<PAGE> 1
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
-------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24984
DOVE AUDIO, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
CALIFORNIA 95-4015834
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8955 BEVERLY BOULEVARD, 90048
- - ---------------------------------------- ----------
WEST HOLLYWOOD, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 786-1600.
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
-------------------------
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
---- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the numbers of shares outstanding of each of the registrant's
classes of common equity, as of the latest practicable date: 5,313,240
as of November 13, 1996 -------------
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- ----
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PAGE 1
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DOVE AUDIO, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,000
Accounts receivable, net of allowances of $1,705,000 . . . . . . . . . . . . . 1,517,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,168,000
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . 649,000
Film costs, net - Note 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,979,000
Deferred tax asset - Note 5 . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,047,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 13,680,000
PRODUCTION MASTERS - Note 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,653,000
FILM COSTS, net - Note 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,533,000
PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,561,000
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,000
GOODWILL - Note 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,975,000
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,533,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . $ 4,597,000
Bank borrowings and notes payable, current portion - Note 6. . . . . . . . . . 1,628,000
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431,000
Advances and deferred income . . . . . . . . . . . . . . . . . . . . . . . . . 4,268,000
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456,000
-----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 11,380,000
-----------
Bank borrowings and notes payable . . . . . . . . . . . . . . . . . . . . . . 1,839,000
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,219,000
===========
COMMITMENTS AND CONTINGENCIES - Note 8
SHAREHOLDERS' EQUITY - Note 9
Preferred stock .01 par value; 2,000,000 shares authorized
and 214,113 shares, Series A, issued and outstanding . . . . . . . . . . . 856,000
Common stock .01 par value; 20,000,000 shares authorized and
5,313,240 issued and outstanding . . . . . . . . . . . . . . . . . . . . . 52,000
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000)
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 19,502,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,095,000)
-----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 16,314,000
-----------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $29,533,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
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DOVE AUDIO, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
REVENUES - Note 10
Publishing, Net . . . . . . . . . . . . . . . . . . . . $2,481,000 3,316,000
Film . . . . . . . . . . . . . . . . . . . . . . . . . . 3,113,000 55,000
---------- -----------
5,594,000 3,371,000
COST OF SALES - PUBLISHING . . . . . . . . . . . . . . . . 1,391,000 1,883,000
COST OF SALES - FILM . . . . . . . . . . . . . . . . . . . 2,263,000 --
---------- -----------
1,940,000 1,448,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES - Note 7 . . . . . . . . . . . . 2,160,000 796,000
---------- -----------
Income (loss) from operations . . . . . . . . . . . . . (220,000) 692,000
Net interest income (expense) . . . . . . . . . . . . . (75,000) 2,000
(Loss) on sale of marketable securities . . . . . . . . (18,000) --
---------- -----------
Income (loss) before income taxes . . . . . . . . . . . (313,000) 677,000
PROVISION FOR (BENEFIT FROM) INCOME TAXES - Note 5 (51,000) 315,000
---------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (262,000) 362,000
========== ===========
Net income (loss) per share . . . . . . . . . . . . . . $ (.05) .08
========== ===========
Weighted average number of . . . . . . . . . . . . . . .
shares outstanding . . . . . . . . . . . . . . . . . 5,269,000 4,530,000
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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DOVE AUDIO, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1996 1995
------------ -----------
<S> <C> <C>
REVENUES - Note 10
Publishing, Net . . . . . . . . . . . . . . . . . . . $ 9,026,000 9,696,000
Film . . . . . . . . . . . . . . . . . . . . . . . . . 7,167,000 83,000
------------ ----------
16,193,000 9,779,000
COST OF SALES - PUBLISHING 7,409,000 5,847,000
COST OF SALES - FILM 5,200,000 11,000
------------ ----------
3,584,000 3,921,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES - Note 7 6,261,000 2,654,000
------------ ----------
Income (loss) from operations . . . . . . . . . . . . (2,677,000) 1,267,000
Net interest income (expense) . . . . . . . . . . . . (81,000) (3,000)
Gain on sale of marketable securities . . . . . . . . -- (11,000)
(Loss) on sale of asset . . . . . . . . . . . . . . . (18,000)
------------
Income (loss) before income taxes . . . . . . . . . . (2,776,000) 1,253,000
PROVISION FOR (BENEFIT FROM) INCOME TAXES - Note 5 (346,000) 597,000
------------ ----------
Net income (loss) . . . . . . . . . . . . . . . . . . $ (2,430,000) 656,000
============ ==========
Net income (loss) per share . . . . . . . . . . . . . $ (.48) .15
============ ==========
Weighted average number of . . . . . . . . . . . . . .
shares outstanding . . . . . . . . . . . . . . . . 5,107,000 4,530,000
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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DOVE AUDIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----
SEPTEMBER 30,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ (2,430,000) $ 656,000
------------ ------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . 278,000 52,000
Amortization of production masters . . . . . . . . . . 2,865,000 1,560,000
Amortization of film costs . . . . . . . . . . . . . . 5,200,000 11,000
Loss on sale of equipment . . . . . . . . . . . . . . -- 11,000
Amortization of good will . . . . . . . . . . . . . . 164,000 --
Accounts receivable allowance, net . . . . . . . . . . (456,000) 1,075,000
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . 1,334,000 1,948,000
Deferred tax asset . . . . . . . . . . . . . . . . . . 80,000 (190,000)
Inventory . . . . . . . . . . . . . . . . . . . . . . (1,463,000) (810,000)
Film costs . . . . . . . . . . . . . . . . . . . . . . (6,555,000) (140,000)
Expenditures for production masters . . . . . . . . . (3,760,000) (2,865,000)
Prepaid expenses and other assets . . . . . . . . . . 584,000 (244,000)
Accounts payable and accrued expenses . . . . . . . . 1,054,000 (917,000)
Royalties payable . . . . . . . . . . . . . . . . . . 90,000 (121,000)
Income taxes . . . . . . . . . . . . . . . . . . . . . (1,047,000) 446,000
Advances and deferred revenue . . . . . . . . . . . . 1,038,000 555,000
Due to related parties . . . . . . . . . . . . . . . . (44,000) --
------------ ------------
Net cash provided by (used in) operating activities (3,068,000) 1,027,000
INVESTING ACTIVITIES
Acquisition of Four Point Entertainment . . . . . . . . . (7,877,000) --
Sale of marketable securities . . . . . . . . . . . . . . 377,000 1,701,000
Purchase of film library . . . . . . . . . . . . . . . . . -- (750,000)
Purchase of marketable securities . . . . . . . . . . . . (214,000) (36,000)
Sale of property and equipment . . . . . . . . . . . . . . -- 40,000
Purchases of equipment . . . . . . . . . . . . . . . . . . (154,000) (100,000)
Payments for building improvements . . . . . . . . . . . . (359,000) --
------------ ------------
Net cash from (used in) investing activities . . (8,227,000) 855,000
FINANCING ACTIVITIES
Proceeds from sale of common stock . . . . . . . . . . . . 6,242,000 729,000
Proceeds from sale of preferred stock . . . . . . . . . . -- 2,000
Proceeds of bank borrowings . . . . . . . . . . . . . . . 709,000 1,325,000
Repayments of notes payable. . . . . . . . . . . . . . . . (432,000) (2,527,000)
Settlement payment for sale of common stock . . . . . . . -- (79,000)
------------ ------------
Net cash provided by financing activities . . . 6,519,000 (550,000)
------------ ------------
Net increase (decrease) in cash and cash (4,776,000) 1,332,000
equivalent . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS AT JANUARY 1 4,946,000 503,000
------------ ------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 170,000 $ 1,835,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest . . . . . . . . . . . . . . . . $ 76,000 $ 75,000
Cash paid for income taxes . . . . . . . . . . . . . . 47,000 370,000
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<S> <C> <C>
Accrual to related party arising from pledge
of deposit for acquisition of the theatrical
motion picture "Wilde" - Note 7 . . . . . . . . . . . . . $ 500,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
4
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DOVE AUDIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION, ORGANIZATION AND BUSINESS
The accompanying consolidated financial statements of Dove Audio, Inc.
(the "Company") are unaudited and have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995. In
the opinion of management, the accompanying consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments) which
are necessary for a fair presentation. The results of operations for the three
month period ended September 30, 1996 are not necessarily indicative of results
to be expected for the full fiscal year.
Dove Audio, Inc. is engaged, among other things, in the business of
producing and distributing books on tape (audio books). The Company acquires
audio publishing rights for specific titles or groups of titles on a worldwide
basis, in perpetuity and often including interactive media applications. The
Company is also engaged in the publication of printed books; the development
and production of movies-for-television, mini-series and videos; and the
acquisition and distribution of feature films.
Dove Four Point, Inc., the Company's wholly-owned subsidiary ("Dove
Four Point"), is an independent production company. Dove Four Point is hired as
a producer-for-hire in connection with a creative concept and literary property
owned by another party to produce all forms of television productions,
including pilots, series, telefilms, miniseries, talk shows, game shows and
infomercials for network, cable and syndicated production. In addition to being
hired as a producer-for-hire, the Company develops and produces television
productions for which rights are retained by the Company.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
PRODUCTION MASTERS
Production masters are stated at cost net of accumulated amortization.
Costs incurred for production masters, including non-refundable advances,
royalties paid to authors and readers, as well as recording and design costs,
are capitalized and amortized over a two-year period from the time a title is
initially distributed, consistent with the estimated revenue for a title. For
audio and printed book titles released prior to January 1, 1996, this has
generally resulted in amortization of approximately 80% of a title's production
master costs in the initial quarter of release, with the remaining 20% amortized
in the fifth quarter of release. Based on management's current estimates with
respect to the timing of revenues, audio titles released on or after January 1,
1996 are amortized on a quarter-by-quarter basis over a two year period. This
will result in approximately 80% of such an audio title's production master cost
being amortized in the initial year of release. The effect of this change was
to reduce the production master amortization component of Cost of Sales by
approximately $13,000 and $257,000 for the three and nine months ended September
30, 1996, respectively. The amortization of printed books remains unchanged.
Any portion of production masters which are not estimated to be fully
recoverable from future revenues are charged to amortization expense in the
period in which such loss becomes evident.
RECLASSIFICATIONS
Certain reclassifications have been made to prior quarter consolidated
financial statements to conform to current quarter presentation.
NOTE 3 -- PRODUCTION MASTERS
5
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Production masters, net of accumulated amortization of $9,261,000 at
September 30, 1996 consisted of the following:
<TABLE>
<S> <C>
Released titles . . . . $1,461,000
Unreleased titles . . . 2,192,000
----------
Total . . . . . . . . . $3,653,000
</TABLE>
NOTE 4 -- FILM COSTS
The following is an analysis of film costs as of September 30, 1996:
Television and theatrical films released less accumulated film amortization
<TABLE>
<S> <C>
Current - $5,977,000 Non-Current - $1,533,000
$ (998,000) --
---------- ----------
$4,979,000 $1,533,000
</TABLE>
As of September 30, 1996 all net film costs will be amortized within
the next three year period based upon the Company's current revenue estimates.
NOTE 5 -- INCOME TAXES
Income taxes are computed in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The Company
provides for income taxes during interim reporting periods based upon an
estimate of its annual effective tax rate. This estimate includes all
anticipated federal, state and foreign income taxes.
NOTE 6 -- DEBT
Bank borrowing and notes payable at September 30, 1996 consist of the
following:
<TABLE>
<S> <C>
Mortgage Note . . . . . . . . . . . . . $1,880,000
Other notes payable . . . . . . . . . . 1,587,000
---------
$3,467,000
</TABLE>
In April 1996 the Company refinanced its $1,900,000 mortgage note
which the Company borrowed from the seller in conjunction with the acquisition
of its new office building. The new loan from Asahi Bank of California is
secured by a deed of trust on such building and bears interest at a fixed rate
of 8% per annum. The loan matures in April 2001 and provides for a 20 year
monthly amortization payment rate.
In August 1996 the Company refinanced the Company's existing revolving
line of credit and term loan with a $1,365,447 term loan from Sanwa Bank
California ("Sanwa Bank"). On September 1, 1996, the Company began making
principal and interest payments based on a five year amortization schedule. All
unpaid principal and interest on the term loan shall mature on August 1, 1997.
In addition, the Company borrowed a further $220,000 with a short-term bridge
loan with a maturity date of October 7, 1996. Both loans are secured by the
Company's assets, other than the Company's building, and are guaranteed by the
Principals (as defined below). The term loan has various covenants with which
the Company must adhere, including restrictions on payment of dividends,
additional indebtedness, change in the nature of business, financial covenants
including minimum tangible net worth, current ratio, debt service coverage ratio
and debt to net worth ratio and restrictions on mergers or acquisitions. The
$220,000 short-term bridge loan was repaid in full in October, 1996.
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Company has acquired audio book rights for fourteen titles which
were written by a principal shareholder. The net audio sales (net of returns)
from these titles for the quarters ended September 30, 1996 and 1995 were
$27,000 and $228,000, respectively. The net audio sales (net of returns) from
these titles for the nine months ended September 30, 1996 and 1995 were $58,000
and $257,000 respectively.
In September 1996, in connection with Samuelson Entertainment Ltd.'s
financing of the production of the motion picture presently entitled "Wilde"
(the "Picture") for which the Company provides production services and has
acquired distribution rights in all media throughout the United States and
Canada (except French-speaking Canada), a principal shareholder/officer of the
Company (the "Principal") personally guaranteed $1,000,000 of the payment
obligations of Dove International, Inc. payable commencing on December 1, 1996
through April 2, 1997 to Samuelson Entertainment, Ltd. in order to extend the
date as of which Dove International, Inc. is required to make such payments. In
addition, the Principal personally deposited $500,000 at Guinness Mahon & Co.
Ltd. (and pledged the deposit plus interest thereon) to secure Dove
International Inc.'s additional payment obligation to Samuelson Entertainment
Ltd. in the amount of 333,334 British Pounds Sterling due upon delivery of the
Picture. In connection with such pledge, the Company recorded a liability to
related party. In consideration for agreeing to pledge such deposit, Samuelson
Entertainment Ltd. and Dove International, Inc. agreed that the Principal will
receive a 5% commission up to a maximum of $120,000, payable from 5% of 100% of
the gross receipts (only after recoupment of Dove International Inc.'s full
distribution fee)
6
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received by all third-party distributors (including Dove International, Inc.)
from exploitation of the distribution rights in the Picture in the United States
and Canada (except French-speaking Canada). The terms pursuant to which the
Principal pledged the deposit were based on similar terms as offered by
Samuelson Entertainment Ltd. to an independent third party. In addition,
accrued 500K Samuelson Entertainment, Ltd. agreed to pay the Principal 8% of
100% of Samuelson Entertainment Ltd.'s net profits from the Picture.
On August 16, 1996, each of the two principal shareholders/officers of
the Company (the "Principals") personally guaranteed the Company's obligations
to Sanwa Bank California to a maximum principal amount of $1,600,000 in exchange
for the modification of certain covenants contained in the applicable loan
documents.
In connection with the above guarantees, in September 1996, the Company
entered into a reimbursement agreement with the Principals. The Company agreed
to immediately reimburse or provide cash collateral to the Principals upon the
occurrence and during the continuation of certain events of default relating to
the guaranteed obligations or upon the occurrence of certain other "Events"
(including a change in control of the Company) as defined in the Company's 1994
Stock Incentive Plan. The Company further agreed that should either of the
Principals terminate their employment agreement following the occurrence of an
Event or material breach of their employment agreements by the Company, the
Company would remain obligated to continue to pay them their base compensation
and other benefits due for the balance of their employment terms, together with
reimbursement of any excise tax payable with respect to such compensation. Upon
any such termination, such executives would be free to establish, invest in or
be employed by any business, whether or not in competition with the Company.
Under such agreement, the Company also granted to the Principals, one in the
first instance and the other secondarily, a right of first refusal in the event
of certain asset sales outside the ordinary course of business by the Company or
any of its subsidiaries in the next three years.
In June 1996, the Company entered into an arrangement with an officer
of the Company whereby the officer agreed to provide certain services as a
consultant and Chairman of the Board. Such agreement provides for compensation
of $125,000 annually, paid monthly in arrears. Under such agreement $31,000 was
paid during the three months ended September 30, 1996, and $42,000 was paid
for the nine months ended September 30, 1996.
In September 1996, the Company entered into a consulting agreement with
a director whereby the director is to provide certain financial consulting and
investment banking services to the Company. Such agreement provides for
compensation of $3,000 per month, options to purchase 10,000 shares of Common
Stock, certain contingent compensation based on financing arranged by such
director for the Company and customary expense reimbursement. The agreement is
terminable by either party upon 30 days notice.
During the three months ending September 30, 1996, the Company made
payments to the two Principals and another officer of the Company totalling
$95,000 under agreements for producer services, television motion picture acting
services and television motion picture directing services, and Michael Viner,
Deborah Raffin and Jerry Leider received $188,000, $117,000 and $50,000
respectively under such agreements for the nine months ended September 30, 1996.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
LITIGATION - See Part II Item 1. Legal Proceedings
OFFICE LEASE
The Company leases office space under a noncancelable operating lease
expiring December 1998. The Company's lease obligation is secured by a $15,000
deposit. Rent expense was $62,000 and $63,000 in the three months ending
September 30, 1996, and September 30, 1995, respectively, and $195,000 and
$187,000 for the nine months ended September 30, 1996 and September 30, 1995,
respectively. The minimum future noncancelable lease expense under the lease is
approximately $250,000 annually for the years 1996 through 1998, inclusive. The
lease is subject to annual rent escalations and the pass-through of certain
costs of the landlord.
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In May 1996 the Company entered into an agreement with Samuelson
Entertainment Ltd. to acquire the distribution rights to the Picture
in all media throughout the United States and Canada (excluding French-speaking
Canada) and the exclusive worldwide print, audio and interactive rights. Under
the agreement the Company is required to pay sums totalling 1,333,333 British
Pounds Sterling (approximately $2,000,000) over the 12 months subsequent to the
agreement for such rights. As of November 12, 1996, approximately $1,500,000
remained unpaid.
Under the terms of the agreement, the Company has provided, and
continues to provide production services for the Picture. Such services include
arrangement and placement of financing, significant input and effective control
over casting for the Picture, significant input and final approval over the
director, script and all other elements of the Picture, significant input and
final approval over music elements, review of dailies and determination as to
the necessity of re-shooting scenes.
NOTE 9 -- STOCK OPTIONS AND WARRANTS
The Board of Directors of the Company adopted the 1994 Stock Incentive
Plan (the "Plan"). The Plan provides for the grant of options to purchase up to
an aggregate of 400,000 shares of the Common Stock of the Company (subject to
an anti-dilution provision providing for adjustment in the event of certain
changes in the Company's capitalization).
Options outstanding and the range of applicable exercise price under
the Plan at September 30, 1996 were:
<TABLE>
<S> <C> <C>
Options outstanding at September 30, 1996 . . . . . 289,999 $3.50 - $9.75
</TABLE>
At September 30, 1996, options to acquire 67,831 shares of common
stock under the Plan were outstanding and exercisable
In addition to the above options issued under the Plan, the Company
granted options to acquire 250,000 shares of Common Stock at an exercise price
of $.01 per share in 1994 and are currently exercisable, in connection
with the forgiveness of certain deferred compensation owing to the Company's
Principals; 75,000 shares of Common Stock at an exercise price of $8.00 per
share in 1995; and 300,000 shares of Common Stock at an exercise price of $11.00
in April 1996 in connection with the Four Point acquisition.
Warrants outstanding and the range of applicable exercise price along
with activity for the three months ended September 30, 1996 were:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NUMBER OF COMMON
WARRANTS STOCK
-------- -----
<S> <C> <C> <C>
Warrants outstanding at
June 30, 1996 . . . . . . . 1,522,500 1,378,750 $6.00 - $12.00
--------- ---------
Warrants issued
(exercised) . . . . . . . . -- --
--------- ---------
Warrants outstanding at
September 30, 1996 . . . . . 1,522,500 1,378,750 $6.00 - $12.00
========= =========
</TABLE>
At September 30, 1996 all warrants outstanding to acquire 1,378,750
shares of common stock were exercisable.
8
<PAGE> 10
PAGE 9
NOTE 10 -- MAJOR CUSTOMERS AND SUPPLIERS
For the nine months ended September 30, 1996 and 1995, revenues, net of
returns, from the Company's three major customers approximated 30% and 48% of
net publishing revenues respectively.
A significant amount of audio inventory is supplied by one
manufacturer. The Company is not dependent on the manufacturer as its sole
source of product.
NOTE 11 -- STOCK REGISTRATION
On September 17, 1996 the Company's registration statement on Form S-3
registering 2,335,000 shares of Dove Audio, Inc. Common Stock was declared
effective by the Securities and Exchange Commission (the "SEC").
NOTE 12 -- FOUR POINT ACQUISITION
On April 29, 1996 the Company acquired Four Point Entertainment Inc.
("Four Point") for consideration of $2.5 million in cash and 427,274 shares of
common stock (Initial Shares) of the Company with an earn-out provision of up
to an additional 163,636 shares of Common Stock. The acquisition has been
accounted for as a purchase, and accordingly the results of operations of Four
Point have been included in the Company's financial statements from April 29,
1996. The excess of the purchase price over the fair value of the net
identifiable assets acquired of $6,025,000 has been recorded as goodwill and is
being amortized on a straight-line basis over 25 years.
Pursuant to the terms of the acquisition agreement of Four Point
Entertainment, Inc. 40,000 shares of the Initial Shares were placed in escrow
pending the receipt of certain outstanding receivables. Accordingly the
Company has excluded such shares from the initial purchase price pending the
resolution of the related contingencies. The Company is currently in the
process of finalizing the allocation of the purchase price pending the
resolution of the above contingency and certain other items.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below should be read in conjunction with
the Consolidated Financial Statements of the Company and the Notes to the
Consolidated Financial Statements included elsewhere in this Report.
Except for the historical information contained herein, certain of the
matters discussed in this quarterly report are "forward-looking statements," as
defined in Section 21E of the Securities Exchange Act of 1934, which involve
certain risks and uncertainties, which could cause actual results to differ
materially from those discussed herein including, but not limited to risks
relating to the Company's operating losses, the Company's need for additional
financing or liquidity, growth and acquisition risks, dependence on limited
number of projects, the impact of returns and remainder sales of audio and
printed books on results of operations and risks relating to the nature of the
entertainment industry, government regulation, competition, and control by
management. See the relevant discussion elsewhere herein and in the Company's
periodic reports and other documents filed with the Securities and Exchange
Commission including the Company's registration statement on Form S-3 for a
further discussion of these and other risks and uncertainties applicable to the
Company's business.
OVERVIEW
Dove commenced business in 1985 as one of the pioneers of the audio
book industry and has become one of the leading independent producers of audio
books in the United States. The Company produces and distributes over 100 new
titles annually and has built a library of over 1200 titles. The Company is
also engaged in the publication of printed books under the Dove imprint and the
development and production of movies-for-television, mini-series, and videos
and the development, production, acquisition and distribution of feature films.
A significant portion of the Company's expenses are relatively fixed,
and therefore reduced sales in any quarter relating from the timing of delivery
of product or otherwise could adversely affect operating results for that
quarter.
