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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _________________
COMMISSION FILE NUMBER 0-24984
DOVE ENTERTAINMENT, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 95-4015834
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8955 BEVERLY BOULEVARD
LOS ANGELES, CALIFORNIA 90048
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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
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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
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ending December 31, 1996 were
approximately $26,853,000
As of April 1, 1997, the aggregate market value of the voting stock held by
non-affiliates of the issuer was approximately $7,895,706 based upon the
average closing bid and asked price of such stock on such date.
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Transitional Small Business Disclosure format: Yes No X
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Shares outstanding as of April 1, 1997: 5,523,766
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's definitive proxy statement for its 1996 annual meeting
of shareholders to be filed pursuant to Regulation 14A not later than 120 days
after the end of the issuer's fiscal year (December 31) are incorporated by
reference in Part III, Items 9, 10, 11 and 12 of this Form 10-KSB.
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PART I
ITEM 1. BUSINESS
GENERAL
Dove Entertainment, Inc. ("Dove" or the "Company") is one of the leading
independent producers (i.e., unaffiliated with any single book publisher) of
audio books in the United States. The Company currently produces and distributes
approximately 100 to 120 new titles annually and has built a library of over
1,200 titles since commencing business in 1985 as one of the pioneers of the
audio book industry. The Company is also engaged in the publication of printed
books under the Dove imprint and the development and production of
movies-for-television, television mini-series, videos and, to a limited extent,
feature films. During the second quarter of 1995, the Company formed a
wholly-owned subsidiary, Dove International, Inc. ("Dove International") to
engage in domestic distribution of theatrical films and to act as foreign sales
agent for the international distribution of theatrical films. In January 1996
Dove International entered into a multi-year agreement with Paramount Home Video
for the exclusive video distribution rights to the Company's titles in the
United States and Canada. In April 1996 Dove established Dove Four Point, Inc.,
a wholly-owned subsidiary ("Dove Four Point"), and acquired Four Point
Entertainment, Inc. ("Four Point"), to engage in the development and production
of various television programming.
The Company's audio books generally consist of audio recordings of abridged
and unabridged versions of books that have had or are expected to have
commercial success or that the Company believes to have literary merit, or
original material specially adapted for the audio book format, read by celebrity
actors or the authors themselves. In 1996, the Company received four Grammy
nominations, and was awarded the Grammy for best spoken-word comedy category for
Al Franken's "Rush Limbaugh is a Big Fat Idiot and Other Observations." The
Company maintains ongoing relationships with many well-known authors, including
Sidney Sheldon, Phillip Roth, Amy Tan, Jack Higgins, Erich Segal, Lillian
Jackson Braun and Stephen Hawkings, and celebrity readers, including Meryl
Streep, Tom Cruise, Jamie Lee Curtis, Paul Scofield, Gregory Peck and Joanne
Woodward. In July 1995, the Company entered into an agreement with Stephen King
to sell, license and distribute seven of his best-selling titles in Spanish
world-wide. In 1996, the Company began the distribution of such products. The
Company's audio books range from best-selling fiction and non-fiction to movie
tie-in audios, classics, humor, children's audio and foreign language product.
The Company generally produces its own masters for its audio book products, the
majority of which are recorded at the Company's own recording studio located at
its principal offices, under the supervision of Company Executive Vice
President, actress Deborah Raffin.
In March 1995, the Company entered into an agreement (the "Reader's Digest
Agreement") with Reader's Digest Association, Inc. ("Reader's Digest") pursuant
to which the Company granted to Reader's Digest certain non-retail distribution
rights (including direct mail marketing) to the Company's audio books, including
the Company's existing audio library, on an exclusive world-wide basis. In
addition, the Company is permitted to create new audio titles under the Reader's
Digest label and to publish in audio under the Dove and/or Reader's Digest label
works in Reader's Digest printed book library, in each case with Reader's
Digest's prior written consent on a title-by-title basis.
The Company's printed book operations, which were commenced in 1994,
include the 1994 New York Times No. 1 bestseller "Nicole Brown Simpson: The
Private Diary of a Life Interrupted" (a biography of Nicole Brown Simpson
written by Faye Resnick) (the "Simpson Book"), and include the follow-up book by
Ms. Resnick, "Shattered." The Company's book catalog of upcoming publications
includes "Worse Than He Says He Is" by Anicka Rodman, "Sins of the Mother" by
Cheryl Saban, "False Prophets" by Dale and Connie Jakes, and various tie-in
publications to the Company's upcoming Oscar Wilde film. Dove Kids will be
releasing Larry and Chaia King's "Daddy Day, Daughter Day," Julia Spencer
Moutran's "Punxutawney Phil" and "Only One," "The Big Galoot" by Shadoe Stevens
and Marva Collins' "Grandma, What is Learning?" In January 1996, the Company
again published a New York Times bestseller, "You'll Never Make Love In This
Town Again." Other notable books published during 1996 included Larry Flynt's
"An Unseemly Man," Richard Hack's "When Money is King," "White Flame" by James
Grady, "Red Mercury" by Max Barclay, Marva Collins' "Values," and two Mark
McCormack business books, "On Managing" and "On Selling." Dove Kids, a new
children's imprint, launched its first full season of books in fall 1996 led by
Cheryl Ladd's "The Adventures of Little Nettie Windship," Eric Idle's "Quite
Remarkable Adventures of The Owl and The Pussycat," and "Megan's Two Houses" by
Erica Jong.
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The theatrical feature film "Wilde," about the life of Oscar Wilde,
starring Vanessa Redgrave and Stephen Fry, has completed principal photography
and is currently in post-production. The Company is currently looking for such
film to be released in the third or fourth quarter of 1997. The Company's
television and theatrical films include the theatrical release "Morning Glory"
(1993) and the television movie "Home Song" (1996), based on novels written by
LaVyrle Spencer, and the television movies "Memories of Midnight" (1991) and
"Sands of Time" (1992), based on novels written by Sidney Sheldon. In addition,
the Company has been previously involved in the production of three other
movies, "Windmill Of The Gods," "Night Of The Fox," and "Touched By Love." The
Company generally seeks to limit its financial risk in the production of
long-form television and feature films by presales and licensing to third
parties. The Company also has commenced operations involving production of
projects for initial release in video format, including children's and business
videos and a video documentary based on the Company's book "You'll Never Make
Love In This Town Again."
In July 1995, the Company, through its newly-formed subsidiary, Dove
International, acquired certain rights with respect to 48 films in the Skouras
Pictures, Inc. ("Skouras Pictures") library (plus the Unapix films) in
consideration of a cash advance of $750,000. The Company is distributing these
films and any net profits (after the Company's recoupment of the advance and
subsequent distribution costs) which will be allocated and paid 50% to the
Company and 50% to Skouras Pictures. As of April 10, 1997, Dove International
had acquired twelve new titles, up to five of which will be released
theatrically on a limited basis and seven will be direct-to-video through the
Company's agreement with Paramount Home Video.
In April 1996, the Company acquired Four Point, through merger with and
into Dove Four Point, for consideration of $2.5 million in cash and 427,273
shares of Dove common stock, par value $.01 per share (the "Common Stock"), with
an earn-out provision of up to an additional 163,636 shares of Common Stock.
Dove Four Point 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 addition, Dove Four
Point owns and operates post-production and edit facilities for its own and
third-party programming.
Since it was incorporated in California in 1985, the Company has
predominantly operated as a publisher of audio books and has only completed the
production of seven films to date. In addition, the Company has only recently
engaged in significant efforts in the printed book publishing and theatrical
distribution businesses. There can be no assurance that the Company's efforts at
diversification will be successful.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, certain of the
matters discussed in this annual report are "forward-looking statements" as
defined in Section 21E of the Exchange Act which involve certain risks and
uncertainties which could cause actual results to differ materially from those
discussed herein. Such risks and uncertainties include, but are not limited to,
limited profitability of the Company; uncertainty as to future operating
results; certain risks relating to the Four Point acquisition; growth and
acquisition risks; certain risks relating to the entertainment industry;
dependence on a limited number of projects; possible need for additional
financing; liquidity; returns and remainder sales in the publishing industry --
potential effect on results of operation and financial condition; potential for
liability claims; limited experience in book publishing and film distribution;
dependence on certain outlets for publishing product; competition; variability
of quarterly results; nature of accounting principles applicable to the
entertainment industry; key personnel; control by management; foreign market
risks; government regulation; absence of dividends; authorization of preferred
stock; outstanding options and warrants and shares eligible for future sale. See
the relevant discussions elsewhere herein, in the Company's registration
statement on Form S-3 (Registration No. 333-6059) and in the Company's periodic
reports and other documents filed with the Securities and Exchange Commission
for further discussions of these and other risks and uncertainties applicable to
the Company and its business.
STRATEGY
Dove's principal business strategies are to: (i) expand its library of
audio books by acquiring and/or producing new titles licensed from established
authors or classic literature in the public domain, (ii) increase distribution
of its audio
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book library through outlets (such as record stores and video stores), direct
marketing, distribution of foreign-language audio books in the United States and
abroad and international sales, (iii) continue to diversify its operations
through the production and distribution of videos, television movies and
mini-series, and expanding publication of printed books, (iv) establish and/or
expand new or complementary areas such as audio books on compact disc ("CD"),
interactive CD-ROM and musical recordings and (v) expand the Company's film
library through acquisitions and internal growth.
The Company has focused its audio book development efforts on assembling a
group of best-selling authors as source material for its audio books. The
Company seeks to establish and expand its library of audio book titles by
establishing long-term relationships directly with book authors. The Company
believes that these types of arrangements are attractive to authors because the
Company is willing to give authors a significant amount of input and, in many
cases, control over the finished product. The Company plans to continue to
expand its audio book library by licensing new titles from book authors, by
publishing in audio formats classic literature in the public domain, through
strategic acquisitions of audio libraries printed book backlists currently owned
by others and through strategic relationships, such as that established with the
Reader's Digest Agreement.
The Company continues to seek ways to enhance its customer base by
establishing new products complementary to its audio book operations, including
high-end language and business products, in response to the changing demands of
its customers. The Company has also attempted to expand its customer base and
the demographic appeal of its audio book products. Towards such end, the Company
has increased foreign distribution (including licensing of foreign distribution
rights to third parties) of its English language products and domestic and
foreign distribution of foreign-language versions of its titles.
To complement its audio book operations, the Company has increased
significantly its publication of printed books. The Company's current schedule
is to publish up to 60 adult and 15 children's books in 1997. In addition, the
Company intends to continue to diversify its operations through its film
production and distribution operations. Subject to appropriate opportunities
becoming available to the Company, the Company will look to enter into
production and development deals with established exhibitors and television
networks through arrangements which seek to minimize risk of the Company's
investment in such productions.
The Company believes that its broad strategy of diversity in development
for television programming has allowed Dove Four Point to take advantage of
sales opportunities in emerging markets such as cable, while continuing to
service lucrative mainstream distribution channels in network and syndication,
allowing Dove Four Point to stay in production throughout the year. Dove Four
Point has taken other steps which it believes should lead to sales success and
at the same time minimize its risk, such as aligning itself with a broad-based
communications company to cover the cost of development, and partnering with
popular actors whose names may bring value to a project. Dove Four Point plans
to try to expand on its expertise from previous projects, including, for
example, in alternative sports programming, and to continue to utilize its
existence as a vertically integrated production company.
The Company considers and from time to time exploits other activities in
various entertainment fields that complement or enhance its current operations,
such as the production of records or videos. The Company from time to time also
considers the acquisition of businesses complementary to its current operations.
Along with its acquisition of Four Point, the Company has from time to time
entered into discussions or submitted bids to acquire other companies in related
entertainment fields and film libraries.
The Company's business is dependent on its ability to acquire rights to use
new audio and/or printed book and film properties that will have broad market
appeal. To the extent the Company is unable effectively to identify, acquire and
exploit products and concepts that will achieve commercial success, or if the
Company is unable to identify, acquire and exploit rights to the works of new
popular authors and to obtain the services of popular readers, the Company's
operating results will be adversely affected. Furthermore, if the Company is
unable to renew contracts with current authors or enter into contracts with new
authors, in either case on acceptable terms, or if there are shifts in consumer
tastes or in the popularity of the Company's current or new authors, the
Company's operating results also may be adversely affected. Ultimately, the
future success of the Company's film and other operations will depend on the
ability of the Company to exploit successfully existing opportunities and to
establish new sources of product. There is no assurance that the Company will be
able to maintain or expand its sources of film and other product.
BOOKS ON AUDIO
INDUSTRY OVERVIEW
"Audio books" consist of audio recordings of literary or other works read
by one or more persons. Historically, audio books have been sold in traditional
book stores. However, audio books are increasingly being sold through book clubs
such as Columbia House and Audio Book Club. Retail outlets specializing in audio
books are also expanding rapidly. The Company believes that the market for audio
books is increasing due to a number of trends, including increased
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demand by readers and writers for unabridged versions of titles, movie tie-ins,
expansion into the CD format, the increasing popularity of
original audio material not derived from previously published printed materials
and demand by consumers for audio recordings of particular readers (as opposed
to particular titles).
Although audio books have been available to the public for approximately
ten years, the consumer market for audio books remains a niche market. Even
given increases in the popularity of audio books, the ultimate growth of the
industry is unclear. The Company believes success in the audio book industry
depends mainly upon the creative efforts of authors, readers and producers.
Public tastes are unpredictable and can shift rapidly. There is no assurance
that the Company will be able to operate profitably in this line of business in
the future.
