<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, 1998
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
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(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 November 13, 1998
-------- --------------------------------
Common 4,186,941
<PAGE> 2
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 1-2
Condensed Consolidated Statements of Operations - Three and Nine Months Ended
September 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1998
and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial Condition and Results of Operations 6-10
PART II
OTHER INFORMATION 11
</TABLE>
<PAGE> 3
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 1,835,000 $ 6,316,000
Accounts receivable, net of allowance for doubtful accounts
of $630,000 and $606,000 in 1998 and 1997, respectively 4,179,000 8,013,000
Refundable income taxes 665,000 --
Prepaid expenses and other current assets 817,000 489,000
Film library, net of accumulated amortization of $3,896,000
and $3,373,000 in 1998 and 1997, respectively 12,335,000 10,236,000
Furniture and equipment, net of accumulated
depreciation of $599,000 and $497,000 in 1998 and 1997,
respectively 560,000 483,000
Goodwill, net of accumulated amortization of $1,189,000
and $1,092,000 in 1998 and 1997, respectively 1,406,000 1,503,000
Trademarks and copyrights, net of accumulated
amortization of $269,000 and $210,000 in 1998 and 1997,
respectively 830,000 590,000
----------- -----------
TOTAL $22,627,000 $27,630,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
(UNAUDITED)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued expenses $ 2,165,000 $ 2,300,000
Income taxes payable -- 498,000
Deferred income taxes 436,000 3,788,000
Accrued rent and other liabilities 180,000 131,000
------------ ------------
Total liabilities 2,781,000 6,717,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock $1 par value, 3,000,000 shares authorized, none issued
Common stock, no par value, 10,000,000 shares authorized,
4,187,000 issued and outstanding at September 30, 1998 and
3,573,000 at December 31, 1997 21,874,000 18,153,000
Retained earnings (Accumulated deficit) (2,028,000) 2,760,000
------------ ------------
Total stockholders' equity 19,846,000 20,913,000
------------ ------------
TOTAL $ 22,627,000 $ 27,630,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Filmed entertainment $ (2,295,000) $ 5,559,000 $ (2,190,000) $ 8,464,000
Merchandising 1,174,000 1,567,000 2,349,000 3,324,000
------------ ------------ ------------ ------------
Net operating revenues (1,121,000) 7,126,000 159,000 11,788,000
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of sales 556,000 1,047,000 993,000 2,744,000
Selling, general and administrative expenses 1,761,000 1,434,000 6,651,000 4,224,000
Amortization of film library, goodwill,
trademarks, copyrights and other 55,000 332,000 678,000 526,000
Depreciation expense 36,000 35,000 102,000 79,000
------------ ------------ ------------ ------------
Total operating expenses 2,408,000 2,848,000 8,424,000 7,573,000
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (3,529,000) 4,278,000 (8,265,000) 4,215,000
OTHER INCOME 217,000 69,000 323,000 178,000
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX
BENEFIT (PROVISION) (3,312,000) 4,347,000 (7,942,000) 4,393,000
INCOME TAX BENEFIT (PROVISION) 1,306,000 (1,796,000) 3,154,000 (1,842,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (2,006,000) $ 2,551,000 $ (4,788,000) $ 2,551,000
============ ============ ============ ============
WEIGHTED AVERAGE SHARES O/S - Basic 4,187,000 3,590,000 4,015,000 3,596,000
============ ============ ============ ============
WEIGHTED AVERAGE SHARES O/S - Diluted 4,121,000 3,974,000
============ ============
NET INCOME (LOSS) PER SHARE - Basic $ (0.48) $ 0.71 $ (1.19) $ 0.71
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - Diluted $ 0.62 $ 0.64
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 6
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(4,788,000) $ 2,551,000
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 102,000 79,000
Amortization of film library, goodwill, trademarks and copyrights
and other 678,000 526,000
Deferred income taxes (3,352,000) (19,000)
Non-cash reduction in accounts receivable 3,266,000 --
Write-off of leasehold improvements -- 37,000
Changes in operating assets and liabilities:
Investment in film library (2,622,000) (142,000)
Accounts receivable, net 568,000 (3,064,000)
Prepaid expenses and other assets (328,000) (253,000)
Refundable income taxes (665,000) 425,000
Account payable and accrued expenses (135,000) 316,000
Income taxes payable (498,000) 1,842,000
Accrued rent and other liabilities 49,000 41,000
----------- -----------
Net cash (used in) provided by operating activities (7,725,000) 2,339,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (179,000) (338,000)
Investment in trademarks and copyrights (299,000) (65,000)
----------- -----------
Net cash used in investing activities (478,000) (403,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options, net of tax effect 3,722,000 118,000
Warrant expense -- 35,000
Repurchase and retirement of common stock -- (357,000)
----------- -----------
Net cash provided by (used in) financing activities 3,722,000 (204,000)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,481,000) 1,732,000
CASH AND CASH EQUIVALENTS, Beginning of period 6,316,000 6,057,000
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 1,835,000 $ 7,789,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 7
THE HARVEY ENTERTAINMENT COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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SUMMARY OF ACCOUNTING POLICIES
The condensed consolidated financial statements of The Harvey Entertainment
Company and Subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The accompanying condensed consolidated financial statements should be read in
conjunction with the more detailed consolidated financial statements and related
footnotes included in the Company's Form 10-KSB filed with the Securities and
Exchange Commission on April 15, 1998.