To complement its audio book operations, the Company has significantly
increased its publication of printed books. In addition, the Company intends to
continue to diversify its operations through its theatrical feature film
division. Subject to appropriate opportunities becoming available to the
Company, the Company plans to acquire independent films for distribution
worldwide on an all rights basis (including theatrical, home video and all forms
of television). In September, 1996, the Company acquired world wide distribution
rights to the theatrical motion picture "Flipping", starring Keith David and
David Provel, with a projected limited U.S. theatrical release date of
February, 1997. On December 21, 1995, the Company entered into a two year
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video output arrangement with Paramount Pictures wherein Paramount will market
and distribute Dove product under the Dove Home Video label in the U.S. and
Canada.
The Company's catalog of 1996 audio releases includes The Hunchback of
Notre Dame, performed by Julie Christie, Shadows of Steel by Dale Brown, and On
Managing by Mark H. McCormack. The Company's catalog of 1996 printed book
releases includes Red Mercury by Max Barclay, When Money Is King by Richard
Hack (a biography of Ron Perelman), and Values by Marva Collins.
The Company's television and theatrical films have been based
principally upon novels written by two authors for which the Company has
published audio books. Currently, the Company has several television projects
in development including the production of Family Blessings, a follow-up to the
Dove production of Home Song by LaVyrle Spencer which aired on CBS in March
1996. The Company generally seeks to limit its financial risk in the production
of television movies and mini-series and feature films by pre-sales and
licensing to third parties. The production of television and theatrical films
has been sporadic over the last several years and significant variances in
operating results from year-to-year and quarter-to-quarter can be expected for
film revenues.
Dove Four Point, Inc., the Company's wholly-owned subsidiary, develops,
and produces various forms of television programming, including pilots, series,
telefilms, mini-series, talk shows, game shows and infomercials for network,
cable and syndicated markets. In May 1996, Dove Four Point announced the receipt
of a production order for a new entertainment/news program for the 1996/97
television season, "Scoop with Sam and Dorothy", which is being distributed by
ACI/Pearson TV. In June, Dove Four Point announced a production order from MGM
Domestic Television Distribution for "The Bradshaw Difference," a new syndicated
talk show for the 1996/97 television season. In August 1996, Dove Four Point
entered into a one year exclusive development and distribution agreement with
Buena Vista Television ("BVTV"), a division of the Walt Disney Company pursuant
to which BVTV has exclusive rights to certain television programming developed
by Dove Four Point. Pursuant to such agreement, BVTV agreed to pay certain
non-refundable fees, overhead and a discretionary development fund. The
agreement may be extended for two additional one year terms at the option of
BVTV. Under a separate agreement with BVTV, Dove Four Point has produced a pilot
for the daily game show "Make Me Laugh;" cable network Comedy Central has
ordered new production of the program with production currently scheduled to
commence in the first quarter of 1997 and initial broadcast in June, 1997. Dove
Four Point has reached an agreement in principle with Telescene of Canada and
the A & E Network to produce a two hour telefilm based on mystery writer
Lawrence Block's short story "By The Dawn's Early Light" with production
currently scheduled to commence in the fourth quarter of 1996. Discovery
Communications has ordered six additional half hour segments of "Unnatural
History" to produced between the fourth quarter of 1996 and the second quarter
of 1997 for broadcast on the Learning Channel. Dove Four Point is developing a
two hour telefilm (pilot for the dramatic series "Futuresport") starring Wesley
Snipes with Mr. Snipes' production company Amen-Ra Productions in conjunction
with ABC whereby ABC may license the production for broadcast for a fee covering
a substantial portion of the production costs; ABC is required to pay a lesser
fee should it elect no to proceed with the project. There is no assurance that
any programming scheduled for production will be completed or, if completed,
that the delivery terms will not be modified. Dove Four Point also owns and
operates post-production and edit facilities for its own and third-party
programming.
RESULTS OF OPERATIONS
The following table sets forth (i) publishing and film revenues and
(ii) publishing cost of sales, film cost of sales, and selling, general and
administrative expenses as a percentage of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
---------- ----------
<S> <C> <C>
REVENUES
Publishing . . . . . . . . . . . . . . 44% 98%
Film . . . . . . . . . . . . . . . . . 56% 2%
--------- ---------
Total . . . . . . . . . . . . . . 100% 100%
========= =========
OPERATING EXPENSES
Cost of sales - Publishing . . . . . . 25% 56%
Cost of sales - Film . . . . . . . . . 40% --
--------- ---------
Selling, general &
administrative . . . . . . . . . . 39% 24
--------- ---------
Total . . . . . . . . . . . . . . 104% 80%
========= =========
</TABLE>
10
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PAGE 11
Three Months ended September 30, 1996 Compared to Three Months ended September
30, 1995
PUBLISHING
Revenues. Net publishing revenues for the three months ended September
30, 1996 compared to the three months ended September 30, 1995 decreased by
$835,000 or 25% from $3,316,000 to $2,481,000. Of the total publishing revenue
for the three months ended September 30, 1996, net audio book revenue was
$1,901,000 and net printed book revenue was $580,000. The decrease in net
publishing revenue was attributable primarily to lower sales activity caused
primarily by a soft retail environment for both audio and printed books. The
provision for returns as a percentage of gross revenue was 52% for the three
months ended September 30, 1996. Substantially all of the Company's sales of
book products are and will continue to be subject to potential returns by
distributors and retailers if not resold to the public. Although the Company
makes allowances and reserves for returned product that it believes are
adequate, significant increases in return rates have materially and adversely
impacted the Company's financial condition and results of operations. Titles
currently scheduled for release in the fourth quarter of 1996 include "When
Money is King" (a biography of Ron Perelman) by Richard Hack, "On Managing" by
Mark McCormack, "Values" by Marva Collins, "You'll Never Make Love in This Town
Again, Again: Once More With Feeling" as told to Joanne Parrent (the follow up
to the New York Times bestseller "You'll Never Make Love in This Town Again"),
"An Unseemly Man," an autobiography by Larry Flynt with a release timed to
coincide with the release of Oliver Stone's film "The People vs. Larry Flynt,"
and eight new children's books from Dove Kids including "Little Nettie" read by
Cheryl Ladd, and "The Remarkable Adventures of the Owl and the Pussycat" read by
Eric Idle.
Cost of Sales. Cost of sales for the three months ended September 30,
1996 compared to the three months ended September 30, 1995 decreased by $492,000
or 26% from $1,883,000 to $1,391,000. The decrease in cost of sales was
primarily attributable to the aforementioned decrease in sales. Publishing cost
of sales as a percentage of net publishing revenues decreased from 57% in the
three months ended September 30, 1995 to 56% in the three months ended September
30, 1996.
FILM
Revenues. Film revenues for the three months ended September 30, 1996
compared to the three months ended September 30, 1995 increased by 3,058,000 or
556% from $55,000 to $3,113,000. The increase was attributable to the inclusion
of three months of activity from Dove Four Point which contributed approximately
$3,103,000 of revenue due primarily to the programs "The Bradshaw Difference"
and "Scoop With Sam and Dorothy." The Company has accounted for the Four Point
acquisition under purchase accounting from the April 29, 1996 acquisition date.
The remaining film revenues in the three months ended September 30, 1996 were
generated by sales from the Company's theatrical feature film division.
Cost of Sales. Film cost of sales were $2,263,000 in the three months
ended September 30, 1996, while there were no film cost of sales in the three
months ended September 30, 1995. The increase was attributable to a significant
increase in film sales in the three months ended September 30, 1996. Film
amortization is generally incurred in proportion to the estimated revenues
generated from the release or licensing of film properties.
GENERAL
Gross Profit/Loss. The Company recorded a gross profit of $1,940,000
for the three months ended September 30, 1996 compared to a gross profit of
$1,488,000 for the three months ended September 30, 1995. Gross profit margin as
a percentage of revenue decreased from 43% in the three months ended
11
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PAGE 12
September 30, 1995 to 35% in the three months ended September 30, 1996. This
decrease resulted primarily from the Company's expansion of its film and
television production activities which produce differing margins from its
existing publishing activities.
Selling, General and Administrative. Selling, general and
administrative expenses ("SG&A") include costs associated with selling,
marketing and promoting the Company's products, as well as general corporate
expenses including salaries, occupancy costs, professional fees, travel and
entertainment. SG&A for the three months ended September 30, 1996 compared to
the three months ended September 30, 1995 increased by $1,364,000 or 171% from
$796,000 to $2,160,000. Of the increase in SG&A, approximately $1,096,000 was
attributable to increased overhead in connection with the Company's acquisition
of Four Point Entertainment. The remaining increase was largely attributable to
an increase in advertising expense which increased by approximately $127,000
primarily in connection with the Company's printed book operations due in
part to marketing commitments made in connection with the securing of the
underlying rights.
Net Interest Income (Expense). The Company had net interest expense of
$75,000 in the three months ended September 30, 1996 compared to net
interest income of $2,000 in the three months ended September 30, 1995. This
increase in interest expense was primarily due to the addition of mortgage debt
for the Company's headquarter's building and the assumption of debt from the
Four Point acquisition.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUES
Publishing . . . . . . . . . . . . 56% 99%
Film . . . . . . . . . . . . . . . 44 1
---------- ----------
Total . . . . . . . . . . . . . 100% 100%
========== ==========
OPERATING EXPENSES
Cost of sales - Publishing . . . . 46% 60%
Cost of sales - Film . . . . . . . 32 --
Selling, general &
administrative . . . . . . . . 39 27
---------- ----------
Total . . . . . . . . . . . . . 117% 87%
========== ==========
</TABLE>
Nine Months ended September 30, 1996 Compared to Nine Months ended September
30, 1995
PUBLISHING
Revenues. Net publishing revenues for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995 decreased by
$670,000 or 7% from $9,696,000 to $9,026,000. Of the total publishing revenue
for the nine months ended September 30, 1996, net audio book revenue was
$6,184,000 and net printed book revenue was $2,842,000. The decrease in net
publishing revenue was primarily attributable to lower sales activity caused by
a soft retail environment for both audio and printed books. The provision for
returns as a percentage of gross revenue was 45% for the nine months ended
September 30, 1996. Substantially all of the Company's sales of book products
are and will continue to be subject to potential returns by distributors and
retailers if not resold to the public. Although the Company makes allowances and
reserves for returned product that it believes are adequate, significant
increases in return rates have materially and adversely impacted the Company's
financial condition and results of operations.
Cost of Sales. Cost of sales for the nine months ended September 30,
1996 compared to the nine months ended September 30, 1995 increased by
$1,562,000 or 27% from $5,847,000 to $7,409,000. The increase in cost of sales
was primarily attributable to a write down in excess of $500,000 for certain
inventory, certain excess fulfillment costs related to returned product. The
inventory write-down included the printed book titles "The Private Diary
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PAGE 13
of Nicole Brown Simpson" and "The Private Diary of Lyle Menendez" and certain
obsolescent covers. Publishing Cost of sales as percentage of net publishing
revenues increased from 67% in the nine months ended September 30, 1995 to
82% in the nine months ended September 30, 1996. The increase was primarily
attributable to a significantly greater mix of lower margin sales to direct
marketers, specialty book clubs and discount stores and due to the
aforementioned excess inventory.
FILM
Revenues. Film revenues for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995 increased by $7,084,000
from $83,000 to $7,167,000. The increase was primarily attributable to the
delivery of the HomeSong television movie to CBS in the first quarter of 1996,
combined with the inclusion of 5 months of activity from Dove Four Point which
contributed approximately $3,703,000 of revenue due primarily to the programs
"Unnatural History," Amazing America," "The Bradshaw Difference" and "Scoop with
Sam and Dorothy." The remaining film revenues in the nine months ended
September 30, 1996 were generated by sales from the Company's theatrical
feature film division.
Cost of Sales. Film cost of sales increased by $5,189,000 to $5,200,000
in the nine months ended September 30, 1996 compared to $11,000 in the nine
months ended September 30, 1995. The increase was attributable to a significant
increase in film sales in the nine months ended September 30, 1996. Film
amortization is generally incurred in proportion to the estimated revenues
generated from the release or licensing of film properties.
GENERAL
Gross Profit. The Company's gross profit for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995
decreased by $337,000 or 9% from $3,921,000 to $3,584,000. Gross profit
margin as a percentage of revenue decreased from 40% in the nine months ended
September 30, 1995 to 22% in the nine months ended September 30, 1996. This
decrease resulted primarily from the substantial increase in Publishing Cost Of
Sales discussed above, and the Company's expansion of its film and television
production activities which produce differing margins from its existing
publishing activities.
Selling, General and Administrative. Selling, general and
administrative expenses ("SG&A") include costs associated with selling,
marketing and promoting the Company's products, as well as general corporate
expenses including salaries, occupancy costs, professional fees, travel and
entertainment. SG&A for the nine months ended September 30, 1996 compared to
the nine months ended September 30, 1995 increased by $3,607,000 or 136% from
$2,654,000 to $6,261,000. Of the increase in SG&A approximately $1,546,000 was
attributable to the increased overhead in connection with the Company's
acquisition of Four Point Entertainment and approximately $265,000 to an
increase in the provision for doubtful accounts. Advertising expense increased
by approximately $950,000 primarily in connection with the Company's printed
book operations due in part to marketing commitments made in connection with
the securing of the underlying rights. The remaining increases were primarily
in salaries, occupancy costs, travel and entertainment, depreciation, and
professional fees.
Net Interest Income (Expense). Net Interest Expense for the nine months
ended September 30,1996 compared to the nine months ended September 30, 1995
increased by $78,000. This increase was primarily due to the addition of
mortgage debt for the Company's headquarter's building and the assumption of
debt from the Four Point acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations, in general, are typically capital intensive.
The Company has experienced from time to time significant negative cash flows
from operating activities which have been offset by equity and debt financings.
As the Company continues to expand its publishing, production and distribution
activities, it expects to continue to experience negative cash flows from
operating activities from time to time. In such circumstances, the Company will
be required to fund at least a portion of production and distribution costs,
pending receipt of anticipated future revenues, from working capital or from
additional debt or equity
13
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PAGE 14
financings from outside sources. There is no assurance that the Company will be
able to obtain such financing or that such financing, if available, will be on
terms satisfactory to the Company.
The Company's television and film production activities can affect its
capital needs in that the revenues from the initial licensing of television
programming or films may be less than the associated production costs. The
ability of the Company to cover the production costs of particular programming
or films is dependent upon the availability, timing and the amount of fees
obtained from distributors and other third parties, including revenues from
foreign or ancillary markets where available. In any event, the Company from
time to time is required to fund at least a portion of its production costs,
pending receipt of film revenues, out of its working capital. Although the
Company's strategy generally is not to commence principal photography without
first obtaining commitments which cover all or substantially all of the budgeted
production costs, from time to time the Company may commence principal
photography without having obtained commitments equal to or in excess of such
costs.
In order to obtain rights to certain properties for the Company's
publishing and film operations, the Company may be required to make advance
cash payments to sources of such properties, including book authors and
publishers. While the Company generally attempts to minimize the magnitude of
such payments and to obtain advance commitments to offset such payments, the
Company is not always able to do so.
Since its inception, the Company has satisfied its liquidity needs
principally through the sale of equity securities, loans from or guaranteed by
certain of its shareholders, other debt, and cash generated from operations. In
December 1995 and January 1996, the Company raised net proceeds of $6,303,000
from the sale of 76 Units in a private placement. Each Unit consisted of 12,500
shares of the Company's Common Stock and 12,500 warrants to purchase 12,500
shares of the Company's Common Stock at $12.00 (exercisable on or after
September 14, 1996). As part of its compensation for such transaction, the
placement agent received, for nominal consideration, a warrant to purchase seven
Units. The net proceeds were used by the Company to fund increased working
capital needs during 1996 and to finance strategic acquisitions of product and
complementary business (i.e. the Four Point acquisition). On September 17, 1996,
the Company's registration statement on Form S-3 for the shares and warrant
shares underlying the Units was declared effective.
In connection with the acquisition of Four Point, which was completed
on April 29, 1996, the Company guaranteed certain term debt and a $1.0 million
revolving line of credit of Four Point from Sanwa Bank. Such term loan
originally was scheduled to mature on October 3, 1998 and the line of credit,
which had an original maturity of June 3, 1996, was extended to July 15, 1996.
On August 16, 1996, the Company and Sanwa Bank entered into a term loan
agreement to refinance such debt and line of credit for an aggregate amount of
approximately $1,365,000. On September 1, 1996, the Company began making
principal and interest payments based on a five year amortization schedule. All
unpaid principal and interest shall mature on August 1, 1997. The existing Sanwa
Bank loan is secured by substantially all of the Company's assets, other than
the Company's building, and the Company's Principals and Dove Four Point have
guaranteed such new facility. The term loan has various covenents with which
the Company must adhere, including restrictions on payment of dividends,
additional indbtedness, change in the nature of business, financial covenants
including minimum tangible net worth, quick ratio, debt service coverage ratio,
and debt to net worth ratio and restrictions on mergers or acquisitions. The
Company was not in compliance with certain of such financial covenants as of
September 30, 1996. On November 14, 1996, the Company received a written
waiver from Sanwa Bank of such noncompliance. In addition, on November 14,
1996, the Company also received written modification of certain financial
covenants contained in the term loan agreement.
In April 1996 the Company refinanced its $1,900,000 mortgage note
which the Company borrowed from the seller in conjunction with the acquisition
of its new office building. The new loan from a bank is
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PAGE 15
secured by a deed of trust and bears interest at a fixed rate of 8% per annum.
The loan matures in April 2001 and provides for a 20 year monthly amortization
payment rate.
In May 1996 the Company entered into an agreement with Samuelson
Entertainment Ltd. to acquire the distribution rights to the Picture in all
media throughout the United States and Canada (excluding French-speaking Canada)
and the exclusive worldwide print, audio and interactive rights. Under the
agreement the Company is required to pay sums totalling 1,333,333 British Pounds
Sterling (approximately $2,000,000) over the 12 months subsequent to the
agreement for such rights. As of November 12, 1996, approximately $1,500,000
remained unpaid.
On October 1, 1996, the Company entered into a financial advisory
agreement with Morgan Fuller Capital Group, LLC ("Morgan Fuller") pursuant to
which Morgan Fuller agreed to provide certain financial advisory services for
the Company. As compensation for such services, the Company granted to Morgan
Fuller warrants to purchase for a period of three years from the date thereof,
up to 180,000 shares of common stock of the Company at an exercise price of
$2.75. Such warrant was issued pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated
thereunder.
On October 29, 1996, Morgan Fuller completed a loan to the Company in
the aggregate amount of $800,000. Such loan bears interest at the rate of 10%
per annum, is secured by a lien on all of the Company's assets (subordinate to
certain first priority liens) and is repayable beginning February 1, 1997 at the
rate of $100,000 per month plus interest, and matures on November 1, 1997. Such
loan would be subject to mandatory prepayment out of a portion of proceeds from
certain possible financing transactions. The applicable loan documents contain
certain limitations, including the creation of certain liens on the Company's
property, sales of assets and on the making or suffering to exist of certain
loans.
As of November 13, 1996 the Company had cash and short-term investments
of approximately $127,000.
The Company used $3,068,000 for operating activities during the nine
month period ended September 30, 1996. See "Consolidated Financial Statements of
the Company - Consolidated Statements of Cash Flows." The Company believes that
existing working capital and anticipated cash flows from operations may not be
sufficient to meet its working capital requirements. Accordingly, the Company is
exploring potential sources of financing, including the issuance of shares of
the Company's common stock through an agreement in principle with a placement
agent and potential payment of certain vendors with newly issued Company
securities. Absent additional capital or liquidity, the Company will be
substantially constrained in its ability to commit to new projects requiring
cash outlays. In addition, any further expansion of the Company or acquisitions
of particular properties or libraries, would require capital resources beyond
those currently available to the Company, which acquisition of such resources
would be dependent upon the ability of the Company to obtain additional sources
of working capital, whether through the issuance of additional equity or debt
securities, additional bank financing or otherwise. While the Company believes
it will obtain additional financing, there is no guarantee that such financing
will be available on acceptable terms, in which case, the Company would seek to
restructure its obligations. This would have a significant effect on the
Company's operations.
INFLATION
The Company does not believe its business and operations have been
materially affected by inflation.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 1993, the trial court affirmed an arbitration award in favor
of the Company, Michael Viner and Jerry Leider and against Steven Stern and
Sharmhill Productions in the approximate amount of $4.5 million (plus attorneys
fees and interest accruing from September 1992) relating to the film Morning
Glory. In March 1995, the trial court ruling was appealed by the defendants to
the California Court of Appeals, and in June 1995, the California Court of
appeals affirmed
15
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PAGE 16
the judgment. In August 1995, Stern filed for bankruptcy protection. The U.S.
Trustee is pursuing the fraudulent conveyance action on behalf of the bankruptcy
estate, of which the Company comprises approximately eighty percent, and the
Company, Viner and Leider are separately pursuing their own adversary proceeding
for conspiracy against Stern and the other defendants in the bankruptcy case.
The Company is also objecting to Stern's discharge in bankruptcy. There is no
assurance that the Company ultimately will prevail in these actions, or as to
if, when or in what amounts the Company will be able to levy on the judgment
issued in its favor.
The Company was served in March 1996 with a complaint in the action
entitled Alexandra D. Datig v. Dove Audio, et al (Los Angeles Superior Court
Case No. BC145501) (the "Datig Action"). The Datig Action was brought by a
contributor to, and relates to the writing of, the recently released book,
You'll Never Make Love In This Town Again. The Datig Complaint prayed for $1.0
Million in damages. On October 23, 1996, the Company and Viner obtained a
judgment of dismissal which also provided for the recovery of costs and
attorneys' fees in their favor. The Company and Viner have filed a malicious
prosecution action against Datig and her attorney seeking $25 million in
damages.
On June 25, 1996 another contributor to "You'll Never Make Love In This
Town Again", Melinda Hammon, also filed a complaint in the Los Angeles Superior
Court against Dove Audio, Inc. and Michael Viner alleging sexual harassment,
(the "Hammon Action") (Los Angeles Superior Court Case No. BC152664). On
September 19, 1996, the Company and Michael Viner obtained a judgment of
dismissal which also provides for the recovery of costs and attorneys' fees in
their favor.
The Company was served in July 1996 with a complaint in the action
entitled Terri Maxine Frankle and Jennie Luis Frankle v. Dove Audio (U.S.
District Court, Central District of California Case No. 96-4073 RSWL) (the
"Frankle Action"). This action relates to a claim that the plaintiffs were the
authors of "You'll Never Make Love In This Town Again" and alleges copyright
infringement and fraud. The plaintiffs' applications for a temporary
restraining order and preliminary injunction were denied for failure to
demonstrate a sufficient likelihood of success on the merits. At this time, no
trial date has been set. While the Company believes it has good, meritorious
defenses, there is no assurance that the Company will be able to successfully
defend itself in the Frankle Action.
On June 17, 1996, the Company and Dove Four Point filed a complaint
against Shukri Ghalayini in the Superior Court for the State of California for
the County of Los Angeles. The complaint alleges, among other things, that Mr.