DOVE AUDIO BOOK OPERATIONS
The Company believes it is one of the leading independent (i.e. not
affiliated with any major publisher) producers of abridged and unabridged books
on audio with approximately 1,200 titles in its audio book library currently
offered for sale. The Company currently releases approximately 100 to 120 audio
book titles each year. The Company, which was founded by Michael Viner and
Deborah Raffin in conjunction with Sidney Sheldon in 1985, was one of the early
pioneers in audio books and one of the first to have best-selling authors such
as Amy Tan, Sidney Sheldon and Robert Waller read their own works. The Company's
products historically have included numerous New York Times and Publishers
Weekly best selling books. The fastest growth areas for the Company in recent
periods have been business, children's and best selling authors. The Company is
also expanding its library to include Spanish and other foreign language
versions of its titles. The Company is engaged in the simultaneous sale of
abridged, unabridged and foreign language translation versions of its audio
books. The Company's audio products represent virtually all categories of books.
Although historically the Company has published audio books primarily on
cassette tape, the Company is also publishing selected new and existing titles
in CD format.
The Company typically acquires titles for publication by entering into
exclusive agreements with book authors pursuant to which the Company obtains the
rights to current works and obtains an option or right of first refusal as to
one or more future works. Authors are typically compensated either by advances
against royalties or through profit participations. The Company typically
acquires audio publishing rights for specific titles or groups of titles on a
world-wide basis, including foreign language rights, in perpetuity. Library
acquisitions often include additional rights to use such titles in interactive
media applications and other media.
Dove uses a large array of high visibility star talent for its recordings.
Books are read by celebrity readers or, in some cases, by the authors
themselves. By virtue of its Los Angeles base, the Company believes it has a
significant advantage in gaining access to highly recognizable celebrity reading
talent. The Company seeks to maintain ongoing relationships with popular readers
which typically have been established in large part by Deborah Raffin by virtue
of her status as an accomplished actress and Michael Viner through his
relationships in the entertainment industry. Readers are typically compensated
on a flat-fee basis, though readers may also be compensated on a royalty basis.
In March 1995, the Company entered into the Reader's Digest Agreement
pursuant to which the Company granted to Reader's Digest certain non-retail
distribution rights (including, direct mail marketing) to the Company's audio
books, including the Company's existing audio library, on an exclusive
world-wide basis. In addition, the Company will be permitted to create new audio
titles under the Reader's Digest label and to publish works in Reader's Digest
printed book library as audio books under the Dove and/or Reader's Digest label,
in each case with Reader's Digest's prior written consent on a title-by-title
basis. The Reader's Digest Agreement expires in December, 1998.
In August 1994, the Company entered into an agreement with Mark
McCormack (author of "What They Don't Teach You at Harvard Business School")
pursuant to which the Company has the option to release audio tapes of five of
Mr. McCormack's future books. In June 1994, the Company acquired an audio
catalog from Prentice-Hall, Inc. consisting of 18 business titles. The Company
also has acquired the rights to a library of several titles read by Orson
Welles, and has published in audio format a compilation of blessings read by His
Holiness Pope John Paul II. In July 1995, the Company entered into an agreement
with Stephen King to sell, license and distribute seven of his best-selling
titles in Spanish world-wide. The titles covered by such agreement are "Misery,"
"Dolores Claiborne," "Gerald's Game," "Langoliers," "Secret Window," "Library
Policeman" and "Sundog."
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Approximately 23% of physical audio inventory was supplied in fiscal 1996
by one manufacturer. However, the Company currently employs two manufacturers
and so is not dependent on any one manufacturer as its sole source of physical
product; the Company believes it would have access to alternate sources at
competitive prices and quality in the event that the Company were to lose the
services of any manufacturer.
AUDIO LIBRARY
Dove has been able to develop a library of audio books of notable
multi-book authors such as Sidney Sheldon, Amy Tan, Robert James Waller, LaVyrle
Spencer and Jack Higgins. The Company's audio book library as of April 1, 1997
includes the following titles:
<TABLE>
<CAPTION>
AUTHOR TITLE READER(S)
------ ----- ---------
<S> <C> <C>
Sidney Sheldon Nothing Lasts Forever Sidney Sheldon and Candy Clark
The Stars Shine Down Sidney Sheldon
Windmills of the Gods Lee Remick
The Naked Face Roger Moore
Master of the Game Roddy McDowall
The Stars Shine Down Roddy McDowall
Morning, Noon & Night Kirk Douglas
Robert James Waller Bridges of Madison County Robert James Waller
Slow Waltz in Cedar Bend Robert James Waller
Lilian Jackson Braun The Cat Who Said Cheese Mason Adams
The Cat Who Tailed The Thief Mason Adams
Jack Higgins Angel of Death Patrick Macnee
Thunder Point Roger Moore
President's Daughter Patrick Macnee
Amy Tan The Joy Luck Club Amy Tan
The Kitchen God's Wife Amy Tan
The Hundred Secret Senses Amy Tan
LaVyrle Spencer Home Song David Dukes
That Camden Summer David Dukes
Small Town Girl LaVyrle Spencer and
Melissa Manchester
Erich Segal Prizes Ken Howard
Larry Collins Black Eagles Burt Reynolds
John Gardner Cold Fall Christopher Cazenove
Robert Parker Small Vices Burt Reynolds
</TABLE>
As of April 1, 1997 the Company has also produced the following audio book
anthologies:
- The American West In Fiction
- Best of Science Fiction & Fantasy
- The Orson Welles Library
- Murder For Love
- A Valentine
- I Will Sing Life (a charity presentation featuring the voices of
Dustin Hoffman, Tom Cruise, Sidney Poitier, Robin Williams and Whoopi
Goldberg).
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The Company also has produced humorous audio books of the works of the
following individuals, in many cases read by the author:
<TABLE>
<S> <C>
Art Buchwald Daniel Pinkwater
Dave Barry Andy Rooney
George Burns Jonathan Winters
Garrison Keillor Bill Geist
Bailey White Al Franken
</TABLE>
The Company has published audio books by the following additional authors:
<TABLE>
<S> <C>
James Belasco Lilian Jackson Braun
Terry Brooks Carol Higgins Clark
Helen Gurley Brown Gabriel Byrne
Raymond Chandler Mary Higgins Clark
Jenny Craig Edward de Bono
Alan Dershowitz Peter Drucker
Ken Follett Stephen Jay Gould
Kelsey Grammer David Haberstam
Oscar Hijuelos Erica Jong
Elmore Leonard Eric Lustbader
Ed McBain Anne McCaffrey
Robert Parker Sara Paretsky
Philip Roth Susan Sontag
Robert Ludlum Tom Robbins
Donald Westlake Douglas Adams
Andrew Greeley Dale Brown
Walter Mosley Sandra Brown
</TABLE>
MOVIE TIE-IN AUDIOS. Movie tie-in audio books involve adaptations of
popular feature films, edited versions of movie soundtracks, cross-promotion via
concurrent release, or a combination of the foregoing. Movie tie-in audio books
continue to be a solid area for new products in the audio industry. As
of April 1, 1997, the Company has produced or is currently producing audio books
having ties to each of the following motion pictures:
<TABLE>
<S> <C>
John Hughes, Miracle on 34th Street Little Women starring Winona Ryder
Nell Scarlett Letter
Dangerous Minds Joy Luck Club
Indiana Jones and the Last Crusade Buffy The Vampire Slayer
Batman The Princess Bride
Dracula Last of the Mohicans
Heaven & Earth Die Hard With a Vengeance
Jane Eyre Bridges of Madison County
Far From Home: The Adventures of Men in Black
Yellow Dog Wilde
Emma
</TABLE>
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PUBLIC DOMAIN AUDIOS. The Company is developing a library of audio
publications derived from public-domain product. Public-domain titles do not
require contracts to acquire publication rights or the payment of royalties.
Such product line attempts to integrate appealing cover art, well-known readers
and high-quality recording and box design. The Company currently supports this
product line by aggressive pricing and marketing and intends to continue to do
so. The Company currently aims to release approximately two classic books on
audio each month. In 1997, the Company is focusing on the works of, among
others, Sir Walter Scott, Nathaniel Hawthorne, Jack London, Jane Austen,
Washington Irving and Oscar Wilde. Audio books based on public-domain literary
works published by the Company as of April 1, 1997 include the following:
<TABLE>
<CAPTION>
TITLE READER
----- ------
<S> <C>
H.G. Wells Library Ben Kingsley
Charles Dickens Library Paul Scofield
Jane Austen Library Glenda Jackson
Edgar Allan Poe Paul Scofield, Gregory Hines and
David Warner
Dracula Edward Woodward
The Three Musketeers Michael York
Emily Dickinson poetry Meryl Streep and Glenda Jackson
Mary Stewart, Queen of Scots Julie Christie
Mary Shelley's Frankenstein Julie Harris
The Bible - New Testament Gregory Peck
Les Miserables Christopher Cazenove
Call of the Wild Ethan Hawke
The Psalms Michael York
Fables of Aesop Rod Steiger, Eddie Alpert,
Harvey Fierstein and Sharon Stone
</TABLE>
DOVE KIDS
"Dove Kids" is the children's publishing and audio imprint of the Company,
designed to compete with audio book publishers for a share of the growing
children's market in both the educational and entertainment areas. The Company
has released several titles under the Dove Kids audio imprint, including the
1996 Grammy award nominees "Treasure Island," "The Prince and the Pauper" and
"The Wonderful O." Audio titles scheduled, as of April 1, 1997, to be released
during 1997 include "The Wind In The Willow" performed by Terry Jones of
Monty Python fame, "Treasure Island" performed by Michael York, "The Wonderful
O" performed by Melissa Manchester, and "The Hunchback of Notre Dame" performed
by Julie Christie.
Future Dove Kids Books currently in development or production include
"Daddy Day, Daughter Day" by Larry and Chaia King, "The Big Galoot" by Shadoe
Stevens, "Grandma, What is Learning?" By Marva Collins, "The Royal Potty Books"
by Wanda Whargo, "Bear and Three Goldilockses" by Alan Katz, "Elfis" by Alan
Katz and Peter Fornatale, and "Lion Sleeps Tonight" based on the lyrics from the
1961 hit song of the same name.
FOREIGN LANGUAGE AND INTERNATIONAL
The Company has identified certain markets outside the United States which
it believes may provide opportunities for sales growth and is expanding its
distribution to other countries. The expansion of international activities
applies not only to the Company's publishing business, but also to its
television and film activities, where the exploitation of overseas markets is a
key component of the Company's strategy. The Company generally seeks to acquire
audio publishing rights for specific titles or groups of titles on a world-wide
basis, in perpetuity. Such acquisitions enable the Company to exploit such
titles in international markets .
Dove has entered into agreements with HarperCollins, Isis, Viking Penguin
and others for distribution of some of Dove's products via licensing its masters
for publication in the United Kingdom. The Company is also party to an agreement
with Pickwick Group Ltd. ("Pickwick") pursuant to which Pickwick will distribute
and market audio books in the United Kingdom and Ireland a minimum of 300 titles
from the Company's existing audio book library. Such
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agreement has a term ending in January 1998 with the Company having an
option for a five year extension and provides for certain advances to the
Company against specified royalties.
In addition, the Company is expanding its audio book activities
internationally in several languages to various countries throughout the world
through distribution arrangements with third-party distributors.
PRODUCTION, SALES, MARKETING AND DISTRIBUTION
The Company typically produces its own masters for its audio book products,
a majority of which are recorded at the recording studio located at the
Company's Los Angeles offices. Virtually all recordings are produced under the
supervision of the Company's in house staff, headed by Deborah Raffin. Once a
master is produced, the Company contracts with one of several duplication
contractors who then duplicate and assemble the tapes or CD's for distribution.
The Company designs its own product packaging to help enhance the
marketability of its audio books. The Company seeks to acquire and use original
book art, when available. Dove makes use of foil and other design options to try
to enhance mass marketing. Dove also designs alternative packaging using
multi-packs, box sets and gift box designs to present its products more
effectively by making the products easier to display and increasing consumer
awareness of audio books as a gift option. Dove also is using compact disc sets
of its best selling audios as part of its marketing effort.
The Company's audio books are sold, among other places, to book stores,
several book clubs (including the three major book clubs), record stores and
specialty audio book retail outlets. The Company currently sells to all major
book retailers and distributors, including Ingram Book Company ("Ingram"),
Barnes & Noble/B. Dalton and Borders/Waldenbooks. Audio books distributed by the
Company to Ingram and Barnes & Noble/B. Dalton accounted for approximately 9%
and 6% of the Company's net publishing revenues in fiscal 1996, respectively.
While the Company does not believe there is any significant risk of losing any
of these bookstore chains as outlets for its product, the level of the Company's
sales of audio books through these and other outlets significantly depends on
the amount of product ordered thereby and shelf space allocated to such products
as to which there is no assurance. Dove also sells to rack jobbers and is
represented in all major wholesale clubs, including Sam's Club, Price/Costco and
BJ's Wholesale Club. The Company has identified video stores, mass merchandisers
and music stores as areas of potential expansion and growth.
Sales to retail and other outlets are effected through a combination of
Dove's own sales force and third party distributors. Dove established its audio
book sales operation in 1989 and has historically independently sold audio books
primarily to book stores, retail chains and record and specialty stores. At
present, the Company has an internal sales and marketing force of five persons.