In the opinion of the Company's management, the accompanying unaudited condensed
consolidated financial statements as of September 30, 1998 and for the three and
nine months ended September 30, 1998 and 1997 contain all adjustments, which
include normal recurring accruals, necessary to present fairly the consolidated
financial position of the Company as of September 30, 1998 and the consolidated
results of operations and consolidated cash flows for the nine months ended
September 30, 1998 and 1997.
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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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On September 21, 1998, the Board of Directors of The Harvey Entertainment
Company announced that it had engaged the investment banking firm of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") as a financial advisor to the
Company. Pursuant to the engagement, DLJ is assisting the Company in pursuing
strategic alternatives intended to maximize shareholder value. Such alternatives
include, but may not be limited to the sale, merger, consolidation or
recapitalization of the business, securities or assets of the Company. There can
be no assurance as to the outcome, timing or success of the DLJ engagement.
On March 20, 1998, the Company's Board of Directors voted not to renew the
employment agreements of the Company's Chief Executive Officer, Jeffrey A.
Montgomery, and Chief Financial Officer and Executive Vice President, Gregory M.
Yulish which expired on April 17, 1998. On March 27 and March 30, respectively,
Messrs. Yulish and Montgomery resigned from the Board of Directors. The Board of
Directors retained the non-exclusive services of Anthony J. Scotti as the
Company's Interim Chief Executive Officer and Michael S. Hope as the Company's
Interim Chief Financial Officer, effective as of March 23, 1998, through a
management services agreement with Global Media Management Group, LLC ("Global")
for an initial six-month term. In July 1998, the Company's Board of Directors
unanimously approved a new three year business plan. Pursuant to the plan, the
Company contemplated producing up to 12 direct-to-video products over the next
three years, commencing in 1999 and one new television show per year.
Additionally, the Board authorized an executive recruitment effort to identify
and retain a senior management team to succeed its present interim management.
In July 1998, at the request of the Board of Directors, Global agreed to a
three-month extension of its management contract to December 23, 1998. The
execution of the Company's plan has been delayed indefinitely as the Board of
Directors, interim management and DLJ explore possible strategic alternatives.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Results of Operations - The number of projects generating revenues in 1998 has
been limited and, accordingly, the Company's operating results have been and
will be adversely impacted in contrast to comparable periods in the prior year.
The Company's newly formulated business plan, which would require entering into
long-term video distribution agreements and obtaining a financing package to
fund production activities, has not been implemented and thus any possible
results will not be realized until subsequent periods, if ever. The Company has
finished producing one live-action, direct-to-video featuring the Company's
classic character Baby Huey. The Company has negotiated an agreement with a
major media company for the distribution of the new direct-to-video production
entitled "Baby Huey's Great Easter Adventure" scheduled for release in Spring
1999. Development of all other new products is subject to the results of the
Company's pursuit of certain strategic alternatives. The Company has continued
to develop and exploit its licensing and merchandise rights for the Company's
portfolio of classic characters. In July 1998, as part of the business plan, the
Board of Directors approved the publishing of a new monthly magazine, targeted
for children four to ten years of age, entitled Harvey, the Magazine for
Kids(C). The on-sale date for the December premiere issue is November 17, 1998.
Revenues - Net filmed entertainment revenues were a negative $2,295,000 in the
three months ended September 30, 1998 compared to $5,559,000 in the comparable
period of 1997. The current quarter reflects an adjustment of $2,316,000 to
reduce the Company's estimate of the lifetime profitability of the 1997
direct-to-video title "Casper, A Spirited Beginning." The Company's original
forecast projected worldwide sales of approximately 5 million units whereas
actual sales to date as reported during the quarter to the Company by the
video's distributor approximate 4.5 million, necessitating the adjustment in the
current quarter. Although a second direct-to-video title, "Casper Meets Wendy",
was released on September 22, 1998, the Company will not record
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<PAGE> 9
additional revenues on that title beyond the non-refundable advance received in
1997 until such time as the actual shipments indicate that the Company's profit
participation will exceed the advance. Filmed entertainment revenues in the
three months ended September 30, 1997 include revenues from the shipment of
"Casper, A Spirited Beginning" and the recognition of the aforementioned advance
on "Casper Meets Wendy." Other filmed entertainment revenues in both periods
were insignificant.
Net merchandising revenues were $1,174,000 and $1,567,000 in the three months
ended September 30, 1998 and 1997, respectively, a decrease of $393,000. The
revenues in 1998 consist of new licenses for the worldwide merchandising of the
Harvey Classic Characters and the licensing revenues from the Company's
direct-to-video features entered into by the Company's in-house licensing
division. Although merchandising licenses are generally granted for a period of
one to three years, a substantial portion of the 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. The ongoing success of the merchandising program is
in part dependent upon the attractiveness, the ancillary exploitation and future
marketability of the Harvey Classic Characters.
Cost of Sales - Costs of sales relating to filmed entertainment revenues were
$8,000 and $404,000 in 1998 and 1997, respectively. The decrease in cost of
sales is due to a substantial decrease in filmed entertainment activity for the
period.
Merchandising costs were $480,000 and $643,000 in 1998 and 1997, respectively.
The decrease in merchandising costs is due to a decrease in merchandising
activity for the period.
Publishing costs related to the Company's new monthly magazine were $68,000 in
1998.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses (SG&A) were $1,761,000 and $1,434,000 for 1998 and 1997,
respectively, an increase of $327,000. The Company incurred increased salaries,
consulting and other overhead expenses in the current period.
Depreciation and Amortization - Depreciation expense was $36,000 and $35,000 in
1998 and 1997, respectively. Amortization of the film library was $4,000 and
$286,000 in 1998 and 1997, respectively. The decrease in amortization is due to
the decrease in revenue derived from the film library, which is being amortized
in accordance with the individual film forecast method. Amortization of
trademarks, copyrights and other was $19,000 in 1998 and $14,000 in 1997.