Ghalayini (i) breached his fiduciary duty to Four Point (now owned by the
Company) by diverting corporate assets to pay personal expenses, (ii) made
false representations to induce the Company and Dove Four Point to complete the
acquisition, including misrepresenting the tangible shareholders' equity of
Four Point as of the closing and diverting production funds and holding checks
previously drawn to pay accounts payable in order to meet a closing condition
that outstanding bank debt be below a specified level and (iii) made false
representations to induce Dove Four Point to enter into his employment
agreement.
On June 17, 1996, Shukri Ghalayini filed a complaint against the
Company, Dove Four Point, Michael Viner and Charles Weber in the Superior Court
for the State of California for the County of Los Angeles. The complaint
alleges, among other things, (i) breach of employment contract against Dove Four
Point due to termination of his employment without good cause, adequate notice
or the opportunity to cure any alleged breaches and (ii) fraud in that
defendants allegedly never intended to perform pursuant to his employment
agreement.
16
<PAGE> 18
PAGE 17
Mr. Ghalayini seeks damages under his employment agreement estimated at not
less than $900,000, loss of future earnings during his work life expectancy
estimated at not less than $20,000,000, damages to his professional reputation
and from mental and emotional distress, punitive damages and attorney's fees.
Although the Company believes that it has good and valid claims against
Mr. Ghalayini and good and meritorious defenses to his claims, there can be no
assurance that the Company will ultimately prevail in either of the two actions.
ITEM 5. OTHER INFORMATION
Effective as of August 1, 1996 Charles Weber has agreed to provide
consulting services to the Company on a project-by-project basis and will no
longer serve as Chief Operating Officer. Effective as of June, 1996, the Company
has retained Gerald Leider, Chairman of the Board, to provide various consulting
services on an on-going basis and to serve as Chairman of the Board of the
Company. Mr. Leider will receive annual compensation of $125,000, paid monthly
in arrears.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Term Loan Agreement, dated August 16, 1996, by and between Sanwa Bank
California and Dove Audio, Inc.
10.2 Continuing Guaranty, dated as of August 16, 1996, of Michael Viner
10.3 Continuing Guaranty, dated as of August 16, 1996, of Deborah Raffin
10.4 Security Agreement, dated August 16, 1996, by and between Sanwa Bank
California, Four Point Entertainment, Inc. and Dove Audio, Inc.
10.5 Letter Agreement, dated September 12, 1996, by and between Dove
International, Inc., Guinness, Mahon & Co. Limited, Samuelson
Entertainment Limited and Michael Viner
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
17
<PAGE> 19
PAGE 18
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: November 13, 1996 DOVE AUDIO, INC.
By /s/ MICHAEL VINER
-------------------------------
Michael Viner,
President (Chief Executive Officer)
Date: November 13, 1996
By /s/ LEE RUTTENBERG
--------------------------------
Lee Ruttenberg,
Acting Chief Financial Officer
18
<PAGE> 20
PAGE 19
DOVE AUDIO, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
------ ------
<S> <C>
27 Financial Data Schedule
</TABLE>
19
<PAGE> 1
EXHIBIT 10.1
[LOGO]
TERM LOAN AGREEMENT
This Term Loan Agreement ("Agreement") is made and entered into this 16th day
of August 1996 by and between SANWA BANK CALIFORNIA (the "Bank") and DOVE
AUDIO, INC. (the "Borrower").
SECTION I
DEFINITIONS
1.01. CERTAIN DEFINED TERMS. Unless elsewhere defined in this Agreement the
following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
A. "BUSINESS DAY" shall mean a day, other than a Saturday or
Sunday, on which commercial banks are open for business in California.
B. "COLLATERAL" shall mean the property in which the Bank is
granted a security interest pursuant to provisions of the section
herein entitled "Collateral", together with any other personal or real
property in which the Bank may be granted a lien or security interest
to secure payment of the Obligations.
C. "DEBT" shall mean all liabilities of the Borrower less
Subordinated Debt.
D. "EFFECTIVE TANGIBLE NET WORTH" shall mean the Borrower's
stated net worth plus Subordinated Debt but less all intangible assets
of the Borrower (i.e., goodwill, trademarks, patents, copyrights,
organization expense and similar intangible items).
E. "ENVIRONMENTAL CLAIMS" shall mean all claims, however
asserted, by any governmental authority or other person alleging
potential liability or responsibility for violation of any
Environmental Law or for release or injury to the environment or
threat to public health, personal injury (including sickness, disease
or death), property damage, natural resources damage, or otherwise
alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution,
civil or criminal penalties, injunctive relief, or other type of
relief, resulting from or based upon (i) the presence, placement,
discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden,
accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Materials at, in, or from
property owned, operated or controlled by the Borrower, or (ii) any
other circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
F. "ENVIRONMENTAL LAWS" shall mean all federal, state or local
laws, statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements
with, any governmental authorities, in each case relating to
environmental, health, safety and land use matters; including the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution
Control Act of 1972, the Solid Waste Disposal Act, the Federal
Resource Conservation and Recovery Act, the Toxic Substances Control
Act, the Emergency Planning and Community Right-to-Know Act, the
California Hazardous Waste Control Law, the California Solid Waste
Management, Resource, Recovery and Recycling Act, the California Water
Code and the California Health and Safety Code.
G. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, including (unless the context
otherwise requires) any rules or regulations promulgated thereunder.
H. "EVENT OF DEFAULT" shall have the meaning set forth in the
section herein entitled "Events of Default".
I. "HAZARDOUS MATERIALS" shall mean all those substances which
are regulated by, or which may form the basis of liability under any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste,
hazardous constituents special waste, hazardous substance, hazardous
material, or toxic substance, or petroleum or petroleum derived
substance or waste.
J. "INDEBTEDNESS" shall mean, with respect to the Borrower, (i)
all indebtedness for borrowed money or for the deferred purchase price
of property or services in respect of which the Borrower is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which the Borrower otherwise assures a creditor against
loss and (ii) obligations under leases which shall have been or should
be, in accordance with generally accepted accounting principles,
reported as capital leases in respect of which the Borrower is liable,
contingently or otherwise, or in respect of which the Borrower
otherwise assures a creditor against loss.
K. "OBLIGATIONS" shall mean all amounts owing by the Borrower to
the Bank pursuant to this Agreement.
L. "PERMITTED LIENS" shall mean: (i) liens and security interests
securing indebtedness owed by the Borrower to the Bank; (ii) liens for
taxes, assessments or similar charges either not yet due or being
contested in good faith, provided proper reserves are maintained
therefor in accordance with generally accepted accounting procedure;
(iii) liens of materialmen, mechanics, warehousemen, or carriers or
other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (iv) purchase money
liens or purchase money security interests upon or in any property
acquired or held by the Borrower in the ordinary course of business to
secure indebtedness outstanding on the date hereof or permitted to be
incurred pursuant to this Agreement; (v) liens and security interests
which, as of the date hereof, have been disclosed to and approved by
the Bank in writing; and (vi) those liens and security interests which
in the aggregate constitute an immaterial and insignificant monetary
amount with respect to the net value of the Borrower's assets.
M. "REFERENCE RATE" shall mean an index for a variable interest
rate which is quoted, published or announced from time to time by the
Bank as its reference rate and as to which loans may be made by the
Bank at, below or above such reference rate.
N. "SUBORDINATED DEBT" shall mean such liabilities of the
Borrower which have been subordinated to those owed to the Bank in a
manner acceptable to the Bank.
1.02. ACCOUNTING TERMS. All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with generally accepted accounting principles consistently applied
and, except where otherwise specified, all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
1.03. OTHER TERMS. Other terms not otherwise defined shall have the
meanings attributed to such terms in the California Uniform Commercial Code.
(1)
<PAGE> 2
SECTION II
CREDIT FACILITIES
2.01. COMMITMENT TO LEND. Subject to the terms and conditions of this
Agreement and so long as no Event of Default occurs, the Bank agrees to extend
to the Borrower the credit accommodations that follow.
2.02. TERM LOAN. The Bank agrees to lend to the Borrower up to the maximum
amount of $1,365,447.27 (the "Term Loan").
A. PURPOSE. The Term Loan shall be used to refinance existing
debt to Four Point Entertainment, Inc.
B. INTEREST RATE. Interest shall accrue on the outstanding
principal balance under this Term Loan at a variable rate equal to the
Bank's Reference Rate, as it may change from time to time, plus 1.750%
per annum. (Such rate is referred to in this Section 2.02 as the
"Variable Rate".) The Variable Rate shall be adjusted concurrently
with any change in the Reference Rate. Interest shall be calculated
on the basis of 360 days per year but charged on the actual number of
days elapsed.
C. PAYMENT OF INTEREST. The Borrower hereby promises and agrees
to pay interest monthly on the first day of each month, commencing on
September 1, 1996. If interest is not paid as it becomes due, without
waiving any Event of Default occasioned by such non-payment, the Bank
may, at its option but without any obligation to do so, add such
unpaid interest to principal and it shall thereafter become and be
treated as part of the principal and shall thereafter bear like
interest.
D. REPAYMENT OF PRINCIPAL. Unless sooner due in accordance with
the terms of this Agreement, the Borrower hereby promises and agrees
to pay principal in 11 monthly installments of $22,758.33 per
installment, commencing on September 1, 1996 and continuing on the
first day of each month thereafter.
On August 1, 1997 the Borrower hereby promises and agrees to pay to
the Bank in full the aggregate unpaid principal balance then
outstanding, together with all accrued and unpaid interest thereon.
Any payment received by the Bank shall, at the Bank's option, first be
applied to pay any late fees or other fees then due and unpaid, and
then to interest then due and unpaid and the remainder thereof (if
any) shall be applied to reduce principal.
E. LATE FEE. If any regularly scheduled payment of principal
and/or interest (exclusive of the final payment upon maturity), or any
portion thereof, under this Term Loan is not paid within ten (10)
calendar days after it is due, a late payment charge equal to five
percent (5%) of such past due payment may be assessed and shall be
immediately payable.
F. FACILITY FEES. The following fees for this facility shall be
paid in cash upon execution of this Agreement or prior to funding of
this facility: Loan Fees in the amount of $6,827.24.
G. AUTOMATIC PAYMENTS - AUTHORIZATION TO CHARGE ACCOUNT. The
Borrower hereby authorizes and instructs the Bank to charge $22,758.33
plus accrued interest under this Term Loan facility against the
undersigned's checking account number 2829-15507 on a monthly basis
commencing on September 1, 1996, and to credit such amounts towards
payments due under this Term Loan facility. In the event there are
not sufficient funds in such account on the day of the charge, the
Bank is hereby authorized, at any time thereafter, to deduct, in
addition to the amount indicated above, a late charge in accordance
with the terms of this Term Loan facility. This authorization shall
remain in full force and effect until revoked by the undersigned in
writing, or until all amounts due the Bank under this Term Loan
facility are paid in full: provided however that the Bank reserves the
right, at any time, to discontinue or suspend the taking of automatic
payments hereunder.
H. TERM LOAN ACCOUNT. The Bank shall maintain on its books a
record of account in which the Bank shall make entries setting forth
all payments made, the application of such payments to interest and
principal, accrued and unpaid interest (if any) and the outstanding
principal balance under the Term Loan (the "Term Loan Account"). The
Bank shall provide the Borrower with a monthly statement of the
Borrower's Term Loan Account, which statement shall be considered to
be correct and conclusively binding on the Borrower unless the Bank is
notified by the Borrower to the contrary within thirty (30) days after
the Borrower's receipt of any such statement which is deemed to be
incorrect.
SECTION III
COLLATERAL
3.01. GRANT OF SECURITY INTEREST. To secure payment and performance of all
of the Borrower's Obligations under this Agreement and the performance of all
the terms, covenants and agreements contained in this Agreement (and any and
all modifications, extensions and renewals of the Agreement) and in any other
document, instrument or agreement evidencing or related to the Obligations or
the Collateral, and also to secure all other liabilities, loans, guarantees,
covenants and dudes owed by the Borrower to the Bank, whether or not evidenced
by this or by any other agreement, absolute or contingent, due or to become
due, now existing or hereafter and howsoever created, the Borrower hereby
grants to the Bank a security interest in and to all of the following property:
A. EQUIPMENT. All goods and equipment ("Equipment") now owned or
hereafter acquired by the Borrower or in which the Borrower now has or
may hereafter acquire any interest including, but not limited to, all
machinery, furniture, furnishings, fixtures, tools, supplies and motor
vehicles of every kind and description and all additions, accessions,
improvements, replacements and substitutions thereto and thereof.
B. INVENTORY. All inventory ("Inventory") now owned or hereafter
acquired by the Borrower including, but not limited to, all raw
materials, work in process, finished goods, merchandise, parts and
supplies of every kind and description, including inventory
temporarily out of the Borrower's custody or possession, together with
all returns on accounts.
C. ACCOUNTS AND CONTRACT RIGHTS. All accounts and contract
rights now owned or hereafter created or acquired by the Borrower,
including but not limited to, all receivables and all rights and
benefits due to the Borrower under any contract or agreement.
D. GENERAL INTANGIBLES. All general intangibles now owned or
hereafter created or acquired by the Borrower, including but not
limited to, goodwill, trademarks, trade styles, trade names, patents,
patent applications, software, customer lists and business records.
E. CHATTEL PAPER AND DOCUMENTS. All documents, instruments and
chattel paper now owned or hereafter acquired by the Borrower.
F. MONIES AND OTHER PROPERTY IN POSSESSION. All monies, and
property of the Borrower now or hereafter in the possession of the
Bank or the Bank's agents, or any one of them, including, but not
limited to, all deposit accounts, certificates of deposit, stocks,
bonds, indentures, warrants, options and other negotiable and
non-negotiable securities and instruments, together with all stock
rights, rights to subscribe, liquidating dividends, cash dividends,
payments, dividends paid in stock, new securities or other property to
which the Borrower may become entitled to receive on account of such
property.
(2)
<PAGE> 3
3.02. CONTINUING LIEN & PROCEEDS. The Bank's security interest in the
Collateral shall be a continuing lien and shall include all proceeds and
products of the Collateral including, but not limited to, the proceeds of any
insurance thereon as well as all accounts, contract rights, documents,
instruments and chattel paper resulting from the sale or disposition of any
Equipment.
3.03. EXCLUSION OF CONSUMER DEBT. The Obligations and performance secured
hereby shall not include any indebtedness of the Borrower incurred for
personal, family or household purposes except to the extent any disclosure
required under any consumer protection law (including but not limited to the
Truth in Lending Act) or any regulation thereto, as now existing or hereafter
amended, is or has been given.
SECTION IV
CONDITIONS PRECEDENT
4.01. CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. The
obligation of the Bank to make the initial extension of credit hereunder is
subject to the conditions precedent that the Bank shall have received before
the date of such extension of credit all of the following, in form and
substance satisfactory to the Bank:
A. AUTHORITY TO BORROW. Evidence relating to the duly given
approval and authorization of the execution, delivery and performance
of this Agreement, all other documents, instruments and agreements
required under this Agreement and all other actions to be taken by the
Borrower hereunder or thereunder.
B. GUARANTORS. Continuing guaranties in favor of the Bank, in
form and substance satisfactory to the Bank, executed by Michael
Viner, Deborah Raffin and Four Point Entertainment, Inc. (each a
"Guarantor"), together with evidence that the execution, delivery and
performance of the Guaranties by each Guarantor has been duly
authorized.
C. LOAN FEES. Evidence that any required loan fees and expenses
as set forth above with respect to each credit facility have been paid
or provided for by the Borrower.
D. AUDIT. The opportunity to conduct an audit of the Borrower's
books, records and operations and the Bank shall be satisfied as to
the condition thereof.
E. MISCELLANEOUS DOCUMENTS. Such other documents, instruments,
agreements and opinions as are necessary, or as the Bank may
reasonably require, to consummate the transactions contemplated under
this Agreement, all fully executed.
4.02. CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The obligation of
the Bank to make any extensions of credit to or on account of the Borrower
(including the initial extension of credit) shall be subject to the further
conditions precedent that, as of the date of each extension of credit and after
the making of such extension of credit:
A. REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in the Section entitled "Representations and
Warranties" herein and in any other document, instrument, agreement or
certificate delivered to the Bank hereunder are true and correct.
B. COLLATERAL. The security interest in the Collateral has been
duly authorized, created and perfected with first priority and is in
full force and effect and the Bank has been provided with satisfactory
evidence of all filings necessary to establish such perfection and
priority.
C. EVENT OF DEFAULT. No event has occurred and is continuing
which constitutes, or, with the lapse of time or giving of notice or
both, would constitute an Event of Default.
D. SUBSEQUENT APPROVALS, ETC. The Bank shall have received such
supplemental approvals, opinions or documents as the Bank may
reasonably request.
4.03. REAFFIRMATION OF STATEMENTS. For the purposes hereof, the Borrower's
acceptance of the proceeds of any extension of credit and the Borrower's
execution of any document or instrument evidencing or creating any Obligation
hereunder shall each be deemed to constitute the Borrower's representation and
warranty that the statements set forth above in this Section are true and
correct.
SECTION V
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to the
Bank, which representations and warranties are continuing:
5.01. STATUS. The Borrower is a corporation duly organized and validly
existing under the laws of the State of California and is properly licensed,
qualified to do business and in good standing in, and, where necessary to
maintain the Borrower's rights and privileges, has complied with the fictitious
name statute of every jurisdiction in which the Borrower is doing business.
5.02. AUTHORITY. The execution, delivery and performance by the Borrower of
this Agreement and any instrument, document or agreement required hereunder
have been duly authorized and do not and will not: (i) violate any provision of
any law, rule, regulation, writ, judgment or injunction presently in effect
affecting the Borrower; (ii) require any consent or approval of the
stockholders of the Borrower or violate any provision of the articles of
incorporation or by-laws of the Borrower; or (iii) result in a breach of or
constitute a default under any material agreement to which the Borrower is a
party or by which it or its properties may be bound or affected.
5.03. LEGAL EFFECT. This Agreement constitutes, and any document,
instrument or agreement required hereunder when delivered will constitute,
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms.
5.04. FICTITIOUS TRADE STYLES. The Borrower currently uses no fictitious
trade styles in connection with its business operations. The Borrower shall
notify the Bank within thirty (30) days of the use of any fictitious trade
style at any future date, indicating the trade style and state(s) of its use.
5.05. FINANCIAL STATEMENTS. All financial statements, information and other
data which may have been and which may hereafter be submitted by the Borrower
to the Bank are true, accurate and correct and have been and will be prepared
in accordance with generally accepted accounting principles consistently
applied and accurately represent the Borrower's financial condition and, as
applicable, the other information disclosed therein. Since the most recent
submission of any such financial statement, information or other data to the
Bank, the Borrower represents and warrants that no material adverse change in
the Borrower's financial condition or operations has occurred which has not
been fully disclosed to the Bank in writing.
5.06. LITIGATION. Except as have been disclosed to the Bank in writing,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or the Borrower's
properties before any court or administrative agency which, if determined
adversely to the Borrower, would have a material adverse effect on the
Borrower's financial condition, operations or the Collateral.
5.07. TITLE TO ASSETS. The Borrower has good and marketable title to all of
its assets (including, but not limited to, the Collateral) and the same are not
subject to any security interest, encumbrance, lien or claim of any third
person except for Permitted Liens.
5.08. ERISA. If the Borrower has a pension, profit sharing or retirement plan
subject to ERISA, such plan has been and will continue to be funded in
accordance
(3)
<PAGE> 4
with its terms and otherwise complies with and continues to comply with the
requirements of ERISA.
5.09. TAXES. The Borrower has filed all tax returns required to be filed
and paid all taxes shown thereon to be due, including interest and penalties,
other than taxes which are currently payable without penalty or interest or
those which are being duly contested in good faith.
5.10. ENVIRONMENTAL COMPLIANCE. The operations of the Borrower comply, and
during the term of this Agreement will at all times comply, in all respects
with all Environmental Laws: the Borrower has obtained licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for its ordinary operations, all such
Environmental Permits are in good standing, and the Borrower is in compliance
with all material terms and conditions of such Environmental Permits; neither
the Borrower nor any of its present properties or operations are subject to any
outstanding written order from or agreement with any governmental authority nor
subject to any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material; there are no
Hazardous Materials or other conditions or circumstances existing, or arising
from operations prior to the date of this Agreement, with respect to any
property of the Borrower that would reasonably be expected to give rise to
Environmental Claims; provided however, that with respect to property leased
from an unrelated third party, the foregoing representation is made to the best
knowledge of the Borrower. In addition, (i) the Borrower does not have or
maintain any underground storage tanks which are not properly registered or
permitted under applicable Environmental Laws or which are leaking or disposing
of Hazardous Materials off-site, and (ii) the Borrower has notified all of its
employees of the existence, if any, of any health hazard arising from the
conditions of their employment and have met all notification requirements under
Title III of CERCLA and all other Environmental Laws.
SECTION VI
COVENANTS
The Borrower covenants and agrees that, during the term of this Agreement, and
so long thereafter as the Borrower is indebted to the Bank under this
Agreement, the Borrower shall, unless the Bank otherwise consents in writing:
6.01. PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS. Maintain
and preserve its existence and all rights and privileges now enjoyed; not
liquidate or dissolve, merge or consolidate with or into, or acquire any other
business organization; and conduct its business in accordance with all
applicable laws, rules and regulations.
6.02. MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower operates and maintain such other insurance and coverages as may be
required by the Bank. All such insurance shall be in form and amount and with
companies satisfactory to the Bank. With respect to insurance covering
properties in which the Bank maintains a security interest or lien, such
insurance shall be in an amount not less than the full replacement value
thereof, at the Bank's request, shall name the Bank as loss payee pursuant to a
loss payable endorsement satisfactory to the Bank and shall not be altered or
canceled except upon ten (10) days' prior written notice to the Bank. Upon the
Bank's request, the Borrower shall furnish the Bank with the original policy or
binder of all such insurance.
6.03. MAINTENANCE OF COLLATERAL AND OTHER PROPERTIES. Except for Permitted
Liens, the Borrower shall keep and maintain the Collateral free and clear of
all levies, liens, encumbrances and security interests (including but not
limited to, any lien of attachment, judgement or execution) and defend the
Collateral against any such levy, lien, encumbrance or security interest;
comply with all laws, statutes and regulations pertaining to the Collateral and
its use and operation; execute, file and record such statements, notices and
agreements, cake such actions and obtain such certificates and other documents
as necessary to perfect, evidence and continue the Bank's security interest in
the Collateral and the priority thereof; maintain accurate and complete records
of the Collateral which show all sales, claims and allowances; and properly
care for, house, store and maintain the Collateral in good condition, free of
misuse, abuse and deterioration, other than normal wear and tear. The Borrower
shall also maintain and preserve all its properties in good working order and
condition in accordance with the general practice of other businesses of
similar character and size, ordinary wear and tear excepted.
6.04. LOCATION AND MAINTENANCE OF EQUIPMENT.
A. LOCATION. The Equipment shall at all times be in the
Borrower's physical possession, shall not be held for sale or lease
and shall be kept only at the following location(s): 8955 Beverly
Boulevard, West Hollywood, CA 90048 and 120 Woodbine Street,
Bergenfield, NJ 07621.