In January 1995, the Company entered into an agreement with Penguin USA,
Inc. ("Penguin") pursuant to which Penguin began serving as the Company's
exclusive United States outside distributor of audio and printed book products
(other than certain non-retail and remainder sales, as defined below). Under
such agreement, Penguin is responsible for, among other things, order
solicitation, order entry, invoicing, customer service, warehousing, handling
and fulfillment of orders and for receiving returns; and the Company is
responsible for marketing, promotion, publicity and advertising. Under such
agreement, Penguin, which is compensated on the basis of a percentage of sales
and reimbursed for certain shipping and other expenses, is also responsible for
billing, collections and for the issuance of credit to customers. Such agreement
provides that Penguin advances revenues to the Company within sixty days of
shipment of book product, net of a contractually-established reserve.
In March 1995, the Company entered into the Reader's Digest Agreement
pursuant to which the Company granted to Reader's Digest certain non-retail
distribution rights (including, direct mail marketing) to the Company's audio
books, including the Company's existing audio library, on an exclusive
world-wide basis. In addition, the Company will be permitted to create new audio
titles under the Reader's Digest label and to publish works in Reader's Digest's
printed book library in audio format under the Dove and/or Reader's Digest
label, in each case with Reader's Digest's prior
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written consent on a title-by-title basis. The Reader's Digest Agreement expires
in December, 1998. Sales through Reader's Digest will be fulfilled through
Penguin.
Substantially all of the Company's sales of audio book products are and
will continue to be subject to potential return by distributors and retailers if
not sold thereby to the public. Historically, the Company has experienced
significant returns and, consistent with an industry trend, experienced an
increased level of returns during 1996. There is no assurance that the Company
will not again experience materially higher future returns than its historical
return experience. In addition, the Company from time to time makes price
concessions or allowances or grant credits to distributors or retailers in order
to minimize returns, and such concessions and allowances may adversely affect
the Company's operating results.
Certain of the Company's revenues are derived from sales at discount prices
of excess inventory of audio and printed books, including returned audio book
product, effected through warehouse, outlet and other stores ("remainder
sales.") Such sales produce net revenues for the Company on a per-unit basis
that typically have not exceeded the Company's per-unit costs on a fully-costed
basis. The availability of remainder product at discount prices also may have
the collateral effect of reducing sales of audio books at full price, and
thereby could adversely affect the Company's operating results.
The Company advertises its products in various publishing trade
publications. The Company also occasionally advertises its products through
various print and television media.
PRINTED BOOK PUBLISHING
As part of establishing its library of approximately 60 printed book
titles, the Company has been a leader in publishing books involving participants
involved in several national interest murder trials: The O.J. Simpson case
(including the Simpson Book written by Faye Resnick; and the first book written
by an excused juror - "The Private Diary of an O.J. Juror: Behind the Scenes of
the Trial of the Century," written by Michael Knox); and the Menendez brothers'
trial ("The Private Diary of Lyle Menendez: In His Own Words" as told to Norma
Novelli). The Company had produced another New York Times bestseller in 1996
with the release of "You'll Never Make Love In This Town Again." The Company
also published the follow-up book by Ms. Resnick entitled "Shattered." In
addition, the Company published notable books in 1996 such as the New York Times
bestseller "Dreams Into Action" by Milton Katselas, Larry Flynt's "An Unseemly
Man" and Richard Hack's "When Money is King."
The Company's book catalog of scheduled upcoming publications includes
Anicka Rodman's "Worse Than He Says He Is," Cheryl Saban's "Sins of the Mother,"
"False Prophets" by Dale and Connie Jakes, and Joe Eszterhas' screenplay of "An
Alan Smithee Film."
Dove Kids launched its children's publishing program in Fall 1996 led by
Cheryl Ladd's "The Adventures of Little Nettie Windship," Eric Idle's "Owl and
The Pussycat" and Sidney and Mary Sheldon's "The Adventures of Drippy the
Runaway Raindrop." It is currently anticipated that Dove Kids will publish
roughly 15 books in 1997, including Larry and Chaia King's "Daddy Day, Daughter
Day," "The Big Galoot" by Shadoe Stevens, "Grandma, What is Learning?" by Marva
Collins and "Bear and the Three Goldilockses" by Alan Katz.
FILM AND TELEVISION PRODUCTION
The Company from time to time has developed and produced films and
mini-series made for television. The Company's strategy is to develop and
produce films and mini-series substantially financed by third parties through
presale contracts with United States television networks, foreign distributors
and other sources and through co-production arrangements. Although the Company
enters into such arrangements, there is no assurance that the Company's funding
of such productions will not be at risk including the possibility that
third-party financing will not ultimately be paid when required and that the
Company may have to fund any short fall, which funding may not be available. The
Company's films are and will continue to be distributed primarily by third
parties, but, in certain circumstances, the Company may undertake limited
distribution or co-distribution activities for films it produces or acquires.
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The theatrical feature film "Wilde," about the life of Oscar Wilde,
starring Vanessa Redgrave and Stephen Fry, has completed principal photography
and is currently in post-production. The Company is currently considering and
reviewing various offers in connection with the domestic United States and
Canada (excluding French speaking Canada) release of such film, as to which
rights the Company still retains. The Company is currently looking for such film
to be released in the third or fourth quarter of 1997. Dove has completed three
productions of Sidney Sheldon novels for television with stars such as Jaclyn
Smith, Omar Sharif and Jane Seymour; a Jack Higgins mini-series starring Michael
York; the theatrical film "Morning Glory" starring Christopher Reeve and Deborah
Raffin; and the television movies "Home Song" (aired on CBS in March 1996) and
"Family Blessings." Currently Dove has a development and production deal with
CBS pursuant to which the Company will develop and produce television movies or
mini-series based on the novels of LaVyrle Spencer. The agreement with CBS
provides for a guarantee of the Company of two production orders which the
Company has fulfilled. CBS will also evaluate further projects and give
production commitments to the Company for those projects which CBS wishes to
license. At the time of giving the Company a production commitment, CBS agrees
to pay a license fee to the Company for the rights to broadcast the project.
There is no assurance that projects in development ultimately will be produced
and aired or that any future projects will arise or that CBS will commit to any
future projects.
The Company has also commenced development and production of video
products. Videos produced include business videos featuring Mark McCormack and
James Belasco, videos for children, and a video documentary based on the
Company's best selling book "You'll Never Make Love In This Town Again."
Historically, the Company has acquired its film and other properties
through relationships of Michael Viner and Deborah Raffin and through authors
whose works are published by the Company in audio format. In addition, the
Company's film production division to date has been largely dependent on
adaptations of the novels of Sidney Sheldon and LaVyrle Spencer. Revenues
relating to delivery of two television films, adapted from novels by LaVyrle
Spencer, to CBS in 1996 amounted to approximately 18% of the Company's 1996 net
revenue. If the works of either of these authors were lost to the Company as a
source of film product or if the Company is unable to identify and acquire other
sources of film product, the future success of the Company's film production
operations likely would be adversely impacted.
In April 1996, the Company significantly expanded its presence in
television programming through the creation of Dove Four Point and the
acquisition of Four Point. Dove Four Point develops, and produces various forms
of television programming, including pilots, series, telefilms, mini-series,
talk shows, game shows and infomercial for network, cable and syndicated
markets. During the third and fourth quarters of 1996, Dove Four Point produced
and delivered two daily one hour talk shows for the 1996/1997 television season,
65 episodes of "Scoop with Sam & Dorothy," which was distributed by ACI/Pearson
TV and amounted to approximately 11% of the Company's 1996 net revenue, and 65
episodes of "The John Bradshaw Difference" for MGM Domestic Television and
amounted to approximately 13% of the Company's 1996 net revenue. As of April 1,
1997 all episodes of these shows have been delivered and neither show has been
renewed. Also, during the third and fourth quarters of 1996 six half-hour
episodes, of a 13 episode third season order, of "Amazing America," were
delivered to the Discovery Channel. In addition, the third and fourth half hour
installments of "History of the Unnatural," narrated by Mark Hamill, were
completed and delivered to the Learning Channel. The fifth and sixth
installments are expected to be completed during the first and second quarters
of 1997.
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 has begun to make payments for certain non-refundable fees,
overhead and a discretionary development fund. Under a separate agreement with
BVTV, Dove Four Point produced a pilot for the game show "Make Me Laugh" during
the third quarter of 1996. The cable network Comedy Central has ordered 65 half
hour episodes which began production during the first quarter of 1997. Dove Four
Point is developing a two hour movie of the week for ABC titled "Unwed Father",
starring Brian Austin Greene, scheduled to begin filming during the second
quarter of 1997. A license fee for the domestic broadcast rights will cover a
substantial portion of the production costs, with Four Point retaining rights to
foreign territories. Dove Four Point is currently developing a two hour telefilm
(which is expected to be used as a pilot for a possible dramatic series)
"Futuresport," starring Wesley Snipes, with Mr. Snipes' production company
Amen-Ra Productions in conjunction with ABC. ABC is committed to pay at least a
minimum amount in connection with such project. Dove Four Point is currently
developing a competitive game to be featured at the MGM Grand Hotel in Las Vegas
and scheduled to be televised on a weekly basis on a weekend television sports
program based on the motion picture "Rollerball." Dove Four Point has other
television programming in development. There is no assurance that any
programming in development or scheduled for production will be completed, or if
completed, that the delivery terms will not be modified or that any such
programming will be financially successful.
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The Company's film and television operations are dependent on a limited
number of film and television projects. There is no assurance the Company will
have any film projects or any significant revenues from film or television
projects in any given quarterly or annual period.
FILM LIBRARY AND DISTRIBUTION
In conjunction with the formation of its new distribution subsidiary,
Dove International, the Company completed the purchase of certain rights to 48
films from the Skouras Pictures library. Motion pictures acquired from Skouras
Pictures, now in the Company's film library, includes stars such as F. Murray
Abraham, Dyan Cannon, Ben Cross, Bruce Dern, Peter Gallagher, Jon Heard, Anthony
Hopkins, Kris Kristofferson, Sam Neill, Natasha Richardson, Martin Sheen, Talisa
Soto, George Takai and Shannon Tweed. The library includes certain distribution
rights to "My Life As A Dog," which received several "Best Foreign Film" awards
in 1987, and more recent films such as "A Boy Called Hate" and "Watch It."
Dove International has been seeking to acquire independent films primarily
for television and home video distribution throughout the world. The Company has
a two year exclusive video output arrangement with Paramount Pictures wherein
Paramount Pictures will market and distribute Dove products under the Dove Home
Video label.
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COMPETITION
The audio book business is becoming increasingly competitive. Many major
publishing houses now have audio book operations, and the Company anticipates
increased competition in the future from major record companies. Most of the
competitors of the Company have substantially greater financial, personnel,
technological, marketing and other resources than the Company. The cost of
obtaining audio publishing rights from popular authors is escalating and, in
certain cases, obtaining such rights is or may become beyond the Company's
capital resources. The Company expects this trend to continue. As a result of
this trend, it may become more difficult to acquire rights to "blockbuster"
works by authors with past successes. The capitalization and financial resources
of publishing houses enable such entities to expend considerably greater amounts
to obtain the rights to such works than the Company is able to expend given its
resources. In addition, major publishing houses may have the ability to require
authors to include audio rights in any publishing deal with such publishers.
Such ability may preclude Dove and other audio book publishers from having the
opportunity to publish in audio format the works of such authors. In addition,
increased competition within the audio book industry could result in greater
price competition in the sale of audio books. Reductions in prices of audio
books, as a result of competition or otherwise, will adversely affect the
Company's margins. There is no assurance that the Company will be able to
compete successfully with major publishing houses and other competitors in the
future.
Competition in the television and motion picture industry is extremely
intense. The Company competes with the major motion picture studios, numerous
independent producers of television programming and feature films and the major
United States networks for the services of actors, other creative and technical
personnel and creative material. Most of the Company's principal competitors
have greater financial, distribution, technical and creative resources than the
Company. There is no assurance that the Company will be able to continue to
compete in the various businesses in which it operates.
EMPLOYEES; LABOR RELATIONS
At April 10, 1997, the Company had 58 employees. On occasion, the Company
employs temporary workers on a short-term basis to meet particular clerical and
other needs. The Company believes employee relations are satisfactory.
In the film production segment, in accordance with industry practice, the
Company meets a substantial part of its personnel needs by retaining temporary
employees, directors, actors, technicians and other specialized personnel on a
per-production, weekly or per-diem basis.
GOVERNMENT REGULATION
In a decision released September 6, 1995, the Federal Communications
Commission ("FCC") repealed its financial interest and syndication rules
effective as of September 21, 1995. Those FCC rules, which were adopted in 1970
to limit television network control over television programming and thereby
foster the development of diverse programming sources, had restricted the
ability of the three established major United States networks (i.e. ABC, CBS and
NBC), to own and syndicate television programming. The impact of the repeal of
the FCC's financial interest and syndication rules on the Company's operations
cannot be predicted at the present time, although it is expected that there will
be an increase in in-house productions of television programming for the
networks' own use. It is possible that this change will have a negative impact
on the Company's business. Additionally, in international markets, the Company
may be subject to local content and quota requirements which effectively
prohibit or limit access to particular markets.
In a decision released September 1, 1995, the FCC repealed the Prime Time
Access Rule, effective August 30, 1996. The Prime Time Access Rule generally
prohibited network-affiliated television stations in the top 50 television
markets from broadcasting more than three hours of network programs, or programs
previously aired on a network during the four prime time viewing hours (i.e.,
7:00 p.m. - 11:00 p.m. Eastern and Pacific times, and 6:00 p.m. - 10:00 p.m.