Amortization of goodwill was $32,000 in both 1998 and 1997.
Other Income - Other income was $217,000 and $69,000 in 1998 and 1997,
respectively. The increase in other income reflects a favorable litigation
settlement in the current period.
Income Taxes - Income tax benefit (provision) was $1,306,000 and $(1,796,000) in
1998 and 1997, respectively. The income tax benefit for 1998 is due to the use
of operating losses generated in 1998 against the deferred income tax
liabilities and prior year operating income.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues - Net filmed entertainment revenues were a negative $2,190,000 in the
nine months ended September 30, 1998 compared to $8,464,000 in the comparable
period of 1997. The current period reflects an adjustment of $2,316,000 to
reduce the Company's estimate of the lifetime profitability of the 1997
direct-to-video title "Casper, A Spirited Beginning." The Company's original
forecast projected worldwide sales of approximately 5 million units whereas
actual sales to date as reported during the quarter to the Company by the
video's distributor approximate 4.5 million, necessitating the adjustment in the
current period. Filmed entertainment revenues in the nine months ended September
30, 1997 include revenues from the shipment of "Casper, A Spirited Beginning"
and the recognition of the aforementioned advance on "Casper Meets Wendy."
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 was paid a non-refundable advance for the sequel and, if the sequel is
produced the Company will receive additional non-refundable cash advances. As
part of the Company's agreement with Universal, the Company was also paid a
non-refundable advance against the Company's profit participation from the first
1995 "Casper" movie. There were no such revenues in the 1998 comparable period.
Also contributing to the higher revenues in 1997 were the license fees generated
from the "Casper" animated television show on Fox Kids' Network. In February
1997, the Company and Universal Cartoon Studios received an order from Fox
Kids's Network for an additional 26 thirty minute episodes for a total of 52
animated episodes resulting in license fee revenues of $792,000 in 1997, but
only $63,000 in 1998. Foreign broadcast license revenues from the Harvey Classic
Film Library accounted for $62,000 in 1998 and $293,000 in 1997. The low
revenues were due in part to the expiration of the Company's distribution
agreement with its prior foreign distributor, which expired in November 1997. In
March 1998, the Company hired a foreign distribution consultant based in London
to assist with and oversee foreign sales of the Harvey Classic Film Library.
Other filmed entertainment revenues in 1997 relate to domestic syndication of
the "Richie Rich" show, royalties from Richie Rich cartoon series which is
distributed by Hanna Barbera, a wholly owned subsidiary of Time Warner Inc., and
other miscellaneous sources.
Net merchandising revenues were $2,349,000 and $3,324,000 in the nine months
ended September 30, 1998 and 1997, respectively, a decrease of $975,000. The
revenues in 1998 consist of new licenses for the worldwide merchandising of the
Harvey Classic Characters and the licensing revenues from the Company's
direct-to-video features entered into by the Company's in-house licensing
division. Although merchandising licenses are generally granted for a period of
one to three years, a substantial portion of the 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. The ongoing success of the merchandising program is
in part dependent upon the attractiveness and future marketability of the Harvey
Classic Characters.
Cost of Sales - Costs of sales relating to filmed entertainment revenues were
$213,000 and $1,281,000 in 1998 and 1997, respectively. The decrease in costs of
sales is due to a decrease in filmed entertainment activity for the period.
Merchandising costs were $712,000 and $1,463,000 in 1998 and 1997, respectively.
The decrease in merchandising costs is due to a decrease in merchandising
activity for the period.
Publishing costs related to the Company's new monthly magazine were $68,000 in
1998.
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<PAGE> 11
Selling, General and Administrative Expenses - Selling, general and
administrative expenses (SG&A) were $6,651,000 and $4,224,000 for 1998 and 1997,
respectively, an increase of $2,427,000. The increase in SG&A in the 1998 period
includes the effect of an approximate $500,000 provision relating to doubtful
accounts from previously recognized guarantees from agents and licensees
operating in the Pacific Rim territories and a $450,000 provision relating to
the Company's prior participation interest in Universal's Harvey-related
merchandising business. Additionally, the Company incurred increased salaries,
consulting and other overhead expenses in 1998.
Depreciation and Amortization - Depreciation expense was $102,000 and $79,000 in
1998 and 1997, respectively. Amortization of the film library was $523,000 and
$390,000 in 1998 and 1997, respectively. The amortization amount in the current
period includes the write-off of $500,000 of previously capitalized product
development costs due to uncertainties concerning the recoverability of such
costs based on the Company's new business plan. Amortization of trademarks,
copyrights and other was $58,000 in 1998 and $39,000 in 1997. Amortization of
goodwill was $97,000 in both 1998 and 1997.
Other Income - Other income was $323,000 and $178,000 in 1998 and 1997,
respectively. The increase in other income reflects a favorable litigation
settlement in 1998.
Income Taxes - Income tax benefit (provision) was $3,154,000 and $(1,842,000) in
1998 and 1997, respectively. The income tax benefit for 1998 is due to the use
of operating losses generated in 1998 against the deferred income tax
liabilities and prior year operating income, and the tax effect of the stock
options exercised.
LIQUIDITY AND CAPITAL RESOURCES
Net cash (used in) provided by operating activities was $(7,725,000) and
$2,339,000 in 1998 and 1997, respectively. The decrease in cash flows from
operations was primarily due to the operating loss in 1998 and the production of
the live-action, direct-to-video featuring the Company's classic character Baby
Huey.
