<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1997
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 0-23000
The Harvey Entertainment Company
(Exact name of registrant as specified in its charter)
California 95-4217605
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1999 Avenue of the Stars, Suite 2050, Los Angeles, California 90067-6055
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(Address of principal executive offices)
Registrant's phone number, including area code (310) 789-1990
--------------------------------
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1997
----- ---------------------------------
Common 3,617,540
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARY
INDEX
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<TABLE>
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PAGE
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PART I
FINANCIAL INFORMATION
Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 1-2
Consolidated Income Statements - Three and Nine Months Ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 4-5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results of Operations 7-11
PART II
OTHER INFORMATION 12
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,789,000 $ 6,057,000
Accounts receivable, net of allowance for doubtful accounts
of $462,000 and $628,000 in 1997 and 1996, respectively 4,793,000 2,342,000
Prepaid expenses and other assets 503,000 226,000
Prepaid income taxes 195,000 620,000
----------- -----------
Total current assets 13,280,000 9,245,000
LONG-TERM ACCOUNTS RECEIVABLE 1,023,000 410,000
FILM LIBRARY, Net of accumulated amortization of $3,243,000
and $2,853,000 in 1997 and 1996, respectively 9,858,000 10,106,000
FURNITURE AND EQUIPMENT, Net of accumulated
depreciation of $376,000 and $260,000 in 1997 and 1996,
respectively 499,000 277,000
GOODWILL, Net of accumulated amortization of $1,060,000
and $963,000 in 1997 and 1996, respectively 1,535,000 1,633,000
TRADEMARKS AND COPYRIGHTS, Net of accumulated
amortization of $197,000 and $160,000 in 1997 and 1996,
respectively 531,000 503,000
OTHER ASSETS 106,000 130,000
----------- -----------
TOTAL $26,832,000 $22,304,000
=========== ===========
</TABLE>
See notes to consolidated financial statements. (Continued)
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED)
<S> <C> <C>
LIABILITES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses 1,006,000 1,075,000
Income taxes payable 1,842,000
------------ ------------
Total current liabilities 2,848,000 1,075,000
LONG-TERM ACCOUNTS PAYABLE 385,000
DEFERRED INCOME TAXES 2,591,000 2,610,000
ACCRUED RENT 178,000 137,000
------------ ------------
Total liabilities 6,002,000 3,822,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock $1 par value, authorized 3,000,000, none issued
Common stock, no par value, 10,000,000 shares authorized,
3,617,540 issued and outstanding at September 30, 1997 and
3,641,600 at December 31, 1996 19,055,000 18,900,000
Treasury Stock, 47,700 shares at cost (357,000)
Accumulated earnings (deficit) 2,132,000 (418,000)
------------ ------------
Total stockholders' equity 20,830,000 18,482,000
------------ ------------
TOTAL $ 26,832,000 $ 22,304,000
============ ============
</TABLE>
See notes to consolidated financial statements. (Concluded)
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Filmed entertainment $ 5,559,000 $ 392,000 $ 8,464,000 $ 5,348,000
Merchandising 1,567,000 943,000 3,324,000 2,487,000
------------ ------------ ------------ ------------
Net operating revenues 7,126,000 1,335,000 11,788,000 7,835,000
------------ ------------ ------------ ------------
Cost of sales 1,047,000 563,000 2,744,000 1,998,000
Selling, general and administrative expenses 1,434,000 711,000 4,224,000 2,643,000
Amortization of film library, goodwill,
trademarks, copyrights and other 332,000 123,000 526,000 578,000
Depreciation expense 35,000 15,000 79,000 39,000
------------ ------------ ------------ ------------
Total operating expenses 2,848,000 1,412,000 7,573,000 5,258,000
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 4,278,000 (77,000) 4,215,000 2,577,000
OTHER INCOME 69,000 139,000 178,000 292,000
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 4,347,000 62,000 4,393,000 2,869,000
PROVISION FOR INCOME TAXES (1,796,000) (39,000) (1,842,000) (1,216,000)
------------ ------------ ------------ ------------
NET INCOME $ 2,551,000 $ 23,000 $ 2,551,000 $ 1,653,000
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,121,000 3,862,000 3,974,000 3,869,000
============ ============ ============ ============
NET INCOME PER SHARE $ 0.62 $ 0.01 $ 0.64 $ 0.43
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,551,000 $ 1,653,000
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation 79,000 39,000
Amortization of film library, goodwill, trademarks and copyrights
and other 526,000 578,000
Deferred income taxes (19,000)
Write-off of leasehold improvements 37,000
Changes in operating assets and liabilities:
Accounts receivable (3,064,000) 1,697,000
Prepaid expenses and other assets (253,000) (14,000)
Prepaid income taxes 425,000 19,000
Accounts payable and accrued expenses 316,000
Income taxes payable 1,842,000
Accrued rent and other 41,000 487,000
----------- -----------
Net cash provided by operating activities 2,481,000 4,459,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (338,000) (114,000)
Investments in trademarks and copyrights and film library (207,000) (1,614,000)
----------- -----------
Net cash used in investing activities (545,000) (1,728,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants 57,000
Warrant expense 35,000 45,000
Proceeds from exercise of employee stock options 118,000
Purchase of treasury stock (357,000)
----------- -----------
Net cash (used in) provided by financing activities (204,000) 102,000
----------- -----------
</TABLE>
See notes to consolidated financial statements. (Continued)
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1997 1996
<S> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,732,000 2,833,000
CASH AND CASH EQUIVALENTS, Beginning of period 6,057,000 4,367,000
---------- ----------
CASH AND CASH EQUIVALENTS, End of Period $7,789,000 $7,200,000
========== ==========
</TABLE>
See notes to consolidated financial statements. (Concluded)
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements of The Harvey Entertainment Company and
Subsidiary (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial statements. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
accompanying financial statements should be read in conjunction with the more
detailed 1996 financial statements and related footnotes included in the
Company's Form 10-KSB filed with the Securities and Exchange Commission on March
31, 1997.
In the opinion of the Company, the accompanying unaudited financial statements
as of September 30, 1997 and for the three and nine months ended September 30,
1997 and 1996 contain all adjustments, which include normal recurring accruals,
necessary to present fairly the financial position of the Company as of
September 30, 1997 and the results of operations and cash flows for the nine
months ended September 30, 1997 and 1996.
