executive
for Cause, which notice shall state the acts or omissions that constitute
grounds on which the proposed termination for Cause is based. In the Board of
Director's reasonable business judgment, the Board shall permit Executive an
opportunity to address the Board or a committee of one or more directors
regarding the grounds on which the proposed termination for Cause is based. In
every case, the good faith judgment of the Board of Directors shall be
conclusive as to whether Cause for termination exists.
For purposes of this Agreement, the Company shall have "Cause"
to terminate Executive's employment hereunder upon:
(i) The breach by Executive of any material provision or
covenant of this Agreement, and if such breach is susceptible to cure by
Executive, the failure to effect such cure within twenty (20) days after written
notice of such breach is given to the Executive; or
(ii) The willful failure or neglect of Executive to perform
Executive's duties hereunder or the gross negligence of Executive in the
performance of such duties, and if such failure or gross negligence is
susceptible to cure by Executive, the failure to effect such cure by Executive
within twenty (20) days after written notice of such failure or gross negligence
is given to Executive; or
(iii) Except as permitted hereunder, Executive's unexplained and
regular absences from the Company; or
(iv) Executive's use of alcohol or illegal drugs, which use
interferes with the performance of Executive's duties hereunder; or
(v) Executive's indictment for a crime or for theft,
embezzlement, fraud, misappropriation of funds or any other alleged act of
dishonesty by Executive or Executive's indictment for any other felony or other
crime involving moral turpitude; or
(vi) Executive's violation of any law or ethical rule relating
to Executive's employment by the Company, including, but not limited to a
violation by Executive of Executive's fiduciary duty of loyalty to the Company
which Executive owes to the Company as an officer and/or director; or
For purposes of this Agreement, an action shall be considered
"willful" if it is done intentionally, purposely or knowingly.
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<PAGE> 4
(b) Death. This Agreement and Executive's employment hereunder
shall terminate automatically upon Executive's death.
(c) Incapacity. If Executive becomes incapacitated during
Executive's employment hereunder, this Agreement and Executive's employment
hereunder shall terminate on the date of determination by the Board of Directors
of the Company of such incapacity. As used herein, "incapacity" shall mean any
physical or mental illness or disability, or both, which renders Executive
incapable of performing substantially all of his managerial and executive
services hereunder for 120 days or more in the aggregate during any calendar
year, and which at any time after such 120 days the Company's Board of Directors
shall determine continues to render Executive incapable of performing
substantially all of his managerial and executive services hereunder. Any
determination made in good faith by the Company's Board of Directors shall be
conclusive and binding upon Executive.
(d) Without Cause. The Company shall be entitled to terminate
this Agreement and Executive's employment hereunder at any time without Cause.
(e) Resignation. Executive shall be entitled to terminate this
Agreement and Executive's employment hereunder at any time an thirty days prior
written notice delivered by Executive to the Company.
(f) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive (other than termination pursuant to
subsection 6(b) above) shall be communicated by a written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" means a notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth the circumstances which
provide a basis for termination of Executive's employment under the provisions
so indicated, and (iii) if the termination date is other than the date of
receipt of such notice, specifies the termination date of this Agreement (which
date shall not be more than 30 days after the giving of such notice).
(g) Date of Termination. "Date of Termination" shall mean the
date of death, the date of receipt of the Notice of Termination or the date
specified therein, as the case may be.
(h) Arbitration Rights. Nothing contained in this Section 6
shall contravene the Company and Executive's right and obligation to arbitrate
disputes as provided for in Section 11 of this Agreement.
7. Obligations of the Company Upon Termination.
(a) Termination for Cause. If this Agreement is terminated
pursuant to Section 6(a), the Company shall have no further obligation or
liability to Executive, except that Executive shall be entitled to receive only
(i) the portion of Executive's salary as set forth in Section 5(a) which has
been earned up to the Date of Termination, (ii) compensation for any accrued and
unused vacation up to the Date of Termination, and (iii) reimbursement, subject
to the requirements set forth in Section 5(c), for business expenses incurred up
to the Date of Termination (collectively, the "Minimum Payments").
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<PAGE> 5
(b) Termination for Death or Disability. If this Agreement is
terminated pursuant to Sections 6(b) or 6(c), the Company shall have no further
obligation or liability to Executive, except that Executive shall be entitled to
receive only the Minimum Payments.
(c) Termination Without Cause. If this Agreement is terminated
by the Company pursuant to Section 6(d), the Company shall have no further
obligation or liability to Executive, except that Executive shall be entitled to
receive only (i) the Minimum Payments, and (ii) an amount equal to (12) months
salary based on executive's rate of pay at the date of termination. Any amounts
owed to Executive pursuant to subsection (ii) above shall be paid semi-monthly
through the company's regular payroll commencing immediately from the Date of
Termination until paid in full.
(d) Resignation. If this Agreement is terminated by Executive
pursuant to Section 6(e), the Company shall have no further obligation or
liability to Executive, except that Executive shall be entitled to receive only
the Minimum Payments.
(e) Exclusivity of Payments. Upon termination of Executive's
employment hereunder, Executive shall not be entitled to any severance payments
or severance benefits from the Company or any payments by the Company on account
of any claim for wrongful termination, including but not limited to claims under
any federal, state or local human and civil rights or labor laws, other than the
payments provided in this Section 7, except for any benefits which may be due to
Executive in the normal course under any employee benefit plan of the Company
which provides for benefits after termination of employment. Executive agrees
that any right to receive payments hereunder upon termination of employment will
cease if Executive breaches any provision of Sections 8 or 9 below.
8. Proprietary Information.
(a) Definition. Executive hereby acknowledges that Executive
possesses and may make use of, acquire, create, develop or add to certain
confidential and/or proprietary information regarding the Company and its
business (whether in existence prior to, as of or after the date hereof,
collectively, "Proprietary Information"), which Proprietary Information shall
include, without limitation, all of the following materials and information
(whether or not reduced to writing and whether or not patentable or protected by
copyright): trade secrets, inventions, processes, formulae, programs, technical
data, "know-how," manuals, confidential reports and communications, product
sales or cost information, new product ideas or improvements, new packaging
ideas or improvements, research and development programs, identities or lists of
suppliers, vendors or customers, financial information and financial projections
of the Company of any nature whatsoever, or any other confidential or
proprietary information relating to the Company and/or its business. The term in
"Proprietary Information" does not include any information that (i) at the time
of disclosure is generally available to and known by the public (other than as a
result of its disclosure by Executive), (ii) was available to Executive prior to
disclosure by the Company, provided that the person who was the source of such
information was not known by Executive to be subject to an obligation of
confidentiality to the Company, or (iii) becomes available to Executive on a
non-confidential basis from a person other than the Company or its
representatives, provided that the source of such information was not known by
Executive to be subject to an obligation of confidentiality to the Company.
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<PAGE> 6
(b) Nondisclosure. During the term of this Agreement and
thereafter, Executive will not, without the prior express written consent of the
Board of Directors, disclose or make any use of any Proprietary Information
except as may be required in the course of the performance of Executive's
services under this Agreement.
(c) Ownership. Executive acknowledges and agrees that all right,
title and interest in and to any Proprietary Information shall be and shall
remain the exclusive property of the Company. Without limiting the foregoing,
Executive shall assign to the Company any and all right, title or interest which
Executive may have in all Proprietary Information made, developed or conceived
of in whole or in part by Executive during his employment hereunder.
(d) Agreement Not to Solicit Customers,. To protect the
Proprietary Information and trade secrets of the Company, Executive agrees,
during the term of this Agreement and for a period of one year after termination
of this Agreement, not to, directly or indirectly, either on Executive's own
behalf or on behalf of any other person or entity, attempt to intentionally
persuade any customer of the Company to cease to do business or to reduce the
amount of business which any customer of the Company has customarily done or
contemplates doing with the Company. Executive agrees that the covenants
contained in this paragraph are reasonable and desirable.
(e) Agreement Not to Solicit Employees. To protect the
Proprietary Information and trade secrets of the Company, Executive agrees,
during the term of this Agreement and for a period of one year after termination
of this Agreement, not to, directly or indirectly, either on Executive's own
behalf or on behalf of any other person or entity, solicit or employ any person
who is an employee of the Company. Executive agrees that the covenants contained
in this paragraph are reasonable and desirable.
(f) Proprietary Information Agreement. By execution of this
Agreement, Executive agrees and acknowledges that he shall be bound by all of
the terms of the Company's Proprietary Information Agreement attached hereto as
Exhibit C. Executive has reviewed such Proprietary Information Agreement and
agrees that any breach by Executive of any term or covenant contained therein
shall constitute a breach by Executive of this Agreement.
9. Protection of Property.
All records, files, manuals, documents, specifications, lists of
customers, banks, forms, materials, supplies, computer programs and other
materials furnished to the Executive by the Company, used on its behalf or
generated or obtained during the course of the performance of the Executive's
services hereunder, shall be and remain the property of the Company. Executive
shall be a holder thereof for the sole use and benefit of the Company, and shall
safely keep and preserve such property, except as consumed in the normal
business operations of the Company. Executive acknowledges that this property is
not readily accessible to the Company's competitors. Upon termination of
Executive's employment with the Company for any reason, Executive shall
immediately deliver to the Company, or its authorized representative, all such
property, including all copies, remaining in Executive's possession or control.
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<PAGE> 7
10. Specific Performance.
In the event of the breach by Executive of any of the provisions
of Sections 8 or 9, the Company, in addition and supplementary to all other
rights and remedies existing in its favor and notwithstanding the provisions of
Section 11 hereof, may apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce or prevent any violations of the provisions thereof.
11. Arbitration.
The parties hereto acknowledge that it is in their best
interests to facilitate the informal resolution of any disputes arising out of
this Agreement or otherwise by mutual cooperation and without resorting to
litigation. As a result, if any party has a dispute arising hereunder or
otherwise, including but not limited to any claim for breach of any contract or
covenant (express or implied), tort claims, claims for discrimination
(including, but not limited to, race, sex, religion, national origin, age,
handicap or disability), claims for compensation or benefits (except where a
benefit plan or pension plan or insurance policy specifies a different claims
procedure) and claims for violation of any federal, state or other governmental
law, statute, regulation or ordinance (except for claims involving workers'
compensation benefits), and the parties are unable to reach agreement among
themselves, then a settlement conference must be held within thirty (30) days
upon receipt of a notice by the complaining party describing in detail the
complaint and setting forth a proposed solution to the complaint. The settlement
conference will be held in any Los Angeles office of the Judicial Arbitration
and Mediation Services, Inc. ("JAMS"). The complaining party must contact JAMS
to schedule the conference and the parties must agree on a retired judge from
the JAMS panel. If the parties are unable to agree upon such a retired judge,
JAMS shall provide a list of three available judges and each party may strike
one judge. The remaining judge will serve as the mediator at the settlement
conference.
If the dispute is not settled by the above-described format, the
parties agree to submit the dispute to JAMS for binding arbitration. A
three-judge panel will be selected to arbitrate the dispute. JAMS will provide
the names of five potential arbitrators, giving each party the opportunity to
strike one name. The remaining three arbitrators will serve as the arbitration
panel. The parties agree that the arbitration must be initiated within six
months after the claimed breach occurred and that failure to initiate
arbitration within the six-month period constitutes an absolute bar from the
institution of any new proceedings. Arbitration may be initiated by the
aggrieved party by sending written notice of an intent to arbitrate by
registered certified mail to all parties and to JAMS. The notice must contain a
description of the dispute, the amount involved and the remedies sought. If and
when a demand for arbitration is made by either party, the parties agree to
execute a Submission Agreement provided by JAMS, setting forth the rights of the
parties if the case is arbitrated and rules and procedures to be followed at the
arbitration hearing.
Nothing contained in this Section 11 shall prevent the Company
from seeking and obtaining equitable relief in a court to enforce any of
its-rights under Sections 8 or 9 hereof
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<PAGE> 8
12. Additional Covenants, Representations and Warranties of
Executive.
(a) Executive hereby represents and warrants that the execution,
delivery and performance of this Agreement by Executive does not (i) breach, or
result in a default under, any agreement to which Executive is a party or by
which Executive is bound, (ii) breach or otherwise violate any order, writ,
judgment, order or decree binding upon Executive, or (iii) violate any
applicable law or regulation.
13. Reimbursement of Expenses.
Executive shall promptly furnish to the Company adequate records
and other documentary evidence as requested by the Company to substantiate any
costs or expenses for which reimbursement is sought hereunder.