Net cash used in investing activities was $478,000 and $403,000 in 1998 and
1997, respectively. The increase in cash used in investing activities was
primarily due to more investment by the Company in its trademarks and
copyrights.
Net cash provided by (used in) financing activities was $3,722,000 and
$(204,000) in 1998 and 1997, respectively. The increase is due to the exercise
of employee stock options in 1998 as compared to the Company's repurchase of
common stock in 1997.
The Company has received a commitment from City National Bank for a $2,500,000
revolving credit facility, which will expire on March 31, 1999. Interest on
advances made under the facility accrues at 1% above the prime rate as reported
by the lender. The facility is secured by substantially all of the assets of the
Company. The facility is subject to certain requirements, including, but not
limited to, the maintenance of minimum net worth and also disallows the payment
of dividends. The facility is believed to be sufficient to fund the business
through March 31, 1999 assuming limited operations, but is not sufficient to
implement the business plan approved by the Board of Directors in July 1998.
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<PAGE> 12
OTHER INFORMATION
Item 1 - 1. Franklin Litigation. On September 30, 1994, the Company filed
suit in the Superior Court of the State of California for the County
of Los Angeles against Jeffrey Franklin d/b/a ATI Enterprises, and
Franklin/Waterman Entertainment, Inc., seeking to recover damages
arising from, among other things, wrongful usurpation of corporate
business opportunities. ATI filed a cross-complaint against the
Company for commissions. The Company filed a related claim against
Franklin's business partner Stephen Waterman in May 1996. The
Company was also named in a related action filed by the defendants'
insurers, in which the insurers sought determinations as to their
obligations to provide insurance coverage for the claims made by the
Company against the defendants. In June 1997, judgment was granted
in favor of the Company in the Franklin action for an amount in
excess of $800,000, and the cross-complaint brought by defendant ATI
against the Company was dismissed. The defendants appealed. In May
1998, the Company settled all three actions for a payment to it of
$170,000 by the defendants' insurers. That settlement was subject to
the approval of the bankruptcy court. In September 1998, bankruptcy
court approval was obtained and dismissals of those actions have now
been entered.
Item 1 - 2. Realty Trust Advisors, Inc. On December 31, 1997, Realty
Trust Advisors, Inc. ("RTA") filed suit against the Company in Los
Angeles Superior Court seeking damages arising out of the alleged
failure of the Company to pay certain commissions. On May 11, 1998
the Company filed a demurrer and a motion to strike the fraud and
punitive damage portions of the first amended complaint, which were
granted. In August 1998, RTA unsuccessfully sought relief from that
order in the court of appeal. On or about July 9, 1998, the Company
filed an answer to the first amended complaint and a cross-complaint
against RTA and its principal, Anne Keshen, for fraud and
declaratory relief. RTA filed a demurrer and a motion to strike the
fraud and punitive damage portions of the Company's cross-complaint,
which was denied. Cross-defendants filed their answer on or about
November 3, 1998. Trial of this action is scheduled for July 1999.
Items 2 through 4 are omitted as not applicable.
Item 5 - Other Information
None
Item 6(a) - Exhibit 10.53 Extension to the Management Consulting
Agreement dated July 22, 1998 between the Company and Global Media
Management Group, LLC (portions of which have been redacted and
filed under a confidentiality request)
Exhibit 10.54 Agreement dated September 18, 1998 between the Company
and Donaldson, Lufkin & Jenrette Securities Corporation (portions of
which have been redacted and filed under a confidentiality request)
Item 6(b) - Reports on Form 8-K
None
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<PAGE> 13
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, 1998 /s/Anthony J. Scotti
----------------------------------
Anthony J. Scotti
Interim Chief Executive Officer
November 13, 1998 /s/Michael S. Hope
----------------------------------
Michael S. Hope
Interim Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.53
AGREEMENT
AGREEMENT (this "Agreement"), dated as of July 22, 1998, made by
Global Media Management Group LLC, a California limited liability company
("Global Media"), and The Harvey Entertainment Company ("Harvey"), a California
corporation.
WHEREAS, Global Media and Harvey entered into that certain management
consulting agreement dated as of March 23, 1998 (the "Management Consulting
Agreement");
WHEREAS, pursuant to the Management Consulting Agreement Global Media
agreed to provide the management services of Global Media for the term of the
Management Consulting Agreement, due to expire on September 23, 1998;
WHEREAS, Global Media is willing to extend the term of the Management
Consulting Agreement until the earlier of (i) December 23, 1998 and (ii)
retention by Harvey of a new chief executive officer;
WHEREAS, Harvey wishes to compensate Global Media if a significant
corporate transaction should occur during the Term as provided herein;
NOW, THEREFORE, as consideration for Global Media's efforts with
respect to, and consideration of, strategic transactions available to Harvey,
the parties hereby agree as follows:
1. Definitions.
1.1 "Expiration Date" means the earlier of (i) the date on
which the Management Consulting Agreement terminates with the mutual consent of
Harvey and Global Media or (ii) December 23, 1998.
1.2 "Fair Market Value" means (i) with respect to cash, the
dollar value of such cash and (ii) with respect to an New Equity Security, the
average closing price of such New Equity Security on the principal market on
which such New Equity Security is traded over the ten trading days preceding the
date of closing of the Qualifying Transaction (defined herein) and the ten
trading days following the date of closing of the Qualifying Transaction, or if
there is no public market for such Security, by mutual agreement of Global Media
and Harvey on the date of consummation of the Qualifying Transaction.
1.3 "New Equity Security" means an equity security of a
company other than Harvey.