The Borrower shall not secrete, abandon or remove, or permit the
removal of, the Equipment, or any part thereof, from the locations)
shown above or remove or permit to be removed any accessories now or
hereafter placed upon the Equipment.
B. EQUIPMENT SCHEDULES. Upon the Bank's demand, the Borrower
shall immediately provide the Bank with a complete and accurate
description of the Equipment including, as applicable, the make,
model, identification number and serial number of each item of
Equipment. In addition, the Borrower shall immediately notify the
Bank of the acquisition of any new or additional Equipment or the
replacement of any existing Equipment and shall supply the Bank with a
complete description of any such additional or replacement Equipment.
C. MAINTENANCE OF EQUIPMENT. The Borrower shall, at the
Borrower's sole cost and expense, keep and maintain the Equipment in a
good state of repair and shall not destroy, misuse, abuse, illegally
use or be negligent in the care of the Equipment or any part thereof.
The Borrower shall not remove, destroy, obliterate, change, cover,
paint, deface or alter the name plates, serial numbers, labels or
other distinguishing numbers or identification marks placed upon the
Equipment or any part thereof by or on behalf of the manufacturer, any
dealer or rebuilder thereof, or the Bank. The Borrower shall not be
released from any liability to the Bank hereunder because of any
injury to or loss or destruction of the Equipment. The Borrower shall
allow the Bank and its representatives free access to and the right to
inspect the Equipment at all times and shall comply with the terms and
conditions of any leases covering the real property on which the
Equipment is located and any orders, ordinances, laws, regulations or
rules of any federal, state or municipal agency or authority having
jurisdiction of such real property or the conduct of business of the
persons having control or possession of the Equipment.
D. FIXTURES. The Equipment is not now and shall not at any time
hereafter be so affixed to the real property on which it is located as
to become a fixture or a part thereof. The Equipment is now and shall
at all times hereafter be and remain personal property of the
Borrower.
6.05. LOCATION AND QUALITY OF INVENTORY. The Inventory (i) is now and shall
at all times hereafter be of good and merchantable quality and free from
defects; (ii) is not now and shall not at any time hereafter be stored with a
bailee, warehouseman or similar party without the Bank's prior written consent
and, in such event, the Borrower will concurrently therewith cause any such
bailee, warehouseman or similar party to issue and deliver to the Bank, in form
acceptable to the Bank, warehouse receipts in the Bank's name evidencing the
storage of inventory; (iii) shall at all times be in the Borrower's physical
possession; (iv) shall not be held by others on consignment, sale on approval,
or sale or return; and (v) shall be kept only at the following locations(s):
8955 Beverly Boulevard, West Hollywood, CA 90048 and 120 Woodbine Street,
Bergenfield, NJ 07621.
6.06. PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all
assessments and taxes and all of its liabilities and obligations including, but
not limited to, trade payables, unless the same are being contested in good
faith by appropriate proceedings with the appropriate court or regulatory
agency. For purposes hereof, the Borrower's issuance of a check, draft or
similar instrument without delivery to the intended payee shall not constitute
payment.
6.07. INSPECTION RIGHTS. At any reasonable time and from time to time permit
the Bank or any representative thereof to examine and make copies of the
records
(4)
<PAGE> 5
and visit the properties of the Borrower and to discuss the business and
operations of the Borrower with any employee or representative thereof. If the
Borrower now or at any time hereafter maintains any records (including, but not
limited to, computer generated records and computer programs for the generation
of such records) in the possession of a third party, the Borrower hereby agrees
to notify such third party to permit the Bank free access to such records at
all reasonable times and to provide the Bank with copies of any records it may
request, all at the Borrower's expense, the amount of which shall be payable
immediately upon demand. In addition, the Bank may, at any reasonable time and
from time to time, conduct inspections and audits of the Collateral and the
Borrower's accounts payable, the cost and expenses of which shall be paid by
the Borrower to the Bank upon demand.
6.08. REPORTING REQUIREMENTS. Deliver or cause to be delivered to the Bank
in form and detail satisfactory to the Bank:
A. ANNUAL STATEMENTS. Not later than 90 days after the end of
each of the Borrower's fiscal years, a copy of the annual financial
report of the Borrower for such year, which report shall be a CPA
audited report.
B. TAX RETURNS. Not later than 30 days after filing, a copy of
the Borrower's federal income tax returns filed for such year.
C. RECEIVABLES AND PAYABLES AGINGS. Not later than 20 days after
the end of each fiscal quarter and not later than 90 days after the end
of each fiscal year, a copy of the Borrower's accounts receivables
agings and accounts payables agings.
D. 10K REPORT. Not later than 10 days after filing, a copy of
the Borrower's 10K report filed for such year.
E. 10-QSB. Not later than 10 days after filing, a copy of the
Borrower's 10 QSB report filed for such year.
F. OTHER INFORMATION. Promptly upon the Bank's request, such
other information pertaining to the Borrower, the Collateral, or any
Guarantor as the Bank may reasonably request.
6.09. PAYMENT OF DIVIDENDS. The Borrower shall not declare or pay any
dividends on any class of its stock now or hereafter outstanding except
dividends payable solely in the corporation's capital stock.
6.10. REDEMPTION OR REPURCHASE OF STOCK. The Borrower shall not redeem or
repurchase any class of its corporate stock now or hereafter outstanding.
6.11. ADDITIONAL INDEBTEDNESS. Not, after the date hereof, create, incur or
assume, directly or indirectly, any liability or indebtedness other than (i)
indebtedness owed or to be owed to the Bank or (ii) indebtedness to trade
creditors incurred in the ordinary course of the Borrower's business.
6.12. LOANS. Not make any loans or advances or extend credit to any third
person, including, but not limited to, directors, officers, shareholders,
partners, employees, affiliated entities or subsidiaries of the Borrower,
except for credit extended in the ordinary course of the Borrower's business as
presently conducted.
6.13. TRANSFER ASSETS. Not sell, contract for sale, transfer, convey,
assign, lease or sublet any assets of the Borrower, including, but not limited
to, the Collateral, except in the ordinary course of business as presently
conducted by the Borrower, and then, only for full, fair and reasonable
consideration.
6.14. CHANGE IN THE NATURE OF BUSINESS. Not make any material change in the
Borrower's financial structure or in the nature of the Borrower's business as
existing or conducted as of the date of this Agreement.
6.15. FINANCIAL CONDITION. Maintain at all times:
A. NET WORTH. A minimum Effective Tangible Net Worth of not less
than $11,000,000.00 on a combined basis with Four Point Entertainment.
Inc.
B. QUICK RATIO. A ratio of the sum of cash, cash equivalents and
accounts to current liabilities of not less than 0.75 to 1.00 on a
combined basis with Four Point Entertainment, Inc.
C. DEBT SERVICE COVERAGE RATIO. A minimum debt service coverage
ratio of not less than 2.00 to 1.00 where debt service coverage ratio
is defined as net profit after tax plus depreciation plus capital
contributions divided by current portion of long term debt.
D. DEBT TO NET WORTH RATIO. A Debt to Effective Tangible Net
Worth ratio of not more than 1.00 to 1.00 on a combined basis with
Four Point Entertainment, Inc.
6.16. COMPENSATION OF EMPLOYEES. Compensate the employees of the Borrower
for services rendered at an hourly rate at least equal to the minimum hourly
rate prescribed by any applicable federal or state law or regulation.
6.17. ENVIRONMENTAL COMPLIANCE. The Borrower shall:
A. Conduct the Borrower's operations and keep and maintain all of
its properties in compliance with all Environmental Laws.
B. Give prompt written notice to the Bank, but in no event later
than 10 days after becoming aware, of the following: (i) any
enforcement, cleanup, removal or other governmental or regulatory
actions instituted, completed or threatened against the Borrower or
any of its affiliates or any of its respective properties pursuant to
any applicable Environmental Laws, (ii) all other Environmental
Claims, and (iii) any environmental or similar condition on any real
property adjoining or in the vicinity of the property of the Borrower
or its affiliates that could reasonably be anticipated to cause such
property or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use of such property under
any Environmental Laws.
C. Upon the written request of the Bank, the Borrower shall
submit to the Bank, at its sole cost and expense, at reasonable
intervals, a report providing an update of the status of any
environmental, health or safety compliance, hazard or liability issue
identified in any notice required pursuant to this Section.
D. At all times indemnify and hold harmless the Bank from and
against any and all liability arising out of any Environmental Claims.
6.18. NOTICE. Give the Bank prompt written notice of any and all (i) Events
of Default; (ii) litigation, arbitration or administrative proceedings to which
the Borrower is a party and in which the claim or liability exceeds $100,000.00
or which affects the Collateral; (iii) any change in the place of business of
the Borrower or the acquisition of more than one place of business by the
Borrower; (iv) any proposed or actual change in the name, identity or business
nature of the Borrower; (v) any change in the location of the Equipment or
Inventory; and (vi) other matters which have resulted in, or might result in a
material adverse change in the Collateral or the financial condition or
business operations of the Borrower.
(5)
<PAGE> 6
SECTION VII
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an event of
default under this Agreement:
7.01. NON-PAYMENT. The Borrower shall fail to pay any Obligations within 10
days of when due.
7.02. PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Borrower shall fail
in any material respect to perform or observe any term, covenant or agreement
contained in this Agreement or in any document, instrument or agreement
evidencing or relating to any indebtedness of the Borrower (whether owed to the
Bank or third persons), and any such failure (exclusive of the payment of money
to the Bank under this Agreement or under any other document, instrument or
agreement, which failure shall constitute and be an immediate Event of Default
if not paid when due or when demanded to be due) shall continue for more than
30 days after written notice from the Bank to the Borrower of the existence and
character of such Event of Default.
7.03. REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made by the Borrower under or in connection with
this Agreement or any financial statement given by the Borrower or any
Guarantor shall prove to have been incorrect in any material respect when made
or given or when deemed to have been made or given.
7.04. INSOLVENCY. The Borrower or any Guarantor shall: (i) become insolvent
or be unable to pay its debts as they mature; (ii) make an assignment for the
benefit of creditors or to an agent authorized to liquidate any substantial
amount of its properties or assets; (iii) file a voluntary petition in
bankruptcy or seeking reorganization or to effect a plan or other arrangement
with creditors; (iv) file an answer admitting the material allegations of an
involuntary petition relating to bankruptcy or reorganization or join in any
such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or
consent to the appointment of, or consent that an order be made, appointing any
receiver, custodian or trustee for itself or any of its properties, assets or
businesses; or (vii) any receiver, custodian or trustee shall have been
appointed for all or a substantial part of its properties, assets or businesses
and shall not be discharged within 30 days after the date of such appointment.
7.05. EXECUTION. Any writ of execution or attachment or any judgment lien
shall be issued against any property of the Borrower and shall not be
discharged or bonded against or released within 30 days after the issuance or
attachment of such writ or lien.
7.06. REVOCATION OR LIMITATION OF GUARANTY. Any Guaranty shall be revoked
or limited or its enforceability or validity shall be contested by any
Guarantor, by operation of law, legal proceeding or otherwise or any Guarantor
who is a natural person shall die.
7.07. SUSPENSION. The Borrower shall voluntarily suspend the transaction of
business or allow to be suspended, terminated, revoked or expired any permit,
license or approval of any governmental body necessary to conduct the
Borrower's business as now conducted.
7.08. CHANGE IN OWNERSHIP. There shall occur a sale, transfer, disposition
or encumbrance (whether voluntary or involuntary), or an agreement shall be
entered into to do so, with respect to more than 10% of the issued and
outstanding capital stock of the Borrower.
7.09. IMPAIRMENT OF COLLATERAL. There shall occur any injury or damage to
all or any part of the Collateral or all or any part of the Collateral shall be
lost, stolen or destroyed. which changes cause the Collateral, in the sole and
absolute judgement of the Bank, to become unacceptable as to character and
value.
SECTION VIII
REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default, the Bank may, at its sole
election, without demand and upon only such notice as may be required by law:
8.01. ACCELERATION. Declare any or all of the Borrower's indebtedness owing
to the Bank, whether under this Agreement or under any other document,
instrument or agreement, immediately due and payable, whether or not otherwise
due and payable.
8.02. CEASE EXTENDING CREDIT. Cease extending credit to or for the account
of the Borrower under this Agreement or under any other agreement now existing
or hereafter entered into between the Borrower and the Bank.
8.03. TERMINATION. Terminate this Agreement as to any future obligation of
the Bank without affecting the Borrower's obligations to the Bank or the Bank's
rights and remedies under this Agreement or under any other document,
instrument or agreement.
8.04. SEGREGATE COLLECTIONS. Require the Borrower to segregate all
collections and proceeds of the Collateral so that they are capable of
identification and to deliver such collections and proceeds to the Bank, in
kind, without commingling, at such times and in such mariner as required by the
Bank.
8.05. RECORDS OF COLLATERAL. Require the Borrower to periodically deliver
to the Bank records and schedules showing the status, condition and location of
the Collateral and such contracts or other matters which affect the Collateral.
In connection herewith, the Bank may conduct such audits or other examination
of such records, including, but not limited to, verification of balances owing
by any account debtor of the Borrower, as the Bank, in its sole and absolute
discretion, deems necessary.
8.06. NOTIFICATION OF ACCOUNT DEBTORS.
A. Notify any or all of the Borrower's Account Debtors, or any
buyers or transferees of the Collateral or other persons of the Bank's
interest in the Collateral and the proceeds thereof and instruct such
person(s) to hereafter make any payment due the Borrower directly to
the Bank.
B. The Borrower hereby irrevocably and unconditionally appoints
the Bank as its attorney-in-fact to: (i) endorse the Borrower's name
on any notes, acceptances, checks, drafts, money orders or other
evidence of payment that may come into the Bank's possession; (ii)
sign the Borrower's name on any invoice or bill of lading relating to
any of the Collateral; (iii) notify post office authorities to change
the address for delivery of mail addressed to the Borrower to such
address as the Bank may designate and take possession of and open mail
addressed to the Borrower and remove therefrom, proceeds of and
payments on the Collateral; and (iv) demand, receive and endorse
payment and give receipts, releases and satisfactions for and sue for
all money payable to the Borrower. All of the preceding may be done
either in the name of the Bank or in the name of the Borrower with the
same force and effect as the Borrower could have done had this
Agreement not been entered into.
C. Require the Borrower to indicate on the face of all invoices
(or such other documentation as may be specified by the Bank relating
to the sale, delivery or shipment of goods giving rise to the account)
that the account has been assigned to the Bank and that all payments
are to be made directly to the Bank at such address as the Bank may
designate.
8.07. COMPROMISE. Grant extensions, compromise claims and settle any account
for less than the amount owing thereunder, all without notice to the Borrower
or
(6)
<PAGE> 7
any obligor on or guarantor of the Obligations.
8.08. PROTECTION OF SECURITY INTEREST. Make such payments and do such acts
as the Bank, in its sole judgment, considers necessary and reasonable to
protect its security interest or lien in the Collateral. The Borrower hereby
irrevocably authorizes the Bank to pay, purchase, contest or compromise any
encumbrance, lien or claim which the Bank, in its sole judgment, deems to be
prior or superior to its security interest. Further, the Borrower hereby
agrees to pay to the Bank, upon demand therefor, all expenses and expenditures
(including attorneys' fees) incurred in connection with the foregoing.
8.09. FORECLOSURE. Enforce any security interest or lien given or provided
for under this Agreement or under any security agreement, mortgage, deed of
trust or other document relating to the Collateral, in such manner and such
order, as to all or any part of the Collateral, as the Bank, in its sole
judgment, deems to be necessary or appropriate and the Borrower hereby waives
any and all rights, obligations or defenses now or hereafter established by law
relating to the foregoing. In the enforcement of its security interest or
lien, the Bank is authorized to enter upon the premises where any Collateral is
located and take possession of the Collateral or any part thereof, together
with the Borrower's records pertaining thereto, or the Bank may require the
Borrower to assemble the Collateral and records pertaining thereto and make
such Collateral and records available to the Bank at a place designated by the
Bank. The Bank may sell the Collateral or any portions thereof, together with
all additions, accessions and accessories thereto, giving only such notices and
following only such procedures as are required by law, at either a public or
private sale, or both, with or without having the Collateral present at the
time of sale, which sale shall be on such terms and conditions and conducted in
such manner as the Bank determines in its sole judgment to be commercially
reasonable. Any deficiency which exists after the disposition or liquidation
of the Collateral shall be a continuing liability of any obligor on or any
guarantor of the Obligations and shall be immediately paid to the Bank.
8.10. APPLICATION OF PROCEEDS. All amounts received by the Bank as proceeds
from the disposition or liquidation of the Collateral shall be applied to the
Borrower's indebtedness to the Bank as follows: first, to the costs and
expenses of collection, enforcement, protection and preservation of the Bank's
lien in the Collateral, including court costs and reasonable attorneys' fees,
whether or not suit is commenced by the Bank; next, to those costs and expenses
incurred by the Bank in protecting, preserving, enforcing, collecting, selling
or disposing of the Collateral; next, to the payment of accrued and unpaid
interest on all of the Obligations; next, to the payment of the outstanding
principal balance of the Obligations; and last, to the payment of any other
indebtedness owed by the Borrower to the Bank. Any excess Collateral or excess
proceeds existing after the disposition or liquidation of the Collateral will
be reminded or paid by the Bank to the Borrower.
8.11. NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's
rights set forth herein or seek such other rights or pursue such other remedies
as may be provided by law, in equity or in any other agreement now existing or
hereafter entered into between the Borrower and the Bank, or otherwise.
SECTION IX
MISCELLANEOUS PROVISIONS
9.01. DEFAULT INTEREST RATE. If an Event of Default has occurred and is
continuing, the Bank, at its option, may require the Borrower to pay to the
Bank interest on any Indebtedness or amount payable under this Agreement at a
rate which is 3% in excess of the rate or rates otherwise then in effect under
this Agreement.
9.02. RELIANCE. Each warranty, representation, covenant and agreement
contained in this Agreement shall be conclusively presumed to have been relied
upon by the Bank regardless of any investigation made or information possessed
by the Bank and shall be cumulative and in addition to any other warranties,
representations, covenants or agreements which the Borrower shall now or
hereafter give, or cause to be given, to the Bank.
9.03. DISPUTE RESOLUTION.
A. DISPUTES. It is understood and agreed that, upon the request
of any party to this Agreement, any dispute, claim or controversy of
any kind, whether in contract or in tort, statutory or common law,
legal or equitable, now existing or hereinafter arising between the
parties in any way arising out of, pertaining to or in connection
with: (i) this Agreement, or any related agreements, documents or
instruments, (ii) all past and present loans, credits, accounts,
deposit accounts (whether demand deposits or time deposits), safe
deposit boxes, safekeeping agreements, guarantees, letters of credit,
goods or services, or other transactions, contracts or agreements of
any kind, (iii) any incidents, omissions, acts, practices, or
occurrences causing injury to any party whereby another party or its
agents, employees or representatives may be liable, in whole or in
part, or (iv) any aspect of the past or present relationships of the
parties, shall be resolved through a two-step dispute resolution
process administered by the Judicial Arbitration & Mediation Services,
Inc. ("JAMS") as follows:
B. STEP I - MEDIATION. At the request of any party to the
dispute, claim or controversy, the matter shall be referred to the
nearest office of JAMS for mediation, which is an informal,
non-binding conference or conferences between the parties in which a
retired judge or justice from the JAMS panel will seek to guide the
parties to a resolution of the case.
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL
PROPERTY). Should any dispute, claim or controversy remain unresolved
at the conclusion of the Step I Mediation Phase, then (subject to the
restriction at the end of this subparagraph) all such remaining
matters shall be resolved by final and binding arbitration before a
different judicial panelist, unless the parties shall agree to have
the mediator panelist act as arbitrator. The hearing shall be
conducted at a location determined by the arbitrator in Los Angeles,
California (or such other city as may be agreed upon by the parties)
and shall be administered by and in accordance with the then existing
Rules of Practice and Procedure of JAMS and judgement upon any award
rendered by the arbitrator may be entered by any State or Federal
Court having jurisdiction thereof. The arbitrator shall determine
which is the prevailing party and shall include in the award that
party's reasonable attorneys' fees and costs. This subparagraph shall
apply only if, at the time of the submission of the matter to JAMS,
the dispute or issues involved do not arise out of any transaction
which is secured by real property collateral or, if so secured, all
parties consent to such submission.
As soon as practicable after selection of the arbitrator, the
arbitrator or the arbitrator's designated representative, shall
determine a reasonable estimate of anticipated fees and costs of the
arbitrator, and render a statement to each party setting forth that
party's pro-rata share of said fees and costs. Thereafter, each party
shall, within 10 days of receipt of said statement, deposit said sum
with the arbitrator. Failure of any party to make such a deposit
shall result in a forfeiture by the non-depositing party of the right
to prosecute or defend the claim which is the subject of the
arbitration, but shall not otherwise serve to abate, stay or suspend
the arbitration proceedings.
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required
or agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on Order of Reference conducted by a retired
judge or justice from the panel of JAMS appointed pursuant to the
provisions of Section 638(l) of the California Code of Civil
Procedure, or any amendment, addition or successor section thereto, to
hear the case and report a statement of decision thereon. The parties
intend this general reference agreement to be specifically enforceable
in accordance with said section. If the parties are unable to agree
upon a member of the JAMS panel to act as referee, then one shall be
appointed by the Presiding Judge of the county wherein the hearing is
to be held. The parties shall pay in advance, to the referee, the
estimated reasonable fees and costs of the reference, as may be
specified in advance by the referee. The parties shall initially
share equally, by paying their proportionate amount of the estimated
fees and costs of the reference. Failure of any party to make such a
fee deposit shall result in a forfeiture by the non-depositing party
of the right to prosecute or defend any cause of action which is the
subject of the reference, but shall not otherwise serve to abate, stay
or suspend the reference proceeding.
<PAGE> 8
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision
of, or the exercise of any rights under any portion of this Dispute
Resolution Provision, shall limit the right of any party to exercise
self help remedies such as set off, foreclosure against any real or
personal property collateral, or the obtaining of provisional or
ancillary remedies, such as injunctive relief or the appointment of a
receiver, from any court having jurisdiction before, during or after
the pendency of any arbitration. At the Bank's option, foreclosure
under a deed of trust or mortgage may be accomplished either by
exercise of power of sale under the deed of trust or mortgage, or by
judicial foreclosure. The institution and maintenance of an action
for provisional remedies, pursuit of provisional or ancillary remedies
or exercise of self help remedies shall not constitute a waiver of the
right of any party to submit the controversy or claim to arbitration.
9.04. WAIVER OF JURY. The Borrower and the Bank hereby expressly and
voluntarily waive any and all rights, whether arising under the California
constitution, any rules of the California Code of Civil Procedure, common law
or otherwise, to demand a trial by jury in any action, matter, claim or cause
of action whatsoever arising out of or in any way related to this Agreement or
any other agreement, document or transaction contemplated hereby.
9.05. RESTRUCTURING EXPENSES. In the event the Bank and the Borrower
negotiate for, or enter into, any restructuring, modification or refinancing of
the Indebtedness under this Agreement for the purposes of remedying an Event of
Default, The Bank, may require the Borrower to reimburse all of the Bank's
costs and expenses incurred in connection therewith, including, but not limited
to reasonable attorneys' fees and the costs of any audit or appraisals required
by the Bank to be performed in connection with such restructuring, modification
or refinancing.