The results of operations for the interim periods of the Company's fiscal year
are not necessarily indicative of the results to be expected for the entire
year.
* * * * * *
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Results of Operations - The Company's net operating revenues in the 1997 and
1996 nine month periods were $11,788,000 and $7,835,000 respectively, an
increase of $3,953,000. The increase in revenues from 1996 to 1997 includes an
increase of $3,116,000 in filmed entertainment revenues and an increase of
$837,000 in merchandising revenues.
Revenues - Net filmed entertainment revenues were $8,464,000 and $5,348,000 in
1997 and 1996, respectively, an increase of $3,116,000 or 58%. The increase in
filmed entertainment revenues was due to the revenues associated with the
Company's first feature length, direct-to-video "Casper, A Spirited Beginning"
which was released on September 9, 1997. Also contributing to revenues in 1997
was a non-refundable advance the Company received from Saban Entertainment
("Saban") for an agreement the Company entered into in the third quarter of 1997
with Saban to co-produce a second feature length, direct-to-video film based on
the Company's Casper and Wendy The Witch characters. The production, tentatively
entitled "Casper Meets Wendy", is slated for a Fall 1998 release. Additionally,
in the second quarter of 1997 the Company entered into an agreement with
Universal Studios, Inc. ("Universal") to produce and distribute a motion picture
sequel to the original "Casper" movie for theatrical release. The Company
received a non-refundable upfront advance for the sequel rights and may receive
additional advances if the sequel is produced. As part of the Company's sequel
agreement with Universal, the Company was also paid a non-refundable advance
against the Company's share of its profit participation for the first 1995
"Casper" movie. There were no such revenues in the 1996 comparable period. The
1996 filmed entertainment revenues consisted of a non-refundable advance the
Company received from Saban in the second quarter of 1996 for the Company's
first feature length, direct-to-video "Casper, A Spirited Beginning" released on
September 9, 1997. Also included in the 1996 filmed entertainment revenues was a
non-refundable cash payment advance the Company received from Universal for the
television agreement wherein Universal was granted the right to broadcast
episodes of "Casper and Friends" in the United States for a period of
twenty-seven months. There were no such revenues in the 1997 comparable period.
Other sources of filmed entertainment revenues in 1997 consist of license fees
generated from the "Casper" animated television show on the Fox Kids' Network,
license fees from sales to foreign broadcasters of the Harvey film library,
domestic syndication of the "Richie Rich Show", royalties from the Richie Rich
cartoon series which is distributed by Hanna Barbera, a wholly owned subsidiary
of Time Warner, and other miscellaneous sources. Although licenses to foreign
broadcasters are generally granted for a period of one to five years, all the
revenues are recognized when the license period begins, provided certain
conditions have been met. Due to this accounting treatment, revenue fluctuations
will likely recur in the future on a quarterly and annual basis.
Net merchandising revenues were $3,324,000 and $2,487,000 in 1997 and 1996,
respectively, an increase of $837,000 or 34%. The increase in merchandising
revenue was due to the Company's newly formed, in-house licensing division,
Harvey Consumer Products. Also, a number of the licensees participating in the
Company's worldwide Casper merchandising program, which began in 1995 with the
release of the first "Casper" theatrical feature, have generated revenues which
exceed minimum guaranteed amounts, resulting in additional revenue to the
Company. The Company cannot accurately project future merchandising revenues
derived from Casper or any of the other Harvey Classic Characters because the
ongoing success of the merchandising program is in part dependent upon the
attractiveness and marketability of the particular Harvey Character, and there
can be no assurance that merchandising revenues will increase or continue at the
same level in the future. Although merchandising licenses are generally granted
for a period of one to three years, all minimum guaranteed license revenues are
recognized when the license period begins, provided
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<PAGE> 10
certain conditions have been met. Due to this accounting treatment, revenue
fluctuations from the Company's merchandising activities will likely recur in
the future on a quarterly and annual basis.
Cost of Sales - Costs of sales related to filmed entertainment were $1,281,000
and $1,329,000 in 1997 and 1996, respectively. As a percentage of net filmed
entertainment revenues, cost of sales were 15% and 25%, respectively. The
decrease in cost of sales is due to lower costs associated with certain 1997
production and distribution agreements.
Merchandising costs of sales were $1,463,000 and $669,000 in 1997 and 1996,
respectively. As a percentage of merchandising revenues, cost of sales were 44%
and 27% in 1997 and 1996, respectively . The increase in cost of sales is due to
the shift in control of merchandising for all the Company's characters,
including Casper, to the Company and Universal becoming a third party
participant sharing in a portion of the Company's revenues from Casper.
Universal's participation in Casper merchandising will continue for a limited
period of time.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses (SG&A) were $4,224,000 and $2,643,000 for 1997 and 1996,
respectively, an increase of $1,581,000 or 60%. As a percentage of net operating
revenues, SG&A were 36% and 34% for 1997 and 1996, respectively. The increase in
SG&A is due to the additional overhead expenses related to the Company's two new
divisions, Harvey Consumer Products and Creative Affairs. Additionally, SG&A
expenses in 1997 include a charge for the write-off of the remaining receivable
due from Marvel Comics. Marvel Comics filed for bankruptcy reorganization in
December 1996 and the Company's remaining receivable from Marvel Comics has
become uncollectible. The Company has reacquired its comic book publishing
rights from Marvel Comics.
Depreciation and Amortization - Depreciation expense was $79,000 and $39,000 in
1997 and 1996, respectively. The increase in depreciation expense was due to
additions of leasehold improvements and furniture and equipment. Amortization of
the film library was $390,000 and $443,000 in 1997 and 1996, respectively. The
overall decrease in amortization was due to the decrease in revenue derived from
the film library over the nine-month period and partially offset by an increase
in the third quarter as a result of a change in the amortization rate. The film
library is being amortized in accordance with the individual film forecast
method. Amortization of trademarks, copyrights and other was $39,000 in 1997 and
$38,000 in 1996. Amortization of goodwill was $97,000 in both 1997 and 1996.
Other Income - Other income, primarily interest income, was $178,000 and
$292,000 in 1997 and 1996, respectively. The decrease in other income was due to
lower cash balances throughout the period, which generated decreased interest
income.
Income Taxes - Provision for income taxes was $1,842,000 and $1,216,000 in 1997
and 1996, respectively. The increase in provision for income taxes is due to
higher pretax income for the period.