1.4 "Per Share Consideration" means the Fair Market Value
of the consideration payable with respect to each Share upon the closing of the
Qualifying Transaction or, if no consideration is received with respect to each
Share upon the closing of the Qualifying Transaction, the distribution that a
shareholder would receive per Share if the Corporation were dissolved upon the
closing of the Qualifying Transaction.
<PAGE> 2
1.5 "Qualifying Transaction" means a transaction which
results, or a related series of transactions which result, in the holder of (i)
each Share receiving, in exchange therefor, consideration consisting of either
cash or Eligible Equity Securities or a combination thereof, (ii) a merger,
consolidation or other business combination involving Harvey or (iii) a sale
(whether solicited or unsolicited) of Harvey or a significant portion of its
assets or businesses to one or more third parties.
1.6 "Qualifying Transaction Consideration" means the
product of the Per Share Consideration multiplied by the number of Shares issued
and outstanding immediately prior to the consummation of the Qualifying
Transaction.
1.7 "Strategic Transaction" means a transaction which is
not a Qualifying Transaction which results, or a related series of transactions
which result, in a person acquiring from Harvey, and/or from selling
shareholders and approved by the Board of Harvey, in exchange for cash or
property at least *% of the voting securities of Harvey (after the consummation
of such Transaction) whether by way of purchase, merger or joint venture.
1.8 "Share" means a share of the Common Stock of Harvey, no
par value.
1.9 "Term" means the period beginning on the date hereof
and ending on the earlier of (i) the date occurring six months after the
Expiration Date or (ii) if the Management Consulting Agreement is terminated
prior to the Expiration Date voluntarily by Global Media (other than with the
consent of the Company), the date of such termination.
2. Services.
If a Qualifying Transaction or Strategic Transaction is presented to
Harvey during the Term which the board of directors of Harvey wishes to pursue,
Global Media will advise and assist Harvey in considering the desirability of
such undertaking and, if Harvey believes the Transaction to be desirable, in
structuring and negotiating such Transaction.
3. Compensation.
In the event that either (i) Harvey enters into a Qualifying
Transaction prior to the Expiration Date or (ii) Global Media and/or the
Corporation has had substantive discussions regarding a Qualifying Transaction
with a third party prior to the Expiration Date (and such person's name is
included on a list prepared by Global Media in good faith and delivered to
Harvey by Global Media on or prior to the Expiration Date) and Harvey thereafter
consummates the Qualifying Transaction during the Term, Harvey shall compensate
Global Media in an amount equal to the product of the Applicable Percentage (as
determined by reference to Table A attached hereto) multiplied by the Qualifying
Transaction Consideration.
4. Strategic Transaction. In the event that Harvey consummates a
Strategic Transaction during the Term, Harvey shall compensate Global Media in a
fair and equitable
- 2 -
<PAGE> 3
manner as the parties shall agree, consistent with the formula set forth herein
for a Qualifying Transaction, taking into account the percentages of equity
involved and the benefits to be received by Harvey and the contribution of
Global Media in connection therewith.
5. Termination. This Agreement will continue for the Term and
terminate upon the expiration of the Term.
6. Confidentiality. Each of Global Media acknowledge that in
connection with the services to be rendered by such party pursuant hereto, such
party may obtain certain written and non-written information pertaining to the
nature and operations of Harvey of a confidential nature. Each of Global Media
agrees that such party will not at any time during or subsequent to the Term or
any extension hereof, without the consent of Harvey, knowingly disclose to any
third party whatsoever any such confidential information, except as required by
law or regulation or as deemed necessary by Global Media in good faith in the
performance of such party's duties.
7. Governing Law. This Agreement shall be governed and construed
pursuant to the laws of the State of California with respect to contracts wholly
entered into and performed therein. If any of the parties institute any action
or proceeding with respect to this Agreement, the prevailing party will be
entitled to reasonable fees, costs and expenses of attorneys, accountants, and
other professionals and consultants. All disputes concerning the interpretation
or enforcement of the Agreement shall be settled by arbitration conducted in Los
Angeles, California in accordance with the rules of the American Arbitration
Association, and all decisions of the arbitrator shall be final and
non-appealable.
8. Entire Agreement. This Agreement and the Management Services
Agreement constitute the entire understanding between Harvey and Global Media
regarding the matters set forth herein. By executing this Agreement, each of the
parties acknowledge that such party has read it carefully and understand all of
its terms. This Agreement cannot be modified except by further written agreement
signed by each party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed the day and year first above written.
"Harvey" "Global Media"
THE HARVEY ENTERTAINMENT COMPANY GLOBAL MEDIA MANAGEMENT GROUP LLC
By: /s/ Gary M. Gray By: /s/ Anthony J. Scotti
----------------------------- -------------------------------
Name: Gary M. Gray Name: Anthony J. Scotti
Title: Chairman of the Board
- 3 -
<PAGE> 4
TABLE A
APPLICABLE PERCENTAGE
<TABLE>
<S> <C>
------------------------------------------------------------------------------
Per Share Consideration Range Applicable Percentage
------------------------------------------------------------------------------
less than $* per Share *%
------------------------------------------------------------------------------
between $* per Share and $* per *% of the Qualifying Transaction
Share Consideration
------------------------------------------------------------------------------
$* or more per Share *% of the Qualifying Transaction
Consideration
------------------------------------------------------------------------------
</TABLE>
Where X = *
A
<PAGE> 1
EXHIBIT 10.54
[DONALDSON, LUFKIN & JENRETTE LETTERHEAD]
September 18, 1998
PRIVATE AND CONFIDENTIAL
The Harvey Entertainment Company
1999 Avenue of the Stars, Suite 2050
Los Angeles, CA 90067-6055
Attention: Mr. Michael S. Hope
Gentlemen:
This letter agreement (the "Agreement") confirms our understanding
that The Harvey Entertainment Company (the "Company") has engaged Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") to act as its exclusive
financial advisor for a period of 12 months, commencing upon your acceptance of
this Agreement, with respect to the sale, merger, consolidation or any other
business combination, in one or a series of transactions, involving all or a
substantial amount of the business, securities or assets of the Company, any
repurchase by the Company of a significant amount of its securities, any
recapitalization of the Company or any spin-off, split-off or other
extraordinary dividend of cash, securities or other assets to stockholders of
the Company (each a "Transaction").