14. Successors.
This Agreement is personal to the Executive and is not
assignable by the Executive otherwise than by will or the laws of descent and
distribution without the prior written consent of the Company's Board of
Directors. This Agreement shall inure the benefit of and be enforceable by
Executive's legal representatives. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
15. Notice.
For purposes of this Agreement, notices, demands and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Executive: Executive's address as on file with the
Company
If to Company: Intervisual Books, Inc.
2716 Ocean Park Blvd., #2020
Santa Monica, California 90405
Attention: Chairman of the Board
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt thereof
16. Entire Agreement.
This Agreement, together with the documents referenced herein,
contains the entire agreement of the parties hereto with respect to the subject
matter hereof. It supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the employment of Employee
by the Company. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, written, oral or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be valid or binding.
<PAGE> 9
17. Amendment; Waiver; Governing Law.
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by Executive and by such officer of the Company as may be
specifically designated by the Company's Board of Directors. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
18. Validity.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
19. Counterparts.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
20. Withholding of Taxes; Tax Reporting.
The Company may withhold from any amounts payable under this
Agreement all such Federal, state, city and other taxes, and may file with
appropriate governmental authorities all such information, returns or other
reports with respect to the tax consequences of any amounts payable under this
Agreement, as may, in its reasonable judgment, be required by law.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INTERVISUAL BOOKS, INC.
By: /s/ NATHAN N. SHEINMAN
Name: Nathan N. Sheinman
Title: President
EXECUTIVE
/s/ STEVE SELSKY
Steve Selsky
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<PAGE> 1
EXHIBIT 10.34
EXHIBIT A
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement") between INTERVISUAL BOOKS,
INC., a California corporation (the "Company"), and Steve Selsky ("Employee") is
entered into as of the 13th day of May, 1999.
RECITALS
A. Pursuant to an Employment Agreement bearing even date herewith
between the Company and Employee (the "Employment Agreement"), the Company has
agreed to grant to Employee this option to purchase shares of the Company's
common stock.
B. As a condition precedent to the effectiveness of this Agreement,
Employee must commence full time employment with the Company pursuant to the
terms of the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
Grant. The Company hereby grants to Employee the right to
purchase up to 110,000 shares of common stock of the Company at a price of $1.25
per share (which price equals the fair market value of the Company's common
stock as of the date of grant), on the terms and conditions set forth herein.
This option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code, as amended, and is not made pursuant
to any Company stock option plan. Employee agrees that Employee and any other
person who may be entitled hereunder to exercise this option shall be bound by
all terms and conditions of this Agreement.
This Agreement and the grant of the option herein shall not
be effective unless and until Employee commences full time employment with the
Company pursuant to the terms of the Employment Agreement. If Employee does not
commence full time employment with the Company pursuant to the terms of the
Employment Agreement, this Agreement and the option granted herein shall be null
and void, and the parties hereto shall be deemed to have no rights or
obligations under this Agreement whatsoever.
<PAGE> 2
2. Exercisability. The option granted herein shall become
exercisable at the following times and in the following amounts:
The option shall become exercisable in cumulative increments of
27,500 shares on signing (a) 27,500 shares on May 13, 2000, (b)
55,000 May 13, 2001, The option granted hereunder shall lapse
and expire on the seventh (7th) anniversary of the date hereof.
If Employee does not purchase the full number of shares he is
entitled to purchase in any one year, the right to purchase such shares carries
over to the subsequent years during the term of this option.
Notwithstanding the foregoing, this option shall
automatically become fully exercisable upon a "Change in Control of the
Company," as such term is defined below.
For purposes of this Agreement, a "Change in Control of the
Company" shall be deemed to have occurred if:
(a) the shareholders of the Company approve a definitive
agreement to sell, transfer, or otherwise dispose of all or
substantially all of the Company's assets and properties; or
(b) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934), other than the Company or
any "person" who as of the date this Agreement is a director or officer
of the Company (including any trust of such director or officer), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities; provided,
however, that the following shall not constitute a "Change in Control"
of the Company:
(i) any acquisition directly from the Company (excluding
any acquisition resulting from the exercise of a conversion or exchange
privilege in respect of outstanding convertible or exchangeable
securities);
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<PAGE> 3
(ii) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(iii) upon the death of any person who as of the date of
this Agreement is a director or officer of the Company, the transfer (A)
by testamentary disposition or the laws of intestate succession to the
estate or the legal beneficiaries or heirs of such person, or (B) by the
provisions of any trust to the beneficiaries thereof of the securities
of the Company beneficially owned by such director or officer of the
Company; or
(c) the shareholders of the Company approve the dissolution or
liquidation of the Company or a definitive agreement to merge or
consolidate the Company with or into another entity in which the Company
is not the continuing or surviving corporation or pursuant to which any
shares of the Company's stock would be converted into cash, securities
or other property of another entity, other than a merger of the Company
in which holders of the Company's common stock immediately prior to the
merger have the same proportionate ownership of common stock (or
equivalent securities) of the surviving entity immediately after the
merger as immediately before.
3. Exercise. This option may be exercised on the terms and
conditions contained herein by giving ten (10) days' prior written notice of
exercise to the Company, specifying the number of shares to be purchased and the
price to be paid therefor and by delivering a check in the amount of the
purchase price payable to the Company. The purchase price may also be paid, in
whole or in part, by delivery to the Company of outstanding shares of the
Company's common stock previously held by the Employee valued at "Fair Market
Value".
For the purposes of this Agreement, "Fair Market Value" as of
a certain date (the "Determination Date") means: (a) the closing price of a
share of the Company's common stock on the principal exchange on which shares of
the Company's common stock are then trading, if any, on the Determination Date,
or, if shares were not traded on the Determination Date, then on the nearest
preceding trading day during which a sale occurred; or (b) if such stock is not
traded on an exchange but is quoted on NASDAQ or a successor quotation system,
(i) the last sales price (if the stock is then listed as a National Market Issue
under The Nasdaq National Market System) or (ii) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
Determination Date
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<PAGE> 4
as reported by NASDAQ or such successor quotation system; or (c) if such stock
is not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for the
stock, on the Determination Date, as determined in good faith by the Board; or
(d) if the Company's stock is not publicly traded, the fair market value
established in good faith by the Board.
4. Termination of Employment.
(a) Termination by Employee. If Employee's employment is
terminated by Employee, Employee shall have ninety (90) days following the "Date
of Termination" (as defined in Section 6(g) of the Employment Agreement) to
exercise this option, but only to the extent that this option was exercisable on
such Date of Termination.
(b) Termination for Cause. If Employee's employment is
terminated by the Company for "Cause" (as defined in Section 6(a) of the
Employment Agreement), neither Employee nor his estate shall be entitled to
exercise this option after the Date of Termination.
(c) Death or Incapacity. If Employee's employment is
terminated for death or "Incapacity" (as defined in Section 6(c) of the
Employment Agreement), Employee or Employee's estate, as the case may be, shall
have the right for six (6) months following the Date of Termination to exercise
this option, but only to the extent that this option was exercisable on such
Date of Termination.
(d) Other. If Employee's employment is terminated for any
reason other than as set forth in Sections 4(a), (b) and (c) above, this option
shall automatically become fully exercisable on the Date of Termination, and
Employee shall have ninety (90) days following such Date of Termination to
exercise this option.
5. Transferability. This option shall be transferable only by
will or by the law of descent and distribution to the estate (or other personal
representative) of Employee and shall be exercisable during Employee's lifetime
only by him. Except as otherwise provided herein, any attempt at alienation,
assignment, pledge, hypothecation, transfer, sale, attachment, execution or
similar process, whether voluntary or involuntary, with respect to all or any
part of this option or any right under this Agreement, shall be null and void
and, at the Company's option, shall cause Employee's rights under this Agreement
to terminate.
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<PAGE> 5
6. Withholding Requirements. In the event the Company determines
that it is required to withhold state or Federal income taxes as a result of the
exercise of this option, Employee shall be required, as a condition to the
exercise hereof, to make arrangements satisfactory to the Company to enable it
to satisfy such withholding requirements.
7. Rights as a Stockholder. Employee, or any permitted
transferee of Employee, shall have no rights as a stockholder with respect to
any shares covered by this option until the date of the issuance of a stock
certificate for such shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8 of this Agreement. This
Agreement shall not confer upon Employee any right of continued employment by
the Company or interfere in any way in the Company's right to terminate
Employee.
8. Recapitalization. Subject to any required action by
stockholders, the number of shares of Common Stock covered by this option and
the exercise price thereof shall be proportionately adjusted for any increase or
decrease in the number of issued shares of common stock resulting from a
subdivision or consolidation of such shares or the payment of a stock dividend
(but only of common stock) or any other increase or decrease in the number of
issued shares of common stock effected without receipt of consideration by the
Company. Subject to any required action by stockholders, if the Company is the
surviving corporation in any merger or consolidation, this option shall pertain
and apply to the securities to which a holder of the number of shares of common
stock subject to the option would have been entitled.
The foregoing adjustments shall be made by the Company's
Board of Directors, whose determination shall be conclusive and binding on the
Company and Employee.
Except as expressly provided in this Section 8, Employee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, consolidation or spin-off of assets or stock
of another corporation, and any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares subject to this option or the exercise price thereof.
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<PAGE> 6
This option shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
9. Securities Act and Other Regulatory Requirements. This option
is not exercisable, in whole or in part, and the Company is not obligated to
sell any shares of the Company's common stock subject to this option, if such
exercise or sale, in the opinion of counsel for the Company, would violate the
Securities Act of 1933 (or any other federal or state statutes having similar
requirements) as it may be in effect at that time.
Further, the Board of Directors of the Company may require as a condition of
issuance of any shares under this option that Employee furnish a written
representation that he is acquiring the shares for investment and not with a
view to distribution to the public. The certificate evidencing any shares issued
pursuant to this option shall bear such restrictive legends as required by
federal or state law.
Further, the Board of Directors of the Company may decide, in
its sole discretion, that the listing or qualification of the shares of stock
subject to the option under any securities exchange requirements or under any
applicable law is necessary or desirable. If such a decision is made, this
option shall not be exercisable in whole or in part unless and until such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions that are not acceptable to the Board of Directors of the
Company.
10. Effect of Exercise. Upon the exercise of all or any part of
this option, the number of shares of common stock subject to the option under
this Agreement shall be reduced by the number of shares with respect to which
such exercise is made.
11. Right of First Refusal. If Employee desires to transfer any
shares of common stock which he has acquired pursuant to the exercise of the
option granted herein ("Shares"), Employee shall deliver to the Company written
notice of his intention to transfer such Shares (the "Notice") together with
either a copy of a signed and binding offer by the proposed transferee (a
"Negotiated Sale") or a statement that such Shares are to be sold into the
public market at Fair Market Value at the time of sale (a "Market Sale"). The
Notice for a Negotiated Sale shall state the name and address of the proposed
transferee, the number of Shares to be transferred, the price per Share, and
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<PAGE> 7
the other terms of such transfer. The Notice for a Market Sale shall state the
expected date of the proposed sale and the number of Shares to be sold. For
thirty (30) days following delivery of the Notice, the Company shall have the
option to purchase all (but not less than all) of the Shares proposed to be sold
by Employee at the price and terms stated in the Notice. In the event of a
Market Sale, such purchase price shall be the Fair Market Value of the Shares on
the day the Company exercises its option, less five (5) percent. Such option
shall be exercisable by delivery of written notice to Employee within such
thirty (30) day period. Any Shares not purchased by the Company may, for a
period of sixty (60) days commencing on the expiration of the Company's option
to purchase such Shares, be sold to the proposed transferee at the price and
upon the terms specified in the Notice. Shares which are not transferred by
Employee within such sixty (60) day period shall again become subject to the
notice and option provisions of this Section 11. The certificate evidencing any
shares issued pursuant to this option shall bear a restrictive legend stating
that such shares are subject to the right of first refusal set forth in this
Section 11.
12. Notices. Any notice or other communication required or
permitted hereunder or by law shall be validly given or made only if in writing
and delivered in person to an officer or duly authorized representative of the
other party, or deposited in the United States mail, duly certified or
registered, return receipt requested, postage prepaid, and addressed to the
party to whom intended. If sent to the Company, it shall be addressed in care of
the President, 2716 Ocean Park Boulevard, Suite 2020, Santa Monica, California
90405, and if sent to Employee, it shall be addressed to Employee's address on
file with the Company on the date of such notice. If sent by mail, notice shall
be deemed given two days after deposit of such notice in the mail and in
accordance with this section. Any party may from time to time, by written notice
to the other, designate a different address for notice which shall be
substituted for that specified above.
13. Choice of Law; Counterparts. This Agreement, and all rights
and obligations hereunder, shall be governed by the laws of the State of
California. This Agreement may be executed in one or more counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
14. Successor. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, heirs,
beneficiaries, executors and administrators.