Liquidity and Capital Resources - Net cash provided by operating activities was
$2,481,000 and $4,459,000 in 1997 and 1996 respectively. The decrease in cash
flows from operations are primarily due to the increase in receivables.
Net cash used in investing activities was $545,000 and $1,728,000 in 1997 and
1996, respectively. The decrease in cash used in investing activities was
primarily due to less investment in the Company's film library. In 1996, the
Company invested $1,872,000 in the production of 13 "Richie Rich" animated
shorts.
Net cash (used in) provided by financing activities was $(204,000) and $102,000
in 1997 and 1996, respectively. The decrease is due to the Company's repurchase
of 47,700 shares of its common stock for
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<PAGE> 11
$357,000, or an average of $7.48 per share, in the first quarter of 1997. Under
the Company's stock buy back program, the Company may continue to buy shares on
the market from time to time.
The Company has a $5,000,000 revolving credit facility (the "Revolving
Facility") with City National Bank, which expires on June 1, 1998. Interest on
advances made under the Revolving Facility accrues at 1% above the prime rate as
reported by the lender. The Company has not drawn on this facility. The
Revolving Facility is secured by substantially all of the assets of the Company.
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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Results of Operations - The Company's net operating revenues in the 1997 and
1996 three month periods were $7,126,000 and $1,335,000 respectively, an
increase of $5,791,000. The increase in revenues from 1996 to 1997 includes an
increase of $5,167,000 in filmed entertainment revenues and an increase of
$624,000 in merchandising revenues.
Revenues - Net filmed entertainment revenues were $5,559,000 and $392,000 in
1997 and 1996, respectively, an increase of $5,167,000. The increase in filmed
entertainment revenues was due to the revenues associated with the Company's
first feature length, direct-to-video "Casper, A Spirited Beginning" which was
released on September 9, 1997. Also contributing to revenues in the third
quarter of 1997 was a non-refundable advance the Company received from Saban for
an agreement the Company entered into in the third quarter of 1997 with Saban to
co-produce a second feature length, direct-to-video film based on the Company's
Casper and Wendy The Witch characters. The production, tentatively entitled
"Casper Meets Wendy", is slated for a Fall 1998 release. There were no such
revenues in the 1996 comparable period. Other sources of filmed entertainment
revenues in 1997 consist of license fees generated from the "Casper" animated
television show on Fox Kids' Network, license fees from sales to foreign
broadcasters of the Harvey film library, domestic syndication of the "Richie
Rich Show", and other miscellaneous sources. Although licenses to foreign
broadcasters are generally granted for a period of one to five years, all the
revenues are recognized when the license period begins, provided certain
conditions have been met. Due to this accounting treatment, revenue fluctuations
will likely recur in the future on a quarterly and annual basis.
Net merchandising revenues were $1,567,000 and $943,000 in 1997 and 1996,
respectively, an increase of $624,000 or 66%. The increase in merchandising
revenue was due to the Company's newly formed, in-house licensing division,
Harvey Consumer Products. Also, a number of the licensees participating in the
Company's worldwide Casper merchandising program, which began in 1995 with the
release of the first "Casper" theatrical feature, have generated revenues which
exceed minimum guaranteed amounts, resulting in additional revenue to the
Company. The Company cannot accurately project future merchandising revenues
derived from Casper or any of the other Harvey Classic Characters because the
ongoing success of the merchandising program is in part dependent upon the
attractiveness and marketability of the particular Harvey Character. Although
merchandising licenses are generally granted for a period of one to three years,
all minimum guaranteed license revenues are recognized when the license period
begins, provided certain conditions have been met. Due to this accounting
treatment, revenue fluctuations from the Company's merchandising activities will
likely recur in the future on a quarterly and annual basis.
Cost of Sales - Costs of sales related to filmed entertainment were $404,000 and
$336,000 in 1997 and 1996, respectively. The increase in cost of sales is due to
a increase in filmed entertainment activity for the period. As a percentage of
net filmed entertainment revenues, cost of sales were 7% and 86%, respectively.
The decrease in cost of sales as a percentage of revenues is due to lower costs
associated with certain 1997 production and distribution agreements.
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Merchandising costs of sales were $643,000 and $227,000 in 1997 and 1996,
respectively. As a percentage of merchandising revenues, cost of sales were 41%
and 24% in 1997 and 1996, respectively. The increase in cost of sales is due to
the shift in control of merchandising for all the Company's characters,
including Casper, to the Company and Universal becoming a third party
participant sharing in a portion of the Company's revenues from Casper.
Universal's participation in Casper merchandising will continue for a limited
period of time.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses (SG&A) were $1,434,000 and $711,000 for 1997 and 1996,
respectively, an increase of $723,000. As a percentage of net operating
revenues, SG&A were 20% and 53% for 1997 and 1996, respectively. The increase in
SG&A is due to the additional overhead expenses related to the Company's two new
divisions, Harvey Consumer Products and Creative Affairs.
Depreciation and Amortization - Depreciation expense was $35,000 and $15,000 in
1997 and 1996, respectively. Amortization of the film library was $286,000 and
$78,000 in 1997 and 1996, respectively. The increase was due to an increase in
the amortization rate in accordance with the individual film forecast method.
Amortization of trademarks, copyrights and other was $13,000 in 1997 and $12,000
in 1996. Amortization of goodwill was $33,000 in both 1997 and 1996.
Other Income - Other income, primarily interest income, was $69,000 and $139,000
in 1997 and 1996, respectively. The decrease in other income was due to lower
cash balances for the period, which generated decreased interest income.
Income Taxes - Provision for income taxes was $1,796,000 and $39,000 in 1997 and
1996, respectively. The increase in provision for income taxes is due to higher
pretax income for the period.
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OTHER INFORMATION
Item 1 - 1. Franklin Litigation. On September 30,1994, the Company filed suit in
the Los Angeles Superior Court against Jeffrey Franklin, Jeffrey
Franklin d/b/a ATI Enterprises, and Franklin/Waterman Entertainment,
Inc. In its lawsuit, the Company alleged, among other things, that
Franklin (while acting as a director and agent of the Company) and
ATI usurped corporate business opportunities for Franklin and for
Franklin/Waterman which rightfully belonged to the Company, and
misrepresented to the Company the facts surrounding the
transactions. Trial of the Company's claims commenced May, 1997. On
June 18, 1997, the twelve person jury returned findings in the
Company's favor. The jury found that Jeffrey Franklin and ATI
Equities, willfully breached their fiduciary duties to the Company
and that Franklin/Waterman Entertainment interfered with the
Company's prospective business relationships and violated state
unfair competition laws. The jury also found that ATI Equities
materially breached its agency contract with the Company.