Central and Mountain times). Due to the Prime Time Access Rule,
network-affiliated television stations often acquire a certain amount of
programming (typically including game shows) for exhibition during the prime
time access period from independent television producers and syndicators. While
the Company's sale of syndicated programming during prime time is primarily to
independent television stations rather than to network-affiliated stations, it
is possible that the repeal
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of the Prime Time Access Rule may constrict the market for the Company's
television programming product and that the Company might be subject to
increased market competition.
On February 1, 1996, Congress passed the Telecommunications Act of 1996
("the 1996 Act"), and President Clinton signed it into law on February 8, 1996.
The 1996 Act is the first comprehensive re-write of the Communications Act of
1934, as amended ("the 1934 Act") and dramatically changed the ground rules for
competition and regulation in virtually all sectors of the telecommunications
industry, from local and long-distance telephone services, to broadcasting,
cable television, and equipment manufacturing. The 1996 Act eliminates many
entry barriers to the telecommunications business, relaxes concentration and
merger rules, and delegates authority for implementing the Act to the FCC.
Pursuant to the 1996 Act, the FCC has revised broadcast multiple ownership
rules so as to allow a single individual person or entity to own or control or
have a cognizable interest in television stations that reach as much as 35
percent of the nation's television households. In addition, as mandated by the
1996 Act, the FCC has eliminated the numerical limits previously set forth in
the FCC's rules on the number of television stations that a given individual or
entity could own, or have an attributable interest in.
Under the 1996 Act, manufacturers of television set equipment will be
required to equip all new television receivers with a so-called "V-Chip" which
would allow for parental blocking of violent, sexually-explicit or indecent
programming based on a rating for any given program that would be broadcast
along with the program. Unless the television industry establishes a voluntary
ratings system by February 1998, the FCC is directed by the 1996 Act to develop
a ratings system based upon the recommendations of an advisory committee
selected by the FCC. A coalition of various segments of the entertainment
industry introduced its proposed ratings guidelines in December 1996. The FCC
and other regulatory and governmental agencies have these suggested ratings
guidelines under review.
Other provisions of the 1996 Act allow local exchange telephone companies
to offer multichannel video programming service, subject to certain regulatory
requirements, and allow for cable companies to offer local exchange telephone
service. The 1996 Act thus fosters the development of a larger number of video
program distribution sources.
The impact on the Company of the changes in the Communications Act brought
about by the 1996 Act and by accompanying changes in FCC Rules cannot be
predicted at the present time, although it is expected that there will be an
increase in the demand for video programming product as a result of the
likelihood that these regulatory changes will facilitate the advent of
additional exhibition sources for such programming. However, it is possible that
recent alliances of certain program producers and television station group
owners, coupled with the recent FCC rule revisions allowing a single television
station licensee to own television stations reaching up to 35 percent of the
nation's television households, may place additional competitive pressures on
program suppliers who are unaligned with any television station group owners.
In foreign markets, the Company's ability to distribute its film
productions may be subject to local content and quota requirements which
prohibit or limit the amount of programming produced outside of the local
market. Although the Company believes these requirements have not affected the
Company's licensing of its programs in foreign markets to date, such
restrictions, or new or different restrictions, could have an adverse impact on
the Company's operations in the future as a result of their impact on
third-party distributors with whom the Company contracts for foreign
distribution.
PROPRIETARY RIGHTS
Copyrights in the Company's audio book recordings and the underlying works
from which such recordings are derived are separate and distinct rights. The
Company generally obtains a license to use (as opposed to a proprietary
copyright interest in) the works underlying its audio books from the owner of
the copyright thereon. Such licenses may in certain cases be subject to
restrictions, such as limiting distribution to particular markets, duration of
term, method of sale and use of recordings; however, the Company acquires
world-wide rights in perpetuity in most cases. The Company copyrights all audio
works it produces. In those limited instances in which the Company acquires
pre-recorded
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audio product (rather than the underlying work), the Company's rights are
limited to the terms of the Company's agreement with respect to such product.
ITEM 2. PROPERTIES
During 1996 the Company purchased an office building and two residential
houses which are currently used for storage (and the underlying land)
(collectively, the "Property") in West Hollywood, California for $2,500,000. The
purchase price was paid $600,000 in cash and $1,900,000 pursuant to a seller
carryback note, payable to the seller, the Writers' Guild of America, West, Inc.
(the "Guild"). In April 1996 the Company refinanced the $1,900,000 note to the
Guild with a new loan from a bank which loan is secured by a deed of trust on
the Property 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 with a balloon payment at maturity. The office building contains
approximately 22,000 square feet, and the two residential houses contain 1,463
and 1,105 square feet, respectively. The Company leased the office building back
to the Guild through February 15, 1996, by which date the Guild had vacated the
Property. The Company moved its corporate headquarters to the new site in April
1996. In connection with the acquisition of the Property, the Company made
improvements to the Property of approximately $220,000. Additionally, the
Company anticipates making additional improvements of approximately $375,000 to
relocate its video post production and audio recording facilities to the
Property. The Company at present anticipates that, subject to its expansion
plans, it will continue to also occupy the office space it is currently leasing.
The Company's lease obligation with respect to leased office space is secured by
a $15,000 letter of credit. The annual rent for such lease is $250,000. The
minimum future noncancelable lease expense under the lease is approximately
$250,000 annually for the years 1995 through 1998 inclusive. The lease is
subject to annual rent escalations and the pass-through of costs. The Company
will continue to review its need for additional office space based upon, among
other things, the outcome of its expansion plans.
ITEM 3. LEGAL PROCEEDINGS
In August 1993, the trial court confirmed 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 interest
accruing thereon from September 1992 and attorney's fees) relating to the film
"Morning Glory." In March 1995, defendants appealed the judgment to the
California Court of Appeals. In June 1995, the Court of Appeals affirmed the
judgment, and that judgment is now final. In a related matter, the Company
sought to restore certain fraudulent conveyances that Mr. Stern had made. In
August 1995, Mr. Stern filed for bankruptcy protection. The United States
Trustee is pursuing the fraudulent conveyance action on behalf of the bankruptcy
estate, of which the Company comprises approximately 80%, and the Company, Mr.
Viner and Mr. Leider are separately pursuing their own adversary proceeding for
conspiracy against Mr. Stern and others in the bankruptcy case. The Company is
also objecting to Mr. Stern's discharge in bankruptcy. There is no assurance
that the Company will ultimately prevail, or as to if, when or in what amount
the Company will be able to recover the amount of the original judgment in its
favor.
In February 1996, the Company was served with a complaint in an action
entitled Robert H. Tourtelot v. Dove Audio, Inc. etc. et al (Los Angeles
Superior Court Case No. SC040739) (the "Tourtelot Action.") Mr. Tourtelot seeks
in excess of a million dollars in damages claiming that he had an oral agreement
with the Company to write a book that the Company would publish. Mr. Tourtelot
alleged causes of action for breach of oral contract, fraud, suppression, breach
of the implied covenant of good faith and fair dealing, breach of fiduciary
duty, infringement of common law copyright, conversion, conspiracy and
accounting. The Company successfully removed the action to the United States
District Court for the Central District of California, and successfully moved to
have the claims for infringement of common law copyright, breach of fiduciary
duty, conversion, conspiracy and accounting dismissed. The Tourtelot Action was
then remanded to the Los Angeles Superior Court, where the Company successfully
demurred to all of the remaining causes of action. Mr. Tourtelot was, however,
granted leave to amend to attempt to state a cause of action, which he has done.
While the Commpany believes that Mr. Tourtelot's amended complaint is still
defective and intends to again demurrer thereto, and that, in any event, it has
good and meritorious defenses to Mr. Tourtelot's claims, there can be no
assurance that the Company will prevail in the action.
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In March 1996, the Company was served with a complaint in an 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 book "You'll Never Make Love In This Town
Again." The Datig complaint sought in excess of a million dollars in monetary
damages. In October 1996, the Company obtained a judgment of dismissal of the
entire Datig Action, which judgment also awarded the Company its attorney's fees
and costs in defending the matter. Thereafter, the Company sued Mr. Datig for
malicious prosecution. Datig, however, has appealed that judgment, thereby
staying the malicious prosecution action. While the Company believes that it
will prevail on the appeal, there is no assurance that the Company will in fact
be successful.
In June 1996, the Company was served with a complaint in an action entitled
Shukri Ghalayini v. Dove etc. et al (Los Angeles Superior Court Case No.
BC152129) (the "Ghalayini Action.") The complaint alleges among other things,:
(i) breach of employment contract against Four Point due to termination of Mr.
Ghalayini's employment without good cause, adequate notice or opportunity to
cure any alleged breaches and (ii) fraud in that defendants allegedly never
intended to honor the terms of the employment agreement. The complaint seeks
damages under the employment agreement of not less than $900,000, loss of future
earnings estimated at $20,000,000, and damage to his reputation, mental and
emotional distress, punitive damages and attorney's fees.
On the same day, the Company filed an action against Ghalayini in the Los
Angeles Superior Court alleging, among other things, that (i) Ghalayini breached
his fiduciary duty to the company by diverting corporate assets to pay his
personal expenses, (ii) that in order to induce the Company into closing the
Four Point acquisition, Mr. Ghalayini made false representations, including
misrepresenting the tangible shareholder's equity of Four Point as of the
closing, diverted production and other funds and held checks previously drawn to
pay accounts payable in order to meet a closing condition that outstanding bank
debt be below a specified level, and that Mr. Ghalayini made false
representations to induce Dove Four Point to enter into his employment
agreement. Although the Company believes that it has good and valid claims
against Mr. Ghalayini, and that it has good and meritorious defenses to his
claims, there can be no assurance that it will untimately prevail in either of
these two actions.
In July 1996, the Company was served with a complaint in an action entitled
Terrie Maxine Frankle and Jennie Louise Frankle v. Dove Audio (U.S. District
Court, Central District of California Case No. 96-4073 RSWL) (the "Frankle
Action.") The Frankles claim to be the authors of "You'll Never Make Love In
This Town Again," and have alleged claims for copyright infringement and fraud.
The Frankles' application for a preliminary injunction was denied because they
could not demonstrate a likelihood of success on the merits of their claims. The
Company believes that it has good and meritorious defenses and counterclaims
against the Frankles. Nevertheless, there is no assurance that the Company will
prevail.
In January 1997, the Company was served with a complaint in an action
titled Greer v. Dove (Los Angeles Superior Court Case No. BC160871) (the "Greer
Action"). Ms. Greer is another contributor to the book "You'll Never Make Love
In This Town Again" and has sought damages in excess of one million dollars
alleging causes of action for breach of contract, breach of the implied covenant
of good faith and fair dealing, breach of fiduciary duty, fraud, imposition of
constructive trust and an accounting, recission, declaratory relief, conspiracy
and unfair competition. Although the Company believes that it has good and
meritorious defenses to the Greer Action, and, in fact, has a demurred to the
complaint (which is still pending), there can be no assurance that the Company
will untimately prevail in the action.
The Company is a party to various other legal proceedings and claims. The
Company believes that the ultimate resolution of these matters, individually and
in the aggregate, will not have a material adverse effect upon the Company's
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company took place on November 7,
1996. At that meeting the shareholders approved the following proposals:
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1. An amendment to the Company's Articles of Incorporation to change
the name of the Company to "Dove Entertainment, Inc." was approved
with 4,211,244 votes for the proposal, 17,379 votes against,
200 votes abstaining and 1,900 broker non-votes;
2. An Amendment to the Company's Bylaws to provide that the size of the
Board of Directors (the "Board") (subject to vacancies from time
to time) of the Company shall be not less than five (5) or more
than nine (9), with the exact number of directors to be initially
fixed at five (5), subject to modification from time to time,
within the limits specified, by approval of the Board of Directors
(the "Board"), was approved with 3,543,640 votes for the proposal,
21,470 votes against, 619,413 votes abstaining and 46,200 broker
non-votes;
3. The following persons were elected as directors of the Company at
the Annual Meeting to hold office for a term of one year or until
their successors have been duly elected and qualified:
Directors Name Votes For Votes Withheld
-------------- --------- --------------
Michael Viner 3,314,543 916,180
Gerald Leider 3,320,314 910,409
Deborah Raffin 3,319,743 910,980
James Belasco 3,326,593 904,130
Steven F. Mayer 3,369,093 861,630
4. An amendment to the Company's 1994 Stock Incentive Plan (the "Plan")
(i) to increase the maximum number of shares of Common Stock which
may be granted under the Plan to 750,000 shares, (ii) to impose a
limit on the maximum grant of options and stock appreciation rights
that can be granted to any individual under the Plan to 250,000
shares per calendar year, and (iii) to make certain other changes to
the Plan in accordance with new rules enacted under Section 16 of
the Securities Exchange and Section 162(m) of the Internal Revenue
Code of 1986, as amended was approved with 2,537,653 votes for the
proposal, 123,964 votes against, 639,638 votes abstaining and
929,468 broker non-votes;.
5. The appointment of KPMG Peat Marwick LLP as the Company's
independent accountants for the fiscal year ending December 31,
1996 was approved with 3,594,971 votes for the proposal, 16,879
votes against, and 618,823 votes abstaining.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded in the Nasdaq SmallCap Market under
the symbol DOVE. The following table sets forth, for the periods indicated, the
range of low and high bid quotations as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"). The prices
reflect inter-dealer quotations without retail mark-ups, mark-downs or
commissions and may not represent actual transactions. As of April 10, 1997,
there were 89 holders of record of Common Stock.