9.06. ATTORNEYS' FEES. In the event of any suit, mediation, arbitration or
other action in relation to this Agreement or any document, instrument or
agreement executed with respect to, evidencing or securing the indebtedness
hereunder, the prevailing party, in addition to all other sums to which it may
be entitled, shall be entitled to reasonable attorneys' fees.
9.07. NOTICES. All notices, payments, requests, information and demands
which either party hereto may desire, or may be required to give or make to the
other party shall be given or made to such party by hand delivery or through
deposit in the United States mail, postage prepaid, or by Western Union
telegram, addressed to the address set forth below such party's signature to
this Agreement or to such other address as may be specified from time to time
in writing by either Party to the other.
9.08. WAIVER. Neither the failure nor delay by the Bank in exercising any
right hereunder or under any document, instrument or agreement mentioned herein
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right hereunder or under any document, instrument or agreement mentioned
herein preclude other or further exercise thereof or the exercise of any other
right; nor shall any waiver of any right or default hereunder or under any
other document, instrument or agreement mentioned herein constitute a waiver of
any other right or default or constitute a waiver of any other default of the
same or any other term or provision.
9.09, CONFLICTING PROVISIONS. To the extent that any of the terms or
provisions contained in this Agreement are inconsistent with those contained in
any other document, instrument or agreement executed pursuant hereto, the terms
and provisions contained herein shall control. Otherwise, such provisions
shall be considered cumulative.
9.10. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the Bank's prior
written consent. The Bank may sell, assign or grant participations in all or
any portion of its rights and benefits hereunder. The Borrower agrees that, in
connection with any such sale, grant or assignment, the Bank may deliver to the
prospective buyer, participant or assignee financial statements and other
relevant information relating to the Borrower and any guarantor.
9.11. JURISDICTION. This Agreement, any notes issued hereunder, the rights
of the parties hereunder to and concerning the Collateral, and any documents,
instruments or agreements mentioned or referred to herein shall be governed by
and construed according to the laws of the State of California, to the
jurisdiction of whose courts the parties hereby submit.
9.12. HEADINGS. The headings set forth herein are solely for the purpose of
identification and have no legal significance.
9.13. ENTIRE AGREEMENT. This Agreement and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties or
pertaining to the transactions contemplated hereunder that are not incorporated
or referenced in this Agreement or in such documents, instruments and
agreements are superseded hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as
of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA DOVE AUDIO, INC.
BY: /s/ JUDI A. VOGEL BY: /s/ MICHAEL VINER
--------------------------------- ---------------------------------
JUDI A. VOGEL, AUTHORIZED OFFICER MICHAEL VINER, PRESIDENT/CHAIRMAN
ADDRESS: ADDRESS:
Sherman Oaks Office
15165 Ventura Boulevard 8955 Beverly Boulevard
Sherman Oaks, CA 91403 West Hollywood, CA 90048
(8)
<PAGE> 1
EXHIBIT 10.2
[LOGO]
Sanwa
Bank
CALIFORNIA
CONTINUING GUARANTY
For value received and in consideration of the extension of credit by SANWA
BANK CALIFORNIA (the "Bank") to DOVE AUDIO, INC. (the "Debtor") or the benefits
to the undersigned derived therefrom, the undersigned (the "Guarantor"),
guarantees and promises to pay to the Bank any and all Indebtedness (as defined
below) and agrees as follows:
1. INDEBTEDNESS. The term "Indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations,
guaranties and liabilities of the Debtor heretofore, now, or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether direct or acquired by the Bank by assignment or succession, whether due
or not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether the Debtor may be liable individually or jointly with
others, or whether recovery upon any Indebtedness may be or hereafter becomes
barred by any statute of limitations or whether any Indebtedness may be or
hereafter becomes otherwise unenforceable.
2. GUARANTY. The Guarantor unconditionally agrees to pay to the Bank or
its order, on demand, an amount equal to the amount of the Indebtedness or
otherwise perform any obligation of the Debtor undertaken pursuant to any
Indebtedness. In addition to any maximum principal liability hereunder, the
Guarantor agrees to (i) bear the expenses enumerated hereunder in the paragraph
herein entitled "Attorneys' Fees" and (ii) pay interest on the Indebtedness at
the rate(s) applicable thereto. Notwithstanding the foregoing, the Bank may
allow the Indebtedness to exceed the Guarantor's liability hereunder. Any
payment by the Guarantor shall not reduce the maximum principal obligation of
the Guarantor hereunder unless written notice to that effect is actually
received by the Bank at or prior to the time of such payment. Any payment by
the Debtor or any other person shall not reduce the Guarantor's maximum
principal liability hereunder.
3. RIGHT TO AMEND OR MODIFY INDEBTEDNESS. The Guarantor authorizes the
Bank, at its sole discretion, with or without notice and without affecting the
Guarantor's liability hereunder, from time to time to: (i) change the time or
manner of payment of any Indebtedness by renewal, extension, modification,
acceleration or otherwise; (ii) alter or change any provision of any
Indebtedness including, but not limited to, the rate of interest thereon, and
any document, instrument or agreement (other than this Guaranty) evidencing,
guaranteeing, securing or related to any Indebtedness; (iii) release,
discharge, exonerate, substitute or add one or more parties liable on any
Indebtedness or one or more endorsers, cosigners or guarantors for any
Indebtedness; (iv) obtain collateral for the payment of any Indebtedness or any
guaranty thereof; (v) release existing or after-acquired collateral on such
terms as the Bank, in its sole discretion, shall determine; (vi) apply any sums
received from the Debtor, any endorser, cosigner, other guarantor or other
person liable on any Indebtedness or from the sale or collection of collateral
or its proceeds to any indebtedness whatsoever owed or to be owed to the Bank
by the Debtor in any order or amount and regardless of whether or not such
indebtedness is guaranteed hereby, is secured by collateral or is due and
payable; and (vii) apply to any Indebtedness, in any order or amount,
regardless of whether such Indebtedness is secured by collateral or is due and
payable, any sums received from the Guarantor or from the sale of collateral in
which the Guarantor has granted the Bank a security interest.
4. WAIVERS. The Guarantor hereby unconditionally and irrevocably
acknowledges and agrees to the matters set forth below:
A. DEFICIENCY. In the event that any Indebtedness is now or
hereafter secured by a deed of trust, the Guarantor waives any defense
and all rights and benefits of those laws purporting to state that no
deficiency judgment may be recovered on certain real property purchase
money obligations (as presently contained in Section 580b of the
California Code of Civil Procedure and as it may be amended or
superseded in the future) and those laws purporting to state that no
deficiency judgment may be recovered after a trustee's sale under a
deed of trust (as presently contained in Section 580d of the
California Code of Civil Procedure and as it may be amended or
superseded in the future). THE GUARANTOR ACKNOWLEDGES THAT A
FORECLOSURE BY A TRUSTEE'S SALE UNDER A DEED OF TRUST MAY RESULT IN
THE DESTRUCTION OF THE GUARANTOR'S SUBROGATION RIGHTS THAT MAY
OTHERWISE EXIST AND THAT A DESTRUCTION OF THOSE RIGHTS MAY CREATE A
DEFENSE TO A DEFICIENCY JUDGEMENT. THE GUARANTOR HEREBY SPECIFICALLY
WAIVES ANY SUCH DEFENSE.
B. ELECTION OF REMEDIES. The Guarantor waives any defense based
upon the Guarantor's loss of a right against the Debtor arising from
the Bank's election of a remedy on any Indebtedness under bankruptcy
or other debtor relief laws or under any other laws, including, but
not limited to, those purporting to reduce the Bank's right against
the Guarantor in proportion to the principal obligation of any
Indebtedness (as presently contained in Section 2809 of the California
Civil Code and as it may be amended or superseded in the future).
Without limiting the generality of the foregoing, the Guarantor waives
all rights and defenses arising out of an election of remedies by the
Bank, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has
destroyed the Guarantor's rights of subrogation and reimbursement
against the Debtor by operation of Section 580d of the California Code
of Civil Procedure or otherwise.
C. STATUTE OF LIMITATIONS. The Guarantor waives the benefit of
the statute of limitations affecting the Guarantor's liability
hereunder or the enforcement hereof.
D. ACTION AGAINST THE DEBTOR AND COLLATERAL (AND OTHER REMEDIES).
The Guarantor waives all right to require the Bank to: (i) proceed
against the Debtor, any endorser, cosigner, other guarantor or other
person liable on any Indebtedness; (ii) join the Debtor or any
endorser, cosigner, other guarantor or other person liable on any
Indebtedness in any action or actions that may be brought and
prosecuted by the Bank solely and separately against the Guarantor on
any Indebtedness; (iii) proceed against any item or items of
collateral securing any Indebtedness or any guaranty thereof; or (iv)
pursue or refrain from pursuing any other remedy whatsoever in the
Bank's power.
E. DEBTOR'S DEFENSES. The Guarantor waives any defense arising
by reason of any disability or other defense of the Debtor, the
Debtor's successor or any endorser, cosigner, other guarantor or other
person liable on any Indebtedness. Until all Indebtedness has been
paid in full, even though it may be in excess of the liability
incurred hereby, the Guarantor shall not have any right of subrogation
and the Guarantor waives any benefit of and right to participate in
any collateral now or hereafter held by the Bank. The Guarantor
waiver all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor,
notices of sale of any collateral securing any Indebtedness or any
guaranty thereof, and notice of the existence, creation or incurring
of new or additional Indebtedness.
F. DEBTOR'S FINANCIAL CONDITION. The Guarantor hereby
recognizes, acknowledges and agrees that advances may be made in the
future from time to time with respect to any Indebtedness without
authorization from or notice to the Guarantor even though the
financial condition of the Debtor, any endorser, cosigner, other
guarantor or other person liable on any Indebtedness may have
deteriorated since the date of this Guaranty. The Guarantor waives
all right to require the Bank to disclose any information with respect
to: (i) any Indebtedness now existing or hereafter incurred; (ii) the
present or future financial condition, credit or character of the
Debtor, any endorser, cosigner, other guarantor or other person liable
on any Indebtedness; (iii) any present or future
(1)
<PAGE> 2
collateral securing any Indebtedness or any guaranty thereof; or (iv)
any present or future action or inaction on the part of the Bank, the
Debtor or any endorser, cosigner, other guarantor or other person
liable on any Indebtedness. The Guarantor hereby assumes the
responsibility for being informed of the financial condition, credit
and character of the Debtor and of all circumstances bearing upon the
risk of non-payment of any Indebtedness which diligent inquiry would
reveal.
5. RIGHT OF SET-OFF; GRANT OF SECURITY INTEREST. In addition to all
liens upon and rights of set-off against any monies, securities or other
property of the Guarantor given to the Bank by law, the Bank shall have a
security interest in and a right to set off against all monies, securities and
other property of the Guarantor now or hereafter in the possession of or on
deposit with the Bank, the Bank's agents or any one or more of them, whether
held in general or special account or deposit or for safekeeping or otherwise;
and each such security interest and right of set-off may be exercised without
demand upon or notice to the Guarantor. No action or inaction by the Bank with
respect to any security interest or right of set-off shall be deemed a waiver
thereof and every right of set-off and security interest shall continue in full
force and effect until specifically released by the Bank in writing. The
security interest created hereby shall secure all of the Guarantor's
obligations under this Guaranty.
6. RIGHT OF FORECLOSURE. The Bank may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing any
Indebtedness even though such foreclosure may destroy or diminish the
Guarantor's rights against the Debtor. The Guarantor shall be liable to the
Bank for any part of any Indebtedness remaining unpaid after any such
foreclosure whether or not such foreclosure was for fair market value.
7. SUBORDINATION. Any indebtedness of the Debtor or any endorser,
cosigner, other guarantor or other person liable on any Indebtedness now or
hereafter owed to the Guarantor is hereby subordinated to the Indebtedness.
Such indebtedness owed to the Guarantor shall, if the Bank so requests, be
collected, enforced and received by the Guarantor as trustee for the Bank and
be paid over to the Bank on account of the Indebtedness but without reducing or
affecting in any manner the liability of the Guarantor set forth herein.
Should the Guarantor fail to collect the proceeds of any such indebtedness owed
to it and pay the proceeds to the Bank, the Bank, as the Guarantor's
attorney-in-fact, may do such acts and sign such documents in the Guarantor's
name as the Bank considers necessary to effect such collection.
8. INVALID, FRAUDULENT OR PREFERENTIAL PAYMENTS. The Guarantor agrees
that, to the extent the Debtor or any endorser, cosigner, other guarantor or
other person liable on any Indebtedness makes a payment or payments to, or is
credited for any payment or payments made for or on behalf of the Debtor to the
Bank, which payment or payments, or any part thereof, is subsequently
invalidated, determined to be fraudulent or preferential, set aside or required
to be repaid to any trustee, receiver, assignee or any other party whether
under any bankruptcy, state or federal law or under any common law or equitable
cause or otherwise, then, to the extent thereof, the obligation or part thereof
intended to be satisfied thereby shall be revived, reinstated and continued in
full force and effect as if such payment or payments had not originally been
made or credited.
9. JOINT AND SEVERAL OBLIGATIONS; INDEPENDENT OBLIGATIONS. If more than
one Guarantor signs this Guaranty, the obligations hereunder are joint and
several. The Guarantor's obligations hereunder are independent of the
obligations of the Debtor or any endorser, cosigner, other guarantor or other
person liable on any Indebtedness and a separate action or actions may be
brought and prosecuted against the Guarantor on any Indebtedness.
10. FINANCIAL INFORMATION. The Guarantor hereby agrees to deliver or cause to
be delivered to the Bank:
A. Other Information. (i) Annual Statements. Not later than
March 31st of each year, a copy of the updated personal financial
statement of the Guarantor commencing March 31, 1997, which report
shall be prepared by the Guarantor; and (ii) Tax Returns. Not later
than 30 days after filing but in no event later than October 15th of
each year, a copy of the Guarantor's federal income tax returns filed
for such year.
11. ACKNOWLEDGEMENT OF RECEIPT. Receipt of a true copy of this Guaranty
is hereby acknowledged by the Guarantor. The Guarantor understands and agrees
that this Guaranty shall not constitute a commitment of any nature whatsoever
by the Bank to renew or hereafter extend credit to the Debtor. The Guarantor
agrees that this Guaranty shall be effective with or without notice from the
Bank of the Bank's acceptance hereof.
12. CONTINUING GUARANTY. This Guaranty is a continuing guaranty.
Revocation shall be effective only upon written notice personally received by
an officer of the Bank at the originating office indicated below or actually
received at the originating office by United States mail postage prepaid.
Notice shall be effective at any office of the Bank should the originating
office no longer be in existence. Revocation shall be effective at the close
of the Bank's business day when such notice is actually received. Any
revocation shall be effective only as to the revoking party and shall not
affect that party's obligation with respect to any Indebtedness existing before
such revocation is effective.
13. NON-RELIANCE. In executing this Guaranty, the undersigned is not
relying, and has not relied, upon any statement or representation made by the
Bank, or any employee, agent or representative of the Bank, with respect to the
status, financial condition or other matters related to the Debtor or the
relationship between the Debtor and the Bank.
14. MULTIPLE GUARANTIES. If the Guarantor has executed or does execute
more than one guaranty of any indebtedness of the Debtor to the Bank, the
limits of liability thereunder and hereunder shall be cumulative.
15. SEVERABILITY. Should any one or more provisions of this Guaranty be
determined to be illegal or unenforceable, all other provisions shall remain
effective.
16. CORPORATE OR PARTNERSHIP AUTHORITY. If the Debtor is a corporation or
partnership, the Bank need not inquire into the power of the Debtor or the
authority of its officers, directors, partners or agents acting or purporting
to act in its behalf and any credit granted in reliance upon the purported
exercise of such power or authority is guarantied hereunder.
17. SEPARATE PROPERTY. Any married person who signs this Guaranty
expressly agrees that recourse may be had against such person's separate
property for all obligations hereunder.
18. ASSIGNMENT. The Bank may, with or without notice, assign this
Guaranty in whole or in part. This Guaranty shall inure to the benefit of the
Bank, its successors and assigns, and shall bind the Guarantor and the
Guarantor's heirs, executors, administrators, successors and assigns.
19. WAIVER OF JURY. The Guarantor and the Bank hereby expressly and
voluntarily waive any and all rights, whether arising under the California
constitution, any rules of the California Code of Civil Procedure, common law
or otherwise, to demand a trial by jury in any action, matter, claim or cause
of action whatsoever arising out of or in any way related to this Guaranty or
any other agreement, document or transaction contemplated hereby.
20. DISPUTE RESOLUTION.
A. DISPUTES. It is understood and agreed that, upon the request
of any party to this Guaranty, any dispute, claim or controversy of
any kind, whether in contract or in tort, statutory or common law,
legal or equitable, now existing or hereinafter arising between the
parties in any way arising out of, pertaining to or in connection
with: (i) this Guaranty, or any related agreements, documents or
instruments, (ii) all past and present loans, credits, accounts,
deposit accounts (whether demand deposits or time deposits), safe
deposit boxes, safekeeping agreements, guarantees, letters of credit,
goods or services, or other transactions, contracts or agreements of
any kind, (iii) any incidents, omissions, acts, practices, or
occurrences causing injury to any party whereby another party or its
agents, employees or representatives may be liable, in whole or in
part, or (iv) any aspect of the past or present relationships of the
parties, shall be resolved through a two-step dispute resolution
process administered by the Judicial Arbitration & Mediation Services,
Inc. ("JAMS") as follows:
(2)
<PAGE> 3
B. STEP I - MEDIATION. At the request of any party to the
dispute, claim or controversy, the matter shall be referred to the
nearest office of JAMS for mediation, which is an informal,
non-binding conference or conferences between the parties in which a
retired judge or justice from the JAMS panel will seek to guide the
parties to a resolution of the case.
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL
PROPERTY). Should any dispute, claim or controversy remain unresolved
at the conclusion of the Step I Mediation Phase, then (subject to the
restriction at the end of this subparagraph) all such remaining
matters shall be resolved by final and binding arbitration before a
different judicial panelist, unless the parties shall agree to have
the mediator panelist act as arbitrator. The hearing shall be
conducted at a location determined by the arbitrator in Los Angeles,
California (or such other city as may be agreed upon by the parties)
and shall be administered by and in accordance with the then existing
Rules of Practice and Procedure of JAMS and judgement upon any award
rendered by the arbitrator may be entered by any State or Federal
Court having jurisdiction thereof. The arbitrator shall determine
which is the prevailing party and shall include in the award that
party's reasonable attorneys' fees and costs. This subparagraph shall
apply only if, at the time of the submission of the matter to JAMS,
the dispute or issues involved do not arise out of any transaction
which is secured by real property collateral or, if so secured, all
parties consent to such submission.
As soon as practicable after selection of the arbitrator, the
arbitrator, or the arbitrator's designated representative, shall
determine a reasonable estimate of anticipated fees and costs of the
arbitrator, and render a statement to each party setting forth that
party's pro-rata share of said fees and costs. Thereafter, each party
shall, within 10 days of receipt of said statement, deposit said sum
with the arbitrator. Failure of any party to make such a deposit
shall result in a forfeiture by the non-depositing party of the right
to prosecute or defend the claim which is the subject of the
arbitration, but shall not otherwise serve to abate, stay or suspend
the arbitration proceedings.
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required or
agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on Order of Reference conducted by a retired
judge or justice from the panel of JAMS appointed pursuant to the
provisions of Section 638(l) of the California Code of Civil
Procedure, or any amendment, addition or successor section thereto, to
hear the case and report a statement of decision thereon. The parties
intend this general reference agreement to be specifically enforceable
in accordance with said section. If the parties are unable to agree
upon a member of the JAMS panel to act as referee, then one shall be
appointed by the Presiding Judge of the county wherein the hearing is
to be held. The parties shall pay in advance, to the referee, the
estimated reasonable fees and costs of the reference, as may be
specified in advance by the referee. The parties shall initially
share equally, by paying their proportionate amount of the estimated
fees and costs of the reference. Failure of any party to make such a
fee deposit shall result in a forfeiture by the non-depositing party
of the right to prosecute or defend any cause of action which is the
subject of the reference, but shall not otherwise serve to abate, stay
or suspend the reference proceeding.
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision
of, or the exercise of any rights under any portion of this Dispute
Resolution provision, shall limit the right of any party to exercise
self help remedies such as set off, foreclosure against any real or
personal property collateral, or the obtaining of provisional or
ancillary remedies, such as injunctive relief or the appointment of a
receiver, from any court having jurisdiction before, during or after
the pendency of any arbitration. At the Bank's option, foreclosure
under a deed of trust or mortgage may be accomplished either by
exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure. The institution and maintenance of an action
for provisional remedies, pursuit of provisional or ancillary remedies
or exercise of self help remedies shall not constitute a waiver of the
right of any party to submit the controversy or claim to arbitration.
21. ATTORNEYS' FEES. Whether or not any suit, action, arbitration or
other dispute resolution proceeding is instituted, the Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses which may be
incurred in the collection of any Indebtedness, in the protection or
preservation of, or realization on, any collateral securing any Indebtedness
and in the enforcement by the Bank of this Guaranty.
22. GOVERNING LAW. This Guaranty shall be governed by and construed
according to the laws of the State of California and the Guarantor hereby
submits to the jurisdiction of the courts of the State of California.
23. ENTIRE AGREEMENT. This Guaranty and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties pertaining
to the transactions contemplated hereunder not incorporated or referenced in
this Guaranty or in such documents, instruments and agreements are superseded
hereby.
24. HEADINGS. The headings used herein are solely for the purpose of
identification and have no legal significance.
25. ADDRESS OF THE BANK. The Bank's originating office under this
Guaranty is: Sherman Oaks Office, 15165 Ventura Boulevard, Sherman Oaks, CA
91403.
26. MAXIMUM PRINCIPAL LIABILITY. THE MAXIMUM PRINCIPAL LIABILITY UNDER
THIS GUARANTY IS the amount of $1,600,000.00, plus interest at the rate(s)
applicable to any Indebtedness as set forth in the paragraph herein entitled
"Guaranty" and the expenses enumerated in the paragraph herein entitled
"Attorneys' Fees".
This Guaranty is made as of 8-16-96 which shall be the date of this Guaranty.
Executed by the undersigned Guarantor as of the date set forth above.
GUARANTOR:
/s/ MICHAEL VINER
X ----------------------------------
Michael Viner
Address:
1072 North Beverly Drive
Beverly Hills, CA 90210
(3)
<PAGE> 1
Exhibit 10.3
[LOGO]
CONTINUING GUARANTY
For value received and in consideration of the extension of credit by SANWA
BANK CALIFORNIA (the "Bank") to DOVE AUDIO, INC. (the "Debtor") or the benefits
to the undersigned derived therefrom, the undersigned (the "Guarantor"),
guarantees and promises to pay to the Bank any and all Indebtedness (as defined
below) and agrees as follows:
1. INDEBTEDNESS. The term "Indebtedness" is used herein in its
most comprehensive sense and includes any and all advances, debts, obligations,
guaranties and liabilities of the Debtor heretofore, now, or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether direct or acquired by the Bank by assignment or succession, whether due
or not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether the Debtor may be liable individually or jointly with
others, or whether recovery upon any Indebtedness may be or hereafter becomes
barred by any statute of limitations or whether any Indebtedness may be or
hereafter becomes otherwise unenforceable.