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<PAGE> 8
15. Paragraph Headings; Employment. Paragraph headings are for
convenience only and are not part of the context. This Agreement shall not
obligate the Company or any affiliate to employ Employee for any period of time
nor does this Agreement constitute a contract or agreement for employment.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first written above.
INTERVISUAL BOOKS, INC.
By: /s/ NORM SHEINMAN
---------------------------------
Name: Norm Sheinman
Title: President
EMPLOYEE:
/s/ STEVEN SELSKY
------------------------------------
Steven Selsky
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<PAGE> 1
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of the 12th day of May, 1999, between INTERVISUAL BOOKS, INC., a California
corporation (the "Company"), and STEVE WALLACE (the "Executive").
In consideration of the promises and covenants set forth below,
the parties hereto agree as follows:
1. Employment.
The Company subject to the final negotiation and signing of a
definitive agreement to acquire Fast Forward Marketing, Inc. and the subsequent
closing and acquisition of Fast Forward Marketing, Inc., hereby agrees to employ
Executive, and Executive hereby agrees to accept such employment with the
Company, on the terms and conditions set forth herein.
2. Term.
The employment of Executive by the Company as provided in
this Agreement will commence on May 12, 1999, (the "Start Date"), and end on May
12 2001, unless sooner terminated as hereinafter provided. As a condition
precedent to the effectiveness of this Agreement, Executive shall report for
work at the principal executive offices of the Company on the Start Date. The
Company and Executive shall attempt to negotiate in good faith between September
30, 2000, and, May 12, 2001, the terms of employment of Executive by the Company
for a period following the expiration of this Agreement.
3. Position and Duties.
Executive shall serve as Senior Vice President Sales and
Marketing of the Company, or such other position or positions as may be agreed
upon by Executive and The President or the Board of Directors. The Executive
will be required to travel as needed. Executive shall at all times perform his
duties and obligations faithfully and diligently and shall devote all his
business time and best efforts exclusively to the business of the Company.
Executive shall at all times industriously perform his duties and report to the
President of the Company and shall accept and comply with all directions from
and all policies established from time to time by the President or Chairman of
the Board and Board of Directors of the Company. Executive's primary duties
shall include but are not limited to, oversee and manage all aspects of the
sales and marketing efforts of Intervisual Books, Inc.( excluding International
Sales) and Fast Forward Marketing and on a personal and direct basis, sell and
manage any accounts as required.
Executive shall promote the trade and business of the Company
to the best of his ability and shall not willingly do anything to prejudice the
Company's trade or business. Executive shall not at any time intentionally make
any untrue statement regarding the Company and shall not after the termination
of employment by the Company represent himself as being employed or connected
with the Company. Executive shall not directly or indirectly render any services
of a business, commercial or professional nature to any other person, entity or
organization, whether for compensation or otherwise, without the prior written
consent of the Company's Board of Directors.
<PAGE> 2
Executive shall adhere to all of the Company's policies and procedures
applicable to Company's employees generally.
4. Place of Performance.
In connection with Executive's employment by the Company and
except for required travel on Company business, Executive shall be based at the
principal executive offices of the Company or such other place or places as the
interests, needs, business and opportunities of the Company require or deem
advisable and only upon mutual agreement with Executive.
5. Compensation and Related Matters.
(a) Salary. During the term of Executive's employment
hereunder, the Company shall pay to Executive a salary of $162,500 per annum.
Such salary shall be paid in equal semi-monthly installments (or such shorter
intervals as the Company may elect) and shall accrue from day to day. Such
salary shall be subject to any withholding or taxes the Company is required by
law to make or pay.
(b) Commissions. For the year ended December 31, 1999 the
Executive shall be paid an override of (i) 3/4% of the amount of sales from the
book division in excess of $15,000,000, plus (ii) 1/2% of the amount of sales
from the video division in excess of $15,000,000. Book division sales of
self-published titles must be at an average discount of no greater than 55% and
video division sales must be at least at historic Fast Forward Marketing Inc.
discounts. Overrides for subsequent years will be negotiated in good faith by
the Executive and the Company by March 31, of each applicable calendar year.
Overrides will be paid 45 days after year end. Such overrides shall be subject
to any withholding or taxes the Company is required by law to make or pay.
(c) Vacation. During the term of Executive's employment
hereunder, Executive shall be entitled to four weeks of vacation in each
calendar year, and to compensation with respect to earned but unused vacation
days determined in accordance with the Company's vacation policy. Executive's
vacation shall be scheduled by mutual agreement between the Executive and the
Company's President.
(d) Expenses. During the term of Executive's employment
hereunder, Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket travel and other expenses (excluding ordinary commuting
expenses) incurred by Executive in performing Executive's services hereunder,
provided that:
(i) Each such expenditure is of a nature qualifying it as a
proper business expenditure of the Company and is approved by the
Company; and
(ii) Executive furnishes to the Company adequate records and
other documentary evidence required by the Company for the
substantiation of such expenditures as proper business expenditures of
the Company, and Executive otherwise complies with general Company
policies with respect to expense reimbursement.
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<PAGE> 3
(e) Stock Options. Executive acknowledges that, as additional
compensation for Executive's employment hereunder, Executive will be granted
nonstatutory stock options to acquire 100,000 shares of the Company's common
stock at $ 1.25 per share pursuant to the Stock Option Agreement attached hereto
as Exhibits A. The terms of such stock options shall be governed by the
provisions of the Stock Option Agreements (including Executive's right to
exercise such options upon termination.)
(f) Life Insurance. During the term of Executive's employment
hereunder, Executive will be entitled to reimbursement for the cost of an
Executive owned life insurance policy up to a maximum of $1500 per year. Payment
will be made with in fifteen days after submission of a copy of the premium
notice by the Executive.
(g) 401(k). During the term of Executive's employment
hereunder, Executive will be entitled to participate in the Company's 401(k)
plan, or other similar plans established by the Company, generally applicable to
full-time employees of the Company.
(h) Car Allowance. Executive shall be paid a monthly car
allowance of $600.
(6) Termination.
(a) Cause. The Company may at any time upon written notice to
Executive terminate this Agreement and Executive's employment hereunder for
Cause pursuant to the provisions of this Section 6(a). Executive shall be given
written notice by the Board of Directors of its intention to terminate Executive
for Cause, which notice shall state the acts or omissions that constitute
grounds on which the proposed termination for Cause is based. In the Board of
Director's reasonable business judgment, the Board shall permit Executive an
opportunity to address the Board or a committee of one or more directors
regarding the grounds on which the proposed termination for Cause is based. In
every case, the good faith judgment of the Board of Directors shall be
conclusive as to whether Cause for termination exists.
For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon:
(i) The breach by Executive of any material provision or covenant
of this Agreement, and if such breach is susceptible to cure by Executive, the
failure to effect such cure within twenty (20) days after written notice of such
breach is given to the Executive; or
(ii) The willful failure or neglect of Executive to perform
Executive's duties hereunder or the gross negligence of Executive in the
performance of such duties, and if such failure or gross negligence is
susceptible to cure by Executive, the failure to effect such cure by Executive
within twenty (20) days after written notice of such failure or gross negligence
is given to Executive; or
(iii) Except as permitted hereunder, Executive's unexplained and
regular absences from the Company; or
(iv) Executive's use of alcohol or illegal drugs, which use
interferes with the performance of Executive's duties hereunder; or
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<PAGE> 4
(v) Executive's indictment for a crime or for theft,
embezzlement, fraud, misappropriation of funds or any other alleged act of
dishonesty by Executive or Executive's indictment for any other felony or other
crime involving moral turpitude; or
(vi) Executive's violation of any law or ethical rule relating to
Executive's employment by the Company, including, but not limited to a violation
by Executive of Executive's fiduciary duty of loyalty to the Company which
Executive owes to the Company as an officer and/or director; or
For purposes of this Agreement, an action shall be considered
"willful" if it is done intentionally, purposely or knowingly.
(b) Death. This Agreement and Executive's employment
hereunder shall terminate automatically upon Executive's death.
(c) Incapacity. If Executive becomes incapacitated during
Executive's employment hereunder, this Agreement and Executive's employment
hereunder shall terminate on the date of determination by the Board of Directors
of the Company of such incapacity. As used herein, "incapacity" shall mean any
physical or mental illness or disability, or both, which renders Executive
incapable of performing substantially all of his managerial and executive
services hereunder for 120 days or more in the aggregate during any calendar
year, and which at any time after such 120 days the Company's Board of Directors
shall determine continues to render Executive incapable of performing
substantially all of his managerial and executive services hereunder. Any
determination made in good faith by the Company's Board of Directors shall be
conclusive and binding upon Executive.
(d) Without Cause. The Company shall be entitled to terminate
this Agreement and Executive's employment hereunder at any time without Cause.
(e) Resignation. Executive shall be entitled to terminate
this Agreement and Executive's employment hereunder at any time on thirty days
prior written notice delivered by Executive to the Company.
(f) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive (other than termination pursuant to
subsection 6(b) above) shall be communicated by a written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" means a notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth the circumstances which
provide a basis for termination of Executive's employment under the provisions
so indicated, and (iii) if the termination date is other than the date of
receipt of such notice, specifies the termination date of this Agreement (which
date shall not be more than 30 days after the giving of such notice).
(g) Date of Termination. "Date of Termination" shall mean the
date of death, the date of receipt of the Notice of Termination or the date
specified therein, as the case may be.
(h) Arbitration Rights. Nothing contained in this Section 6
shall contravene the Company and Executive's right and obligation to arbitrate
disputes as provided for in Section 11 of this Agreement.
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<PAGE> 5
7. Obligations of the Company Upon Termination.
(a) Termination for Cause. If this Agreement is terminated
pursuant to Section 6(a), the Company shall have no further obligation or
liability to Executive, except that Executive shall be entitled to receive only
(i) the portion of Executive's salary as set forth in Section 5(a) which has
been earned up to the Date of Termination, (ii) compensation for any accrued and
unused vacation up to the Date of Termination, and (iii) reimbursement, subject
to the requirements set forth in Section 5(c), for business expenses incurred up
to the Date of Termination (collectively, the "Minimum Payments").
(b) Termination for Death or Disability. If this Agreement is
terminated pursuant to Sections 6(b) or 6(c), the Company shall have no further
obligation or liability to Executive, except that Executive shall be entitled to
receive only the Minimum Payments.
(c) Termination Without Cause. If this Agreement is
terminated by the Company pursuant to Section 6(d), the Company shall have no
further obligation or liability to Executive, except that Executive shall be
entitled to receive only (i) the Minimum Payments, and (ii) an amount equal to
six (6) months salary based on executive's rate of pay at the date of
termination. Any amounts owed to Executive pursuant to subsection (ii) above
shall be paid semi-monthly through the company's regular payroll commencing one
month from the Date of Termination until paid in full.
(d) Resignation. If this Agreement is terminated by Executive
pursuant to Section 6(e), the Company shall have no further obligation or
liability to Executive, except that Executive shall be entitled to receive only
the Minimum Payments.
(e) Exclusivity of Payments. Upon termination of Executive's
employment hereunder, Executive shall not be entitled to any severance payments
or severance benefits from the Company or any payments by the Company on account
of any claim for wrongful termination, including but not limited to claims under
any federal, state or local human and civil rights or labor laws, other than the
payments provided in this Section 7, except for any benefits which may be due to
Executive in the normal course under any employee benefit plan of the Company
which provides for benefits after termination of employment. Executive agrees
that any right to receive payments hereunder upon termination of employment will
cease if Executive breaches any provision of Sections 8 or 9 below.
8. Proprietary Information.
(a) Definition. Executive hereby acknowledges that Executive
possesses and may make use of, acquire, create, develop or add to certain
confidential and/or proprietary information regarding the Company and its
business (whether in existence prior to, as of or after the date hereof,
collectively, "Proprietary Information"), which Proprietary Information shall
include, without limitation, all of the following materials and information
(whether or not reduced to writing and whether or not patentable or protected by
copyright): trade secrets, inventions, processes, formulae, programs, technical
data, "know-how," manuals, confidential reports and communications, product
sales or cost information, new product ideas or improvements, new packaging
ideas or improvements, research and development programs, identities or lists of
suppliers, vendors or customers, financial information and financial projections
of the Company of any nature whatsoever, or any other confidential or
proprietary information relating to the Company and/or its business. The term
"Proprietary
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<PAGE> 6
Information" does not include any information that (i) at the time of disclosure
is generally available to and known by the public (other than as a result of its
disclosure by Executive), (ii) was available to Executive prior to disclosure by
the Company, provided that the person who was the source of such information was
not known by Executive to be subject to an obligation of confidentiality to the
Company, or (iii) becomes available to Executive on a non-confidential basis
from a person other than the Company or its representatives, provided that the
source of such information was not known by Executive to be subject to an
obligation of confidentiality to the Company.