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<TABLE>
<CAPTION>
LOW HIGH
--- ----
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Fourth Quarter (from December 1, 1994) $8 $10
YEAR ENDED DECEMBER 31, 1995
First Quarter (through March 31, 1995) 9 10 3/8
Second Quarter (through June 30, 1995) 6 5/8 10 3/8
Third Quarter (through September 30, 1995) 6 3/4 1 1/4
Fourth Quarter (through December 31, 1995) 9 1/4 13 1/4
YEAR ENDED DECEMBER 31, 1996
First Quarter (through March 31, 1996) 9 7/8 14 5/8
Second Quarter (through June 30, 1996) 9 1/8 14 3/8
Third Quarter (through September 30, 1996) 3 1/4 10
Fourth Quarter (through December 31, 1996) 1 1/8 3 7/16
YEAR ENDED DECEMBER 31, 1997
First Quarter (through March 31, 1997) 1 3/8 3 3/4
Second Quarter (through April 10, 1997) 2 1/8 2 1/2
</TABLE>
- ----------
DIVIDENDS
The Company has not declared or paid any cash dividends on its Common Stock
and does not intend to declare any cash dividends in the foreseeable future. The
Company's credit facility limits the ability of the Company to declare or pay
any dividends except dividends payable solely in the Company's capital stock.
The payment of dividends, if any, is within the discretion of the Board and will
depend on the Company's earnings, if any, its capital requirements and financial
condition and such other factors as the Board may consider. In addition, if the
Company is able to negotiate a new credit facility, such facility will likely
include restrictions on the Company's ability to pay dividends.
In connection with the December 1994 Initial Public Offering ("IPO") the
Company issued to Michael Viner and Deborah Raffin options to purchase 214,113
shares of its Series A Preferred Stock. The total stated value of the Series A
Preferred Stock is $856,000 which accrues dividends at 8% compounded quarterly.
In March 1996 the Company paid $22,000 to Mr. Viner and Ms. Raffin as payment
for accrued dividends for 1995; $69,000 in Series A Preferred Stock dividends
were accrued in 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below should be read in conjunction with the
Financial Statements of the Company and the Notes to the Financial Statements
included elsewhere in this Report.
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 (i.e.,
unaffiliated with any single book publisher) of audio books in the United
States. The Company produces and distributes approximately 100 to 120 new titles
annually and has built a library of over 1,200 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, the
acquisition and distribution of feature films and the production and development
of television programming through Dove Four Point.
The demand for audio books is seasonal, with the majority of shipments
taking place in the third and fourth quarters of the year. The Company believes
that demand for audio books will remain seasonal, and this may adversely affect
results of operations for the first and second quarters. Because a significant
portion of the Company's expenses are relatively fixed, below-expectation sales
in any quarter could adversely affect operating results for that quarter.
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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 a follow-up to the Dove production of "Home Song" by LaVyrle Spencer
which aired on CBS. 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.
To complement its audio book operations, the Company is increasing
significantly its publication of printed books. The Company is scheduled to
publish up to 75 print titles in 1997. 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 in the
United States and Canada on an all rights basis (including theatrical, home
video and all forms of television). The Company recently entered into a two year
video output arrangement with Paramount Pictures wherein Paramount Pictures will
market and distribute Dove product, meeting certain minimum acceptance criteria,
under the Dove Home Video label. The Company expects to continue to expand its
television program production and development activities through Dove Four
Point.
In accordance with industry practice, substantially all of the Company's
sales of audio and printed book products are and will continue to be subject to
potential return by distributors and retailers. Although the Company estimates
allowances and reserves for returned products, significant increases in actual
return rates above these estimates could materially and adversely impact the
Company's results of operation or financial condition.
Selling, general and administrative expenses include costs associated with
selling, marketing and promoting the Company's products, as well as general
corporate expenses including salaries, occupancy costs and other overhead,
professional fees, and travel and entertainment. The Company believes that these
expenses will continue to increase as the Company grows.
RESULTS OF OPERATIONS
The following table sets forth (i) publishing and film revenues and (ii)
publishing, film, and selling, general and administrative expenses as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
REVENUES
Publishing 91% 98% 43%
Television and Film 9 2 57
------ ------ ------
Total 100% 100% 100%
====== ====== ======
OPERATING EXPENSES
Publishing 65% 64% 42%
Television and Film 6 1 44
Selling, general & 26 33 37
administrative
------ ------ ------
Total 97% 98% 124%
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER, 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
PUBLISHING
REVENUES. Net publishing revenues increased by $625,000 or 6% from
$10,961,000 in 1995 to $11,586,000 in 1996. Of the 1996 net publishing revenue,
net audio book revenue was approximately $6,810,000 and net printed book revenue
was approximately $4,776,000. In 1995, net audio book revenue was approximately
$8,635,000 and net printed book revenue was approximately $2,326,000. The
increase in net printed book revenues was due to the expansion of the Company's
publishing operations. However, the increased activity was offset by returns
during the year of 52% of sales, which is above industry averages. The reduction
in net audio revenues was due to a re-assessment by major customers of gross
order quantities and returns to adjust their inventory carrying quantities.
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"The Private Diary of Lyle Menendez" experienced return rates in 1995 which were
significantly greater than the industry average. The provision for returns as a
percentage of gross publishing revenue decreased from 47% in 1995 to 44% in
1996. Although the Company makes allowances and reserves for returned product,
significant increases in return rates could materially and adversely impact the
Company's financial condition or results of operations.
The Company's catalog of 1997 audio releases includes "The Cat Who Tailed a
Thief" by Lilian Jackson Braun, "Small Town Girl" by LaVyrle Spencer,
"President's Daughter" by Jack Higgins, "Small Vices" by Robert Parker,
"Twanged" by Carol Higgins Clark, "King Con" by Stephen J. Cannell, "Aztec
Autumn" by Gary Jennings and "Another Dave Barry Book" by Dave Barry, and
others. In the printed books business, the Company is currently developing up to
75 books for potential publication in 1997. The Company's catalog of 1997
printed book releases includes "Worse Than He Says He Is" by Anicka Rodman,
"Sins of the Mother" by Cheryl Saban, "False Prophets" by Dale and Connie Jakes,
along with Dove Kids' "Daddy Day, Daughter Day" by Larry and Chaia King and
other books in other popular categories.
COST OF SALES. Publishing cost of sales increased by $4,184,000 or 58% from
$7,169,000 in 1995 to $11,353,000 in 1996. Publishing cost of sales as
percentage of net publishing revenues increased from 65% in the year ended
December 31, 1995 to 98% in the year ended December 31, 1996. The increase in
cost of sales was due in part to the costs accompanying the $625,000 increase in
net sales but was primarily attributable to an approximate $1,900,000 write-down
in inventory and production costs as well as excess fulfillment costs consisting
of: (i) inventories and production costs of approximately $600,000 relating to
various titles associated with the O.J. Simpson trial which were written down in
the fourth quarter as estimates from remainder sales timed for the O.J. Simpson
civil trial were not realized due to diminished market interest; (ii) efforts to
consummate remainder sales of excess inventory have proven more difficult than
anticipated due to a general market over-supply in the remainder market and,
accordingly, such inventory has been written down to revised estimates of
remainder or destruction value, as appropriate, resulting in an additional
write-down of $600,000; and (iii) a $500,000 inventory write-off which was taken
in the second quarter of the year. Cost of sales was also impacted in 1996 by
approximately $1,200,000 due to an increase in production cost amortization
relative to sales due to lower than anticipated gross sales following the
re-assessment by major customers of gross order quantities.
TELEVISION AND FILM
REVENUES. Television and film revenues increased from $187,000 in 1995 to
$15,267,000 in 1996. The increase was primarily attributable to the delivery of
the "Home Song" television movie to CBS in the first quarter of 1996, the
delivery of "Family Blessings" to CBS and ITC in the fourth quarter of 1996,
distribution revenue generated by Dove International combined with the inclusion
of 8 months of activity from Dove Four Point (including the activities of Dove
Four Point arising from the acquisition of Four Point in April 1996) which
contributed approximately $8,000,000 of revenue due primarily to the programs
"Unnatural History," Amazing America," "The Bradshaw Difference," and "Scoop
with Sam and Dorothy."
COST OF SALES. Film cost of sales increased to $11,855,000 for the year
ended December 31, 1996 compared to $99,000 for the year ended December 31,
1995. The increase was attributable to a significant increase in film sales in
the year ended December 31, 1996 and the inclusion of 8 months of activity from
Dove Four Point (including the activities of Four Point subsequent to the date
of its acquisition by Dove Four Point in April 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 decreased $235,000, or 6%, from
$3,880,000 in 1995 to $3,645,000 in 1996. The gross profit margin decreased from
35% in 1995 to 14% in 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
generally produce narrower margins than the Company's historical publishing
margins.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses ("SG&A") include costs associated with selling, marketing and
promoting the Company's products, marketing expense relating to retail
purchases of certain of the Company's printed books, as well as general
corporate expenses
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<PAGE> 22
including salaries, occupancy costs, professional fees, travel and
entertainment. SG&A increased by $6,375,000 or 172% from $3,696,000 in 1995 to
$10,071,000 in 1996. The increase was primarily attributable to additional
direct SG&A costs associated with the operations of Dove Four Point ($2,388,000
for the year) subsequent to its establishment and the acquisition of Four Point
and the expansion of Dove International ($871,000 for the year, a large
portion of which arose from the partial funding of overhead and sales operations
of G.E.L., an outside distributor of television and film product with which the
Company currently has a distribution arrangement). In addition, approximately
$500,000 resulted from an increase in the provision for doubtful accounts and
approximately $1,200,000 in professional fees resulting from increased activity
relating to abandoned acquisition attempts, aborted attempts to raise financing
and general business activity. Selling and advertising expense increased by
approximately $1,400,000 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 due to
increases in salaries resulting from increased staffing levels, occupancy costs,
travel and entertainment, and depreciation of the Company's building.
INTEREST EXPENSE. Interest expense, net increased from $22,000 in 1995 to
$197,000 in 1996 due to increased debt outstanding during 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
PUBLISHING
REVENUES. Net publishing revenues decreased by $323,000 or 3% from
$11,284,000 in 1994 to $10,961,000 in 1995. Of the 1995 net publishing revenue,
net audio book revenue was approximately $8,635,000 and net printed book revenue
was approximately $2,326,000. In 1994, net audio book revenue was approximately
$7,150,000 and net printed book revenue was approximately $4,134,000. The
decrease in 1995 net printed book revenue compared to 1994 was primarily
attributable to an increase in the provision for returns. In particular, "The
Private Diary of Lyle Menendez" experienced return rates which were
significantly greater than the industry average. The increase in 1995 net audio
book review was primarily attributable to a larger number of audio releases in
1995 compared to 1994. The provision for returns as a percentage of gross
revenue increased from 31% in 1994 to 47% in 1995. Although the Company makes
allowances and reserves for returned product, significant increases in return
rates could materially and adversely impact the Company's financial condition or
results of operations. Remainder sales were less than 3% of total publishing
sales in 1995.
COST OF SALES. Publishing cost of sales fell by $812,000 or 10% from
$7,981,000 in 1994 to $7,169,000 in 1995. The decrease in 1995 cost of sales
compared to 1994 was primarily attributable to the decrease in publishing
revenue and a decrease in fulfillment costs resulting from certain volume
discounts from the Company's distributor.
FILM
REVENUES. Film revenues decreased from $1,071,000 in 1994 to $187,000 in
1995. The decrease was attributable to the fact that the Company had no new
releases in 1995 and the $187,000 in revenue was primarily related to licensing
receipts from "Morning Glory." Future film revenues will depend upon the
development and success of film properties, as well as the timing of the release
or licensing of such properties.
FILM AMORTIZATION. Film Amortization costs decreased from $716,000 in 1994
to $99,000 in 1995. The decrease was due to the absence of new releases in 1995.
Film amortization expenses are generally incurred upon the release or licensing
of film properties.
GENERAL
GROSS PROFIT. The Company's gross profit increased by 6% from $3,658,000 in
1994 to $3,880,000 in 1995. Gross profit margin increased from 30% in 1994 to
35% in 1995. This increase resulted primarily from lower fulfillment costs,
offset by an increase in production master amortization.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, General and Administrative
expenses ("SG&A") increased by $514,000 or 16% from $3,182,000 in 1994 to
$3,696,000 in 1995. The increase in SG&A was primarily attributable to increased
salary and occupancy costs related to the Company's expansion. The Company
expects SG&A costs to continue to increase as the Company grows further.
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<PAGE> 23
INTEREST EXPENSE. Interest expense, net declined from $342,000 in 1994 to
$22,000 in 1995 due to lower borrowings and the repayment and cancellation of
the Company's line of credit with Bank of America.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations in general, and its television, film and
publishing operations in particular, 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 expands its 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, from additional debt or equity financings
from outside sources or from other financing arrangements, including bank
financing. 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 programming or 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 and there is no assurance it will be able to do so in the
future.
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, and cash generated from operations. In March 1997,
the Company consummated a deal for an equity investment of $6,000,000 through a
private placement. In the first of two closings to be completed under such
private placement (i) Media Equities International, L.L.C. ("MEI"), purchased
3,000 shares of the Company's 6% Series B Preferred Stock (the "Series B
Preferred Stock") and warrants to purchase 500,000 shares of Common Stock at
$2.00 per share, warrants to purchase 500,000 shares of Common Stock at $2.50
per share and warrants to purchase 500,000 shares of Common Stock at $3.00 per
share for an aggregate of $3,000,000 and (ii) two of the principal
shareholders/officers of the Company purchased 920 shares of the Company's 6%
Series C Preferred Stock (the "Series C Preferred Stock") and warrants to
purchase 166,666 shares of Common Stock at $2.00 per share, warrants to purchase
166,667 shares of Common Stock at $2.50 per share and warrants to purchase
166,667 shares of Common Stock at $3.00 per share for an aggregate of $920,000
(including the contribution of $676,000 payable by the Company to such
shareholders). The agreement contains a commitment for a second closing (the
"Second Closing"), which is currently expected to be on or before May 25, 1997.