Accordingly, the Company was awarded damages in excess of $700,000
and was relieved of all its obligations under the ATI agency
contract. On October 1, 1997, the defendants filed a notice of
appeal.
Items 2 through 4 are omitted as not applicable.
Item 5 - Other Information
None
Item 6 (a)- Exhibit 10.58 Casper Meets Wendy Live Action Direct-To-Video
Agreement dated September 5, 1997 between the Company and Saban
Entertainment Inc. (portions of which have been redacted and filed
under a confidentiality request)
Exhibit 10.59 Multi-Agreement Amendment No. 5 dated as of June 1,
1997 between Harvey Comics, Inc. and City National Bank
Item 6 (b)- Report on Form 8-K
None
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<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
THE HARVEY ENTERTAINMENT COMPANY
AND SUBSIDIARY (Registrant)
November 13, 1997 /s/Jeffrey A. Montgomery
----------------------------------------
Jeffrey A. Montgomery
President and Chief Executive Officer
November 13, 1997 /s/Gregory M. Yulish
----------------------------------------
Gregory M. Yulish
Executive Vice President and
Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.58
___________________________________________________________________________
ALL SECTIONS MARKED WITH TWO ASTERISKS (**) REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION BY THE HARVEY ENTERTAINMENT COMPANY AS PART OF A REQUEST FOR
CONFIDENTIAL TREATMENT.
___________________________________________________________________________
THE HARVEY ENTERTAINMENT COMPANY
CASPER LIVE ACTION DIRECT-TO-VIDEO
1. FIXED COMPENSATION/LICENSE FEE: $ ** as a non-refundable advance
against Harvey's "net receipts" participation. $ ** payable upon execution of
this deal memo and $ ** payable no later than June 1, 1998. For purposes of
recoupment, such advance will bear interest at the rate of prime ** percent
(**).
2. DISTRIBUTION FEES:
(a). Home Video: **% of gross receipts after the deduction of
promotional allowances.
(b). Television, Non Theatrical and Airlines: **%
3. FINANCING: Saban will commit to a Saban prepared and Harvey
approved direct cost budget that will not exceed $ ** inclusive of
contingencies (but excluding any production/overhead fee to Saban). Any
production overages will be the responsibility of the Saban.
Production costs will be fully recoupable with interest at prime
** percent (**) ("Interest").
4. MARKETING COMMITMENT: Saban will agree to a worldwide
pre-approved marketing budget of $ **.
5. HARVEY'S NET RECEIPT PARTICIPATION: **% of net receipts
attributable to the exploitation of the Picture.
"Net receipts" shall be defined as the gross receipts received by
Saban and its video distributors from the exploitation of the Picture, less the
continuing deduction of the following items, in the following order:
(i) all third party out-of-pocket costs and charges incurred by
Saban and its distributors in connection with the distribution, license,
exhibition, manufacturing, marketing and/or exploitation of the picture in all
media (such costs shall not include expenditures by promotional partners); it
being understood that with respect to television, non theatrical and airlines,
distribution costs shall not exceed ** of the gross receipts received by
Saban for such media (excluding dubbing and residuals) and (ii) production
costs plus Interest.
The definition of gross receipts (which shall include home video
at ** of Saban's and the video distributors' receipts in lieu of a royalty rate
and a deduction for a reserve for returns) shall be the same for Harvey as
defined in the agreement between Saban and the video distributor, but in no
event less favorable than as set forth in the Saban/Fox video distribution
agreement for the first "Casper" direct to video picture.
<PAGE> 2
___________________________________________________________________________
ALL SECTIONS MARKED WITH TWO ASTERISKS (**) REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION BY THE HARVEY ENTERTAINMENT COMPANY AS PART OF A REQUEST FOR
CONFIDENTIAL TREATMENT.
___________________________________________________________________________
6. PICTURE ("PICTURE"): One (1) Casper live action feature length
film starring Casper and the Ghostly Trio and also featuring Wendy, the Good
Witch and the Witch Sisters to be initially released in the home video market
to be no less than ** (**) minutes (excluding main and end titles) and no
greater than ** (**) minutes in running time.
7. DELAY PAYMENT: In the event (a) Saban delays the release of the
Picture (subject to force majeure [which definition of force majeure shall not
include any third party claims against Saban other than those claims arising
out of a breach of Harvey's representations and warranties under 24(B) below]
or Harvey's failure to timely exercise its approval rights under paragraph 12
below in accordance with the schedule attached hereto) beyond the release date
of the fourth quarter of ** or (b) if the Picture is not distributed in home
video by Twentieth Century Fox as required by paragraph 13 below, then for the
first year of delayed release Saban will pay Harvey ** ; for the second year of
delayed release an additional $ **; for the third year of delayed release an
additional $ **. All amounts shall be paid within ** (**) business days of **
of the applicable year. The foregoing sums are in addition to any other monies
payable to Harvey hereunder.
8. TERRITORY: The Universe.
9. DISTRIBUTION TERM/PRECLUSION PERIOD:
(a) The distribution term ("Distribution Term") for the
respective Picture shall commence upon the earlier of ** or the initial United
States home video street date release of the Picture, and shall continue for a
period of ** (**) years thereafter. If Universal exercises its right to a TTP
as defined under subparagraph (b) below, then the Distribution Term shall be
extended for ** (**) months for each TTP, but in no event shall the
Distribution Term be longer than ** (**) years ** (**) months from the initial
United States home video street date release of the Picture. At the expiration
of the Distribution Term, all distribution rights shall revert to Harvey,
subject to Paragraph 10.
(b) During a Theatrical Preclusion Period, as defined below,
Saban's distribution, marketing and promotional activities regarding the
Picture shall be subject to the restrictions described below.
(i) THEATRICAL PRECLUSION PERIOD ("TPP") shall mean, for
activities in the U.S. and Canada and their respective possession
("Domestic Territory"), a period commencing on ** of the year of proposed
initial release of an applicable Casper Picture and continuing through **
of the following year; and for outside the Domestic Territory ("Foreign
Territory") activities from ** of the year of proposed initial release of
the applicable Casper Picture and continuing through ** of the following
year. A Casper Picture is a new feature picture to be released in at least
** theaters in the Domestic Territory by Universal in which
- 2 -
<PAGE> 3
____________________________________________________________________________
ALL SECTIONS MARKED WITH TWO ASTERISKS (**) REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION BY THE HARVEY ENTERTAINMENT COMPANY AS PART OF A REQUEST FOR
CONFIDENTIAL TREATMENT.