2. GUARANTY. The Guarantor unconditionally agrees to pay to the
Bank or its order, on demand, an amount equal to the amount of the Indebtedness
or otherwise perform any obligation of the Debtor undertaken pursuant to any
Indebtedness. In addition to any maximum principal liability hereunder, the
Guarantor agrees to (i) bear the expenses enumerated hereunder in the paragraph
herein entitled "Attorneys' Fees" and (ii) pay interest on the Indebtedness at
the rate(s) applicable thereto. Notwithstanding the foregoing, the Bank may
allow the Indebtedness to exceed the Guarantor's liability hereunder. Any
payment by the Guarantor shall not reduce the maximum principal obligation of
the Guarantor hereunder unless written notice to that effect is actually
received by the Bank at or prior to the time of such payment. Any payment by
the Debtor or any other person shall not reduce the Guarantor's maximum
principal liability hereunder.
3. RIGHT TO AMEND OR MODIFY INDEBTEDNESS. The Guarantor
authorizes the Bank, at its sole discretion, with or without notice and without
affecting the Guarantor's liability hereunder, from time to time to: (i) change
the time or manner of payment of any Indebtedness by renewal, extension,
modification, acceleration or otherwise; (ii) alter or change any provision of
any Indebtedness including, but not limited to, the rate of interest thereon,
and any document, instrument or agreement (other than this Guaranty)
evidencing, guaranteeing, securing or related to any Indebtedness; (iii)
release, discharge, exonerate, substitute or add one or more parties liable on
any Indebtedness or one or more endorsers, cosigners or guarantors for any
Indebtedness; (iv) obtain collateral for the payment of any Indebtedness or any
guaranty thereof; (v) release existing or after-acquired collateral on such
terms as the Bank, in its sole discretion, shall determine; (vi) apply any sums
received from the Debtor, any endorser, cosigner, other guarantor or other
person liable on any Indebtedness or from the sale or collection of collateral
or its proceeds to any indebtedness whatsoever owed or to be owed to the Bank
by the Debtor in any order or amount and regardless of whether or not such
indebtedness is guaranteed hereby, is secured by collateral or is due and
payable: and (vii) apply to any Indebtedness, in any order or amount,
regardless of whether such Indebtedness is secured by collateral or is due and
payable, any sums received from the Guarantor or from the sale of collateral in
which the Guarantor has granted the Bank a security interest.
4. WAIVERS. The Guarantor hereby unconditionally and irrevocably
acknowledges and agrees to the matters set forth below:
A. DEFICIENCY. In the event that any Indebtedness is now or
hereafter secured by a deed of trust, the Guarantor waives any defense
and all rights and benefits of those laws purporting to state that no
deficiency judgment may be recovered on certain real property purchase
money obligations (as presently contained in Section 580b of the
California Code of Civil Procedure and as it may be amended or
superseded in the future) and those laws purporting to state that no
deficiency judgment may be recovered after a trustee's sale under a
deed of trust (as presently contained in Section 580d of the
California Code of Civil Procedure and as it may be amended or
superseded in the future). THE GUARANTOR ACKNOWLEDGES THAT A
FORECLOSURE BY A TRUSTEE'S SALE UNDER A DEED OF TRUST MAY RESULT IN
THE DESTRUCTION OF THE GUARANTOR'S SUBROGATION RIGHTS THAT MAY
OTHERWISE EXIST AND THAT A DESTRUCTION OF THOSE RIGHTS MAY CREATE A
DEFENSE TO A DEFICIENCY JUDGEMENT. THE GUARANTOR HEREBY SPECIFICALLY
WAIVES ANY SUCH DEFENSE.
B. ELECTION OF REMEDIES. The Guarantor waives any defense based
upon the Guarantor's loss of a right against the Debtor arising from
the Bank's election of a remedy on any Indebtedness under bankruptcy
or other debtor relief laws or under any other laws, including, but
not limited to, those purporting to reduce the Bank's right against
the Guarantor in proportion to the principal obligation of any
Indebtedness (as presently contained in Section 2809 of the California
Civil Code and as it may be amended or superseded in the future).
Without limiting the generality of the foregoing, the Guarantor waives
all rights and defenses arising out of an election of remedies by the
Bank, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has
destroyed the Guarantor's rights of subrogation and reimbursement
against the Debtor by operation of Section 580d of the California Code
of Civil Procedure or otherwise.
C. STATUTE OF LIMITATIONS. The Guarantor waives the benefit of
the statute of limitations affecting the Guarantor's liability
hereunder or the enforcement hereof.
D. ACTION AGAINST THE DEBTOR AND COLLATERAL (AND OTHER REMEDIES).
The Guarantor waives all right to require the Bank to: (i) proceed
against the Debtor, any endorser, cosigner, other guarantor or other
person liable on any Indebtedness; (ii) join the Debtor or any
endorser, cosigner, other guarantor or other person liable on any
Indebtedness in any action or actions that may be brought and
prosecuted by the Bank solely and separately against the Guarantor on
any Indebtedness; (iii) proceed against any item or items of
collateral securing any Indebtedness or any guaranty thereof; or (iv)
pursue or refrain from pursuing any other remedy whatsoever in the
Bank's power.
E. DEBTOR'S DEFENSES. The Guarantor waives any defense arising
by reason of any disability or other defense of the Debtor, the
Debtor's successor or any endorser, cosigner, other guarantor or other
person liable on any Indebtedness. Until all Indebtedness has been
paid in full, even though it may be in excess of the liability
incurred hereby, the Guarantor shall not have any right of subrogation
and the Guarantor waives any benefit of and right to participate in
any collateral now or hereafter held by the Bank. The Guarantor
waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor,
notices of sale of any collateral securing any Indebtedness or any
guaranty thereof, and notice of the existence, creation or incurring
of new or additional Indebtedness.
F. DEBTOR'S FINANCIAL CONDITION. The Guarantor hereby
recognizes, acknowledges and agrees that advances may be made in the
future from time to time with respect to any Indebtedness without
authorization from or notice to die Guarantor even though the
financial condition of the Debtor, any endorser, cosigner, other
guarantor or other person liable on any Indebtedness may have
deteriorated since the date of this Guaranty. The Guarantor waives
all right to require the Bank, to disclose any information with
respect to: (i) any Indebtedness now existing or hereafter incurred;
(ii) the present or future financial conditions credit or character of
the Debtor, any endorser, cosigner, other guarantor or other person
liable on any Indebtedness; (iii) any present or future
(1)
<PAGE> 2
collateral securing any Indebtedness or any guaranty thereof; or (iv)
any present or future action or inaction on the part of the Bank, the
Debtor or any endorser, cosigner, other guarantor or other person
liable on any Indebtedness. The Guarantor hereby assumes the
responsibility for being informed of the financial condition, credit
and character of the Debtor and of all circumstances bearing upon the
risk of non-payment of any Indebtedness which diligent inquiry would
reveal.
5. RIGHT OF SET-OFF; GRANT OF SECURITY INTEREST. In addition to all
liens upon and rights of set-off against any monies, securities or other
property of the Guarantor given to the Bank by law, the Bank shall have a
security interest in and a right to set off against all monies, securities and
other property of the Guarantor now or hereafter in the possession of or on
deposit with the Bank, the Bank's agents or any one or more of them, whether
held in general or special account or deposit or for safekeeping or otherwise;
and each such security interest and right of set-off may be exercised without
demand upon or notice to the Guarantor. No action or inaction by the Bank with
respect to any security interest or right of set-off shall be deemed a waiver
thereof and every right of set-off and security interest shall continue in full
force and effect until specifically released by the Bank in writing. The
security interest created hereby shall secure all of the Guarantor's
obligations under this Guaranty.
6. RIGHT OF FORECLOSURE. The Bank may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing any
Indebtedness even though such foreclosure may destroy or diminish the
Guarantor's rights against the Debtor. The Guarantor shall be liable to the
Bank for any part of any Indebtedness remaining unpaid after any such
foreclosure whether or not such foreclosure was for fair market value.
7. SUBORDINATION. Any indebtedness of the Debtor or any endorser,
cosigner, other guarantor or other person liable on any Indebtedness now or
hereafter owed to the Guarantor is hereby subordinated to the Indebtedness.
Such indebtedness owed to the Guarantor shall, if the Bank so requests, be
collected, enforced and received by the Guarantor as trustee for the Bank and
be paid over to the Bank an account of the Indebtedness but without reducing or
affecting in any manner the liability of the Guarantor set forth herein.
Should the Guarantor fail to collect the proceeds of any such indebtedness owed
to it and pay the proceeds to the Bank, the Bank, as the Guarantor's
attorney-in-fact, may do such acts and sign such documents in the Guarantor's
name as the Bank considers necessary to effect such collection.
8. INVALID, FRAUDULENT OR PREFERENTIAL PAYMENTS. The Guarantor agrees
that, to the extent the Debtor or any endorser, cosigner, other guarantor or
other person liable on any Indebtedness makes a payment or payments to, or is
credited for any payment or payments made for or on behalf of the Debtor to the
Bank, which payment or payments, or any part thereof, is subsequently
invalidated, determined to be fraudulent or preferential, set aside or required
to be repaid to any trustee, receiver, assignee or any other party whether under
any bankruptcy, state or federal law or under any common law or equitable cause
or otherwise, then, to the extent thereof, the obligation or part thereof
intended to be satisfied thereby shall be revived, reinstated and continued in
full force and effect as if such payment or payments had not originally been
made or credited.
9. JOINT AND SEVERAL OBLIGATIONS; INDEPENDENT OBLIGATIONS. If more than
one Guarantor signs this Guaranty, the obligations hereunder are joint and
several. The Guarantor's obligations hereunder are independent of the
obligations of the Debtor or any endorser, cosigner, other guarantor or other
person liable on any Indebtedness and a separate action or actions may be
brought and prosecuted against the Guarantor on any Indebtedness.
10. FINANCIAL INFORMATION. The Guarantor hereby agrees to deliver or cause
to be delivered to the Bank:
A. OTHER INFORMATION. (i) Annual Statements. Not later than
March 31st of each year, a copy of the updated financial statement of
the Guarantor commencing March 31, 1997, which report shall be
prepared by the Guarantor; and (ii) Tax Returns. Not later than 30
days after filing but in no event later than October 15th of each
year, a copy of the Guarantor's federal income tax returns filed for
such year.
11. ACKNOWLEDGEMENT OF RECEIPT. Receipt of a true copy of this Guaranty
is hereby acknowledged by the Guarantor. The Guarantor understands and agrees
that this Guaranty shall not constitute a commitment of any nature whatsoever
by the Bank to renew or hereafter extend credit to the Debtor. The Guarantor
agrees that this Guaranty shall be effective with or without notice from the
Bank of the Bank's acceptance hereof.
12. CONTINUING GUARANTY. This Guaranty is a continuing guaranty.
Revocation shall be effective only upon written notice personally received by
an officer of the Bank at the originating office indicated below or actually
received at the originating office by United States mail postage prepaid.
Notice shall be effective at any office of the Bank should the originating
office no longer be in existence. Revocation shall be effective at the close
of the Bank's business day when such notice is actually received. Any
revocation shall be effective only as to the revoking party and shall not
affect that party's obligation with respect to any Indebtedness existing before
such revocation is effective.
13. NON-RELIANCE. In executing this Guaranty, the undersigned is not
relying, and has not relied, upon any statement or representation made by the
Bank, or any employee, agent or representative of the Bank, with respect to the
status, financial condition or other matters related to the Debtor or the
relationship between the Debtor and the Bank.
14. MULTIPLE GUARANTIES. If the Guarantor has executed or does execute
more than one guaranty of any indebtedness of the Debtor to the Bank, the
limits of liability thereunder and hereunder shall be cumulative.
15. SEVERABILITY. Should any one or more provisions of this Guaranty be
determined to be illegal or unenforceable, all other provisions shall remain
effective.
16. CORPORATE OR PARTNERSHIP AUTHORITY. If the Debtor is a corporation or
partnership, the Bank need not inquire into the power of the Debtor or the
authority of its officers, directors, partners or agents acting or purporting
to act in its behalf and any credit granted in reliance upon the purported
exercise of such power or authority is guarantied hereunder.
17. SEPARATE PROPERTY. Any married person who signs this Guaranty
expressly agrees that recourse may be had against such person's separate
property for all obligations hereunder.
18. ASSIGNMENT. The Bank may, with or without notice, assign this
Guaranty in whole or in part. This Guaranty shall inure to the benefit of the
Bank, its successors and assigns, and shall bind the Guarantor and the
Guarantor's heirs, executors, administrators, successors and assigns.
19. WAIVER OF JURY. The Guarantor and the Bank hereby expressly and
voluntarily waive any and all rights, whether arising under the California
constitution, any rules of the California Code of Civil Procedure, common law
or otherwise, to demand a trial by jury in any action, matter, claim or cause
of action whatsoever arising out of or in any way related to this Guaranty or
any other agreement, document or transaction contemplated hereby.
20. DISPUTE RESOLUTION.
A. DISPUTES. It is understood and agreed that, upon the request
of any party to this Guaranty, any dispute, claim or controversy of
any kind, whether in contract or in tort, statutory or common law,
legal or equitable, now existing or hereinafter arising between the
parties in any way arising out of, pertaining to or in connection
with: (i) this Guaranty, or any related agreements, documents or
instruments, (ii) all past and present loans, credits, accounts,
deposit accounts (whether demand deposits or time deposits), safe
deposit boxes, safekeeping agreements, guarantees, letters of credit,
goods or services, or other transactions, contracts or agreements of
any kind, (iii) any incidents, omissions, acts, practices, or
occurrences causing injury to any party whereby another parry or its
agents, employees or representatives may be liable, in whole or in
part, or (iv) any aspect of the past or present relationships of the
parties, shall be resolved through a two-step dispute resolution
process administered by the Judicial Arbitration & Mediation Services,
Inc. ("JAMS") as follows:
(2)
<PAGE> 3
B. STEP I - MEDIATION. At the request of any party to the
dispute, claim or controversy, the matter shall be referred to the
nearest office of JAMS for mediation, which is an informal,
non-binding conference or conferences between the parties in which a
retired judge or justice from the JAMS panel will seek to guide the
parties to a resolution of the case.
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL
PROPERTY). Should any dispute, claim or controversy remain unresolved
at the conclusion of the Step I Mediation Phase, then (subject to the
restriction at the end of this subparagraph) all such remaining
matters shall be resolved by final and binding arbitration before a
different judicial panelist, unless the parties shall agree to have
the mediator panelist act as arbitrator. The hearing shall be
conducted at a location determined by the arbitrator in Los Angeles,
California (or such other city as may be agreed upon by the parties)
and shall be administered by and in accordance with the then existing
Rules of Practice and Procedure of JAMS and judgement upon any award
rendered by the arbitrator may be entered by any State or Federal
Court having jurisdiction thereof. The arbitrator shall determine
which is the prevailing party and shall include in the award that
party's reasonable attorneys' fees and costs. This subparagraph shall
apply only if, at the time of the submission of the matter to JAMS,
the dispute or issues involved do not arise out of any transaction
which is secured by real property collateral or, if so secured, all
parties consent to such submission.
As soon as practicable after selection of the arbitrator, the
arbitrator, or the arbitrator's designated representative, shall
determine a reasonable estimate of anticipated fees and costs of the
arbitrator, and render a statement to each party setting forth that
party's pro-rata share of said fees and costs. Thereafter, each party
shall, within 10 days of receipt of said statement, deposit said sum
with the arbitrator. Failure of any party to make such a deposit
shall result in a forfeiture by the non-depositing party of the right
to prosecute or defend the claim which is the subject of the
arbitration, but shall not otherwise serve to abate, stay or suspend
the arbitration proceedings.
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required or
agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on Order of Reference conducted by a retired
judge or justice from the panel of JAMS appointed pursuant to the
provisions of Section 638(l) of the California Code of Civil
Procedure, or any amendment, addition or successor section thereto, to
hear the case and report a statement of decision thereon. The parties
intend this general reference agreement to be specifically enforceable
in accordance with said section. If the parties are unable to agree
upon a member of the JAMS panel to act as referee, then one shall be
appointed by the Presiding Judge of the county wherein the hearing is
to be held. The parties shall pay in advance, to the referee, the
estimated reasonable fees and costs of the reference, as may be
specified in advance by the referee. The parties shall initially
share equally, by paying their proportionate amount of the estimated
fees and costs of the reference. Failure of any party to make such a
fee deposit shall result in a forfeiture by the non-depositing party
of the right to prosecute or defend any cause of action which is the
subject of the reference, but shall not otherwise serve to abate, stay
or suspend the reference proceeding.
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision
of, or the exercise of any rights under any portion of this Dispute
Resolution provision, shall limit the right of any party to exercise
self help remedies such as set off, foreclosure against any real or
personal property collateral, or the obtaining of provisional or
ancillary remedies, such as injunctive relief or the appointment of a
receiver, from any court having jurisdiction before, during or after
the pendency of any arbitration. At the Bank's option, foreclosure
under a deed of trust or mortgage may be accomplished either by
exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure. The institution and maintenance of an action
for provisional remedies, pursuit of provisional or ancillary remedies
or exercise of self help remedies shall not constitute a waiver of the
right of any party to submit the controversy or claim to arbitration.
21. ATTORNEYS' FEES. Whether or not any suit, action, arbitration or
other dispute resolution proceeding is instituted, the Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses which may be
incurred in the collection of any Indebtedness, in the protection or
preservation of, or realization on, any collateral securing any Indebtedness
and in the enforcement by the Bank of this Guaranty.
22. GOVERNING LAW. This Guaranty shall be governed by and construed
according to the laws of the State of California and the Guarantor hereby
submits to the jurisdiction of the courts of the State of California.
23. ENTIRE AGREEMENT. This Guaranty and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties pertaining
to the transactions contemplated hereunder not incorporated or referenced in
this Guaranty or in such documents, instruments and agreements are superseded
hereby.
24. HEADINGS. The headings used herein are solely for the purpose of
identification and have no legal significance.
25. ADDRESS OF THE BANK. The Bank's originating office under this
Guaranty is: Sherman Oaks Office, 15165 Ventura Boulevard, Sherman Oaks, CA
91403.
26. MAXIMUM PRINCIPAL LIABILITY. THE MAXIMUM PRINCIPAL LIABILITY UNDER
THIS GUARANTY IS the amount of $1,600,000.00, plus interest at the rate(s)
applicable to any Indebtedness as set forth in the paragraph herein entitled
"Guaranty" and the expenses enumerated in the paragraph herein entitled
"Attorneys' Fees".
This Guaranty is made as of 8-16-96 which shall be the date of this Guaranty.
Executed by the undersigned Guarantor as of the date set forth above.
GUARANTOR:
X /s/ DEBORAH RAFFIN
--------------------------------
Deborah Raffin
Address:
1072 North Beverly Drive
Beverly Hills, CA 90210
(3)
<PAGE> 1
EXHIBIT 10.4
[SANWA BANK LOGO]
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made and entered into this 16th day of
August 1996 by and between SANWA BANK CALIFORNIA (the "Bank"); FOUR POINT
ENTERTAINMENT, INC. (the "Grantor"); and DOVE AUDIO, INC. (the "Borrower").
1. GRANT OF SECURITY INTEREST. The Grantor hereby grants to the Bank a
security interest in and to all of the following property (hereinafter
collectively referred to as the "Collateral"):
A. EQUIPMENT. All goods and equipment ("Equipment") now owned or
hereafter acquired by the Grantor or in which the Grantor now has or
may hereafter acquire any interest including, but not limited to, all
machinery, furniture, furnishings, fixtures, tools, supplies and motor
vehicles of every kind and description and all additions, accessions,
improvements, replacements and substitutions thereto and thereof.
B. INVENTORY. All inventory ("Inventory") now owned or hereafter
acquired by the Grantor including, but not limited to, all raw
materials, work in process, finished goods, merchandise, parts and
supplies of every kind and description, including inventory
temporarily out of the Grantor's custody or possession, together with
all returns on accounts.
C. ACCOUNTS AND CONTRACT RIGHTS. All accounts and contract
rights now owned or hereafter created or acquired by the Grantor,
including but not limited to, all receivables and all rights and
benefits due to the Grantor under any contract or agreement.
D. GENERAL INTANGIBLES. All general intangibles now owned or
hereafter created or acquired by the Grantor, including but not
limited to, goodwill, trademarks, trade styles, trade names, patents,
patent applications, software, customer lists and business records.
E. CHATTEL PAPER AND DOCUMENTS. All documents, instruments and
chattel paper now owned or hereafter acquired by the Grantor.
F. MONIES AND OTHER PROPERTY IN POSSESSION. All monies, and
property of the Grantor now or hereafter in the possession of the Bank
or the Bank's agents, or any one of them, including, but not limited
to, all deposit accounts, certificates of deposit, stocks, bonds,
indentures, warrants, options and other negotiable and non-negotiable
securities and instruments, together with all stock rights, rights to
subscribe, liquidating dividends, cash dividends, payments, dividends
paid in stock, new securities or other property to which the Grantor
may become entitled to receive on account of such property.
The Bank's security interest in the Collateral shall be a continuing lien and
shall include all proceeds and products of the Collateral including but not
limited to, the proceeds of any insurance thereon.
2. THE INDEBTEDNESS. The Collateral secures payment of all obligations
and indebtedness pursuant to those certain Term Loan Agreements in the
aggregate principal amounts of $220,000.00 and $1,365,447.27 between the Bank
and the Borrower, both dated August 16, 1996. The indebtedness and obligations
secured hereby (hereinafter referred to as the "Indebtedness") shall include
any and all modifications, extensions and renewals of such obligations or
indebtedness and performance of all the terms, covenants and agreements
contained in this Security Agreement and in any other document, instrument or
agreement evidencing or related to the Indebtedness or the Collateral.
The Indebtedness secured hereby shall not include any indebtedness incurred for
personal, family or household purposes except to the extent any disclosure
required under any consumer protection law (including but not limited to the
Truth in Lending Act) or any regulation thereto, as now existing or hereafter
amended, is or has been given.
3. GRANTOR'S REPRESENTATIONS AND WARRANTIES. The Grantor hereby makes
the following representations and warranties to the Bank, which representations
and warranties are continuing:
A. STATUS. The Grantor is a corporation duly organized and
validly existing under the laws of the State of Florida and is
properly licensed, qualified to do business and in good standing in,
and, where necessary to maintain the Grantor's rights and privileges,
has complied with the fictitious name statute of every jurisdiction in
which the Grantor is doing business.
B. AUTHORITY. The execution, delivery and performance by the
Grantor of this Security Agreement and any instrument, document or
agreement required hereunder have been duly authorized and do not and
will not: (i) violate any provision of any law, rule, regulation,
writ, judgment or injunction presently in effect affecting the
Grantor; (ii) require any consent or approval of the stockholders or
violate any provision of the articles of incorporation or by-laws of
the Grantor; or (iii) result in a breach of or constitute a default
under any material agreement to which the Grantor is a party or by
which the Grantor's properties may be bound or affected.