At the Second Closing (i) MEI has agreed to purchase 1,000 shares of the
Company's Series B Preferred Stock and warrants to purchase 166,666 shares of
Common Stock at $2.00 per share, warrants to purchase 166,667 shares of Common
Stock at $2.50 per share and warrants to purchase 166,667 shares of Common Stock
at $3.00 per share for and aggregate of $1,000,000 and (ii) two of the principal
shareholders/officers of the Company have agreed to purchase 1,000 shares of the
Company's Series C Preferred Stock and warrants to purchase 166,666 shares of
Common Stock at $2.00 per share, warrants to purchase 166,667 shares of Common
Stock at $2.50 per share and warrants to purchase 166,667 shares of Common Stock
at $3.00 per share for an aggregate of $1,000,000 (including the contribution of
$175,000 payable by the Company to such shareholders). Each share of Series B
Preferred Stock and Series C Preferred Stock accrues dividends, payable at the
Company's option in cash or in shares of such series of preferred stock, at a
rate of 6% per annum. Each share of Series B Preferred Stock and Series C
Preferred Stock is convertible at the option of the holder thereof into 500
shares of Common Stock, subject to certain anti-dilution adjustments, at any
time following the date six months after the issuance thereof. Each of the
Series B Preferred Stock and Series C Preferred Stock are redeemable, in whole
or in part at the option of the Company, at any time after March 28, 2002 at a
redemption price of 110% of the stated value ($1,000) plus all accumulated but
unpaid dividends thereon (plus interest on such accumulations). The net proceeds
will be used by the Company to fund the Company's increased working capital
requirements.
As part of such transaction, Media Equities International, L.L.C. ("MEI"),
acquired from the Company using MEI's own funds, 3,000 shares of Series B
Preferred Stock and, accordingly, may be deemed to beneficially own beginning 60
days prior to the date MEI may first elect to convert such shares, approximately
35% of the shares of Common Stock. In addition, pursuant to the stock purchase
agreement pursuant to which MEI acquired its shares of Series B Preferred Stock,
MEI has the right to consent to certain activities prior to the Company
undertaking certain activities (including adopting an annual budget, incurring
any debt for borrowed money or selling and issuing debt or equity securities
(subject to certain limited exceptions) or changing or altering its principal
business or entering into new businesses) and prior to the Company's executive
officers undertaking certain activities (including certain personnel matters,
changes in certain of the Company's outside advisers, certain litigation
matters, certain acquisition or production matters and certain other
activities.) MEI has agreed to use its reasonable best efforts to assist the
Company in arranging for a new bank facility, though there is no assurance that
the Company will be able to obtain such bank facility on acceptable terms. MEI
also has the right, for so long as it owns at least 750,000 shares of Common
Stock (assuming for this purpose the full conversion of all shares of Series B
Preferred Stock then held by MEI) to nominate three members to the Company's
Board of Directors. Further, as part of such transaction MEI, Michael Viner and
Deborah Raffin entered into a stockholders voting agreement pursuant to which
Mr. Viner and Ms. Raffin agreed to vote all of their voting stock for the
election as directors of all director nominees of MEI, to the extent MEI had at
such time a right to make such nominations in accordance with certain applicable
agreements, to use their reasonable best efforts to cause their affiliates to
vote their voting stock for such nominees and to use their reasonable efforts to
take all steps necessary to cause the election of such nominees. It is possible,
based upon MEI's ownership interest, its right to consent to certain activities
of the Company and its executive officers and its rights to nominate three
members to the Company's Board, that a change of control may be deemed to have
occurred upon the consummation of the private placement.
In October 1996 Morgan Fuller completed a loan to the Company in the
aggregate amount of $800,000. Such loan bore interest at the rate of 10% per
annum. In April 1997, the Company retired $500,000 of such loan from Morgan
Fuller in exchange for 210,526 shares of Common Stock along with warrants to
purchase 35,088 shares of Common Stock at $2.50 per share, warrants to purchase
35,088 shares of Common Stock at $3.50 per share and warrants to purchase 35,087
shares of Common Stock at $4.50 per share. The balance of the loan plus accrued
interest was repaid in cash.
On September 17, 1996, the Company's registration statement on Form S-3,
registering 2,335,000 shares of Common Stock then outstanding or issuable upon
exercise of certain warrants, was declared effective by the Securities and
Exchange Commission.
In December 1995 and January 1996, the Company raised net proceeds of
approximately $6,303,000 from the sale of 76 Units in a private placement. Each
Unit consisted of 12,500 shares of the Common Stock of the Company and 12,500
warrants
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to purchase shares of Common Stock at $12.00 per share. In September 1994, the
Company completed the sale of 300,000 Units for an aggregate of approximately
$926,000, each Unit consisting of one share of Common Stock and one Redeemable
Warrant to purchase Common Stock at $8.00 per share in a private placement. In
December 1994, the Company completed its IPO, resulting in net proceeds of
approximately $4,805,000 to the Company. In January 1995, the underwriter of the
IPO exercised its overallotment option relating to the IPO in full resulting in
additional net proceeds to the Company of approximately $770,000.
In connection with the acquisition of Four Point, which was completed on
April 29, 1996, the Company guaranteed certain term debt and a $1 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 certain of the Company's shareholders and Dove Four
Point have guaranteed such new facility. 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 Company was not in compliance with certain of such financial
covenants as of December 31, 1996. After the consummation of the sale and
issuance of equity securities in March 1997 discussed above, the Company is in
compliance with such financial covenants, after giving effect to such sale and
issuance, on a pro forma basis. On April 8, 1997, the Company received a letter
from Sanwa Bank dated April 8, 1997, in which Sanwa Bank claimed the Company
had not provided certain required documents to Sanwa Bank. The Company believes
that it has subsequently provided such documents or is working on providing
such documents to Sanwa Bank in accordance with the credit facility.
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 secured by a deed of trust on such
building and such loan 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 theatrical film
"Wilde" in all media throughout the United States and Canada (excluding
French-speaking Canada) and the exclusive world-wide 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 April 1997,
approximately $700,000 remained unpaid.
In October 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.
Publishing accounts receivable, net of sales returns, generally are to be
paid pursuant to a specified payment formula, as defined in the relevant
agreements. The Company's distribution agreements typically provide for a
distribution of certain bad debt risk between the Company and its distributors.
As of April 1, 1997 the Company's unused sources of funds consisted
primarily of approximately $304,000 in cash.
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<PAGE> 25
The Company has historically experienced significant negative cash flows
from operations, including $4,556,000 for the year ended December 31, 1996. See
"Financial Statements of the Company - Statements of Cash Flows." The Company
believes that existing working capital (including the funds from the equity
private placement consummated in March 1997), the capital infusion expected from
the consummation of the Second Closing and anticipated cash flow from operations
will be sufficient to meet the Company's working capital requirements with
respect to its current commitments for at least the next twelve months. While
the Company believes that it will complete the Second Closing and realize its
anticipated cash flow from operations, there is no assurance that either will be
accomplished. If the Company is unable to complete the Second Closing, if the
Company is unable to realize anticipated revenues, or if the Company incurs
costs inconsistent with anticipated levels, the Company would either need to
obtain additional financing (including possibly through the sale of debt or
equity securities, by obtaining additional bank financing or through the sale of
certain assets), limit its commitments to new projects or possibly curtail its
current operations. 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. There is no assurance that any such
additional sources of working capital will be available on acceptable terms.
INFLATION
The Company does not believe its business and operations have been
materially affected by inflation.
ITEM 7. FINANCIAL STATEMENTS
The financial statements, including notes thereto, required by Item 7 are
set forth in the pages indicated in Item 13(a)(1).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
On July 24, 1995, Ernst & Young LLP, successor to Kenneth, Leventhal &
Company, resigned as the Company's independent accountants. Kenneth, Leventhal &
Company audited the Company's 1992, 1993 and 1994 financial statements and
effective June 1, 1995 was merged into Ernst & Young LLP. In connection with the
Company's fiscal year ended December 31, 1994, there were no disagreements with
Kenneth Leventhal & Company on any manner of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to their satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with the Company's Report on
Form 8-K filed July 26, 1995.
The audit report of Kenneth Leventhal & Company on the consolidated
financial statements of the Company for the fiscal year ended December 31, 1994
did not contain any adverse opinion or disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
The Company engaged KPMG Peat Marwick LLP as its principal accountants as
of September 18, 1995.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information appearing under
the caption "Directors and Executive Officers" in the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year ended December 31, 1996.
ITEM 10. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under
the caption "Executive Compensation" in the Company's definitive Proxy Statement
to be filed with the Securities and Exchange Commission not later than 120 days
after the end of the fiscal year ended December 31, 1996.
25
<PAGE> 26
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information appearing under
the caption "Security Ownership of Certain Beneficial Owners and Management" in
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
ended December 31, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under
the caption "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year ended
December 31, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of KPMG Peat Marwick LLP........................................................... F-1
Balance Sheets at December 31, 1996....................................................... F-2
Statements of Income for the Years Ended December 31, 1996 and 1995....................... F-3
Statements of Shareholder's Equity (Deficit) for the Years
Ended December 31, 1996 and 1995.......................................................... F-4
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995................... F-5
Notes to Financial Statements............................................................. F-6
</TABLE>
(2) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company (filed as Exhibit 3.1
to the Registration Statement)
3.2 Certificate of Amendment of Articles of Incorporation of the
Company filed with the Secretary of State of the State of
California on March 14, 1990 (filed as Exhibit 3.2 to the
Registration Statement)
3.3 Certificate of Amendment of Articles of Incorporation of the
Company filed with the Secretary of State of the State of
California on November 17, 1990 (filed as Exhibit 3.3 to the
Registration Statement)
3.4 Certificate of Amendment of Articles of Incorporation of the
Company filed with the Secretary of State of the State of
California on August 26, 1994 (filed as Exhibit 3.4 to the
Registration Statement)
3.5 Bylaws of the Company, as amended (filed as Exhibit 3.5 to the
Registration Statement)
3.6 Certificate of Amendment of Articles of Incorporation of the
Company filed with the Secretary of State of the State of
California on December 24, 1996
3.7 Form of Amendment to Bylaws dated as of November 7, 1996
4.1 Specimen common stock certificate of the Company (filed as
Exhibit 4.1 to Amendment No. 2 to the Registration Statement
("Amendment No. 2") filed with the Commission on November 29,
1994)
4.2 Specimen Series A Preferred Stock certificate of the Company
(filed as Exhibit 4.2 to Amendment No. 2)
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.3 Form of Certificate of Determination of the Series A Preferred
Stock of the Company (filed as Exhibit 4.3 to the Registration
Statement)
4.4 Form of Underwriter's Warrant Agreement (filed as Exhibit 4.4 to
the Registration Statement)
4.5 Form of Warrant Agreement (filed as Exhibit 4.5 to the
Registration Statement)
4.6 Form of Subscription Agreement (filed as Exhibit 4.6 to
Amendment No. 1 to the Registration Statement ("Amendment No.
1") filed with the Commission on November 2, 1994)
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.7 Placement Agency Agreement dated August 1, 1994 between the
Company and Joseph Stevens & Company, L.P. (filed as Exhibit 4.7
to Amendment No. 1)
4.8 Placement Agent Warrant Agreement dated December 24, 1995
between Whale Securities Co., L.P. and Dove Audio (filed as the
same numbered Exhibit to the Annual Report on Form 10-KSB for
the fiscal year ended 1995).
4.9 Placement Agent Warrant (filed as the same numbered
Exhibit to the Annual Report on Form 10-KSB for the
fiscal year ended 1995).
4.10 Form of Registration Rights Agreement (filed as the
same numbered Exhibit to the Annual Report on Form 10-KSB for
the fiscal year ended 1995).
4.11 Form of Common Stock Purchase Warrant (filed as the
same numbered Exhibit to the Annual Report on Form 10-KSB for
the fiscal year ended 1995).
4.12 Form of Warrant Agreement dated as of October 1, 1996
4.13 Certificate of Determination of the Series B Preferred Stock
of the Company
4.14 Warrant Agreement dated as of March 27, 1997 between the Company
and Media Equities International, LLC
4.15 Certificate of Determination of the Series C Preferred Stock
of the Company
4.16 Warrant Agreement dated as of March 27, 1997 between the Company,
Michael Viner and Deborah Raffin Viner
4.17 Certificate of Determination of the Series D Preferred Stock
of the Company
4.18 Form of Warrant Agreement dated as of April 1, 1997
10.3 Office Building Lease for Suite 203, 301 N. Canon Drive, Beverly
Hills, California 90210 (the "Office Lease") between Village on
Canon and Dove, Inc. dated July 3, 1990 and Amendment appended
thereto dated 1992 (filed as Exhibit 10.10 to the Registration
Statement)
10.4 Second Amendment to the Office Lease between Village on Canon
and Dove, Inc. dated March 12, 1990 (filed as Exhibit 10.11 to
the Registration Statement)
10.5 Third Amendment to the Office Lease between Pinkwood Properties
Corp. and Dove, Inc. dated December 1, 1992 (filed as Exhibit
10.12 to the Registration Statement)
10.13 Agreement to Assume and Amend Lease of Dove, Inc. dated
February, 1994 among Pinkwood Properties Corp., Michael Viner
and the Company (filed as Exhibit 10.13 to the Registration
Statement)
10.14 Letter Agreement between Pinkwood Properties Corp. and the
Company dated February 3, 1994 amending the Office Lease (filed
as Exhibit 10.14 to the Registration Statement)
10.15 Letter Agreement dated July 1, 1994 between Penguin Books USA,
Inc. and the Company (filed as Exhibit 10.15 to the Registration
Statement)
10.16 Form of Publishing Agreement (filed as Exhibit 10.16 to
Amendment No. 1)
10.17 Form of Artist Agreement (filed as Exhibit 10.17 to Amendment
No. 1)
10.18 Form of Company's 1994 Stock Incentive Plan (filed as Exhibit
10.18 to the Registration Statement)
10.19 Settlement Agreement dated as of July 13, 1994 among the
Company, SBT-Batif, S.A. and Ethos Capital Management, Inc.