____________________________________________________________________________
the character known as "Casper" is the most prominently featured character
and/or which contains the name "Casper" (as a reference to such character)
in the title of such picture.
(ii) NOTICE: A TPP shall apply to any proposed Casper
Picture, for which Harvey has received written notice from Universal by **
of the year preceding the year the Casper Picture in question is
anticipated to be released ("Initial Notice") that certain development
criteria have been met and an additional written notice from Universal by
** of the year preceding the year the Casper Picture in question is
anticipated to be released stating Universal's intent to product the
Casper Picture ("Final Notice"). Harvey shall notify Saban within ** (**)
business days of its receipt of each of the Initial Notice and Final
Notice. For example, if Universal gave Harvey an Initial Notice on or
before ** and a final Notice on or before ** then the corresponding TPP
would run in the Domestic Territory from ** through ** and from ** to **
in the Foreign Territory.
(iii) RESTRICTIONS: During a TTP Saban shall not directly or
indirectly (i) exploit, exhibit or re-release the Picture in Home Video;
(ii) theatrically release, exhibit or re-release the Picture, (iii)
solicit or fulfill orders for, or manufacture or ship, or cause to be
manufactured or shipped, any home video device that includes all or any
portion of the Picture, or (iv) otherwise promote, market, advertise or
distribute the Picture. Nor may Saban exercise its rights during a TPP in
a manner to intentionally frustrate the purpose of the TPP and Universal's
rights with respect to the TPP.
Notwithstanding the restrictions in the immediately preceding
paragraph above, Saban may:
(A) solicit or fulfill orders for, or manufacture or
ship or cause to be manufactured or shipped any home video
product initially released prior to the TPP; but such
solicitation, fulfillment, manufacture or shipment shall not
occur with respect to any country in which less than ** (**)
months shall have passed since the initial street release date
in such country of the home video product that contains the
Casper Picture that is the subject of the TPP in question, and
provided further that all such activities shall be generally
consistent with either (A) the prior practice of Saban or its
video subscribers, or (B) with industry practices generally
followed for direct-to-video products where there is no
competitive prequel, sequel or related video in the
marketplace (including a video of a relate theatrical film);
(B) release; other than theatrical release, of the
Picture in any medium other than the home video medium; and
advertise, market and promote such release, provided that the
initial video exploitation occurred prior to the commencement
of the TPP in question, and
- 3 -
<PAGE> 4
___________________________________________________________________________
ALL SECTIONS MARKED WITH TWO ASTERISKS (**) REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION BY THE HARVEY ENTERTAINMENT COMPANY AS PART OF A REQUEST FOR
CONFIDENTIAL TREATMENT.
___________________________________________________________________________
provided further that such release, advertising, marketing and
promotion in another medium occur in a manner generally
consistent with industry practice absent the release of a
related theatrical film (e.g., a fourth quarter ** Casper
direct-to-video could be broadcast on television during a
subsequent TPP);
It is of the essence of this agreement that Saban comply with the
above restrictions during a TPP.
10. SELL-OFF/PLAY-OFF: Upon expiration of the Distribution Term for
the Picture:
(a). If Saban is in a fully recouped position; Saban shall be
entitled to:
(i). HOME VIDEO: A ** (**) month sell-off period.
(ii). ALL OTHER MEDIA: A right to play-off existing license
agreements in media other than home video which were entered into prior to the
expiration of the Distribution Term and extend beyond the expiration of the
Distribution Term, subject to Harvey's prior written approval of the term of
such licenses, which approval shall not be unreasonably withheld.
(b). If Saban is in an unrecouped position, the Distribution Term
for the Picture shall be extended for an additional ** (**) year period.
11. RELEASE: Saban shall commit to release the Picture initially in
Home Video in accordance with the following schedule:
(a).(i) Home video street date of fourth quarter ** (i.e., no
later than ** ) in the United States.
(ii). An initial street date in each major territory (i.e.,
United Kingdom, Japan, Spain, France, Italy, Germany, Australia and
Scandinavia) outside the United States of America no later than ** (**) months
thereafter, each subject to Saban's good faith analysis of the prevailing
market conditions prior to the release of the Picture to determine whether or
not market conditions support such release date or indicate a change to such
release date is necessary.
(b). Saban will have the right to defer the initial U.S. release
date, in its discretion beyond ** subject to the provisions of Paragraph 7
above.
12. PRODUCTION: Saban will be the Producer of the Picture
("Producer"). Producer will perform all of the customary services provided by a
Producer, will produce the Picture in accordance with the approved budget and
will be fully responsible for the production of the Picture, which shall
include hiring of all necessary personnel, obtaining necessary insurance,
contracting with applicable guilds, etc.
- 4 -
<PAGE> 5
___________________________________________________________________________
ALL SECTIONS MARKED WITH TWO ASTERISKS (**) REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION BY THE HARVEY ENTERTAINMENT COMPANY AS PART OF A REQUEST FOR
CONFIDENTIAL TREATMENT.
____________________________________________________________________________
Harvey shall have the right to approve the character designs,
attributes and characterization of the Harvey characters to be included in the
Picture only for the purposes of ensuring that the characters are depicted in a
manner consistent with the integrity and artistic representation of the
characters as they have been depicted heretofore (such approval not to be
unreasonably withheld). If such characters are not consistent with the
characters as they have been depicted heretofore, Harvey shall have the right
of approval over such depiction (such approval not to be unreasonably
withheld). Harvey and Saban shall have the right to mutually approve the
initial treatment. It is agreed that all approvals herein shall be exercised in
a timely way by Harvey so that development/production exigencies may be met by
Saban. If Harvey has not exercised said mutual approval(s) in a timely way as
required, Saban may proceed. All other key creative and business decisions
related to production shall be subject to Saban's and Harvey's mutual approval
but in the event of any disagreement, Saban's decision shall control. Key
creative and business decisions shall include the script (which in any event
must conform to the approved treatment), the director, the writer, special
effects, principal cast, development and production schedules, key production
crew, form and content of material contracts, all elements of the budget,
financing and production cash flow schedules, terms of completion guaranty,
screen credits and insurance. Saban will have final cut.