(b) Nondisclosure. During the term of this Agreement and
thereafter, Executive will not, without the prior express written consent of the
Board of Directors, disclose or make any use of any Proprietary Information
except as may be required in the course of the performance of Executive's
services under this Agreement.
(c) Ownership. Executive acknowledges and agrees that all
right, title and interest in and to any Proprietary Information shall be and
shall remain the exclusive property of the Company. Without limiting the
foregoing, Executive shall assign to the Company any and all right, title or
interest which Executive may have in all Proprietary Information made, developed
or conceived of in whole or in part by Executive during his employment
hereunder.
(d) Agreement Not to Solicit Customers. To protect the
Proprietary Information and trade secrets of the Company, Executive agrees,
during the term of this Agreement and for a period of one year after termination
of this Agreement, not to, directly or indirectly, either on Executive's own
behalf or on behalf of any other person or entity, attempt to intentionally
persuade any customer of the Company to cease to do business or to reduce the
amount of business which any customer of the Company has customarily done or
contemplates doing with the Company. Executive agrees that the covenants
contained in this paragraph are reasonable and desirable.
(e) Agreement Not to Solicit Employees. To protect the
Proprietary Information and trade secrets of the Company, Executive agrees,
during the term of this Agreement and for a period of one year after termination
of this Agreement, not to, directly or indirectly, either on Executive's own
behalf or on behalf of any other person or entity, solicit or employ any person
who is an employee of the Company. Executive agrees that the covenants contained
in this paragraph are reasonable and desirable.
(f) Proprietary Information Agreement. By execution of this
Agreement, Executive agrees and acknowledges that he shall be bound by all of
the terms of the Company's Proprietary Information Agreement attached hereto as
Exhibit B. Executive has reviewed such Proprietary Information Agreement and
agrees that any breach by Executive of any term or covenant contained therein
shall constitute a breach by Executive of this Agreement.
9. Protection of Property.
All records, files, manuals, documents, specifications, lists
of customers, banks, forms, materials, supplies, computer programs and other
materials furnished to the Executive by the Company, used on its behalf or
generated or obtained during the course of the performance of the Executive's
services hereunder, shall be and remain the property of the Company. Executive
shall be a holder thereof for the sole use and benefit of the Company, and shall
safely keep and preserve such property, except as consumed in the normal
business operations of the Company. Executive acknowledges that this property is
not readily accessible to the Company's competitors. Upon
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<PAGE> 7
termination of Executive's employment with the Company for any reason, Executive
shall immediately deliver to the Company, or its authorized representative, all
such property, including all copies, remaining in Executive's possession or
control.
10. Specific Performance.
In the event of the breach by Executive of any of the
provisions of Sections 8 or 9, the Company, in addition and supplementary to all
other rights and remedies existing in its favor and notwithstanding the
provisions of Section 11 hereof, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions thereof.
11. Arbitration.
The parties hereto acknowledge that it is in their best
interests to facilitate the informal resolution of any disputes arising out of
this Agreement or otherwise by mutual cooperation and without resorting to
litigation. As a result, if any party has a dispute arising hereunder or
otherwise, including but not limited to any claim for breach of any contract or
covenant (express or implied), tort claims, claims for discrimination
(including, but not limited to, race, sex, religion, national origin, age,
handicap or disability), claims for compensation or benefits (except where a
benefit plan or pension plan or insurance policy specifies a different claims
procedure) and claims for violation of any federal, state or other governmental
law, statute, regulation or ordinance (except for claims involving workers'
compensation benefits), and the parties are unable to reach agreement among
themselves, then a settlement conference must be held within thirty (30) days
upon receipt of a notice by the complaining party describing in detail the
complaint and setting forth a proposed solution to the complaint. The settlement
conference will be held in any Los Angeles office of the Judicial Arbitration
and Mediation Services, Inc. ("JAMS"). The complaining party must contact JAMS
to schedule the conference and the parties must agree on a retired judge from
the JAMS panel. If the parties are unable to agree upon such a retired judge,
JAMS shall provide a list of three available judges and each party may strike
one judge. The remaining judge will serve as the mediator at the settlement
conference.
If the dispute is not settled by the above-described format,
the parties agree to submit the dispute to JAMS for binding arbitration. A
three-judge panel will be selected to arbitrate the dispute. JAMS will provide
the names of five potential arbitrators, giving each party the opportunity to
strike one name. The remaining three arbitrators will serve as the arbitration
panel. The parties agree that the arbitration must be initiated within six
months after the claimed breach occurred and that failure to initiate
arbitration within the six-month period constitutes an absolute bar from the
institution of any new proceedings. Arbitration may be initiated by the
aggrieved party by sending written notice of an intent to arbitrate by
registered certified mail to all parties and to JAMS. The notice must contain a
description of the dispute, the amount involved and the remedies sought. If and
when a demand for arbitration is made by either party, the parties agree to
execute a Submission Agreement provided by JAMS, setting forth the rights of the
parties if the case is arbitrated and rules and procedures to be followed at the
arbitration hearing.
Nothing contained in this Section 11 shall prevent the
Company from seeking and obtaining equitable relief in a court to enforce any of
its rights under Sections 8 or 9 hereof.
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<PAGE> 8
12. Additional Covenants, Representations and Warranties of
Executive.
(a) Executive hereby represents and warrants that the
execution, delivery and performance of this Agreement by Executive does not (i)
breach, or result in a default under, any agreement to which Executive is a
party or by which Executive is bound, (ii) breach or otherwise violate any
order, writ, judgment, order or decree binding upon Executive, or (iii) violate
any applicable law or regulation.
13. Reimbursement of Expenses.
Executive shall promptly furnish to the Company adequate
records and other documentary evidence as requested by the Company to
substantiate any costs or expenses for which reimbursement is sought hereunder.
14. Successors.
This Agreement is personal to the Executive and is not
assignable by the Executive otherwise than by will or the laws of descent and
distribution without the prior written consent of the Company's Board of
Directors. This Agreement shall inure the benefit of and be enforceable by
Executive's legal representatives. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
16. Notice.
For purposes of this Agreement, notices, demands and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Executive: Executive's address as on file with the
Company
If to Company: Intervisual Books, Inc.
2716 Ocean Park Blvd., #2020
Santa Monica, California 90405
Attention: Chairman of the Board
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt thereof.
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17. Entire Agreement.
This Agreement, together with the documents referenced
herein, contains the entire agreement of the parties hereto with respect to the
subject matter hereof. It supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the employment of
Employee by the Company. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, written, oral or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be valid or binding.
18. Amendment; Waiver; Governing Law.
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by Executive and by such officer of the Company as may be
specifically designated by the Company's Board of Directors. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
19. Validity.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
20. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
21. Withholding of Taxes; Tax Reporting.
The Company may withhold from any amounts payable under this
Agreement all such Federal, state, city and other taxes, and may file with
appropriate governmental authorities all such information, returns or other
reports with respect to the tax consequences of any amounts payable under this
Agreement, as may, in its reasonable judgment, be required by law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTERVISUAL BOOKS, INC.
By: /s/ NATHAN N. SHEIMAN 5/13/99
------------------------------------
Name: Nathan N. Sheinman Date
Title: President
EXECUTIVE
/s/ Steve Wallace 5/12/99
---------------------------------------
Steve Wallace Date
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<PAGE> 1
EXHIBIT 10.36
EXHIBIT A
INTERVISUAL BOOKS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement") between INTERVISUAL BOOKS, INC.,
a California corporation (the "Company"), and Steve Wallace ("Employee") is
entered into as of the 12th day of May, 1999.
RECITALS
A. Pursuant to an Employment Agreement bearing even date herewith
between the Company and Employee (the "Employment Agreement"), the Company has
agreed to grant to Employee this option to purchase shares of the Company's
common stock.
B. As a condition precedent to the effectiveness of this Agreement,
Employee must commence full time employment with the Company pursuant to the
terms of the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant. The Company hereby grants to Employee the right to
purchase up to 100,000 shares of common stock of the Company at a price of $1.25
per share (which price equals the fair market value of the Company's common
stock as of the date of Grant), on the terms and conditions set forth herein.
This option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code, as amended, and is not made pursuant
to any Company stock option plan. Employee agrees that Employee and any other
person who may be entitled hereunder to exercise this option shall be bound by
all terms and conditions of this Agreement.
This Agreement and the grant of the option herein shall not
be effective unless and until Employee commences full time employment with the
Company pursuant to the terms of the Employment Agreement. If Employee does not
commence full time employment with the Company pursuant to the terms of the
Employment Agreement, this Agreement and the option granted herein shall be null
and void, and the parties hereto shall be deemed to have no rights or
obligations under this Agreement whatsoever.
2. Exercisability. The option granted herein shall become
exercisable at the following times and in the following amounts:
The option shall become exercisable in cumulative increments of
(a) 25,000 shares on signing (b) 25,000 shares on May 12, 2000,
(c) 50,000 shares on May 12, 2001, The option granted hereunder
shall lapse and expire on the seventh (7th) anniversary of the
date hereof.
If Employee does not purchase the full number of shares he is
entitled to purchase in any one year, the right to purchase such shares carries
over to the subsequent years during the term of this option.
Notwithstanding the foregoing, this option shall
automatically become fully exercisable upon a "Change in Control of the
Company," as such term is defined below.
<PAGE> 2
For purposes of this Agreement, a "Change in Control of the
Company" shall be deemed to have occurred if:
(a) the shareholders of the Company approve a definitive
agreement to sell, transfer, or otherwise dispose of all or
substantially all of the Company's assets and properties; or
(b) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934), other than the Company or
any "person" who as of the date this Agreement is a director or officer
of the Company (including any trust of such director or officer), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities; provided,
however, that the following shall not constitute a "Change in Control"
of the Company:
(i) any acquisition directly from the Company (excluding
any acquisition resulting from the exercise of a conversion or exchange
privilege in respect of outstanding convertible or exchangeable
securities);
(ii) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(iii) upon the death of any person who as of the date of
this Agreement is a director or officer of the Company, the transfer (A)
by testamentary disposition or the laws of intestate succession to the
estate or the legal beneficiaries or heirs of such person, or (B) by the
provisions of any trust to the beneficiaries thereof of the securities
of the Company beneficially owned by such director or officer of the
Company; or
(c) the shareholders of the Company approve the dissolution or
liquidation of the Company or a definitive agreement to merge or
consolidate the Company with or into another entity in which the Company
is not the continuing or surviving corporation or pursuant to which any
shares of the Company's stock would be converted into cash, securities
or other property of another entity, other than a merger of the Company
in which holders of the Company's common stock immediately prior to the
merger have the same proportionate ownership of common stock (or
equivalent securities) of the surviving entity immediately after the
merger as immediately before.
3. Exercise. This option may be exercised on the terms and
conditions contained herein by giving ten (10) days' prior written notice of
exercise to the Company, specifying the number of shares to be purchased and the
price to be paid therefor and by delivering a check in the amount of the
purchase price payable to the Company. The purchase price may also be paid, in
whole or in part, by delivery to the Company of outstanding shares of the
Company's common stock previously held by the Employee valued at "Fair Market
Value".
For the purposes of this Agreement, "Fair Market Value" as of
a certain date (the "Determination Date") means: (a) the closing price of a
share of the Company's common stock on the principal exchange on which shares of
the Company's common stock are then trading, if any, on the Determination Date,
or, if shares were not traded on the Determination Date, then on the nearest
preceding trading day during which a sale occurred; or (b) if such stock is not
traded on an exchange but is quoted on
2
<PAGE> 3
NASDAQ or a successor quotation system, (i) the last sales price (if the stock
is then listed as a National Market Issue under The Nasdaq National Market
System) or (ii) the mean between the closing representative bid and asked prices
(in all other cases) for the stock on the Determination Date as reported by
NASDAQ or such successor quotation system; or (c) if such stock is not publicly
traded on an exchange and not quoted on NASDAQ or a successor quotation system,
the mean between the closing bid and asked prices for the stock, on the
Determination Date, as determined in good faith by the Board; or (d) if the
Company's stock is not publicly traded, the fair market value established in
good faith by the Board.
4. Termination of Employment.
(a) Termination by Employee. If Employee's employment is
terminated by Employee, Employee shall have ninety (90) days following the "Date
of Termination" (as defined in Section 6(g) of the Employment Agreement) to
exercise this option, but only to the extent that this option was exercisable on
such Date of Termination.
(b) Termination for Cause. If Employee's employment is
terminated by the Company for "Cause" (as defined in Section 6(a) of the
Employment Agreement), neither Employee nor his estate shall be entitled to
exercise this option after the Date of Termination.