C. LEGAL EFFECT. This Security Agreement constitutes, and any
document, instrument or agreement required hereunder when delivered
will constitute, legal, valid and binding obligations of the Grantor
enforceable against the Grantor in accordance with their respective
terms.
D. FICTITIOUS TRADE STYLES. The Grantor currently uses no
fictitious trade styles in connection with its business operations.
The Grantor shall notify the Bank within thirty (30) days of the use
of any fictitious trade style at any future date, indicating the trade
style and state(s) of its use.
E. TITLE TO COLLATERAL; PERMITTED LIENS. The Grantor has good
and marketable title to the Collateral and the same is not now and
shall not become subject to any security interest, encumbrance, lien
or claim of any third person other than: (i) liens and security
interests securing the Indebtedness or other indebtedness owed to the
Bank; (ii) liens for taxes, assessments or similar charges either not
yet due or being contested in good faith; (iii) liens of mechanics,
materialmen, warehousemen, carriers or other like liens arising in the
ordinary course of business and securing obligations which are not yet
delinquent; (iv) purchase money liens or purchase money security
interests upon or in any property acquired or held by the Grantor in
the ordinary course of business to secure indebtedness outstanding on
the date hereof or permitted to be incurred hereunder; (v) liens and
security interests which, as of the date hereof, have been disclosed
to and approved by the Bank in writing; and (vi) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of the
Grantor's assets (collectively, the "Permitted Liens").
F. FINANCIAL STATEMENTS. All financial statements, information
and other data now or hereafter submitted to the Bank by the Grantor
in connection with the transaction with respect to which this Security
Agreement is entered into are true, accurate and correct and have been
or will be prepared in accordance with generally accepted accounting
principles consistently applied. Since the most recent submission of
any such financial statement, information or other data to the Bank,
the Grantor represents and warrants that no material adverse change in
the financial condition or operations as disclosed therein or thereby
has
(1)
<PAGE> 2
occurred which has not been fully disclosed to the Bank in writing.
G. LITIGATION. Except as have been disclosed to the Bank in
writing, there are no actions, suits or proceedings pending or, to the
knowledge of the Grantor, threatened against or affecting the Grantor
or the Grantor's properties before any court or administrative agency
which, if determined adversely to the Grantor, would have a material
adverse effect on the Grantor's financial condition, operations or the
Collateral.
H. TAXES. The Grantor has filed all tax returns required to be
filed and paid all taxes shown thereon to be due, including interest
and penalties, other than taxes which are currently payable without
penalty or interest or those which are being duly contested in good
faith.
4. BANK'S RIGHT TO AMEND OR MODIFY THE INDEBTEDNESS. The Grantor
authorizes the Bank, in its sole and absolute discretion, with or without
notice and without affecting the Bank's security interest in or to the
Collateral or the Bank's rights and remedies against the Collateral under this
Security Agreement, and from time to time, to: (i) change the time or manner of
payment of any Indebtedness by renewal, extension, modification, acceleration
or otherwise; (ii) alter or change any provision of any Indebtedness,
including, but not limited to, the rate of interest thereon, or any provision
of any document, instrument or agreement (other than this Security Agreement)
evidencing, guarantying, securing or related to any Indebtedness; (iii)
release, discharge, exonerate, substitute or add one or more of the parties
liable on any Indebtedness or one or more endorsers, cosigners, or guarantors
for any Indebtedness; (iv) obtain any other or additional collateral for the
payment of any Indebtedness or any guaranty thereof; (v) release existing or
after-acquired other or additional collateral on such terms as the Bank, in its
sole and absolute discretion, shall determine; (vi) apply any sums received
from the Borrower, any endorser, cosigner, guarantor or other person liable on
the Indebtedness or from the sale or collection of any other or additional
collateral or its proceeds securing any Indebtedness or any guaranty thereof to
any indebtedness whatsoever owed or to be owed to the Bank by the Borrower in
any order or amount and regardless of whether or not any portion of such sum is
applied to the Indebtedness secured hereunder or regardless of whether or not
any such indebtedness is due and payable; and (vii) apply any sums received
from the Grantor or from the sale or collection of the Collateral or its
proceeds to any Indebtedness in any order or amount regardless of whether or
not any such Indebtedness is due and payable.
5. GRANTOR'S ACKNOWLEDGMENTS AND WAIVERS. The Grantor hereby
unconditionally and irrevocably acknowledges and agrees to the following
matters:
A. CONSIDERATION. The Grantor hereby acknowledges and agrees
that the security interest in the Collateral is granted to the Bank in
consideration of the Indebtedness incurred by the Borrower to the Bank
or the benefits to the Grantor derived therefrom.
B. DEFICIENCY. In the event that any Indebtedness is now or
hereafter secured by a deed of trust, the Grantor waives any defense
and all rights and benefits of those laws purporting to state that no
deficiency judgment may be recovered on certain real property purchase
money obligations (as presently contained in Section 580b of the
California Code of Civil Procedure and as it may be amended or
superseded in the future) and those laws purporting to state that no
deficiency judgment may be recovered after a trustee's sale under a
deed of trust (as presently contained in Section 580d of the
California Code of Civil Procedure and as it may be amended or
superseded in the future).
C. ELECTION OF REMEDIES. The Grantor waives any defense
based upon the Grantor's loss of a right against the Borrower arising
from the Bank's election of a remedy on any Indebtedness under
bankruptcy or other debtor relief laws or under any other laws,
including, but not limited to, those purporting to reduce the Bank's
rights against the Collateral in proportion to the principal
obligation of any Indebtedness (as presently contained in Section 2809
of the California Civil Code and as it may be amended or superseded in
the future).
D. STATUTE OF LIMITATIONS. The Grantor waives the benefit of the
statute of limitations affecting the Grantor's liability hereunder
or the enforcement hereof.
E. BORROWER'S DEFENSES. The Grantor waives any defense arising
by reason of any disability or other defense of the Borrower, the
Borrower's successor or any endorser, cosigner, guarantor or other
person liable on any Indebtedness. Until all Indebtedness has been
paid in full, the Grantor shall not have any right of subrogation
against the Borrower, any endorser, cosigner, guarantor or other
person liable on any Indebtedness and the Grantor waives any benefit
of and any right to participate in any other or additional collateral
securing any Indebtedness or any guaranty thereof in which the Bank
now or hereafter has or acquires a security interest. The Grantor
waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor,
notices of acceptance with respect to any Indebtedness and all notices
of sale with respect to any other or additional collateral securing
any Indebtedness or any guaranty thereof.
F. Borrower's Financial Condition. The Grantor hereby
recognizes, acknowledges and agrees that advances may be made from
time to time with respect to any Indebtedness without authorization
from or notice to the Grantor even though the financial condition of
the Borrower, any endorser, cosigner, guarantor or other person liable
on any Indebtedness may have deteriorated since the date of this
Security Agreement. The Grantor waives all right to require the Bank
to disclose any information with respect to: (i) any Indebtedness;
(ii) the financial condition, credit or character of the Borrower, any
endorser, cosigner, guarantor or other person liable on any
Indebtedness; (iii) any other or additional collateral securing any
Indebtedness or any guaranty thereof; or (iv) any action or inaction
on the part of the Bank, the Borrower or any endorser, cosigner,
guarantor or other person liable on any Indebtedness. The Grantor
hereby assumes the responsibility for being informed of the financial
condition, credit and character of the Borrower and of all
circumstances bearing upon the risk of non-payment of any Indebtedness
which diligent inquiry would reveal.
6. GRANTOR'S COVENANTS. The Grantor covenants and agrees that, unless the
Bank otherwise consents in writing, the Grantor shall at all times:
A. MAINTENANCE OF INSURANCE. Keep and maintain the Collateral
insured for not less than its full replacement value against all risks
of loss and damage and maintain such other insurance as is usually
carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Grantor operates and
maintain such other insurance and coverages as may be required by the
Bank. All such insurance shall be in form and amount and with
companies satisfactory to the Bank. With respect to insurance
covering the Collateral, such insurance shall name the Bank as loss
payee pursuant to a loss payable endorsement satisfactory to the Bank
and shall not be altered or canceled except upon 10 days' prior
written notice to the Bank. Upon the Bank's request, the Grantor
shall furnish the Bank with the original policy or binder of all such
insurance.
B. MAINTENANCE OF COLLATERAL. Except for Permitted Liens, keep
and maintain the Collateral free and clear of all levies, liens,
encumbrances and other security interests (including, but not limited
to, any lien of attachment, judgment or execution) and defend the
Collateral against any such levy, lien, encumbrance or security
interest; comply with all laws, statutes and regulations pertaining to
the Collateral, its use and operation; execute, file and record such
statements, notices and agreements, take such actions and obtain such
certificates and other documents necessary to perfect, evidence and
continue the Bank's security interest in the Collateral and the
priority thereof; maintain accurate and complete records of the
Collateral; and properly care for, house, store and maintain the
Collateral in good condition, free of misuse, abuse and deterioration,
other than normal wear and tear.
C. LOCATION AND MAINTENANCE OF EQUIPMENT.
(i) LOCATION. The Equipment shall at all times be in the
Grantor's physical possession, shall not be held for sale or
lease and shall be kept only at the following locations): 8955
Beverly Boulevard, West Hollywood, CA 90048.
The Grantor shall not secrete, abandon or remove, or permit
the removal of, the Equipment, or any part thereof, from the
locations shown above or remove or permit to be removed any
accessories now or hereafter placed upon the Equipment.
(ii) EQUIPMENT SCHEDULES. Upon the Bank's demand, the
Grantor shall immediately provide the Bank with a complete and
accurate description of the
(2)
<PAGE> 3
Equipment including, as applicable, the make, model,
identification number and serial number of each item of
Equipment. In addition, the Grantor shall immediately notify
the Bank of the acquisition of any new or additional Equipment
or the replacement of any existing Equipment and shall supply
the Bank with a complete description of any such additional or
replacement Equipment.
(iii) MAINTENANCE OF EQUIPMENT. The Grantor shall, at the
Grantor's sole cost and expense, keep and maintain the
Equipment in a good state of repair and shall not destroy,
misuse, abuse, illegally use or be negligent in the care of
the Equipment or any part thereof. The Grantor shall not
remove, destroy, obliterate, change, cover, paint, deface or
alter the name plates, serial numbers, labels or other
distinguishing numbers or identification marks placed upon the
Equipment or any part thereof by or on behalf of the
manufacturer, any dealer or rebuilder thereof, or the Bank.
The Grantor shall not be released from any liability to the
Bank hereunder because of any injury to or loss or destruction
of the Equipment. The Grantor shall allow the Bank and its
representatives free access to and the right to inspect the
Equipment at all times and shall comply with the terms and
conditions of any leases covering the real property on which
the Equipment is located and any orders, ordinances, laws,
regulations or rules of any federal, state or municipal agency
or authority having jurisdiction of such real property or the
conduct of business of the persons having control or
possession of the Equipment.
(iv) FIXTURES. The Equipment is not now and shall not at
any time hereafter be so affixed to the real property on which
it is located as to become a fixture or a part thereof. The
Equipment is now and shall at all times hereafter be and
remain personal property of the Grantor.
D. LOCATION AND QUALITY OF INVENTORY. The Inventory (i) is now
and shall at all times hereafter be of good and merchantable quality
and free from defects; (ii) is not now and shall not at any time
hereafter be stored with a bailee, warehouseman or similar party
without the Bank's prior written consent and, in such event, the
Grantor will concurrently therewith cause any such bailee,
warehouseman or similar party to issue and deliver to the Bank, in
form acceptable to the Bank, warehouse receipts in the Bank's name
evidencing the storage of inventory; (iii) shall at all times be in
the Grantor's physical possession; (iv) shall not be held by others on
consignment, sale on approval, or sale or return; and (v) shall be
kept only at the following locations(s): 8955 Beverly Boulevard, West
Hollywood, CA 90048.
E. INSPECTION RIGHTS. At any reasonable time and from time to
time, permit the Bank or any representative thereof to examine and
make copies of the records and visit the properties of the Grantor and
discuss the business and operations of the Grantor with any employee
or representative thereof. If the Grantor now or at any time
hereafter maintains any records (including, but not limited to,
computer generated records and computer programs for the generation of
such records) in the possession of a third party, the Grantor hereby
agrees to notify such third party, to permit the Bank free access to
such records at all reasonable times and to provide the Bank with
copies of any records it may request, all at the Grantor's expense,
the amount of which shall be payable immediately upon demand.
F. REPORTING REQUIREMENTS. Promptly upon the Bank's request,
deliver or cause to be delivered to the Bank such information
pertaining to the Grantor, the Collateral or such other matters as the
Bank may reasonably request.
G. TRANSFER OF COLLATERAL. Not sell, contract for sale, convey,
transfer, assign, lease or sublet any of the Collateral except in the
ordinary course of business as presently conducted by the Grantor and
then, only for full, fair and reasonable consideration.
H. PAYMENT OF OBLIGATIONS. Pay all of the Grantor's liabilities
and obligations when due.
I. COMPENSATION OF EMPLOYEES. Compensate the Grantor's employees
for services rendered at an hourly rate at least equal to the minimum
hourly rate prescribed by any applicable federal or state law or
regulation.
J. NOTICES. Give the Bank prompt written notice of: (i) any
change in the Grantor's place of business or the acquisition of more
than one place of business; (ii) any proposed or actual change in the
Grantor's name, identity or business nature; (iii) any change in the
location of any Collateral; (iv) any Event of Default; (v) litigation,
arbitration or administrative proceedings to which the Grantor is a
party and which affects the Collateral and in which the claim or
liability exceeds $100,000.00; and (vi) any other matter which has
resulted in, or might result in, a material adverse change in the
Collateral or the financial condition or business operations of the
Grantor.
7. BORROWER'S COVENANTS. The Borrower hereby covenants and agrees as
follows:
A. GRANT OF SECURITY INTEREST. To the extent the Borrower has
any rights in or to any of the Collateral, the Borrower hereby grants
to the Bank a security interest in and to the Collateral in accordance
with and subject to the terms and provisions of this Security
Agreement. Any and all interests or rights which the Borrower may
have in or to the Collateral shall be, at all times, inferior,
subordinate, and subject to the security interests of the Bank therein
or thereto and shall be extinguished or terminated following, or as a
result of, the Bank's exercise of its rights and remedies under this
Security Agreement.
B. COLLATERAL IN THE BORROWER'S POSSESSION. To the extent that
any item of the Collateral is in the possession of the Borrower, the
above covenants of the Grantor pertaining to such item of the
Collateral shall be those of the Borrower or, with respect to
covenants concerning the maintenance of such item of the Collateral,
inspection rights, reporting requirements, any transfer of such items
of the Collateral and notices, those of both the Borrower and the
Grantor.
8. EVENTS OF DEFAULT. Any one or more of the following described events
shall constitute an event of default ("Event of Default") hereunder:
A. NON-PAYMENT. There shall occur a failure to pay when due any
payment of principal or interest or any other sum referred to in this
Security Agreement or under any other document, instrument or
agreement evidencing or relating to any indebtedness owed by the
Grantor to the Bank or owed to the Bank by any obligor on the
Indebtedness.
B. PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Grantor
shall fail in any material respect to perform or observe any term,
covenant or agreement contained in this Security Agreement or in any
document, instrument or agreement evidencing or relating to any
indebtedness of the Grantor or any indebtedness of any obligor on the
Indebtedness (whether such indebtedness is owed to the Bank or
third persons), and any such failure (exclusive of the payment of
money to the Bank, which failure shall constitute and be an immediate
Event of Default if not paid when due or when demanded to be due)
shall continue for more than 30 days after written notice from the
Bank to the Grantor or the obligor on the Indebtedness of the
existence and character of such Event of Default.
C. REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made under or in connection with this
Security Agreement or any financial statement or information given in
connection with the transaction with respect to which this Security
Agreement is entered into shall prove to have been incorrect in any
material respect when made or given or when deemed to have been made
or given.
D. INSOLVENCY. The Grantor or any obligor on or any guarantor of
the Indebtedness shall: (i) become insolvent or be unable to pay its
debts as they mature; (ii) make an assignment for the benefit of
creditors or to an agent authorized to liquidate any substantial
amount of its properties or assets; (iii) file a voluntary petition in
bankruptcy or seeking reorganization or to effect a plan or other
arrangement with creditors; (iv) file an answer admitting the material
allegations of an involuntary petition relating to bankruptcy or
reorganization or join in any such petition; (v) become or be
adjudicated a bankrupt; (vi) apply for or consent to the appointment
of, or consent that an order be made appointing, any receiver,
custodian or trustee, for itself or any of its properties, assets or
businesses; or (vii) any receiver, custodian or trustee shall have
been appointed for all or a substantial part of its properties, assets
or businesses and shall not be discharged within 30 days after the
date of such appointment.
(3)
<PAGE> 4
E. EXECUTION. Any writ of execution or attachment or any
judgment lien shall be issued against the Collateral and shall not be
discharged or bonded against or released within 30 days after the
issuance or attachment of such writ or lien.
F. IMPAIRMENT OF COLLATERAL. There shall occur any injury or
damage to all or any part of the Collateral or all or any part of the
Collateral shall be lost, stolen or destroyed.
G. REVOCATION OR LIMITATION OF GUARANTY. Any guaranty given with
respect to the Indebtedness shall be revoked or limited or its
enforceability or validity shall be contested by any guarantor, by
operation of law, legal proceeding or otherwise or any guarantor who
is a natural person shall die.
H. SUSPENSION. The Grantor or any obligor on the Indebtedness
shall voluntarily suspend the transaction of business or allow to be
suspended, terminated, revoked or expired any permit, license or
approval of any federal, state or municipal agency or authority
necessary to conduct such person's business as now conducted.
I. CHANGE IN OWNERSHIP. There shall occur a sale, transfer,
disposition or encumbrance (whether voluntary or involuntary), or an
agreement shall be entered into to do so, with respect to more than
10% of the issued and outstanding capital stock of the Grantor or any
obligor on the Indebtedness, if a corporation, or there shall occur a
change in any general partner or a change affecting the control of the
Grantor or any obligor on the Indebtedness, if a partnership.
9. BANK'S RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any
Event of Default, the Bank may, at its sole and absolute election, without
demand and only upon such notice as may be required by law:
A. ACCELERATION. Declare the Indebtedness and any or all other
indebtedness owing to the Bank by the Grantor or any obligor on the
Indebtedness (however such indebtedness may be evidenced or secured)
immediately due and payable, whether or not otherwise due and payable.
B. CEASE EXTENDING CREDIT. Cease extending credit to or for the
account of the Grantor or any obligor on the Indebtedness under any
agreement now existing or hereafter entered into with the Bank.
C. TERMINATION. Terminate any agreement as to any future
obligation of the Bank without affecting the Grantor's obligations to
the Bank or the Bank's rights and remedies under this Security
Agreement or under any other document, instrument or agreement.
D. SEGREGATE COLLECTIONS. Require the Grantor to segregate all
collections and proceeds of the Collateral so that they are capable of
identification and to deliver such collections and proceeds to the
Bank, in kind, without commingling, at such times and in such manner
as required by the Bank.
E. RECORDS OF COLLATERAL. Require the Grantor to periodically
deliver to the Bank records and schedules showing the status,
condition and location of the Collateral and such contracts or other
matters which affect the Collateral. In connection herewith, the Bank
may conduct such audits or other examinations of such records,
including, but not limited to, verification of balances owing by any
account debtor of the Grantor, as the Bank, in its sole and absolute
discretion, deems necessary.
F. NOTIFICATION OF ACCOUNT DEBTORS. Notify any or all of the
Grantor's account debtors, buyers or transferees of the Collateral or
other persons of the Bank's interest in the Collateral and the
proceeds thereof and instruct such person(s) to thereafter make any
payment due the Grantor directly to the Bank.
The Grantor hereby irrevocably constitutes and appoints the Bank as
its attorney-in-fact to (i) endorse the name of the Grantor on any
notes, acceptances, checks, drafts, money orders or other evidence of
payment that may come into the Bank's possession; (ii) sign the name
of the Grantor on any invoice or bill of lading relating to any of the
Collateral; (iii) notify post office authorities to change the address
for delivery of mail addressed to the Grantor to such address as the
Bank may designate and take possession of and open mail addressed to
the Grantor and remove therefrom proceeds of and payments on the
Collateral; and (iv) demand, receive and enforce payment and give
receipts, releases and satisfactions for and sue for all money payable
to the Grantor. All of the preceding may be done either in the name
of the Bank or in the name of the Grantor with the same force and
effect as the Grantor could have done had this Security Agreement not
been entered into.
G. COMPROMISE. Grant extensions, compromise claims and settle
any account for less than the amount owing thereunder, all without
notice to the Grantor or any obligor on or any guarantor of the
Indebtedness.
H. PROTECTION OF SECURITY INTEREST IN COLLATERAL. Make such
payments and do such acts as the Bank, in its sole judgment, considers
necessary and reasonable to protect its security interest in the
Collateral. The Grantor hereby irrevocably authorizes the Bank to
pay, purchase, contest or compromise any encumbrance, lien or claim
which the Bank, in its sole judgment, deems to be prior or superior to
its security interest. Further, the Grantor hereby agrees to pay to
the Bank, upon demand therefor, all expenses and expenditures
(including attorneys' fees) incurred in connection with the foregoing.
I. FORECLOSURE. Enforce any security interest or lien given or
provided for under this Security Agreement or under any other document
relating to the Collateral, in such manner and such order, as to all
or any part of the Collateral, as the Bank, in its sole judgment,
deems to be necessary or appropriate and the Grantor hereby waives any
and all rights, obligations or defenses now or hereafter established
by law relating to the foregoing. In the enforcement of its security
interest in the Collateral, the Bank is authorized to enter upon the
premises where any Collateral is located and take possession of the
Collateral or any part thereof, together with the Grantor's records
pertaining thereto, or the Bank may require the Grantor to assemble
the Collateral and records pertaining thereto and make such Collateral
and records available to the Bank at a place designated by the Bank.
The Bank may sell the Collateral or any portions thereof, together
with all additions, accessions and accessories thereto, giving only
such notices and following only such procedures as are required by
law, at either a public or private sale, or both, with or without
having the Collateral present at the time of sale, which sale shall be
on such terms and conditions and conducted in such manner as the Bank
determines in its sole judgment to be commercially reasonable. Any
deficiency which exists after the disposition or liquidation of the
Collateral shall be a continuing liability of any obligor on or any
guarantor of the Indebtedness and shall be immediately paid to the
Bank.
The Bank may foreclose, either by judicial foreclosure or by exercise
of power of sale, any deed of trust securing any Indebtedness even
though such foreclosure may destroy or diminish the Grantor's rights
against the Borrower. The Borrower shall be liable to the Bank for
any part of any Indebtedness remaining unpaid after any such
foreclosure whether or not such foreclosure was for fair market value.