(filed as Exhibit 10.19 to Amendment No. 1)
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.20 Form of Option and Stock Purchase Agreement among Michael Viner,
Deborah Raffin Viner, Dove, Inc., Dove II, Inc., Dove
Communications, Inc. and the Company (filed as Exhibit 10.20 to
Amendment No. 2)
10.21 Agreement between the Company and Reader's Digest Association,
Inc. dated as of March 15, 1995 (filed as the same numbered
Exhibit to the Annual Report on Form 10-KSB for the fiscal year
ended 1994)
10.22 Agreement between Dove International and Skouras Pictures, Inc.
dated July 1, 1995 (filed as Exhibit 1 to the Current Report on
Form 8-K filed with the Commission on July 17, 1995 (the "July
17 Current Report")
10.23 Employment Agreement between Dove International and Dimitri T.
Skouras dated as of July 1, 1995 together with Stock Option
Award Agreement between Dove Audio and Dimitri T. Skouras, dated
as of July 1, 1995 (filed as Exhibit 2 to the July 17 Current
Report)
10.24 Agreement for Purchase and Sale of Real Estate and Joint
Escrow Instructions dated September 15, 1995 among the Writers
Guild of America, west, Inc. and the Company and Amendment No. 1
thereto dated October 3, 1995 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB filed with the
Commission on November 14, 1995)
10.25 Employment Agreement dated as of January 1, 1995 between the
Company and Michael Viner
10.26 Employment Agreement dated as of January 1, 1995 between the
Company and Deborah Raffin
10.27 Term Loan Agreement, dated August 16, 1996, by and between
Sanwa Bank California and the Company (filed as Exhibit 10.1 to the
Quarterly Report on Form 10-QSB filed with the Commission on
November 14, 1996)
10.28 Continuing Guaranty, dated as of August 16, 1996, of Michael Viner
(filed as Exhibit 10.2 to the Quarterly Report on Form 10-QSB filed
with the Commission on November 14, 1996)
10.29 Continuing Guaranty, dated as of August 16, 1996, of Deborah Raffin
(filed as Exhibit 10.3 to the Quarterly Report on Form 10-QSB filed
with the Commission on November 14, 1996)
10.30 Security Agreement, dated August 16, 1996, by and between Sanwa Bank
California, Four Point and the Company (filed as Exhibit 10.4 to the
Quarterly Report on Form 10-QSB filed with the Commission on
November 14, 1996)
10.31 Letter Agreement, dated September 12, 1996, by and between Dove
International, Inc., Guinness, Mahon & Co. Limited, Samuelson
Entertainment Limited and Michael Viner (filed as Exhibit 10.5 to the
Quarterly Report on Form 10-QSB filed with the Commission on
November 14, 1996)
10.32 Consultancy Letter Agreement dated as of May 16, 1996 between the
Company and Gerald Leider
10.33 Separation Agreement dated as of May 31, 1996 by and between the
Company and Dimitri T. Skouras
10.34 Key Executive Severance Agreement dated as of September 4, 1996
by and between the Company and Gerald Leider
10.35 Letter Agreement dated September 12, 1996 between the
Company, Michael Viner and Deborah Raffin
10.36 Financial Advisor Agreement dated as of September 30, 1996
between the Company and Morgan Fuller Capital Group, LLC
10.37 Non-Qualified Stock Option Agreement dated as of October 15, 1996
by and between the Company and Steve Soloway
10.38 Employment Agreement dated as of October 16, 1996 by and between
the Company and Steven Soloway
10.39 Form of First Amendment to the Company's 1994 Stock Incentive Plan
dated November 7, 1996
10.40 Stock Purchase Agreement dated as of March 27, 1997 among the
Company, Media Equities International, LLC, Michael Viner and
Deborah Raffin Viner
10.41 Shareholders Voting Agreement dated as of March 27, 1997 by and
between Media Equities International, LLC, Michael Viner and
Deborah Raffin Viner
10.42 Pledge Agreement dated as of March 27, 1997 among Media Equities
International, LLC, Michael Viner and Deborah Raffin Viner
16 Letter from Ernst & Young LLP to the Securities and Exchange
Commission dated July 26, 1995 (filed as Exhibit 16 to the
current Report on Form 8-K filed with the Commission on July 26,
1995)
21 Subsidiaries of Dove (filed as Exhibit 21 to the Annual Report on
Form 10-KSB for the fiscal year ended 1995)
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K.
None.
29
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Dove Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of Dove
Entertainment, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years ended December 31, 1996 and 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dove Entertainment,
Inc. and subsidiaries as of December 31, 1996, and the results of its operations
and its cash flows for the years ended December 31, 1996 and 1995 in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
April 9, 1997
F-1
<PAGE> 31
DOVE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 390,000
Accounts receivable, net of allowances of $1,995,000 2,274,000
Inventory 4,037,000
Film Costs - Note 6 252,000
Prepaid expenses and other assets 345,000
Income taxes receivable - Note 7 198,000
Deferred tax assets - Note 7 529,000
-----------
8,025,000
PRODUCTION MASTERS, net - Note 5 2,928,000
FILM COSTS, net - Note 6 3,443,000
PROPERTY AND EQUIPMENT, net - Note 4 4,308,000
GOODWILL AND OTHER ASSETS 6,252,000
-----------
Total assets $24,956,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses 6,669,000
Notes payable - Note 8 2,121,000
Due to related party, net - Note 9 538,000
Royalties payable 534,000
Advances and deferred income 1,161,000
-----------
Total current liabilities 11,023,000
Long-term Notes payable, less current portion - Note 8 1,832,000
COMMITMENTS AND CONTINGENCIES - Note 10
SHAREHOLDERS' EQUITY - Note 11
Series A Preferred stock -- $4.00 stated value;
214,113 shares authorized and outstanding,
liquidation preference of $927,000 856,000
Common stock .01 par value; 20,000,000 shares authorized and
5,273,240 issued and outstanding 53,000
Additional paid-in capital 19,599,000
Accumulated deficit (8,407,000)
-----------
Total shareholders' equity 12,101,000
-----------
Total liabilities and shareholders' equity $24,956,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 32
DOVE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
REVENUES - Note 12
Publishing, Net $ 11,586,000 $ 10,961,000
Film 15,267,000 187,000
-------------- --------------
26,853,000 11,148,000
COST OF SALES 11,353,000 7,169,000
FILM AMORTIZATION 11,855,000 99,000
-------------- --------------
3,645,000 3,880,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES - Note 9 10,071,000 3,696,000
-------------- --------------
Income (loss) from operations (6,426,000) 184,000
INTEREST EXPENSE - net of interest income of
$83,000 and $86,000 respectively (197,000) (22,000)
OTHER EXPENSE, net (18,000) (11,000)
------------- --------------
Income (loss) before income taxes (6,641,000) 151,000
PROVISION FOR INCOME TAXES - Note 7 32,000 60,000
-------------- --------------
Net income (loss) (6,673,000) $ 91,000
============== ==============
Net income (loss) per common share $ (1.31) $ .02
============== ==============
Weighted average number of common and common
equivalent shares outstanding 5,138,000 4,365,000
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 33
DOVE ENTERTAINMENT, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
-------------------------- -------------------------- PAID-IN ACCUM
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1995 3,775,000 38,000 -- -- 8,587,000 (1,703,000) 6,922,000
NET INCOME -- -- -- -- -- 91,000 91,000
SALE OF COMMON STOCK 888,853 9,000 -- -- 5,532,000 -- 5,541,000
PREFERRRED STOCK OPTION
ISSUANCE -- -- 214,113 856,000 (854,000) -- 2,000
PREFERRED STOCK -- -- -- -- -- (53,000) (53,000)
DIVIDEND ----------- ----------- ----------- ----------- ----------- ----------- -----------
DECEMBER 31, 1995 4,663,853 $ 47,000 214,113 $ 856,000 $13,265,000 ($1,665,000) $12,503,000
NET LOSS (6,673,000) (6,673,000)
SALE OF COMMON STOCK 220,313 2,000 -- -- 1,545,000 -- 1,547,000
ACQUISITION OF FOUR POINT 387,274 4,000 -- -- 4,789,000 -- 4,793,000
ENTERTAINMENT
EXERCISE OF WARRANTS 1,800 -- -- -- -- -- --
PREFERRED STOCK DIVIDEND -- -- -- -- -- (69,000) (69,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
DECEMBER 31, 1996 5,273,240 53,000 214,113 856,000 19,599,000 (8,407,000) 12,101,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 34
DOVE ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1996 1995
------------- -----------
<S> <C>
OPERATING ACTIVITIES
Net income $ (6,673,000) $ 91,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 321,000 79,000
Amortization of production masters 4,196,000 2,718,000
Amortization of film costs 11,855,000 99,000
Amortization of Goodwill 164,000 --
(Gain) on sale of assets 18,000 11,000
Changes in operating assets and liabilities
Accounts receivable (309,000) 4,880,000
Deferred tax asset 80,000 (20,000)
Inventory (332,000) (1,969,000)
Film costs (10,393,000) (2,995,000)
Expenditures for production masters (4,366,000) (4,352,000)
Prepaid expenses and other assets 173,000 (559,000)
Accounts payable and accrued expenses 3,126,000 (159,000)
Royalties payable 193,000 (50,000)
Income taxes receivable and deferred tax assets (161,000) (210,000)
Advances and deferred revenue (2,069,000) 2,622,000
Other (31,000) --
------------ -----------
Net cash provided by (used in) operating activities (4,208,000) 186,000
------------ -----------
INVESTING ACTIVITIES
Purchase of marketable securities (214,000) (163,000)
Maturities, sales of marketable securities 359,000 1,703,000
Purchases of property and equipment (303,000) (790,000)
Proceeds from the sale of equipment -- 35,000
Purchase of Four Point (2,500,000) --
------------ -----------
Net cash provided by (used in) investing activities (2,658,000) 785,000
------------ -----------
FINANCING ACTIVITIES
Proceeds from sale of common stock 1,547,000 5,541,000
Proceeds of bank borrowings 1,020,000 859,000
Repayments of bank borrowings (257,000) --
Repayments of notes payable -- (2,877,000)
Issuance of preferred stock -- 2,000
Preferred Series A dividend -- (53,000)
----------- -----------
Net cash provided by financing activities 2,310,000 3,472,000
Net increase (decrease) in cash and
cash equivalents (4,556,000) 4,443,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,946,000 503,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 390,000 $ 4,946,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 278,000 $ 96,000
Cash paid for income taxes -- 420,000
Non cash transactions:
Acquisition of property and equipment in exchange for
mortgage note -- 1,900,000
Acquisition of Four Point Entertainment, Inc.:
Assets acquired $10,229,000 $ --
Liabilities assumed (2,939,000) --
Issuance of Common Stock (4,790,000) --
----------- -----------
Net cash paid 2,500,000 $ --
=========== ===========
Film cost acquired in exchange for payable to
related party - Note 9 $ 500,000 --
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 35
DOVE ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Dove Entertainment, Inc. (the "Company") is primarily engaged 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 television 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 distribution for network, cable and
syndication. 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.
GOODWILL
Goodwill, representing the excess of the purchase price of Four Point
Entertainment, Inc. over its net assets, is included in other assets and is
being amortized over a twenty-five year period. Goodwill amounted to
$6,154,000 net of accumulated amortization of $164,000 at December 31,
1996.
Management continuously monitors and evaluates the realizability of
goodwill to determine whether the carrying value has been impaired. In
evaluating the value and future benefits of goodwill, the carrying value
is compared to management's best estimate of undiscounted future cash flows
over the remaining amortization period. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying value of the assets exceeds the fair value of the
assets. The Company believes that the carrying value of the goodwill
is not impaired.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RECOGNITION OF PUBLISHING REVENUE
Revenues from publishing, including the sale of audio books, (net of
provisions for estimated returns and allowances), and related royalties
payable are recognized upon shipment of the product.
The Company records an allowance for future returns based on anticipated
return rates. The activity relating to the allowance for returns during the
years ended December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of year ....... $ 2,132,000 $ 3,048,000
Provision for returns............... 9,119,000 8,823,000
Actual Returns...................... (9,426,000) (9,739,000)
----------- -----------
Balance at end of year.............. $ 1,825,000 $ 2,132,000
=========== ===========
</TABLE>
The activity relating to the allowance for doubtful accounts during the
year ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Balance at beginning of year ....... $ -
Provision for doubtful accounts .... 552,000
Write-offs ......................... (382,000)
---------
Balance at end of year.............. $ 170,000
=========
</TABLE>
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities to the Company of three months or less to be cash equivalents.