As discussed, we propose to undertake certain services on your
behalf, to the extent requested by you, which shall consist of the following:
(i) assisting you in preparing an offering memorandum describing the Company,
its operations, its historical performance and its future prospects; (ii)
identifying and contacting selected qualified acquirors acceptable to you; (iii)
arranging for potential acquirors to conduct business investigations; (iv)
negotiating the financial aspects of any proposed Transaction under your
guidance; and (v) delivering an opinion to the Board of Directors of the
Company, if requested, as to the fairness from a financial point of view of the
consideration to be received by the stockholders of the Company in any proposed
Transaction. The scope, form and substance of the opinion referred to in clause
(v) shall be such as DLJ considers appropriate and, in the case of a
stock-for-stock merger, may be an opinion as to the fairness from a financial
point of view of the ratio to be applied for the exchange of common shares in
the merger.
As compensation for the services to be provided by DLJ, the Company
agrees (i) to pay to DLJ (a) a retainer fee of $150,000 payable on January 31,
1999, or, if earlier, upon termination by the Company of this Agreement, (b)
additional cash compensation as set forth below, and (c) a fee of $350,000 at
the time DLJ notifies the Board of Directors of the Company that it is prepared
to deliver DLJ's opinion referred to in clause (v) of the preceding paragraph,
irrespective of the conclusion reached therein, and an additional fee of $50,000
for each update of a prior opinion delivered by DLJ with respect to a
Transaction, and (ii) upon request by DLJ from time to time, to reimburse DLJ
promptly for all out-of-pocket expenses (including the reasonable fees and
expenses of counsel) incurred by DLJ in connection with their engagement
hereunder, whether or not a Transaction is consummated, provided that such
reimbursable expenses shall not exceed $75,000 without the Company's prior
written consent. As DLJ will be acting on your behalf, the Company agrees to the
<PAGE> 2
The Harvey Entertainment Company September 18, 1998
Page 2
indemnification and other obligations set forth in Schedule I attached hereto,
which Schedule is an integral part hereof.
The additional cash compensation referred to in clause (i)(b) above
(the "success fee") shall be an amount equal to * % of the Enterprise Value (as
defined below) up to $ *, plus * % of the incremental Enterprise Value above
$ * up to $ *, plus * % of the incremental Enterprise Value above $ *, less the
amount paid by the Company pursuant to clause (i)(a) above. The "Enterprise
Value" of the Company shall be equal to the aggregate value of outstanding
common stock of the Company (including the value of any shares issuable upon
exercise of options, warrants or other rights of conversion (each, net of
exercise price)), plus the amount of any debt (for borrowed money) assumed,
acquired, remaining outstanding, retired or defeased or preferred stock redeemed
or remaining outstanding in connection with the Transaction. Such additional
compensation shall be payable in cash at consummation of a Transaction. For
purposes of this Agreement, a Transaction shall be deemed to have been
consummated upon the earlier of any of the following events to occur: (a) the
acquisition of at least a majority of the outstanding equity securities of the
Company calculated on a fully-diluted basis; (b) a merger or consolidation of
the Company or an affiliate of the Company with another person where the
Company's stockholders own less than a majority of the outstanding equity
securities of the surviving entity calculated on a fully-diluted basis; (c) the
acquisition by another person of at least a majority of the Company's assets; or
(d) in the case of any other Transaction, the consummation thereof.
The value per share of common stock of the Company, for purposes of
calculating our additional compensation, shall be (i) in the event the
consideration for such common stock is in the form of cash and/or securities
with an existing public trading market (including any such securities subject to
resale restrictions), such value shall be determined by the amount of cash to be
paid per share of common stock being acquired and/or the last sales price for
such securities on the last trading day thereof prior to the consummation of the
Transaction, or otherwise, (ii) the fair market value thereof, as the parties
hereto shall mutually agree, on the day prior to the consummation of the
Transaction. In the event that all or some portion of the consideration is
related to the future earnings or operations of the Company, the portion of
DLJ's compensation relating thereto shall be calculated and shall be paid at the
time the Transaction is consummated (as determined by the preceding paragraph)
based upon the estimated net present value thereof.
The Company shall make available to DLJ all financial and other
information concerning its business and operations that DLJ reasonably requests
as well as any other information relating to any Transaction prepared by the
Company or any of its other advisors. In performing their services hereunder
(including, without limitation, in giving an opinion of the type referred to in
the second paragraph hereof), DLJ shall be entitled to rely without
investigation upon all information that is available from public sources as well
as all other information supplied to them by or on behalf of the Company or its
advisors or an acquiror or potential acquiror or its advisors and shall not in
any respect be responsible for the accuracy or completeness of, or have any
obligation to verify, the same or to conduct any appraisal of assets or
liabilities. To the extent consistent with legal requirements, all information
given to DLJ by the Company, unless publicly available or otherwise available to
DLJ without restriction or breach of any confidentiality agreement, will be held
by DLJ in confidence and will not be disclosed to anyone other than DLJ's agents
and advisors without the Company's prior approval or used for any purpose other
than those referred to in this Agreement.