J. APPLICATION OF PROCEEDS. All amounts received by the Bank as
proceeds from the disposition or liquidation of the Collateral shall
be applied as follows: first, to the costs and expenses of collection,
including court costs and reasonable attorneys' fees, whether or not
suit is commenced by the Bank; next, to those costs and expenses
incurred by the Bank in protecting, preserving, enforcing, collecting,
selling or disposing of the Collateral; next, to the payment of
accrued and unpaid interest on all of the Indebtedness; next, to die
payment of the outstanding principal balance of the Indebtedness; and
last, to the payment of any other indebtedness owed by the Grantor to
the Bank. Any excess Collateral or excess proceeds existing after the
disposition or liquidation of the Collateral will be returned or paid
by the Bank to the Grantor.
K. NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the
Bank's rights set forth herein or seek such other rights or pursue
such other remedies as may be provided by law, in equity or in any
other agreement now existing or hereafter entered into between the
Bank and the Grantor or any obligor on or guarantor of the
Indebtedness, or otherwise.
(4)
<PAGE> 5
L. BORROWER'S AND GRANTOR'S WAIVERS. The Grantor and the
Borrower each waive all rights to require the Bank to: (i) proceed
against the Borrower, any endorser, cosigner, guarantor or other
person liable on any Indebtedness; (ii) proceed against the
Collateral, any particular item of the Collateral or any other or
additional collateral securing any Indebtedness or any guaranty
thereof; or (iii) pursue or refrain from pursuing any other remedy in
the Bank's power whatsoever against any Collateral or on any
Indebtedness.
10. SUBORDINATION. Any indebtedness of the Borrower or any endorser,
cosigner, guarantor or other person liable on any Indebtedness now or hereafter
owed to the Grantor is hereby subordinated to the Indebtedness. Such
indebtedness owed to the Grantor shall, if the Bank so requests, be collected,
enforced and received by the Grantor as trustee for the Bank and be paid over
to the Bank on account of the Indebtedness but without reducing or affecting in
any manner the matters contained in this Security Agreement. Should the
Grantor fail to collect the proceeds of any such indebtedness owed to it and
pay such proceeds to the Bank, the Bank, as the Grantor's attorney-in-fact, may
do such acts and sign such documents in the Grantor's name as the Bank
considers necessary to effect such collection.
11. INVALID, FRAUDULENT OR PREFERENTIAL PAYMENTS. The Grantor agrees
that, to the extent the Borrower or any endorser, cosigner, guarantor or other
person liable on any Indebtedness makes a payment or payments on any
Indebtedness, or is credited for any payment or payments made for or on behalf
of any Indebtedness, which payment or payments, or any part thereof, is
subsequently invalidated, determined to be fraudulent or preferential, set
aside or required to be repaid to any trustee, receiver, assignee or any other
party whether under any bankruptcy, state or federal law or under any common
law or equitable cause or otherwise, then, to the extent thereof, the
obligation or part thereof intended to be satisfied thereby shall be revived,
reinstated and continued in full force and effect as if such payment or
payments had not originally been made or credited.
12. MISCELLANEOUS PROVISIONS.
A. AMOUNTS PAYABLE UNDER THIS SECURITY AGREEMENT. If the Grantor
fails to pay on demand the amount of any obligations referred to in
this Security Agreement, the Bank may pay such amount at its option
and without any obligation to do so and without waiving any default
occasioned by the Grantor's failure to pay such amount. All amounts
so paid by the Bank, together with reasonable attorneys' fees and all
other costs, charges and expenses relating to the Indebtedness, shall
be a part of the Indebtedness and shall bear interest at the highest
rate chargeable on any Indebtedness until paid in full.
B. OTHER TERMS. Terms not otherwise defined in this Security
Agreement shall have the meanings attributed to such terms in the
California Uniform Commercial Code.
C. RELIANCE. Each warranty, representation, covenant and
agreement contained in this Security Agreement shall be conclusively
presumed to have been relied upon by the Bank regardless of any
investigation made or information possessed by the Bank and shall be
cumulative and in addition to any other warranties, representations,
covenants or agreements which the Grantor shall now or hereafter give,
or cause to be given, to the Bank.
D. ATTORNEYS' FEES. In the event of any action in relation to
this Security Agreement, the Collateral or any document, instrument or
agreement secured hereby or related hereto, the prevailing party, in
addition to all other sums to which it may entitled, shall be entitled
to reasonable attorneys' fees.
E. NOTICES. All notices, payments, requests, information and
demands which either party hereto may desire, or be required to give
or make to the other party, shall be given or made to such party by
hand delivery or through deposit in the United States mail, postage
prepaid, or by Western Union telegram, addressed to the address set
forth below such party's signature to this Security Agreement or to
such other address as may be specified from time to time in writing by
either party to the other.
F. WAIVER. Neither the failure nor delay by the Bank in
exercising any right hereunder or under any document, instrument or
agreement mentioned herein shall operate as a waiver thereof, nor
shall any single or partial exercise of any right hereunder or under
any other document, instrument or agreement mentioned herein preclude
other or further exercise thereof or the exercise of any other right;
nor shall any waiver of any right or default hereunder or under any
other document, instrument or agreement mentioned herein constitute a
waiver of any other right or default or constitute a waiver of any
other default of the same or any other term or provision.
G. Assignment. This Security Agreement shall be binding upon and
inure to the benefit of the Grantor and the Bank and their respective
successors and assigns, except that the Grantor shall not have the
right to assign the Grantor's rights hereunder or any interest herein
without the Bank's prior written consent. The Bank may sell or assign
all or any portion of its rights and benefits hereunder and, in
connection therewith, may deliver to such prospective buyer or
assignee financial statements and other relevant information
pertaining to the Grantor or any obligor on the Indebtedness.
H. SEVERABILITY. Should any one or more provisions of this
Security Agreement be determined to be illegal or unenforceable, all
other provisions shall remain effective.
I. JURISDICTION. This Security Agreement and the rights of the
parties hereunder to and concerning the Collateral, and any documents,
instruments or agreements mentioned or referred to herein, shall be
governed by and construed according to the laws of the State of
California, to the jurisdiction of whose courts the parties hereby
submit.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
be executed as of the date first hereinabove written.
BANK: GRANTOR:
SANWA BANK CALIFORNIA FOUR POINT ENTERTAINMENT, INC.
BY: /s/ JUDI A. VOGEL BY: /s/ RONALD M. ZISKIN
--------------------------------- --------------------------------
JUDI A. VOGEL, AUTHORIZED OFFICER RONALD M. ZISKIN, PRESIDENT
ADDRESS: ADDRESS:
Sherman Oaks Office
15165 Ventura Boulevard 8955 Beverly Boulevard
Sherman Oaks, CA 91403 West Hollywood, CA 90048
(5)
<PAGE> 6
BORROWER:
DOVE AUDIO, INC.
BY: /s/ MICHAEL VINER
----------------------------------------
MICHAEL VINER, PRESIDENT/CHAIRMAN
BY: /s/ DEBORAH RAFFIN
----------------------------------------
DEBORAH RAFFIN, VICE PRESIDENT/SECRETARY
ADDRESS:
8955 Beverly Boulevard
West Hollywood, CA 90048
(6)
<PAGE> 7
[LOGO]
Sanwa
Bank
California
LOAN DISBURSEMENT INSTRUCTIONS
($1,365,447.27 Term Loan)
Date: 8-16-96 Loan Number:
----------------------- ---------------------
The undersigned hereby instructs Sanwa Bank California to disburse the proceeds
of this loan as shown below:
<TABLE>
<CAPTION>
DISBURSEMENT AMOUNT
<S> <C> <C>
1. PAY OFF THE FOLLOWING LOAN WITH SANWA BANK CALIFORNIA: Four Point Entertainment, Inc. $800,702.13
0178362636/00216.
2. PAY OFF THE FOLLOWING LOAN WITH SANWA BANK CALIFORNIA: Four Point Entertainment, Inc. $564,745.14
0178362636/00224.
===============
TOTAL: $1,365,447.27
</TABLE>
BORROWER:
DOVE AUDIO, INC.
BY: /s/ MICHAEL VINER
-------------------------------------
MICHAEL VINER, PRESIDENT/CHAIRMAN
BY: /s/ DEBORAH RAFFIN
-------------------------------------
DEBORAH RAFFIN, VICE PRESIDENT/SECRETARY
(1)
<PAGE> 1
EXHIBIT 10.5
DOVE INTERNATIONAL, INC. ("Dove", "we" or "us")
8955 Beverly Boulevard
West Hollywood, California 90048
September 12, 1996
Guinness Mahon & Co. Limited (the "Bank")
32 St. Mary At Hill
London, England EC3P 3AJ
Samuelson Entertainment Limited ("SEL")
23 West Southfield
London, England EC1A 9HY
Re: "WILDE" (THE "PICTURE")
------------------------
Dear Sirs:
Definitions used in the Agreement shall have the same meaning when
used herein unless the context otherwise requires.
The Bank has requested that we arrange for the deposit of the sum of
L.333,334 ("the Deposit") as security for the final payment of the Advance
payable when due pursuant to Clause 7.4 of the Inter-Party Agreement made
among, inter alia, the Bank, SEL and us (the "Inter-Party Agreement"), provided
and notwithstanding anything to the contrary in the Inter-Party Agreement, that
an aggregate of no less than G.B.L.5,135,844 production financing has been
advanced to SEL (after the date hereof) by June 30, 1997. We acknowledge that
the G.B.L.5,135,844 production financing requirement shall be reduced by the
following amounts upon payment or by holdback in the case of the payment to the
Bank as part of the first draw down and in the case of the Bank, (or holdbacks
in the case of the Bank) to the specified parties:
The Bank - G.B.L.135,000
British Screen Fund - G.B.L. 58,500
Donadio & Asworth, Inc. - G.B.L. 85,500
Wall-to-Wall TV, Ltd. - G.B.L. 5,000
Film Finances, Ltd. - G.B.L.136,749
Peter Frasers & Dunlop - G.B.L. 50,000
Miramax Film Corp
(approx.) - G.B.L.110,340
-------------
TOTAL G.B.L.581,089
<PAGE> 2
Guinness Mahon & Co. Limited
Samuelson Entertainment Limited
Page 2
September 12, 1996
As an inducement for the Bank entering into the loan agreement with SEL to
finance the production costs of the Picture, in consideration of MV agreeing to
arrange for the Deposit to be placed with the Bank upon the terms and
conditions set out below, and SEL agreeing to amend the payment schedule and
the other terms herein in the Agreement as set out below, the parties hereby
agree, as follows:
1. MV hereby agrees to place or cause to be placed the Deposit by
no later than the opening of business (London time) on Friday,
September 13th with the Bank in an account charged in favor of
the Bank as security for our obligation to pay the sum of
L.333,334 on Delivery in accordance with terms of the
Agreement (as modified by the Inter-Party Agreement and this
letter agreement). The Bank agrees that interest on such
Deposit shall be unconditionally and irrevocably paid to MV
and the Deposit shall be released to MV upon our payment of
the payment pursuant to Section 15(b) of the Agreement. The
Deposit shall be unconditionally and irrevocably released to
MV if Delivery is not effected in accordance with the terms of
the Agreement (as modified by the Inter-Party Agreement and
this letter agreement ).
2. In consideration of the foregoing, we and SEL hereby agree
that MV shall be entitled to receive a 5% commission ("MV"
Commissions") from all Gross Receipts received by us in the
Territory after deduction of Dove's full Distribution Fee as
set out in Paragraph IV of Exhibit B to the Agreement until
such time as MV has received the sum of $120,000 (whereupon
such commission shall cease to be deducted from such Gross
Receipts), and we hereby unconditionally and irrevocably
undertake to pay such commission to MV to bank account
designated by MV to us in writing. Furthermore, SEL hereby
agrees that MV shall be entitled to: (i) the sum of $120,000
payable 5% from 100% of the gross receipts received by all
third party distributors from exploitation of the rights in
the Territory in the event the rights granted to us under the
Agreement terminate after the cure periods or as otherwise
provided in the Inter-Party Agreement (and after only the
Bank's recoupment of the amount of the unpaid portion of the
Advance due under Section 15(a) plus the Bank's actual costs
relating to the collection of the unpaid portion of the
Advance due under Section 15(a) and the disposition of the
rights generally described in Section 4(a) of the Agreement,
less all proceeds
<PAGE> 3
Guinness Mahon & Co. Limited
Samuelson Entertainment Limited
Page 3
September 12, 1996
received by the Bank (by the date of any payments by MV under
the Guaranty) from any sale, license or other disposition of
the rights generally described in Section 4(a) of the
Agreement (including by SEL or otherwise); and (ii) 8% of 100%
of net profits of the Picture ("MV Profits"), net profits
being payable, defined and accounted for in accordance with
the terms of the Collection Agreement made with, inter alia,
SEL, but in no event on terms less favorable than applicable
to any other profit participant.
3. In order to induce MV to arrange for the Deposit to be placed
with the Bank upon the terms and conditions set out herein, to
secure payment of all sums payable by him under the Guaranty
of even date to be given by MV to the Bank (the "Guaranty")
and the payment of the Deposit to the Bank if we do not make
timely payment of the Section 15(b) payment, and in order to
secure the payment of the MV Profits to MV hereunder by SEL,
SEL hereby grants and assigns to MV a continuing security
interest in, and copyright mortgage in, the Picture and in all
of Samuelson's right, title and interest in all elements,
including physical elements, properties, copyrights, contract
rights, inventories, accounts and general intangibles
associated with and relating to the Picture. Notwithstanding
the foregoing, MV acknowledges that such security interest
shall be subordinated only to liens in favor of us and the
Bank in the amount of the unpaid sums pursuant to Section
15(a) of the Agreement and interest as provided herein; and in
the case of the Bank provided that, the Bank executes a
nondisturbance agreement in a form and substance reasonably
satisfactory to MV and the Bank. SEL agrees to execute all
further documents MV may reasonably require to perfect,
evidence, renew and/or continue the security interest and
copyright mortgage and assignment hereby granted and/or to
effectuate the purposes and intents of this Agreement,
including, without limitation, the signing and delivery of
Uniform Commercial Code financing statement and mortgage of
copyright in a form and substance attached hereto as Exhibit
"A".
4. In addition, in order to induce MV to arrange for the Deposit
to be placed with the Bank upon the terms and conditions set
out herein and to deliver the Guaranty to the Bank, to secure
payment of all sums payable by him under the Guaranty and the
payment of the Deposit to the Bank if we do
<PAGE> 4
Guinness Mahon & Co. Limited
Samuelson Entertainment Limited
Page 4
September 12, 1996
not make timely payment of the Section 15(b) payment, we
hereby grant and assign to MV a continuing security interest
in, and copyright mortgage in, the Picture and in all of our
right, title and interest in all elements, including physical
elements, properties, copyrights, contract rights,
inventories, accounts and general intangibles associated with
and relating to the Picture. Notwithstanding the foregoing,
MV acknowledges that such security interest shall be
subordinated only to liens in favor of us and the Bank in the
amount of the unpaid sums pursuant to Section 15(a) of the
Agreement and interest as provided herein; and in the case of
the Bank provided that, the Bank executes a nondisturbance
agreement in a form and substance reasonably satisfactory to
MV and the Bank. We agree to execute all further documents MV
may reasonably require to perfect, evidence, renew and/or
continue the security interest and copyright mortgage and
assignment hereby granted and/or to effectuate the purposes
and intents of this Agreement, including, without limitation,
the signing and delivery of Uniform Commercial Code financing
statement and mortgage of copyright in a form and substance
attached hereto as Exhibit "B".
5. SEL (and the Bank, as assignee of SEL's rights under the
Agreement) and we agree to hereby amend the Agreement (which
shall in other respects remain in full force and effect save
as set out in the Inter-Party Agreement) by deleting the words
"November 1, 1996" appearing therein and adding after the
words "March 3, 1997" the words "and April 2, 1997". We
hereby confirm that we will be responsible for and pay to the
Bank: the interest charges incurred by SEL to the Bank caused
by changing payment of the Advance from two payments of
L.333,333 each on the first and last day of principal
photography to five payments of L.133,334 as set out in
Section 15(a) of the Agreement as amended in this Paragraph 5,
to a cap of L.20,000, such interest to be payable at the same
time as the payment pursuant to Section 15(b) of the Agreement
(as modified by Clause 7.4 of the Inter-Party Agreement and
this letter agreement). Such interest charges once paid may
be recouped by Dove as Distribution Expenses out of Gross
Receipts.
6. Dove and SEL (and the Bank, as assignee of SEL's rights under
the Agreement) hereby amend the Agreement (which shall in all
other
<PAGE> 5
Guinness Mahon & Co. Limited
Samuelson Entertainment Limited
Page 5
September 12, 1996
respects remain in full force and effect save as set out in
the Inter-Party Agreement), as follows:
(i) In the event that Dove fails to make timely payment
of the portion of Advance due under Section 15(a) of
the Agreement (as such payment dates are modified
herein), SEL and the Bank each agree that it will
provide Dove with one hundred five (105) days written
notice ("Cure Period Notice") specifying the portion
of Advance which has not been paid when due and
payable, prior to taking action against Dove or
terminating the rights grant under Section 4(a) of
the Agreement. Specifically, the rights granted to
Dove under Section 4(a) of the Agreement shall remain
vested pursuant to Section 4(a) and shall not revert
to SEL or be terminated until the end of such one
hundred five (105) day period (the "Cure Period").
In the event that Dove is simultaneously in default
under more than one of the payment obligations under
Section 15(a) (as modified by this letter agreement),
the Cure Periods shall run consecutively from
delivery of the Cure Period Notice for the then
earliest uncured payment default. (To illustrate: if
Dove does not pay a portion Advance payment due in
January and February 1997, then: (i) the Cure Period
for the January default shall commence on delivery of
the Cure Period Notice therefor and terminate 105
days thereafter, (ii) the Cure Period for the
February default shall commence on the date of
delivery of the February Cure Period Notice, provided
that so long as the January default is not cured the
February Cure Period shall be deemed to have
commenced upon delivery of the January Cure Period
Notice; and (iii) if Dove or any third party cures
the January default at any time during the Cure
Period therefore, then the February Cure Period shall
be deemed to have commenced on the date of actual
delivery of the February Cure Period Notice (and not
concurrent with delivery of the January Cure Period
Notice).) During each Cure Period, Dove shall have
the right to cure any such default under the
Agreement by making payment of the portion of Advance
that is the subject of the Cure Period Notice
(whereupon Dove shall be deemed to be in compliance
with the terms of the Agreement); provided, however,
that in the event that the default is cured after
<PAGE> 6
Guinness Mahon & Co. Limited
Samuelson Entertainment Limited
Page 6
September 12, 1996
the 60th day of the Cure Period, then and in such
event to effect such cure Dove (or the curing third
party) must pay the amount of the Advance then due
and payable, together with accrued interest thereon
at the rate equal to the fixed rate equivalent to 2%
per annum over LIBOR (as fixed or floating pursuant
to the exercise of SEL's option with the Bank)
(accrued for that number of days by which the date on
which the curing payment was made was beyond or in
excess of the 60th day of the Cure Period and such
interest charges once paid may be recouped by Dove as
Distribution Expenses out of Gross Receipts); and
(ii) Upon payment to SEL or the Bank (as the assignee of
SEL's rights under the Agreement) of all of the
amounts due under Section 15 of the Agreement
(together with interest on cure payments made after
the 60th day of a Cure Period, if applicable, as
described in Section 4(i) above), regardless of the
date paid (i.e., if paid by the dates provided for in
the Agreement (as modified herein) or whether paid
during any of the Cure Periods) and the payors
thereof (including, without limitation, whether paid
by Dove or a third party), the condition set forth in
the first sentence of Section 4(a) of the Agreement
shall be deemed satisfied for all purposes and Dove
shall unconditionally and indefeasibly own all of the
rights set forth and described in Section 4(a) of the
Agreement free and clear of any claims and the Bank's
security interest in the rights described under
Section 4(a) of the Agreement shall terminate.
(iii) In the event of the filing of a bankruptcy case by or
against us and provided, that the Advance has not
been paid by us or MV, the grant of rights under
Section 4(a) shall terminate (provided, however, that
our and MV's rights to repayment of amounts
previously paid by either or both of us shall
continue as set forth in the Inter-Party Agreement).
7. In order to induce the Bank to provide the production
financing to SEL, Dove hereby grants and assigns to the Bank a
continuing security interest in, and copyright mortgage in the
Picture and in all of our right, title and interest in all
elements, including physical elements, properties,
<PAGE> 7
Guinness Mahon & Co. Limited
Samuelson Entertainment Limited
Page 7
September 12, 1996
copyrights, contract rights, inventories, accounts and general
intangibles associated with and relating to the Picture.
Dove's rights pursuant to Section 4(a) of the Agreement in the
Picture until the sums due and payable under Section 15(a)
have been paid. Upon payment of the sums to the extent due
and payable under Section 15(a) by any party, such security
interest shall automatically terminate. We agree to execute
all further documents the Bank may reasonably require to
perfect, evidence, renew and/or continue the security interest
and copyright mortgage and assignment hereby granted and/or to
effectuate the purposes and intents of this Agreement,
including, without limitation, the signing and delivery of
Uniform Commercial Code financing statement and mortgage of
copyright in a form and substance attached hereto as Exhibit
"C". In addition, we agree to undertake our commercially
reasonable efforts to obtain subordination(s) for existing
lienholder(s) in our rights in the Picture in a form and
substance reasonably acceptable to the Bank, us and the
lienholder(s).
8. This Agreement and its validity, construction and performance
shall be governed in all respects by the laws of the State of
California, without giving effect to principals of conflicts
of laws. Each of you and us irrevocably consent to the
exclusive jurisdiction of the courts of the State of
California and the federal courts of the United States located
in California (Central District) for the purpose of any action
or in the proceeding relating to this agreement.
This letter may be signed in counterparts. Kindly indicate your
acceptance of its terms by signing and returning the enclosed copy.
Yours faithfully,
DOVE INTERNATIONAL, INC.
By:/s/ Steve Soloway
-------------------------
Its:V.P. - General Counsel
----------------------
<PAGE> 8
Guinness Mahon & Co. Limited
Samuelson Entertainment Limited
Page 8
September 12, 1996
AGREED AND ACCEPTED:
/s/ Premila Hoon
- - -------------------------------
GUINNESS MAHON & CO. LIMITED
/s/ Mark Samuelson
- - -------------------------------
SAMUELSON ENTERTAINMENT LIMITED
ACKNOWLEDGED WITH RESPECT TO PARAGRAPHS 3 AND 4:
/s/ Michael Viner
- - -------------------------------
MICHAEL VINER
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEET AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 170
<SECURITIES> 0
<RECEIVABLES> 3,222
<ALLOWANCES> 1,705
<INVENTORY> 5,168
<CURRENT-ASSETS> 14,123
<PP&E> 7,704
<DEPRECIATION> 3,143
<TOTAL-ASSETS> 29,533
<CURRENT-LIABILITIES> 11,380
<BONDS> 0
0
856
<COMMON> 52
<OTHER-SE> 15,407
<TOTAL-LIABILITY-AND-EQUITY> 29,533
<SALES> 16,193
<TOTAL-REVENUES> 16,193
<CGS> 12,609
<TOTAL-COSTS> 18,870
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> (2,776)
<INCOME-TAX> (346)
<INCOME-CONTINUING> (2,430)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,430)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> 0
</TABLE>