(c) Death or Incapacity. If Employee's employment is
terminated for death or "Incapacity" (as defined in Section 6(c) of the
Employment Agreement), Employee or Employee's estate, as the case may be, shall
have the right for six (6) months following the Date of Termination to exercise
this option, but only to the extent that this option was exercisable on such
Date of Termination.
(d) Other. If Employee's employment is terminated for any
reason other than as set forth in Sections 4(a), (b) and (c) above, this option
shall automatically become fully exercisable on the Date of Termination, and
Employee shall have ninety (90) days following such Date of Termination to
exercise this option.
5. Transferability. This option shall be transferable only by
will or by the law of descent and distribution to the estate (or other personal
representative) of Employee and shall be exercisable during Employee's lifetime
only by him. Except as otherwise provided herein, any attempt at alienation,
assignment, pledge, hypothecation, transfer, sale, attachment, execution or
similar process, whether voluntary or involuntary, with respect to all or any
part of this option or any right under this Agreement, shall be null and void
and, at the Company's option, shall cause Employee's rights under this Agreement
to terminate.
6. Withholding Requirements. In the event the Company determines
that it is required to withhold state or Federal income taxes as a result of the
exercise of this option, Employee shall be required, as a condition to the
exercise hereof, to make arrangements satisfactory to the Company to enable it
to satisfy such withholding requirements.
7. Rights as a Stockholder. Employee, or any permitted
transferee of Employee, shall have no rights as a stockholder with respect to
any shares covered by this option until the date of the issuance of a stock
certificate for such shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8 of this Agreement. This
Agreement shall not confer upon Employee any right of continued employment by
the Company or interfere in any way in the Company's right to terminate
Employee.
3
<PAGE> 4
8. Recapitalization. Subject to any required action by
stockholders, the number of shares of Common Stock covered by this option and
the exercise price thereof shall be proportionately adjusted for any increase or
decrease in the number of issued shares of common stock resulting from a
subdivision or consolidation of such shares or the payment of a stock dividend
(but only of common stock) or any other increase or decrease in the number of
issued shares of common stock effected without receipt of consideration by the
Company. Subject to any required action by stockholders, if the Company is the
surviving corporation in any merger or consolidation, this option shall pertain
and apply to the securities to which a holder of the number of shares of common
stock subject to the option would have been entitled.
The foregoing adjustments shall be made by the Company's
Board of Directors, whose determination shall be conclusive and binding on the
Company and Employee.
Except as expressly provided in this Section 8, Employee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, consolidation or spin-off of assets or stock
of another corporation, and any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares subject to this option or the exercise price thereof.
This option shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
9. Securities Act and Other Regulatory Requirements. This option
is not exercisable, in whole or in part, and the Company is not obligated to
sell any shares of the Company's common stock subject to this option, if such
exercise or sale, in the opinion of counsel for the Company, would violate the
Securities Act of 1933 (or any other federal or state statutes having similar
requirements) as it may be in effect at that time.
Further, the Board of Directors of the Company may require as
a condition of issuance of any shares under this option that Employee furnish a
written representation that he is acquiring the shares for investment and not
with a view to distribution to the public. The certificate evidencing any shares
issued pursuant to this option shall bear such restrictive legends as required
by federal or state law.
Further, the Board of Directors of the Company may decide, in
its sole discretion, that the listing or qualification of the shares of stock
subject to the option under any securities exchange requirements or under any
applicable law is necessary or desirable. If such a decision is made, this
option shall not be exercisable in whole or in part unless and until such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions that are not acceptable to the Board of Directors of the
Company.
10. Effect of Exercise. Upon the exercise of all or any part of
this option, the number of shares of common stock subject to the option under
this Agreement shall be reduced by the number of shares with respect to which
such exercise is made.
4
<PAGE> 5
11. Right of First Refusal. If Employee desires to transfer any
shares of common stock which he has acquired pursuant to the exercise of the
option granted herein ("Shares"), Employee shall deliver to the Company written
notice of his intention to transfer such Shares (the "Notice") together with
either a copy of a signed and binding offer by the proposed transferee (a
"Negotiated Sale") or a statement that such Shares are to be sold into the
public market at Fair Market Value at the time of sale (a "Market Sale"). The
Notice for a Negotiated Sale shall state the name and address of the proposed
transferee, the number of Shares to be transferred, the price per Share, and the
other terms of such transfer. The Notice for a Market Sale shall state the
expected date of the proposed sale and the number of Shares to be sold. For
thirty (30) days following delivery of the Notice, the Company shall have the
option to purchase all (but not less than all) of the Shares proposed to be sold
by Employee at the price and terms stated in the Notice. In the event of a
Market Sale, such purchase price shall be the Fair Market Value of the Shares on
the day the Company exercises its option, less five (5) percent. Such option
shall be exercisable by delivery of written notice to Employee within such
thirty (30) day period. Any Shares not purchased by the Company may, for a
period of sixty (60) days commencing on the expiration of the Company's option
to purchase such Shares, be sold to the proposed transferee at the price and
upon the terms specified in the Notice. Shares which are not transferred by
Employee within such sixty (60) day period shall again become subject to the
notice and option provisions of this Section 11. The certificate evidencing any
shares issued pursuant to this option shall bear a restrictive legend stating
that such shares are subject to the right of first refusal set forth in this
Section 11.
12. Notices. Any notice or other communication required or
permitted hereunder or by law shall be validly given or made only if in writing
and delivered in person to an officer or duly authorized representative of the
other party, or deposited in the United States mail, duly certified or
registered, return receipt requested, postage prepaid, and addressed to the
party to whom intended. If sent to the Company, it shall be addressed in care of
the President, 2716 Ocean Park Boulevard, Suite 2020, Santa Monica, California
90405, and if sent to Employee, it shall be addressed to Employee's address on
file with the Company on the date of such notice. If sent by mail, notice shall
be deemed given two days after deposit of such notice in the mail and in
accordance with this section. Any party may from time to time, by written notice
to the other, designate a different address for notice which shall be
substituted for that specified above.
13. Choice of Law; Counterparts. This Agreement, and all rights
and obligations hereunder, shall be governed by the laws of the State of
California. This Agreement may be executed in one or more counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
14. Successor. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, heirs,
beneficiaries, executors and administrators.
15. Paragraph Headings; Employment. Paragraph headings are for
convenience only and are not part of the context. This Agreement shall not
obligate the Company or any affiliate to employ Employee for any period of time
nor does this Agreement constitute a contract or agreement for employment.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement is executed as of the date
first written above.
INTERVISUAL BOOKS, INC.
By: /s/ NATHAN N. SHEINMAN 5/13/99
---------------------------------
Name: Nathan N. Sheinman Date
Title: President
EMPLOYEE:
/s/ STEVE WALLACE 5/12/99
------------------------------------
Steve Wallace Date
6
<PAGE> 7
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: OC-149604.4 Type: AGR
03/29/00 1:52 PM
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<PAGE> 1
EXHIBIT 10.37
AMENDMENT AGREEMENT NUMBER TWO
TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT AGREEMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated as of November 17, 1999, is entered into between U.S. BANK
NATIONAL ASSOCIATION, FORMERLY KNOWN AS SANTA MONICA BANK ("Bank"), on the one
hand, and INTERVISUAL BOOKS, INC., a California corporation ("IBI"), and FAST
FORWARD MARKETING, INC., a California corporation formerly known as FFM
ACQUISITION CORP. ("FFM"), on the other hand, and amends that certain Loan and
Security Agreement, dated as of May 12, 1999, between Bank and Borrower, as
amended by that certain Amendment Agreement Number One, dated as of September
30, 1999 (collectively, the "Agreement"). IBI and FFM are sometimes individually
and collectively referred to as "Borrower." All terms which are defined in the
Agreement shall have the same definition when used herein unless a different
definition is ascribed to such term under this Amendment, in which case, the
definition contained herein shall govern. This Amendment is entered into in
light of the following facts:
RECITALS
WHEREAS, Borrower has requested that Bank increase the maximum credit
line under the Agreement from $2,000,000 to $2,500,000;
WHEREAS, Bank has agreed to honor Borrower's request as set forth in
this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The Agreement shall be amended by deleting Section 1.23 and replacing
it with a new Section 1.23 as follows:
1.23 "Maximum Credit Line" means Two Million Five Hundred
Thousand and 00/100 Dollars ($2,500,000.00).
2. The Agreement shall be amended by deleting Section 1.27 and replacing
it with a new Section 1.27 as follows:
1.27 "Note" means that certain Amended and Restated Secured
Promissory Note, dated as of November 17, 1999, in the original
principal amount of Two Million Five Hundred Thousand and 00/100
Dollars ($2,500,000.00) executed by Borrower to the order of
Bank, and any renewals, amendments, restatements or extensions of
such Secured Promissory Note.
3. The following are conditions precedent to the effectiveness of this
Amendment:
3.1 Borrower shall pay to Bank a loan origination fee in the
amount of Five Thousand Dollars ($5,000). The loan origination fee may be paid
by charging Borrower's account with the amount of such fee. The loan origination
fee shall represent an unconditional payment to
<PAGE> 2
Bank in consideration of Bank's agreement to increase the Maximum Credit Line
pursuant to this Amendment and shall not reduce or be a deposit on account of
the Obligations.
3.2 Borrower shall execute and deliver to Bank the Amended and
Restated Secured Promissory Note, dated November 17, 1999, in the original
principal amount of $2,500,000, and in the form of Exhibit A attached hereto
(the "New Note"). Upon the Bank's receipt of the New Note, properly executed by
Borrower, Bank shall deliver to Borrower the original Secured Promissory Note,
in the amount of $2,000,000, executed by Borrower to Bank in accordance with the
Agreement, marked "paid by substitution."
4. This Amendment shall be deemed effective as of the date first
hereinabove written. Except as specifically amended herein, the Agreement shall
remain in full force and effect without any other changes, amendments or
modifications.
IN WITNESS WHEREOF, Bank and Borrower have executed this
Amendment.
INTERVISUAL BOOKS, INC.,
a California corporation
By /s/ WALDO H. HUNT
-------------------------------
Title: CEO
----------------------------
FAST FORWARD MARKETING, INC.,
a California corporation
By /s/ DAN P. REAVIS
-------------------------------
Title: President
----------------------------
U.S. BANK NATIONAL ASSOCIATION,
formerly know as SANTA MONICA BANK
By /s/ MARK MITCHELL
-------------------------------
Title: Vice President
----------------------------
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<PAGE> 3
ACKNOWLEDGMENT BY GUARANTORS
The undersigned acknowledge that Borrower and Bank are currently
entering into that certain Amendment Agreement Number Two to Loan and Security
Agreement (the "Amendment"). The undersigned hereby consent to the terms of the
Amendment and agree and acknowledge that their respective Continuing Guaranties,
dated as of May 12, 1999, executed by the undersigned in favor of Bank
(collectively, the "Guaranties"), are currently in full force and effect and
that they shall continue to guaranty the Obligations of Borrower owing to Bank
in accordance with the terms of the Guaranties.
/s/ WALDO H. HUNT
----------------------------------------
Waldo H. Hunt, an individual
/s/ WALDO H. HUNT
----------------------------------------
Waldo H. Hunt, an individual, as trustee
of the Hunt Family Trust
-3-
<PAGE> 1
EXHIBIT 10.38
AMENDED AND RESTATED
SECURED PROMISSORY NOTE
$2,500,000.00 Dated as of
November 17, 1999
1. INDEBTEDNESS. FOR VALUE RECEIVED, the undersigned, INTERVISUAL
BOOKS, INC., a California corporation ("IBI"), and FFM ACQUISITION CORP., a
California corporation ("FFM") (hereinafter IBI and FFM are collectively
referred to as "Maker"), jointly and severally promise to pay to U.S. BANK
NATIONAL ASSOCIATION, FORMERLY KNOWN AS SANTA MONICA BANK (hereinafter referred
to as "Bank"), or order, at 1324 Fifth Street, Santa Monica, California
90406-1075 or at such other place as may be designated in writing by the holder
of this Amended and Restated Secured Promissory Note (hereinafter referred to as
this "Note"), the principal sum of Two Million Five Hundred Thousand and 00/100
Dollars ($2,500,000.00), or such lesser amount as may be outstanding from time
to time, together with interest accrued thereon. This Note evidences revolving
advances made by Bank to Maker pursuant to Sections 2.1 of that certain Loan and
Security Agreement, of even date herewith, between Bank and Maker, as amended
from time to time (the "Loan Agreement").