<PAGE> 3
The Harvey Entertainment Company September 18, 1998
Page 3
Any opinion requested by the Company and any advice, written or oral,
provided by DLJ pursuant to this Agreement will be treated by the Company as
confidential, will be solely for the information and assistance of the Company
in connection with its consideration of the Transaction and will not be
reproduced, summarized, described or referred to, or furnished to any other
party or used for any other purpose, except in each case with our prior written
consent. It is further understood and agreed that, in the event that any opinion
of DLJ pursuant to this Agreement is to be included in any proxy statement,
offer to purchase or Schedule 14D-9 mailed in connection with the Transaction,
the opinion will be reproduced therein in full and any description of or
reference to DLJ or any summary of the opinion or presentation of DLJ included
in such document shall be in form and substance acceptable to DLJ and its legal
counsel.
In order to coordinate our efforts with respect to a possible
Transaction satisfactory to the Company, during the period of our engagement
hereunder neither the Company nor any representative thereof (other than DLJ)
will initiate discussions regarding a Transaction except through DLJ. In the
event the Company or its management receives an inquiry regarding a Transaction,
it will promptly advise DLJ of such inquiry in order that we may evaluate such
prospective purchaser and its interest and assist the Company in any resulting
negotiations.
This Agreement may be terminated by either the Company or DLJ upon
receipt of written notice to that effect by the other party. Upon any
termination or expiration of this Agreement, DLJ will be entitled to prompt
payment of all fees accrued prior to such termination or expiration and
reimbursement of all out-of-pocket expenses as described above. The indemnity
and other provisions contained in Schedule I will also remain operative and in
full force and effect regardless of any termination or expiration of this
Agreement.
In addition, if at any time prior to 9 months after the termination
by the Company or expiration of this Agreement a Transaction is consummated, DLJ
will be entitled to payment in full of the compensation described in the fourth
paragraph of this Agreement.
It is understood that if the Company completes a transaction
(including, but not limited to, a partial or complete liquidation) in lieu of
any Transaction, either during the term of this Agreement or at any time prior
to 9 months after termination by the Company or expiration of this Agreement,
DLJ and the Company will in good faith mutually agree upon acceptable
compensation for DLJ taking into account, among other things, the results
obtained and the custom and practice of investment bankers of international
standing acting in similar transactions.
The Company further agrees that it will not enter into any
transaction referred to in either of the two preceding paragraphs unless, prior
to or simultaneously with such transaction, adequate provision is made with
respect to the payment of compensation to DLJ as contemplated by such
paragraphs.
Please note that DLJ is a full service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of our trading
and brokerage activities, DLJ or its affiliates may at any time hold long or
short positions, and may trade or otherwise effect transactions, for our own
account or on the accounts of customers, in debt or equity securities or bank or
other senior debt of the Company or other entities that may be involved in the
Transaction. We recognize our responsibility for compliance with Federal laws in
connection with any such activities.
<PAGE> 4
The Harvey Entertainment Company September 18, 1998
Page 4
The Company acknowledges and agrees that DLJ has been retained solely
to provide the advice or services set forth in this Agreement. DLJ shall act as
an independent contractor, and any duties of DLJ arising out of its engagement
hereunder shall be owed solely to the Company.
This Agreement shall be binding upon and insure to the benefit of the
Company, DLJ, each Indemnified Person (as defined in Schedule I) and their
respective successors and assigns.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York.
The Company irrevocably and unconditionally submits to the exclusive
jurisdiction of any State or Federal court sitting in New York City over any
suit, action or proceeding arising out of or relating to this letter (including
Schedule I). The Company hereby agrees that service of any process, summons,
notice or document by U.S. registered mail addressed to the Company shall be
effective service of process for any action, suit or proceeding brought in any
such court. The Company irrevocably and unconditionally waives any objection to
the laying of venue of any such suit, action or proceeding brought in any such
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum. The Company agrees that a final
judgment in any such suit, action or proceeding brought in any such court shall
be conclusive and binding upon the Company and may be enforced in any other
courts to whose jurisdiction the Company is or may be subject, by suit upon such
judgment. The prevailing party in any suit, action or proceeding arising out of
or relating to this Agreement shall be entitled to recover from the
non-prevailing party all of the attorney fees and other expenses the prevailing
party may incur in such suit, action or proceeding and in any subsequent suit to
enforce a judgment.
If any term, provision, covenant or restriction contained in this
Agreement, including Schedule I, is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
<PAGE> 5
The Harvey Entertainment Company September 18, 1998
Page 5
After reviewing this Agreement, please confirm that the foregoing is in
accordance with your understanding by signing and returning to me the duplicate
of this letter attached hereto, whereupon it shall be our binding Agreement.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ BRIAN J. MCLOUGHLIN
-------------------------------
Brian J. McLoughlin
Senior Vice President
Accepted and agreed to
this 18th day of September, 1998
THE HARVEY ENTERTAINMENT COMPANY
By: /s/ MICHAEL S. HOPE
------------------------------
Michael S. Hope
Chief Financial Officer
<PAGE> 6
SCHEDULE I
This Schedule I is a part of and is incorporated into that certain
letter agreement (together, the "Agreement"), dated September 11, 1998 by and
between The Harvey Entertainment Company (the "Company"), and Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ").