13. RIGHTS GRANTED: Harvey shall own all right, title and interest,
including the copyright in and to the Picture and all elements thereof. Upon
condition that Saban, as required by Harvey, enters into a subdistribution
agreement with Twentieth Century Fox for Home Video Devices which agreement is
subject to the reasonable approval of Harvey, Saban shall have the sole and
exclusive right to distribute and exploit the Picture in linear non-interactive
form in the following media: (i) all forms of television (pay, pay-per-view,
video-on-demand, near-video-on-demand, network, free and basic cable, dbs and
syndication); (ii) non-theatrical; (iii) airlines; (iv) all formats and
channels of home-video distribution intended for linear viewing, which shall
include without limitation, videocassette, laser disc, and digital video disc
("Home Video Devices"). Harvey shall also grant to Saban soundtrack rights in
and to the Picture on the same basis as for the ** "Casper" home video. All
rights not granted expressly herein are specifically reserved to Harvey.
14. THIRD PARTY PAYMENT: Producer shall be responsible for any and
all costs of the production of the Picture. All payments and any contingent
compensation or residual participations due third parties as a result of
Saban's (or its home video distributor's or other agent's or subdistributor's)
exploitation of the Picture hereunder shall be made by Saban and advanced and
recouped as a distribution cost by Saban; it being understood that Saban and
Harvey will have the right to approve third party contingent compensation, which
approval shall not be unreasonably withheld.
15. DELIVERY OF PICTURE: Producer shall be fully responsible for
delivery all of the technical physical elements and artwork which Saban may
require for the manufacturing, packaging and promotion/marketing for the
Picture in accordance with Saban's standard delivery specifications or Producer
may elect to have Saban perform the services listed above.
- 5 -
<PAGE> 6
___________________________________________________________________________
ALL SECTIONS MARKED WITH TWO ASTERISKS (**) REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION BY THE HARVEY ENTERTAINMENT COMPANY AS PART OF A REQUEST FOR
CONFIDENTIAL TREATMENT.
____________________________________________________________________________
16. DISTRIBUTION: Saban will use reasonable efforts to maximize
revenues in the distribution of the Picture.
Saban shall be responsible for all aspects of distribution of the
Picture, fulfillment of all orders and inventory maintenance.
Saban shall establish the release patterns and holdbacks for the
Picture, subject to consultation with Harvey.
17. PRICING: Harvey and Saban shall mutually establish suggested
retail and wholesale prices for the Picture; it being understood that Harvey
shall have the final decision in the case of disagreement. Harvey and Saban
hereby preapprove a suggested retail price point of between $ ** and $ ** for
the Picture.
18. MANUFACTURING: Saban shall arrange for the manufacturing of Home
Video Devices at the same rate Saban obtains for Saban pictures based upon
comparable running times. Saban shall advance all manufacturing costs as a
recoupable distribution expense.
19. MARKETING AND SALES PLANNING AND EXECUTION: Harvey and Saban
shall have the mutual control over marketing plans, tactics, including (but not
limited to) packaging, titles, title content, advertising, promotion and
pricing, subject to practical or legal restrictions. In the event that there is
a disagreement, Saban's decision will be final. Harvey's logo and Saban's logo
will be displayed on all packaging, in equal size and prominence. Saban will
solicit and process all orders. Saban will handle all returns.
20. CREDIT AND COLLECTION: Saban will evaluate each account's credit
worthiness and apply the same standards to the Picture that it does to all
other pictures it distributes. Saban will bear the responsibility for
collection.
21. SALES/SHIPMENTS: Saban will provide Harvey with a weekly report
of product sales and returns. If Saban chooses, instead of distributing weekly
shipment reports, Saban may install at Harvey's headquarters an on-line
terminal to its computer system to provide the same data.
22. FINANCIAL REPORTING: Accounting statements, which are subject to
audit, shall be rendered quarterly and shall conform with the end of each such
corresponding accounting period. Statements shall be given ** (**) days after
the end of such accounting period and any payments due to Harvey as indicated
therein shall accompany such statement. Saban acknowledges that ** (**) days
after the end of each quarter, Saban's financial officer will meet with
Harvey's financial officer and review the performance of the Picture and will
provide guidance on ultimate revenues for the Picture according to G.A.A.P. in
order to facilitate Harvey's reporting obligations. All financial records shall
be subject to audit every ** (**) months. In the event a discrepancy of greater
than ** percent (**%) is found, Saban shall pay audit costs.
- 6 -
<PAGE> 7
23. TRADEMARK COPYRIGHT PROTECTION:
(A). The Long Form Agreement will contain appropriate language
protecting Harvey's trademark and copyrights. This language will include a
direct statement that Harvey owns any and all goodwill in and to such
trademarks and copyrights and will provide for appropriate Saban actions to
protect Harvey's interest in all such trademarks and copyrights.
(B). Harvey represents and warrants that it owns all rights in
and to the Casper characters granted to Saban hereunder, free of any
encumbrances or obligations; that the rights granted to Saban hereunder will
not infringe or violate the rights of any third party, that the characters are
fully protected by trademark, and there exists no claim or litigation relating
to the characters or any rights in and to the characters which would affect
adversely the rights to be acquired by Saban hereunder. The parties acknowledge
that Harvey does not solely own or control any new characters (e.g., Dr. Harvey
and Kat) or new elements (e.g., Whipstaff Manor) created originally for the
Universal "Casper" motion picture and television series. Notwithstanding the
foregoing in the event of a claim by Universal, Saban agrees that its damages
will be limited to repayment of the license fee, direct out of pocket costs
incurred by Saban in connection with the Picture and Saban's reasonable outside
attorneys fees.
25. LONG FORM AGREEMENT: The parties to this Agreement may enter into
a Long Form Agreement incorporating the terms set forth in this agreement and
adding other standard terms and conditions customary in home video distribution
agreements in the entertainment industry. Notwithstanding the parties'
intention to create and execute a Long Form Agreement, upon the execution of
this Agreement by both parties herein, this Agreement shall immediately be in
full force and effect, and shall be fully binding on and enforceable by both
parties to this Agreement. There shall be no assignment of the agreement by
Saban without Harvey's prior written consent, which consent shall not be
unreasonable withheld. The parties shall mutually approve a press release
relating to this transaction.