2. INTEREST. Commencing on the date hereof, the unpaid principal
balance of this Note shall bear interest at a rate two and one half (2.50)
percentage points in excess of the prime rate of interest (the highest variable
rate of interest, per annum, published daily as the "prime rate" in the Money
Rates Section of the Western Edition of the Wall Street Journal -- hereinafter
referred to as the "Prime Rate"). In the event that such a rate is no longer
published, then the "Prime Rate" shall mean the variable rate of interest, per
annum, most recently announced by Bank at its office in Santa Monica, as its
"prime rate", with the understanding that Bank's "prime rate" is one of its base
rates and serves as a basis upon which effective rates of interest are
calculated for loans making reference thereto and may not be the lowest of
Bank's base rates). In the event that any installment required pursuant to
Section 3 of this Note is not paid when due, or any other default occurs under
the terms of this Note, and without affecting any of Bank's rights and remedies
provided herein, the unpaid principal balance of this Note shall thereafter bear
interest at a rate seven and one half (7.50) percentage points above the Prime
Rate. In the event that the Prime Rate is, from time to time hereafter, changed,
adjustments in the rate of interest payable hereunder shall be made as of 12:01
A.M. on the effective date of the change in the Prime Rate. Interest chargeable
hereunder shall be calculated on the basis of a three hundred sixty (360) day
year for actual days elapsed.
3. PAYMENT. Principal and interest shall be due and payable on
the dates and in the manner as follows:
a. Commencing on the first (1st) day of December, 1999,
and continuing on the same day of each and every calendar month thereafter,
Maker shall make monthly payments of interest accrued on the unpaid principal
balance hereof;
b. On the first (1st) day of May, 2000, Maker shall make
payment in full of the unpaid principal balance hereof remaining unpaid on such
date, together with any and all accrued and unpaid interest hereunder.
4. PREPAYMENT. Maker may prepay all or part of the principal
balance due under this Note, without premium or penalty. With each prepayment
Maker shall also pay the
-1-
<PAGE> 2
interest accrued on the principal amount being prepaid to the date of such
prepayment. So long as not event of default shall have occurred under the Loan
Agreement, Maker may request advances from Bank following the prepayment of any
amounts hereunder.
5. COMPOUND INTEREST. Interest not paid when due may be added to
the unpaid principal balance hereof and shall thereafter bear interest at the
same rate as principal. All payments hereunder are to be applied first to the
payment of accrued interest and the balance remaining applied to the payment of
principal. All principal and interest due hereunder is payable in lawful money
of the United States of America.
6. LATE CHARGE. If a payment of principal or interest is ten (10)
days or more late, Maker will be charged five percent (5.00%) of the amount of
such payment. The late charge payable by Maker hereunder is in addition to, and
not in lieu of, all other rights and remedies of Bank.
7. WAIVERS. Maker, for itself, its legal representatives,
successors and assigns, expressly waives presentment, protest, demand, notice of
dishonor, notice of nonpayment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, and diligence in
collection, and consents that Bank may extend the time for payment or otherwise
modify the terms of payment of any part or the whole of the debt evidenced
hereby. To the fullest extent permitted by law, Maker waives the statute of
limitations in any action brought by Bank in connection with this Note.
8. ACCELERATION. IT IS EXPRESSLY AGREED THAT UPON THE OCCURRENCE
OF ANY EVENT OF DEFAULT UNDER THE TERMS OR CONDITIONS OF THE LOAN AGREEMENT,
THEN THE UNPAID PRINCIPAL BALANCE OF THIS NOTE, TOGETHER WITH INTEREST ACCRUED
THEREON, SHALL THEREUPON BE IMMEDIATELY DUE AND PAYABLE AT THE OPTION OF THE
HOLDER HEREOF, WITHOUT PRESENTMENT, DEMAND, PROTEST OR NOTICE OF PROTEST OF ANY
KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED.
9. ATTORNEYS' FEES AND CHOICE OF LAW. In the event it should
become necessary to employ counsel to collect this Note, Maker agrees to pay the
reasonable attorneys' fees and paralegals' fees (including allocated costs for
in-house legal services provided and attorneys' and paralegals' fees in all
bankruptcy proceedings) and costs of the holder hereof, whether or not suit is
brought. This Note and all transactions hereunder and/or evidenced hereby shall
be governed by, construed under and enforced in accordance with the laws of the
State of California.
10. PARTICIPATION. Bank reserves the right to sell, assign,
transfer, negotiate, or grant participation interests in all or any part of, or
any interest in Bank's rights and benefits hereunder. In connection therewith,
Bank may disclose all documents and information which Bank now or hereafter may
have relating to Maker.
11. MODIFICATION. This Note may not be changed, modified, amended
or terminated orally.
12. RESTATEMENT OF ORIGINAL NOTE. This Note has been issued in
order to amend and restate, and in substitution for, that certain Secured
Promissory Note (the "Original Note"), dated as of May 12, 1999, in the original
principal amount of Two Million and 00/100
-2-
<PAGE> 3
Dollars ($2,000,000.00), executed by Maker to the order of Bank. Such
substitution was made at the request of Maker in order to increase the maximum
credit line evidenced by the Original Note. Upon the execution and delivery by
Maker to Bank of this Note, which replaces and supersedes the Original Note,
Bank shall deliver to Maker the Original Note marked paid by substitution.
13. WAIVER OF JURY TRIAL. MAKER AND BANK HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS EXECUTED IN CONNECTION
WITH THIS AGREEMENT OR ANY DEALINGS BETWEEN MAKER AND BANK RELATING TO THIS
AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. MAKER AND BANK EACH
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH OF MAKER AND BANK HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH OF MAKER AND BANK WILL CONTINUE TO
RELY ON THIS WAIVER IN ANY RELATED FUTURE DEALINGS BETWEEN MAKER AND BANK. MAKER
AND BANK FURTHER WARRANT AND REPRESENT THAT THEY EACH KNOWINGLY AND VOLUNTARILY
WAIVE THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
INTERVISUAL BOOKS, INC.,
a California corporation
By /s/ WALDO H. HUNT
-------------------------------
Title: CEO
----------------------------
FFM ACQUISITION CORP.,
a California corporation
By /s/ DAN P. REAVIS
-------------------------------
Title: President
----------------------------
-3-
<PAGE> 4
U.S. BANK NATIONAL ASSOCIATION, formerly know as SANTA MONICA
BANK, hereby accepts this Note and agrees to the provisions contained in Section
13 of the Note.
U.S. BANK NATIONAL ASSOCIATION,
formerly know as SANTA MONICA BANK
By /s/ MARK MITCHELL
-------------------------------
Title: Vice President
----------------------------
-4-
<PAGE> 1
Exhibit 10.39
AMENDMENT TO LEASE AGREEMENT
THIS AMENDMENT TO LEASE dated, for references purposes only, this 21st day
of June 1999, between Watt Headquarters Limited Partnership, a California
limited partnership, (hereinafter referred to as "LESSOR"), and Intervisual
Books, Inc., a California corporation (hereinafter referred to as "LESSEE"),
with reference to the following facts and objectives:
WHEREAS, Lessor and Lessee have heretofore entered into that certain Lease
dated August 8, 1996 (the "LEASE") for premises commonly known as 2716 Ocean
Park Blvd., Suite 2020, Santa Monica, CA 90405 (the "PREMISES").
WHEREAS, Lessor and Lessee desire to expand Lessee's Premises and have
agreed to amend said Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the terms, covenants and conditions as
set forth in the Lease and in this Agreement, the Lease agreement shall be
amended as follows:
1. Paragraph 1.2 - Premises - Effective August 1, 1999, Lessee's
Premises shall increase to include Suite 1050 (the "Additional
Premises") as shown on attached Exhibit "A-2" (which shall form a part
of Exhibit "A-1"), and the Premises square footage shall be increased
from 11,551 rentable square feet and 10,313 usable square feet to
13,862 rentable square feet and 12,376 usable square feet.
2. Paragraphs 1.6, 1.7 and 4.3 - Base Rent - Effective August 1,
1999, Lessee's minimum base rent shall be increased from $17, 551.25
to $22,180.00.
3. Paragraphs 1.10 and 4.2 - Lessee's Share of operating Expense
Increase - Lessee's share of operating expense increase is hereby
amended to 13.958% as defined in Paragraph 4.2.
4. Paragraph 2.2 - Vehicle Parking - Effective August 1, 1999, Lessee
shall be entitled to rent and use 61 unreserved parking spaces in the
Office Building Project, subject to the terms provided in Paragraph 2.
5. LESSOR'S WORK - Upon full execution of this Amendment to Lease
Agreement, Lessor, at Lessor's sole cost and expense, shall perform
the following improvements:
1. Install carpet within the Additional Premises where carpeting needs
to be replaced to reasonably match existing carpeting.
2. Paint interior of Additional Premises with building standard paint.
3. Construct one (1) partition wall and one (1) door in doorway, as
shown in Exhibit "C" attached hereto.
THIS AMENDMENT TO LEASE AGREEMENT shall be under the same terms and
conditions as set forth in the Lease, except as specifically mentioned herein,
and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed the Amendment to
Lease Agreement on the date referenced below.
"LESSOR" "LESSEE"
WATT HEADQUARTERS LIMITED PARTNERSHIP, INTERVISUAL BOOKS, INC.,
a California limited partnership A California corporation
By: WATT FAMILY PROPERTIES, INC.,
a California corporation
its general partner
By: /s/ Gale J. Zander By: /s/ Dan P. Reavis
------------------ -----------------
Gale J. Zander, Vice President
Date: July 12, 1999 Printed name: Dan P. Reavis
------------- -------------
Its: Executive Vice President
------------------------
Date: July 6, 1999
------------
<PAGE> 1
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);
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<PAGE> 2
(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.
(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
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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.
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(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.
(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.
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<PAGE> 5
(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 Plan
Committee consisting solely of two
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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
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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 relinquish ment 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 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
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<PAGE> 8
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
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<PAGE> 9
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.
(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
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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 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
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<PAGE> 11
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
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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 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
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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
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:
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"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.
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<PAGE> 15
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.
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
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<PAGE> 1
EXHIBIT 10.41
INTERVISUAL BOOKS, INC.
November 4, 1999
Waldo H. Hunt
16130 High Valley Place
Encino, CA 91436
Re: First Amendment to Nonstatutory Stock Option Agreement
Dear Wally:
Reference is made to your Nonstatutory Stock Option Agreement
("Option Agreement") dated October 1, 1997 for 31,000 shares of the Company's
common stock with an option exercise price of $1.625 per share.
The parties hereto desire to amend the Option Agreement to reduce
the exercise price to $1.25 per share.
Accordingly, the parties hereto agree as follows:
1. Amendment. The parties hereto hereby agree to reduce the
exercise price found in the first sentence of Section 1 of the Option Agreement
to $1.25 per share (which price is in excess of the fair market value of the
Company's common stock on this the date of amendment).
2. Miscellaneous. Except as expressly amended herein, all of the
terms and conditions of the Option Agreement remain in full force and effect.
This letter may be executed in one or more counterparts, each of which shall be
deemed an original.
Please acknowledge your agreement to this letter by executing the
enclosed copy of this letter and returning the copy to the undersigned.
INTERVISUAL BOOKS, INC.,
a California corporation
By:
--------------------------------
Nathan N. Sheinman
President and
Chief Operating Officer
AGREED:
- --------------------------------
Waldo H. Hunt, an individual
<PAGE> 1
EXHIBIT 10.42
INTERVISUAL BOOKS, INC.
November 4, 1999
Dan P. Reavis
17177 Palisades Circle
Pacific Palisades, CA 90272
Re: Second Amendment to Nonstatutory Stock Option Agreement
Dear Dan:
Reference is made to your Nonstatutory Stock Option Agreement
("Option Agreement") dated November 13, 1997 for 175,000 shares of the Company's
common stock. The Option Agreement was amended once on July 16, 1998, reducing
the option exercise price to $1.50 per share.
The parties hereto desire to amend the Option Agreement to reduce
the exercise price to $1.25 per share.
Accordingly, the parties hereto agree as follows:
1. Amendment. The parties hereto hereby agree to reduce the
exercise price found in the first sentence of Section 1 of the Option Agreement
to $1.25 per share (which price is in excess of the fair market value of the
Company's common stock on this the date of amendment).
2. Miscellaneous. Except as expressly amended herein, all of the
terms and conditions of the Option Agreement remain in full force and effect.
This letter may be executed in one or more counterparts, each of which shall be
deemed an original.
Please acknowledge your agreement to this letter by executing the
enclosed copy of this letter and returning the copy to the undersigned.