The Company agrees to indemnify and hold harmless DLJ and its
affiliates, and the respective directors, officers, agents and employees of DLJ
and its affiliates (DLJ and each such entity or person, an "Indemnified Person")
from and against any losses, claims, damages, judgments, assessments, costs and
other liabilities (collectively "Liabilities"), and will reimburse each
Indemnified Person for all fees and expenses (including the reasonable fees and
expenses of counsel) (collectively, "Expenses") as they are incurred in
investigating, preparing, pursuing or defending any claim, action, proceeding or
investigation, whether or not in connection with pending or threatened
litigation or arbitration and whether or not any Indemnified Person is a party
(collectively, "Actions"), arising out of or in connection with advice or
services rendered or to be rendered by any Indemnified Person pursuant to this
Agreement, the transactions contemplated hereby or any Indemnified Person's
actions or inactions in connection with any such advice, services or
transactions; provided that the Company will not be responsible for any
Liabilities or Expenses of any Indemnified Person that are determined by a
judgment of a court of competent jurisdiction which is no longer subject to
appeal or further review to have resulted from such Indemnified Person's gross
negligence or willful misconduct in connection with any of the advice, actions,
inactions or services referred to above. The Company also agrees to reimburse
each Indemnified Person for all Expenses as they are incurred in connection with
enforcing such Indemnified Person's rights under this Agreement (including,
without limitation, its rights under this Schedule I).
Upon receipt by an Indemnified Person of actual notice of an Action
against such Indemnified Person with respect to which indemnity may be sought
under this Agreement, such Indemnified Person shall promptly notify the Company
in writing; provided that failure so to notify the Company shall not relieve the
Company from any liability which the Company may have on account of this
indemnity or otherwise, except to the extent the Company shall have been
materially prejudiced by such failure. The Company shall, if requested by DLJ,
assume the defense of any such Action including the employment of counsel
reasonably satisfactory to DLJ. Any Indemnified Person shall have the right to
employ separate counsel in any such Action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person, unless: (i) the Company has failed promptly to assume
the defense and employ counsel or (ii) the named parties to any such Action
(including any impleaded parties) include such Indemnified Person and the
Company, and such Indemnified Person shall have been advised by counsel that
there are one or more legal defenses available to it which are different from or
in addition to those available to the Company; provided that the Company shall
not in such event be responsible hereunder for the fees and expenses of more
than one firm of separate counsel in connection with any Action in the same
jurisdiction, in addition to any local counsel. The Company shall not be liable
for any settlement of any Action effected without its written consent (which
shall not be unreasonably withheld). In addition, the Company will not, without
prior written consent of DLJ (which consent shall not be unreasonably withheld),
settle, compromise or consent to the entry of any judgment in or otherwise seek
to terminate any pending or threatened Action in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified
<PAGE> 7
Person is a party thereto) unless such settlement, compromise, consent or
termination includes an unconditional release of each Indemnified Person from
all Liabilities arising out of such Action.
In the event that the foregoing indemnity is unavailable to an
Indemnified Person other than in accordance with this Agreement, the Company
shall contribute to the Liabilities and Expenses paid or payable by such
Indemnified Person in such proportion as is appropriate to reflect (i) the
relative benefits to the Company and its shareholders, on the one hand, and to
DLJ, on the other hand, of the matters contemplated by this Agreement or (ii) if
the allocation provided by the immediately preceding clause is not permitted by
the applicable law, not only such relative benefits but also the relative fault
of the Company, on the one hand, and DLJ, on the other hand, in connection with
the matters as to which such Liabilities or Expenses relate, as well as any
other relevant equitable considerations; provided that in no event shall the
Company contribute less than the amount necessary to ensure that all Indemnified
Persons, in the aggregate, are not liable for any Liabilities and Expenses in
excess of the amount of fees actually received by DLJ, pursuant to this
Agreement. For purposes of this paragraph, the relative benefits to the Company
and its shareholders, on the one hand, and to DLJ, on the other hand, of the
matters contemplated by this Agreement shall be deemed to be in the same
proportion as (a) the total value paid or contemplated to be paid or received or
contemplated to be received by the Company or the Company's shareholders, as the
case may be, in the transaction or transactions that are within the scope of
this Agreement, whether or not any such transaction is consummated, bears to (b)
the fees paid or to be paid to DLJ under this Agreement.
The Company also agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with advice or services rendered or to be rendered
by any Indemnified Person pursuant to this Agreement, the transactions
contemplated hereby or any Indemnified Person's actions or inactions in
connection with any such advice, services or transactions except for Liabilities
(and related Expenses) of the Company that are determined by a judgment of a
court of competent jurisdiction which is no longer subject to appeal or further
review to have resulted from such Indemnified Person's gross negligence or
willful misconduct in connection with any such advice, actions, inactions or
services.
The reimbursement, indemnity and contribution obligations of the
Company set forth herein shall apply to any modification of this Agreement and
shall remain in full force and effect regardless of any termination of, or the
completion of any Indemnified Person's services under or in connection with,
this Agreement.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,835
<SECURITIES> 0
<RECEIVABLES> 4,809
<ALLOWANCES> 630
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,159
<DEPRECIATION> 599
<TOTAL-ASSETS> 22,627
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 0
0
0
<COMMON> 4,187
<OTHER-SE> 15,659
<TOTAL-LIABILITY-AND-EQUITY> 22,627
<SALES> (1,121)
<TOTAL-REVENUES> (1,121)
<CGS> 556
<TOTAL-COSTS> 556
<OTHER-EXPENSES> 595
<LOSS-PROVISION> 1,166
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,312)
<INCOME-TAX> 1,306
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,006)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> 0
<FN>
<F1>* Unclassified Balance Sheet.
<F2>* Unclassified Balance Sheet.
</FN>
</TABLE>