AGREED TO AND ACCEPTED:
HARVEY ENTERTAINMENT COMPANY
By: /s/
-------------------------
SABAN ENTERTAINMENT
By: /s/
-------------------------
SABAN INTERNATIONAL N.V.
By: /s/
-------------------------
- 7 -
<PAGE> 8
___________________________________________________________________________
ALL SECTIONS MARKED WITH TWO ASTERISKS (**) REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION BY THE HARVEY ENTERTAINMENT COMPANY AS PART OF A REQUEST FOR
CONFIDENTIAL TREATMENT.
____________________________________________________________________________
HARVEY APPROVAL SCHEDULE
------------------------
1. Treatment:
(i). First draft and/or full rewrite: **
(ii). Revised drafts: **
(iii). Polishes: **
2. Screenplay:
(i). First draft and/or full rewrite: **
(ii). Revised drafts: **
(iii). Polishes: **
3. Budget: **
4. Animated Character Designs:
(i). Artist rendering (e.g., pencil sketches): **
(ii). CGI image: **
(iii). Each revision to above: **
- 8 -
<PAGE> 1
EXHIBIT 10.59
MULTI-AGREEMENT AMENDMENT NO. 5
This Multi-Agreement Amendment, dated as of June 1, 1997 by and among
HARVEY COMICS, INC., a New York corporation ("BORROWER") and CITY NATIONAL
BANK, N.A. ("BANK"). For good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Recital of Certain Facts:
(a) Borrower and Bank are parties to that certain
Revolving Loan and Security Agreement, dated as of October 27, 1993 (the
"ORIGINAL LOAN AGREEMENT"), and as amended by that certain Multi-Agreement
Amendment, dated August 30, 1994 (the "FIRST AMENDMENT"), that certain
Multi-Agreement Amendment No. 2, dated as of November 1, 1994 (the "SECOND
AMENDMENT"), that certain Multi-Agreement Amendment No. 3, dated as of
September 1, 1995 (the "THIRD AMENDMENT"), and that certain Multi-Agreement
Amendment No. 4, dated as of June, 1996 (the "FOURTH AMENDMENT"). The Original
Loan Agreement, the First Amendment, the Second Amendment, the Third Amendment
and the Fourth Amendment are hereinafter collectively referred to as the "LOAN
AGREEMENT." Capitalized terms not otherwise defined herein shall have the same
meaning as set forth in the Loan Agreement.
(b) Borrower has requested that the Commitment
Termination Date be extended and that the amount available for borrowings be
increased from $2,500,000 to $5,000,000.
(c) Bank has agreed to (i) increase the Commitment
Amount and (ii) extend the Commitment Termination Date to June 1, 1998 as
herein provided, subject to the terms of this Agreement.
2. Amendment to Loan Agreement and Revolving Note:
2.1 Increase in Commitment Amount. The term "Commitment"
is hereby restated to mean the commitment of Lender to make Loans, on the terms
and conditions herein obtained from the date hereof through the Commitment
Termination Date in an aggregate principal amount at one time outstanding not
in excess of Five Million Dollars ($5,000,000.00).
2.2 Extension of Commitment Termination Date. Bank and
Borrower agree that the Commitment Termination Date shall be extended to June
1, 1998. The Revolving Note shall also be deemed amended so that the payment
due date contained in the fourth paragraph thereof shall be changed to June 1,
1998. Except as specifically amended hereby, all other provisions of the Loan
Agreement and the Collateral Documents shall remain in full force and effect.
2.3 Borrower Base. Bank and Borrower agree that all
further Advances shall be the application of a Borrowing Base formula as set
forth below.
1
<PAGE> 2
23.1 Notwithstanding anything in this Loan Agreement to the
contrary, in no event may the aggregate principal amount of the Revolving Loan
outstanding exceed the Borrowing Base. The Borrowing Base shall include the
aggregate value of the following:
(a) 50% of the aggregate dollar value of all Eligible
Accounts Receivables; and
(b) The Library Value.
2.3.2 The calculation of the Borrowing Base shall be made as of
the end of each quarter that a Revolving Loan hereunder is outstanding and in
which the amount of Indebtedness hereunder is in excess of the Library Value,
and shall be delivered, in the form attached as Exhibit 1 hereto (the "BORROWING
BASE STATEMENT"), to Bank no later than fifteen (15) days following the end of
each such fiscal quarter. The Borrowing Base Statement shall set forth the
amount of each component included and to be included in the Borrowing Base (by
reference to this Section 2.3.2 and as of the last Business Day of the
preceding quarter, attached to which shall be detailed information including
the calculation of the Eligible Accounts, as well as such other information as
reasonably may be requested by the Bank with respect thereto.
2.3.3 The Bank shall have the sole discretion as to accept or
reject any such Account which is proposed to be included in the Borrowing Base
and to reject an Account which was previously included therein.
2.3.4 For purposes of the Loan Agreement, the following terms
shall have the meanings set forth below:
Account Debtor shall be any Person who is or who may become
obligated to Borrower under, with respect to, or on account of an Account.
Eligible Account Receivables shall be those Eligible Domestic
Accounts or Eligible Foreign Accounts excluding each of the following:
(i) the particular amounts to be paid in respect of any
Accounts the payment date of which exceeds 24 months from the date of applicable
Borrowing Base;
(ii) the particular amounts to be paid in respect of any
Accounts for invoiced balances which extend beyond one (1) month past due;
2
<PAGE> 3
(iii) all amounts to be paid in respect of any Account
Debtor if any invoiced balances for such Account Debtor if any invoiced
balances for such Account Debtor extends beyond ninety (90) days past due;
(iv) any intercompany receivable;
(v) any Account considered to be a risk in the sole
discretion of Bank based on country;
(vi) any Account generated as a result of a default or
cancellation by another Account Debtor; and
(vii) any other Account which Bank has rejected pursuant to
Section 2.3.3 of Amendment No. 5.
Eligible Domestic Accounts shall consist of Eligible Account
Receivables with Account Debtors domiciled in the United States, which Account
Debtors are acceptable to Bank in Bank's sole and absolute discretion, which
relate to (i) the sale or license of completed Film Assets which are available
for delivery, have been delivered and/or have been accepted by such Account
Debtors, or (ii) relate to license fees or other royalty payments regarding the
use of assets of the Borrower, the amount of which is either guaranteed or
subject to verification by reference to sales numbers or other similar data.