INTERVISUAL BOOKS, INC.,
a California corporation
By:
-------------------------------
Waldo H. Hunt
Chairman of the Board and
Chief Executive Officer
AGREED:
- -------------------------------
Dan P. Reavis, an individual
<PAGE> 1
EXHIBIT 10.43
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of the 31st day of January 2000, between INTERVISUAL BOOKS, INC., a California
corporation (the "Company"), located at 2716 Ocean Park Blvd, Santa Monica, CA
90405 and NATHAN NORMAN SHEINMAN (the "Executive").
In consideration of the promises and covenants set forth below, the parties
hereto agree as follows:
1. Employment.
The Company hereby agrees to employ Executive, and Executive
hereby agrees to accept such employment with the Company, on the terms and
conditions set forth herein. This agreement replaces and supersedes any and all
previous employment agreements between the Executive and the Company and all
prior employment agreements are hereby terminated.
2. Term.
The employment of Executive by the Company as provided in
this Agreement will commence on February 1, 2000 (the "Start Date"), and end on
January 31, 2002, unless sooner terminated as hereinafter provided. As of the
effective date, The Company and Executive shall attempt to negotiate in good
faith between August 1, 2001, and January 31, 2002, the terms of employment of
Executive by the Company for a period following the expiration of this
Agreement.
3. Position and Duties.
Executive shall serve as President and Chief Operating
Officer of the Company, or such other position or positions as may be agreed
upon by Executive and the Board of Directors. Executive shall at all times
perform his duties and obligations faithfully and diligently and shall devote
all his business time and best efforts exclusively to the business of the
Company. Executive shall at all times industriously perform his duties under the
supervision of and report to the Board of Directors, the Chairman of the Board
and the Chief Executive Officer of the Company and shall accept and comply with
all directions from and all policies established from time to time by the
Chairman of the Board, Board of Directors and Chief Executive Officer of the
Company. Executive's primary duties shall include,
<PAGE> 2
without limitation, responsibility for the day-to-day management the Company and
such other duties as may from time to time be prescribed by the Board of
Directors and the Chief Executive Officer of the Company.
Executive shall promote the trade and business of the Company
to the best of his ability and shall not willingly do anything to the prejudice
of the Company's trade or business. Executive shall not at any time
intentionally make any untrue statement regarding the Company and shall not
after the termination of employment by the Company represent himself as being
employed or connected with the Company. Executive shall not directly or
indirectly render any services of a business, commercial or professional nature
to any other person, entity or organization, whether for compensation or
otherwise, without the prior written consent of the Company's Board of
Directors. Executive shall adhere to all of the Company's policies and
procedures applicable to Company's employees generally.
4. Place of Performance.
In connection with Executive's employment by the Company and
except for required travel on Company business, Executive shall be based at the
principal executive offices of the Company or such other place or places but no
further than 25 miles from the Company's current location, as the interests,
needs, business and opportunities of the Company require or deem advisable and
as reasonably agreed by Executive.
5. Compensation and Related Matters.
(a) Salary. During the term of Executive's employment
hereunder, the Company shall pay to Executive a salary of $275,000 per annum.
Such salary shall be paid in equal semi-monthly installments (or such shorter
intervals as the Company may elect) and shall accrue from day to day. Such
salary shall be subject to any withholding or taxes the Company is required by
law to make or pay.
(b) Vacations. During the term of Executive's employment
hereunder, Executive shall be entitled to four weeks of vacation in each
calendar year, and to compensation with respect to earned but unused vacation
days determined in accordance with the Company's vacation policy. Executive's
vacation shall be scheduled by mutual agreement between the Executive and the
Company's Chairman of the Board or the Chief Executive Officer.
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<PAGE> 3
(c) Expenses. During the term of Executive's employment
hereunder, Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket travel and other expenses (excluding ordinary commuting
expenses) incurred by Executive in performing Executive's services hereunder,
provided that:
i) Each such expenditure is of a nature qualifying it as a
proper business expenditure of the Company and is approved by the
Company; and
ii) Executive furnishes to the Company adequate records
and other documentary evidence required by the Company for the
substantiation of such expenditures as proper business expenditures of
the Company, and Executive otherwise complies with general Company
policies with respect to expense reimbursement.
(d) Stock Options. Executive acknowledges that, as additional
compensation for Executive's employment hereunder, Executive was granted under a
pervious agreement two non-statutory stock options to acquire 200,000 and
100,000 shares, respectively, of the Company's common stock, pursuant to two
previously signed Stock Option Agreements. The terms of such stock options shall
be governed by the provisions of the Stock Option Agreements or amendments
thereto(including Executive's right to exercise such options upon termination.)
(e) Medical Insurance. During the term of Executive's
employment hereunder, Executive will be entitled to participate in any medical
insurance plans from time to time generally applicable to full-time employees of
the Company during the term of Executive's employment hereunder.
(f) 401(k). During the term of Executive's employment
hereunder, Executive will be entitled to participate in the Company's 401(k)
plan, or other similar plans established by the Company, generally applicable to
full-time employees of the Company.
(g) Life Insurance. During the term of Executive's employment
hereunder, the Company shall pay the premiums, in an amount not to exceed
$10,000 per annum, for term life insurance on the life of Executive. The
beneficiary or beneficiaries under such policy shall be designated by Executive,
and the death benefit payable under the policy shall equal $1,000,0000.
Executive shall pay the
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<PAGE> 4
insurance premiums directly. Upon submission of proof of payment of the
insurance premiums by Executive, the Company agrees to pay to Executive a bonus
(limited to an annual maximum of $10,000) which shall equal the amount of the
insurance premiums paid and the tax consequences of the bonus. The parties agree
that the bonus shall be calculated by dividing the amount of the premiums paid
by the Executive by .67.
(h) Automobile Allowance. During Executive's employment
hereunder, the Company shall:
a) Pay Executive an automobile allowance in an amount equal
to Executive's monthly automobile lease payment, but not to exceed $600
per month, on or about the last day of each month, provided that
Executive maintains all necessary records as required by the Company and
the Internal Revenue Service;
b) Reimburse Executive, at standard rates and in accordance
with the Company's policies, for repair and maintenance expenses
(including gasoline and oil) regarding such automobile incurred by
Executive in performance of his responsibilities hereunder, provided
that Executive furnishes to the Company adequate records and other
documentary evidence required for the substantiation of such payments as
proper business expenses of the Company and not as deductible
compensation to Executive; and
c) Procure and maintain insurance coverage on such
automobile, provided the Company shall not pay any excess or increased
costs resulting from Executive's driving record.
Executive acknowledges that the personal use portion of such automobile
allowance will be accounted for by the Company as income paid to Executive,
based on the records maintained by Executive and standard IRS tables. Executive
shall conform to the Company's policies regarding the use of such automobile.
6. Termination.
(a) Cause. The Company may at any time upon written notice to
Executive terminate this Agreement and Executive's employment hereunder for
Cause pursuant to the provisions of this Section 6(a). Executive shall be given
written notice by the Board of Directors of its intention to
-4-
<PAGE> 5
terminate Executive for Cause, which notice shall state the acts or omissions
that constitute grounds on which the proposed termination for Cause is based. In
the Board of Director's reasonable business judgment, the Board shall permit
Executive an opportunity to address the Board or a committee of one or more
directors regarding the grounds on which the proposed termination for Cause is
based. In every case, the good faith judgment of the Board of Directors shall be
conclusive as to whether Cause for termination exists.
For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon:
(i) The breach by Executive of any material provision or
covenant of this Agreement, and if such breach is susceptible to cure by
Executive, the failure to effect such cure within twenty (20) days after written
notice of such breach is given to the Executive; or
(ii) The willful failure or neglect of Executive to perform
Executive's duties hereunder or the gross negligence of Executive in the
performance of such duties, and if such failure or gross negligence is
susceptible to cure by Executive, the failure to effect such cure by Executive
within twenty (20) days after written notice of such failure or gross negligence
is given to Executive; or
(iii) Except as permitted hereunder, Executive's unexplained and
regular absences from the Company; or
(iv) Executive's use of alcohol or illegal drugs, which use
interferes with the performance of Executive's duties hereunder; or
(v) Executive's indictment for a crime or for theft,
embezzlement, fraud, misappropriation of funds or any other alleged act of
dishonesty by Executive or Executive's indictment for any other felony or other
crime involving moral turpitude; or
(vi) Executive's violation of any law or ethical rule relating
to Executive's employment by the Company, including, but not limited to a
violation by Executive of Executive's fiduciary duty of loyalty to the Company
which Executive owes to the Company as an officer and/or director.
-5-
<PAGE> 6
For purposes of this Agreement, an action shall be considered
"willful" if it is done intentionally, purposely or knowingly.
(b) Death. This Agreement and Executive's employment
hereunder shall terminate automatically upon Executive's death.
(c) Incapacity. If Executive becomes incapacitated during
Executive's employment hereunder, this Agreement and Executive's employment
hereunder shall terminate on the date of determination by the Board of Directors
of the Company of such incapacity. As used herein, "incapacity" shall mean any
physical or mental illness or disability, or both, which renders Executive
incapable of performing substantially all of his managerial and executive
services hereunder for 120 days or more in the aggregate during any calendar
year, and which at any time after such 120 days the Company's Board of Directors
shall determine continues to render Executive incapable of performing
substantially all of his managerial and executive services hereunder. Any
determination made in good faith by the Company's Board of Directors shall be
conclusive and binding upon Executive.
(d) Without Cause. The Company shall be entitled to terminate
this Agreement and Executive's employment hereunder at any time without Cause.
(e) Resignation. Executive shall be entitled to terminate
this Agreement and Executive's employment hereunder at any time on thirty days
prior written notice delivered by Executive to the Company.
(f) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive (other than termination pursuant to
subsection 6(b) above) shall be communicated by a written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" means a notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth the circumstances which
provide a basis for termination of Executive's employment under the provisions
so indicated, and (iii) if the termination date is other than the date of
receipt of such notice, specifies the termination date of this Agreement (which
date shall not be more than 30 days after the giving of such notice).
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<PAGE> 7
(g) Date of Termination. "Date of Termination" shall mean the
date of death, the date of receipt of the Notice of Termination or the date
specified therein, as the case may be.
(h) Arbitration Rights. Nothing contained in this Section 6
shall contravene the Company and Executive's right and obligation to arbitrate
disputes as provided for in Section 11 of this Agreement.
7. Obligations of the Company Upon Termination.
(a) Termination for Cause. If this Agreement is terminated
pursuant to Section 6(a), the Company shall have no further obligation or
liability to Executive, except that Executive shall be entitled to receive only
(i) the portion of Executive's salary as set forth in Section 5(a) which has
been earned up to the Date of Termination, (ii) compensation for any accrued and
unused vacation up to the Date of Termination, and (iii) reimbursement, subject
to the requirements set forth in Section 5(c), for business expenses incurred up
to the Date of Termination (collectively, the "Minimum Payments").
(b) Termination for Death or Disability. If this Agreement is
terminated pursuant to Sections 6(b) or 6(c), the Company shall have no further
obligation or liability to Executive, except that Executive shall be entitled to
receive only the Minimum Payments.
(c) Termination Without Cause. If this Agreement is
terminated by the Company pursuant to Section 6(d), the Company shall have no
further obligation or liability to Executive, except that Executive shall be
entitled to receive only (i) the Minimum Payments, and (ii) an amount equal to
nine months of Executive's salary. Any amounts owed to Executive pursuant to
subsection (ii) above shall be paid at the rate of $22,917.00 per month
commencing one month from the Date of Termination until paid in full.
(d) Resignation. If this Agreement is terminated by Executive
pursuant to Section 6(e), the Company shall have no further obligation or
liability to Executive, except that Executive shall be entitled to receive only
the Minimum Payments.
(e) Exclusivity of Payments. Upon termination of Executive's
employment hereunder, Executive shall not be entitled to any severance payments
or severance benefits
-7-
<PAGE> 8
from the Company or any payments by the Company on account of any claim for
wrongful termination, including but not limited to claims under any federal,
state or local human and civil rights or labor laws, other than the payments
provided in this Section 7, except for any benefits which may be due to
Executive in the normal course under any employee benefit plan of the Company
which provides for benefits after termination of employment. Executive agrees
that any right to receive payments hereunder upon termination of employment will
cease if Executive breaches any provision of Sections 8 or 9 below.
8. Proprietary Information.
(a) Definition. Executive hereby acknowledges that Executive
possesses and may make use of, acquire, create, develop or add to certain
confidential and/or proprietary information regarding the Company and its
business (whether in existence prior to, as of or after the date hereof,
collectively, "Proprietary Information"), which Proprietary Information shall
include, without limitation, all of the following materials and information
(whether or not reduced to writing and whether or not patentable or protected by
copyright): trade secrets, inventions, processes, formulae, programs, technical
data, "know-how," procedures, manuals, confidential reports and communications,
marketing methods, product sales or cost information, new product ideas or
improvements, new packaging ideas or improvements, research and development
programs, identities or lists of suppliers, vendors or customers, financial
information and financial projections of the Company of any nature whatsoever,
or any other confidential or proprietary information relating to the Company
and/or its business. The term "Proprietary Information" does not include any
information that (i) at the time of disclosure is generally available to and
known by the public (other than as a result of its disclosure by Executive),
(ii) was available to Executive prior to disclosure by the Company, provided
that the person who was the source of such information was not known by
Executive to be subject to an obligation of confidentiality to the Company, or
(iii) becomes available to Executive on a non-confidential basis from a person
other than the Company or its representatives, provided that the source of such
information was not known by Executive to be subject to an obligation of
confidentiality to the Company.
(b) Nondisclosure. During the term of this Agreement and
thereafter, Executive will not, without the
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<PAGE> 9
prior express written consent of the Board of Directors, disclose or make any
use of any Proprietary Information except as may be required in the course of
the performance of Executive's services under this Agreement.
(c) Ownership. Executive acknowledges and agrees that all
right, title and interest in and to any Proprietary Information shall be and
shall remain the exclusive property of the Company. Without limiting the
foregoing, Executive shall assign to the Company any and all right, title or
interest which Executive may have in all Proprietary Information made, developed
or conceived of in whole or in part by Executive during his employment
hereunder.
(d) Agreement Not to Solicit Customers. To protect the
Proprietary Information and trade secrets of the Company, Executive agrees,
during the term of this Agreement and for a period of one year after termination
of this Agreement, not to, directly or indirectly, either on Executive's own
behalf or on behalf of any other person or entity, attempt to intentionally
persuade any customer of the Company to cease to do business or to reduce the
amount of business which any customer of the Company has customarily done or
contemplates doing with the Company. Executive agrees that the covenants
contained in this paragraph are reasonable and desirable.
(e) Agreement Not to Solicit Employees. To protect the
Proprietary Information and trade secrets of the Company, Executive agrees,
during the term of this Agreement and for a period of one year after termination
of this Agreement, not to, directly or indirectly, either on Executive's own
behalf or on behalf of any other person or entity, solicit or employ any person
who is an employee of the Company. Executive agrees that the covenants contained
in this paragraph are reasonable and desirable.
(f) Proprietary Information Agreement. By execution of this
Agreement, Executive agrees and acknowledges that he shall be bound by all of
the terms of the Company's Proprietary Information Agreement attached hereto as
Exhibit C. Executive has reviewed such Proprietary Information Agreement and
agrees that any breach by Executive of any term or covenant contained therein
shall constitute a breach by Executive of this Agreement.
9. Protection of Property.
-9-
<PAGE> 10
All records, files, manuals, documents, specifications, lists
of customers, banks, forms, materials, supplies, computer programs and other
materials furnished to the Executive by the Company, used on its behalf or
generated or obtained during the course of the performance of the Executive's
services hereunder, shall be and remain the property of the Company. Executive
shall be a holder thereof for the sole use and benefit of the Company, and shall
safely keep and preserve such property, except as consumed in the normal
business operations of the Company. Executive acknowledges that this property is
not readily accessible to the Company's competitors. Upon termination of
Executive's employment with the Company for any reason, Executive shall
immediately deliver to the Company, or its authorized representative, all such
property, including all copies, remaining in Executive's possession or control.
10. Specific Performance.
In the event of the breach by Executive of any of the
provisions of Sections 8 or 9, the Company, in addition and supplementary to all
other rights and remedies existing in its favor and notwithstanding the
provisions of Section 11 hereof, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions thereof.
11. Arbitration.
The parties hereto acknowledge that it is in their best
interests to facilitate the informal resolution of any disputes arising out of
this Agreement or otherwise by mutual cooperation and without resorting to
litigation. As a result, if any party has a dispute arising hereunder or
otherwise, including but not limited to any claim for breach of any contract or
covenant (express or implied), tort claims, claims for discrimination
(including, but not limited to, race, sex, religion, national origin, age,
handicap or disability), claims for compensation or benefits (except where a
benefit plan or pension plan or insurance policy specifies a different claims
procedure) and claims for violation of any federal, state or other governmental
law, statute, regulation or ordinance (except for claims involving workers'
compensation benefits), and the parties are unable to reach agreement among
themselves, then a settlement conference must be held within thirty (30) days
upon receipt of a notice by the complaining party describing in detail the
complaint and setting forth a proposed
-10-
<PAGE> 11
solution to the complaint. The settlement conference will be held in any Los
Angeles office of the Judicial Arbitration and Mediation Services, Inc.
("JAMS"). The complaining party must contact JAMS to schedule the conference and
the parties must agree on a retired judge from the JAMS panel. If the parties
are unable to agree upon such a retired judge, JAMS shall provide a list of
three available judges and each party may strike one judge. The remaining judge
will serve as the mediator at the settlement conference.
If the dispute is not settled by the above-described format,
the parties agree to submit the dispute to JAMS for binding arbitration. A
three-judge panel will be selected to arbitrate the dispute. JAMS will provide
the names of five potential arbitrators, giving each party the opportunity to
strike one name. The remaining three arbitrators will serve as the arbitration
panel. The parties agree that the arbitration must be initiated within six
months after the claimed breach occurred and that failure to initiate
arbitration within the six-month period constitutes an absolute bar from the
institution of any new proceedings. Arbitration may be initiated by the
aggrieved party by sending written notice of an intent to arbitrate by
registered certified mail to all parties and to JAMS. The notice must contain a
description of the dispute, the amount involved and the remedies sought. If and
when a demand for arbitration is made by either party, the parties agree to
execute a Submission Agreement provided by JAMS, setting forth the rights of the
parties if the case is arbitrated and rules and procedures to be followed at the
arbitration hearing.
Nothing contained in this Section 11 shall prevent the
Company from seeking and obtaining equitable relief in a court to enforce any of
its rights under Sections 8 or 9 hereof.
12. Additional Covenants, Representations and Warranties of
Executive.
(a) Executive hereby represents and warrants that the
execution, delivery and performance of this Agreement by Executive does not (i)
breach, or result in a default under, any agreement to which Executive is a
party or by which Executive is bound, (ii) breach or otherwise violate any
order, writ, judgment, order or decree binding upon Executive, or (iii) violate
any applicable law or regulation.
-11-
<PAGE> 12
(b) Upon Executive's cessation of employment with the Company
for any reason whatsoever, Executive shall thereupon be deemed to have resigned
from the Board of Directors of the Company, every parent or subsidiary of the
Company on which he is then serving as a director, and any other company on
which Executive is then serving as a director at the request of the Company, in
each case effective as of the date of cessation of employment.
13. Representation by Counsel.
Executive acknowledges that he has the option to be been
represented by legal counsel in connection with this Agreement.
14. Successors.
This Agreement is personal to the Executive and is not
assignable by the Executive otherwise than by will or the laws of descent and
distribution without the prior written consent of the Company's Board of
Directors. This Agreement shall inure the benefit of and be enforceable by
Executive's legal representatives. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
15. Notice.
For purposes of this Agreement, notices, demands and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or (unless otherwise specified)
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Executive: Executive's address as on file with the
Company
If to Company: Intervisual Books, Inc.
2716 Ocean Park Blvd., #2020
Santa Monica, California 90405
Attention: Chairman of the Board
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt thereof.
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<PAGE> 13
16. Entire Agreement.
This Agreement, together with the documents referenced
herein, contains the entire agreement of the parties hereto with respect to the
subject matter hereof. It supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the employment of
Employee by the Company. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, written, oral or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be valid or binding.
17. Amendment; Waiver; Governing Law.
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by Executive and by such officer of the Company as may be
specifically designated by the Company's Board of Directors. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
18. Validity.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
19. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
20. Attorneys' Fees.
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<PAGE> 14
In the event of any dispute arising out of the subject matter
of this Agreement, the prevailing party shall be entitled to recover from the
nonprevailing party its costs and expenses (including reasonable attorneys'
fees) incurred in arbitrating or otherwise resolving such dispute.
21. Withholding of Taxes; Tax Reporting.
The Company may withhold from any amounts payable under this
Agreement all such Federal, state, city and other taxes, and may file with
appropriate governmental authorities all such information, returns or other
reports with respect to the tax consequences of any amounts payable under this
Agreement, as may, in its reasonable judgment, be required by law.
[Signature Page Follows]
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
------------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EXECUTIVE
/s/ NATHAN N. SHEINMAN
---------------------------------------
Nathan Norman Sheinman
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<PAGE> 1
EXHIBIT 10.44
INTERVISUAL BOOKS, INC.
AMENDMENT TO NONSTATUTORY
STOCK OPTION AGREEMENT
THIS AMENDMENT (the Amendment) between INTERVISUAL BOOKS, INC., a
California corporation (the Company), and NATHAN NORMAN SHEINMAN (Employee) is
entered into as of the 31st day of January, 2000.
Pursuant to a NONSTATUTORY STOCK OPTION AGREEMENT between the
Company and Employee entered into the l3th day of January, 1997 (the Agreement),
the Company granted to Employee an option to purchase 200,000 shares of the
Company's common stock. The Company and Employee desire to amend the Agreement
as provided for in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The exercise price of $1.375 per share contained in the third
line of Section I of the Agreement is hereby amended to be $1.25 per share.
2. The text of Section 4(d) of the Agreement is hereby deleted in
its entirety and replaced with the following:
If Employee's employment is terminated for any reason other than
as set forth in Sections 4(a), (b) and (c) above, Employee shall
have one hundred eighty (180) days following the Date of
Termination to exercise this option, but only to the extent that
this option was exercisable on such Date of Termination."
3 . Except as expressly modified or amended herein, the terms and
conditions of the Agreement remain in full force and effect; provided, however.
that in the event of a conflict between the provisions of the Agreement and the
provisions in this Amendment, the provisions in this Amendment shall control.
IN WITNESS WHEREOF, this Amendment is executed as of the date
first written above.
INTERVISUAL BOOKS, INC.
By: /s/ WALDO H. HUNT
---------------------------------
Name: Waldo H. Hunt
Title: Chairman of the Board
EMPLOYEE:
/s/ NATHAN N. SHEINMAN
------------------------------------
Nathan Norman Sheinman
<PAGE> 1
EXHIBIT 10.45
[INTERVISUAL LETTERHEAD]
Via: Overnight mail and Fax: 011-852-2664-7066
March 29, 2000
Zindart Limited
Flat C&D, 25/F., Block 1
Taiping Industrial Centre
57 Ting Kok Road
Tai Po, N. T.
Hong Kong
Attn: Feather S. Y. Fok
Re: EXTENSION NOTICE.
Dear Feather:
Please consider this notice that as per Section 2.6 of the Loan and Security
Agreement dated as of May 13, 1999, Intervisual Books, Inc. hereby extends the
committed revolving line until May 13, 2001 in the amount of $2,300,000.
Sincerely,
/s/ DAN REAVIS
Dan Reavis
Executive VP /CFO
cc: ChinaVest
Stephen Cooke, Paul Hastings, Janosfsky & Walker LLP
<PAGE> 1
EXHIBIT 23.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Intervisual Books, Inc.
Santa Monica, California
We consent to the incorporation by reference to the Registration Statements on
Form S-8 (SEC file no. 33-548990, SEC file no. 333-04784, SEC file no. 333-34009
and SEC file no. 333-34015) of our report dated March 10, 2000, except for Note
6 and 7, as to which the date is March 28, 2000 with respect to the financial
statements of Intervisual Books, Inc. included in this Annual Report on Form
10-K for the year ended December 31, 1999.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Date: March 28, 2000
Los Angeles, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF DECEMBER 31, 1999 AND STATEMENTS OF OPERATIONS FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS REPORTED ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 644
<SECURITIES> 0
<RECEIVABLES> 6,268
<ALLOWANCES> 174
<INVENTORY> 1,779
<CURRENT-ASSETS> 9,527
<PP&E> 1,934
<DEPRECIATION> 1,668
<TOTAL-ASSETS> 15,504
<CURRENT-LIABILITIES> 8,569
<BONDS> 0
0
0
<COMMON> 5,332
<OTHER-SE> (711)
<TOTAL-LIABILITY-AND-EQUITY> 15,504
<SALES> 17,675
<TOTAL-REVENUES> 18,274
<CGS> 13,968
<TOTAL-COSTS> 13,968
<OTHER-EXPENSES> 5,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287
<INCOME-PRETAX> (947)
<INCOME-TAX> 0
<INCOME-CONTINUING> (947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (947)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