Eligible Foreign Account shall consist of Accounts with Account
Debtor who are domiciled outside the United States, which Account Debtors are
acceptable to Bank in Bank's sole and absolute discretion, which relate to the
sale or license of completed Film Assets which are available for delivery, have
been delivered and/or have been accepted by such Account Debtors, or (ii)
relate to license fees or other royalty payments regarding the use of assets of
the Borrower, the amount of which is either guaranteed or subject to
verification by
3
<PAGE> 4
reference to sales numbers or other similar data. Notwithstanding the
foregoing, no Account may be considered to be an Eligible Foreign Account
unless it is to be paid in U.S. Dollars.
Library Value shall mean the sum of $2,500,000.
2.4 Amendment to Covenants. Sections 6.5 and 6.6 of the Loan
Agreement are hereby restated in their entirety as follows:
"6.5 Net Worth. Borrower shall not permit its Net Worth to fall
below $17,000,000 for any quarter or at any fiscal year end.
6.6 Current Ratio. Borrower shall not permit its Current Ratio
to be less than 1.0 to 1.0 at any quarter or at any fiscal year end."
2.5 Inclusion of Additional Covenants. Borrower agrees that it will
not use any proceeds of any advance hereunder for any acquisition, business
combination, or other merger without the express written consent of the Bank,
which consent may be withheld by the Bank in its sole and absolute discretion.
2.6 Amendment to Notice Provisions. Section 9.11 of the Loan
Agreement is hereby restated in its entirety as follows:
"9.11 Notice. Except as otherwise provided herein, any notice
required hereunder shall be in writing, and shall be deemed to have been
validly served, given or delivered upon deposit in the United States mails,
with proper postage prepaid, and addressed to the party to be notified at the
following addresses (or such other address(es) as a party may designate for
itself by like notice):
(A) If to Lender, at
CITY NATIONAL BANK
Entertainment Department
400 N. Roxbury Drive
Beverly Hills, California 90210
Attention: Mr. Norman B. Starr
4
<PAGE> 5
With a copy to:
KELLY LYTTON MINTZ & VANN
1900 Avenue of the Stars, Suite 1450
Los Angeles, California 90067
Attention: Bruce P. Vann, Esq.
(B) If to Borrower, at
HARVEY COMICS, INC.
1999 Avenue of the Stars
Suite 2050
Los Angeles, California 90067
Attention: Mr. Jeff Montgomery
with a copy to:
THE HARVEY ENTERTAINMENT COMPANY
1999 Avenue of the Stars
Suite 2050
Los Angeles, California 90067
Attention: Mr. Jeff Montgomery
3. Consents: Each of the parties hereto consents to the foregoing
amendments to the extent the consent of any such party is required under the
Loan Agreement's current notice provisions.
4. Representations and Warranties of Borrower: In order to induce Bank
to enter into this Agreement, Borrower represents and warrants to Bank that:
(a) Borrower has the power and authority and has taken all
action necessary to execute, deliver and perform this Agreement and all other
agreements and instruments executed or delivered to be executed or delivered in
connection herewith and therewith and this Agreement and such other agreements
and instruments constitute the valid, binding and enforceable obligations of
Borrower.
(b) The representations and warranties contained in the Loan
Agreement are true and correct in all respects on and as of the date hereof as
though made on and as of the date hereof and no Event or Default (as said term
is defined in the Loan Agreement) or event which with the passage of time or
the giving or notice or both would constitute an Event of Default has occurred
and is continuing as of the date hereof.
5
<PAGE> 6
(c) Since the date of the most recent financial statements, if
any, furnished by Borrower to Bank, there has been no material adverse change in
the business or assets or in the financial condition of Borrower.
5. Representations and Warranties of Guarantor. The Guaranty of Borrower
remains in full force and effect and Guarantor provides that as of the date of
this Agreement, it has not offsets, claims or defenses against any of its
obligations under the Guaranty.
6. Acknowledgment of Borrower: Borrower acknowledges and agrees that as
of the date of this Agreement, it has no offsets, claims or defenses whatsoever
against any of its obligations under the Revolving Note, or its obligations
under the Loan Agreement, the Collateral Documents, or any other agreements,
documents or instruments securing or pertaining to the Revolving Note or the
Loan Agreement.
7. Fee: As an additional consideration for the extension contemplated
under this Agreement, Borrower shall concurrently pay to (i) Bank, the sum of
$37,500 as additional loan fees, and to (ii) KELLY LYTTON, MINTZ & VANN, the
Bank's counsel, such sums as may be owing in respect of the preparation of
this amendment and the filing fees related thereto.
8. Full Force and Effect: Each of the Collateral Documents, and all
other documents, agreements and instruments relating to thereto remain in full
force and effect.
9. Governing Law: This Agreement and the rights and obligations of the
parties hereunder shall be governed by, construed and enforced in accordance
with the laws of the State of California applicable to agreements executed and
to be wholly performed therein.
10. Counterparts: This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which when
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all as of the date first above
written.
HARVEY COMICS, INC.
By: /s/
--------------------------------
Its:
-------------------------------
THE HARVEY ENTERTAINMENT COMPANY
By: /s/
--------------------------------
Its:
-------------------------------
6
<PAGE> 7
CITY NATIONAL BANK, N.A.
By: /s/
--------------------------------
Its: VICE PRESIDENT
-------------------------------
7
<PAGE> 8
EXHIBIT 1
BORROWING BASE SCHEDULE
Outstanding Indebtedness $__________
Borrowing Base
Library Value $__________
Eligible Accounts (see Attachment 1) X 50% $__________
Total Borrowing Base $__________
The undersigned, the Chief Financial Officer of Borrower, certifies
that the foregoing is true and correct as of the date hereof.
Harvey Comics, Inc.
By: __________
Its: _________
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,789
<SECURITIES> 0
<RECEIVABLES> 5,255
<ALLOWANCES> 462
<INVENTORY> 0
<CURRENT-ASSETS> 13,280
<PP&E> 875
<DEPRECIATION> 376
<TOTAL-ASSETS> 26,832
<CURRENT-LIABILITIES> 2,848
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,830
<TOTAL-LIABILITY-AND-EQUITY> 26,832
<SALES> 11,788
<TOTAL-REVENUES> 11,788
<CGS> 2,744
<TOTAL-COSTS> 2,744
<OTHER-EXPENSES> 3,899
<LOSS-PROVISION> 325,000
<INTEREST-EXPENSE> 0
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