INVENTORY
F-6
<PAGE> 36
Inventory, consisting primarily of recorded audio cassettes and printed
books, is valued at the lower of cost or market, determined using the
first-in, first-out method. Periodically, management reviews inventory on a
title-by-title basis. The Company writes off, to cost of sales, inventory
that management believes will not be sold.
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 released, consistent with the estimated timing of
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 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 audio title's production master cost
being amortized in the first twelve months of release. The effect of this
change was to reduce the production master amortization component of Cost
of Sales by approximately $384,000 for the year ended December 31, 1996.
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.
TELEVISION AND FILM REVENUES AND COSTS
Film costs, which include development, production and acquisition costs,
are capitalized and amortized, and participations and royalties are
accrued, in accordance with the individual-film-forecast method in the
proportion that current year's revenue bears to the estimated total
revenues from all sources.
These costs are stated at the lower of unamortized costs or estimated
realizable value on an individual film basis. Revenue forecasts for films
are periodically reviewed by management and revised if warranted by
changing conditions. If estimates of total revenue indicate that a film
will result in an ultimate loss, the loss is recognized currently.
Revenues from the distribution of television and theatrical films are
recognized upon availability of the completed film to the broadcaster or
the Company's distributors. The Company licenses distribution rights to
distributors and has not recognized any revenue from the direct
distribution of theatrical films. Deferred revenues arise when distributors
or broadcasters make advances to the Company prior to the date of revenue
recognition.
Revenues from producer-for-hire contracts are recognized on a
percentage-of-completion method, measured by the percentage of costs
completed to date to estimated total cost for each contract. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
INCOME TAXES
The Company provides for income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS 109). In accordance with SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
and tax reporting basis of the Company's assets and liabilities.
PROPERTY AND EQUIPMENT
Property and Equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of assets as follows:
<TABLE>
<S> <C>
Building 39 years
Furniture, Fixtures and Equipment 5-7 years
</TABLE>
Leasehold improvements are amortized over the estimated useful life or the
remaining lease term, whichever is less.
NET INCOME PER COMMON SHARE
Net income per common share is based upon the weighted average number of
outstanding shares of Common Stock and common equivalent shares.
The net income (loss) utilized in the calculation of the net income (loss)
per common share is reduced by dividends on Series A Preferred Stock.
USE OF ESTIMATES
F-7
<PAGE> 37
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates. Significant estimates include those
related to ultimate revenues and expenses related to film and television
productions, the net realizability of Inventory and Production Masters and
the allowance for returns on publishing sales.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
RECLASSIFICATION
Certain prior year accounts have been reclassified to conform to the
current year's presentation.
NOTE 3 - CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company's cash deposits periodically exceed federally insured limits.
Based on the quality of the depository institutions at which the Company's
cash deposits are maintained from time to time, management does not believe
the Company faces an unacceptable credit risk.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, other notes payable and advances
and deferred income approximate fair value because of the short maturity of
those instruments. The carrying amount of the mortgage note payable
approximates fair value.
NOTE 4 - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1996 is as follows:
<TABLE>
<S> <C>
Land..................................... $ 502,000
Building................................. 2,021,000
Furniture, Fixtures and Equipment........ 2,413,000
Leasehold Improvements................... $ 6,000
--------------
Total................................... $ 4,942,000
Less accumulated depreciation and
amortization........................... $ (634,000)
--------------
$ 4,308,000
==============
</TABLE>
NOTE 5 - PRODUCTION MASTERS
Production masters, net of accumulated amortization of $2,928,000 at
December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Released titles...... $ 1,535,000
Unreleased titles.... 1,393,000
-------------
Total................ $ 2,928,000
=============
</TABLE>
NOTE 6 - FILM COSTS
The following is an analysis of film costs as of December 31, 1996:
<TABLE>
<S> <C>
Current:
Television projects in production............. $ 252,000
Non Current:
Television and theatrical films released
less amortization............................. 3,443,000
--------------
$ 3,695,000
==============
</TABLE>
As of December 31, 1996 approximately 90% of the unamortized balance of
film costs will be amortized within the next three-year period based upon
the Company's revenue estimates at that date.
F-8
<PAGE> 38
NOTE 7 - INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
<S> <C>
Current tax expense
Federal.................... $ - $ 62,000
State...................... - 18,000
------- -----------
Total current.............. - 80,000
Deferred tax expense (benefit)
Federal.................... 24,000 (15,000)
State...................... 8,000 (5,000)
------- -----------
Total deferred............. 32,000 (20,000)
------- -----------
$32,000 $ 60,000
======= ===========
</TABLE>
Net deferred tax assets at December 31, 1996 is comprised of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Deferred income.................................. $ 503,000
Inventory reserve................................ 650,000
Royalties payable................................ 232,000
State taxes...................................... 283,000
Net operating loss carryforward.................. 1,773,000
Other............................................ 133,000
-----------
Total deferred tax assets........................ 3,574,000
-----------
Deferred tax liability -- film amortization...... (135,000)
-----------
Net deferred tax assets.......................... 3,439,000
Valuation allowance.............................. (2,910,000)
-----------
$ 529,000
===========
</TABLE>
SFAS No. 109 requires that a valuation allowance be recorded against tax
assets which are not likely to be realized. Specifically, the Company's
carryforwards expire at specific future dates. Due to the uncertain nature
of their ultimate realization based upon past performance and expiration
dates, the Company has established a valuation allowance against these tax
assets except to the extent that they are realizable through carrybacks.
Realization of additional amounts is entirely dependent upon future
earnings in specific tax jurisdictions. While the need for this valuation
allowance is subject to periodic review, if the allowance is reduced, the
tax benefits of the carryforwards will be recorded in future operations as
a reduction of the Company's income tax expense.
The provision for income taxes differs from amounts computed by applying
the statutory federal income tax rate to income before income taxes for the
years ended December 31, 1996 and 1995, respectively, as a result of the
following differences:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal income tax expense (benefit)
based on federal statutory
rates............................................ $(2,336,000) $ 51,000
Increase (reduction) in taxes resulting from:
State income taxes................... (230,000) 9,000
Non-deductible expenses.............. 112,000 -
Increase in valuation allowance...... 2,486,000 -
----------- ----------
$ 32,000 $ 60,000
=========== ==========
</TABLE>
NOTE 8 - NOTES PAYABLE
Notes payable at December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Current notes payable:
Term Loan............................... 1,279,000
Bridge Loan............................. 800,000
Current portion of long term mortgage
note payable............................ 42,000
--------------
$ 2,121,000
Long-term mortgage note payable, less
current portion......................... $ 1,832,000
--------------
Total notes payable....................... $ 3,953,000
==============
</TABLE>
F-9
<PAGE> 39
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1997............................ $2,121,000
1998............................ 45,000
1999............................ 49,000
2000............................ 53,000
2001............................ 1,685,000
----------
$3,953,000
==========
</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 maturity amortization payment rate through April 2001 with a repayment
of the remaining outstanding principal amount at that time.
In August 1996 the Company refinanced the Company's existing revolving line
of credit and term loan with Sanwa Bank California ("Sanwa Bank") with a
$1,365,000 term loan from 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 two principal
shareholders/officers of the Company (the "Principals"). 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. 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 Company was not in compliance
with certain of such financial covenants as of December 31, 1996. After
the consummation of the sale and issuance of equity securities in March
1997 discussed, the Company is in compliance with such financial
covenants thus giving effect to such sale and issuance, on a pro forma
basis. On April 8, 1997, the Company received a letter from Sanwa Bank,
dated April 8, 1997, in which Sanwa Bank claimed the Company had not
provided certain required documents to Sanwa Bank. The Company believes
that it has subsequently provided such documents or is working on
providing such documents to Sanwa Bank in accordance with the credit
facility.
In October 1996, the Company obtained a bridge loan of $800,000
with Morgan Fuller. This loan bears interest at 10% per annum. Principal
payments of $100,000 plus accrued interest are payable monthly beginning
February 1, 1997 with interest accruing as of November 1, 1996. Any unpaid
principal and accrued interest is fully due and payable August 1, 1997.
This loan is secured by the Company's assets, other than the Company's
building, and is guaranteed by the Principals. See Subsequent Events --
Note 16.
NOTE 9 - RELATED PARTY TRANSACTIONS
In September 1996, in connection with Samuelson Entertainment Ltd.'s
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)
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, Samuelson Entertainment, Ltd. agreed to pay the
Principal 8% of 100% of Samuelson Entertainment Ltd.'s net profits from the
Picture. As of December 31, 1996 the Picture has not been delivered and no
amounts have been recorded relating to such commissions.
At December 31, 1996, the balance due to the Principals was $538,000
comprised of the $500,000 discussed above, $71,000 of dividends payable on
the Series A Preferred Stock and interest thereon, offset by approximately
$33,000 receivable from the Principals.
F-10
<PAGE> 40
As of January 1, 1995, the Company entered employment agreements with two
principal shareholders/officers which expire in December 1999. The
agreements provide for aggregate compensation of no less than a combined
total of $345,000 per year, plus benefits such as health insurance and an
automobile allowance and combined non-accountable expenses of $75,000 per
year. In addition, the majority shareholders/officers are entitled to an
annual salary increase and bonus subject to certain limitations agreed upon
with the underwriter of the Initial Public Offering at the discretion of
the Company's Board of Directors. The Board of Directors approved an
increase in the salary portion of the employment agreements with the
principal shareholders/officers to a combined total of $562,000 per year
for 1996.
On August 16, 1996, 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.
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. Such agreement
was terminated effective February 28, 1997.
As of December 31, 1996, the Company made payments to the two Principals
and another officer of the Company totalling $365,000 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 $175,000, $115,000, and $75,000, respectively, under
such agreements for the twelve months ended December 31, 1996.
The Company acquired audio book rights for fourteen titles which were
written by one of the principal shareholders of the Company. The net audio
sales (net of returns) from these titles for the years ended December 31,
1996 and 1995 were $(74,000) and $357,000, respectively. In 1996, the
Company agreed to issue 50,000 shares of Common Stock to the shareholder
for the rights to future titles.
During 1996 the Company made payments totalling $14,000 to a principal
shareholder/officer for the business rental of a condominium owned by the
officer.
During 1996 the Company made payments totaling $20,000 with respect to auto
lease payments, auto allowance, and insurance on automobiles owned by two
principal shareholders/officers.
The Company paid a premium of $4,000 for life insurance for a principal
shareholder/officer.
F-11
<PAGE> 41
The Company paid or accrued for preferred stock dividends of $69,000 to a
principal shareholder/officer.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LITIGATION
In August 1993, the trial court confirmed 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 interest
accruing thereon from September 1992 and attorney's fees) relating to the film
"Morning Glory." In March 1995, defendants appealed the judgment to the
California Court of Appeals. In June 1995, the Court of Appeals affirmed the
judgment, and that judgment is now final. In a related matter, the Company
sought to restore certain fraudulent conveyances that Mr. Stern had made. In
August 1995, Mr. Stern filed for bankruptcy protection. The United States
Trustee is pursuing the fraudulent conveyance action on behalf of the bankruptcy
estate, of which the Company comprises approximately 80%, and the Company, Mr.
Viner and Mr. Leider are separately pursuing their own adversary proceeding for
conspiracy against Mr. Stern and others in the bankruptcy case. The Company is
also objecting to Mr. Stern's discharge in bankruptcy. There is no assurance
that the Company will ultimately prevail, or as to if, when or in what amount
the Company will be able to recover the amount of the original judgment in its
favor.
In February 1996, the Company was served with a complaint in an action
entitled Robert H. Tourtelot v. Dove Audio, Inc. etc. et al (Los Angeles
Superior Court Case No. SC040739) (the "Tourtelot Action.") Mr. Tourtelot seeks
in excess of a million dollars in damages claiming that he had an oral agreement
with the Company to write a book that the Company would publish. Mr. Tourtelot
alleged causes of action for breach of oral contract, fraud, suppression, breach
of the implied covenant of good faith and fair dealing, breach of fiduciary
duty, infringement of common law copyright, conversion, conspiracy and
accounting. The Company successfully removed the action to the United States
District Court for the Central District of California, and successfully moved to
have the claims for infringement of common law copyright, breach of fiduciary
duty, conversion, conspiracy and accounting dismissed. The Tourtelot Action was
then remanded to the Los Angeles Superior Court, where the Company successfully
demurred to all of the remaining causes of action. Mr. Tourtelot was, however,
granted leave to amend to attempt to state a cause of action, which he has done.
While the Commpany believes that Mr. Tourtelot's amended complaint is still
defective and intends to again demurrer thereto, and that, in any event, it has
good and meritorious defenses to Mr. Tourtelot's claims, there can be no
assurance that the Company will prevail in the action.
In March 1996, the Company was served with a complaint in an 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 book "You'll Never Make Love In This Town
Again." The Datig complaint sought in excess of a million dollars in monetary
damages. In October 1996, the Company obtained a judgment of dismissal of the
entire Datig Action, which judgment also awarded the Company its attorney's fees
and costs in defending the matter. Thereafter, the Company sued Mr. Datig for
malicious prosecution. Datig, however, has appealed that judgment, thereby
staying the malicious prosecution action. While the Company believes that it
will prevail on the appeal, there is no assurance that the Company will in fact
be successful.
In June 1996, the Company was served with a complaint in an action entitled
Shukri Ghalayini v. Dove etc. et al (Los Angeles Superior Court Case No.
BC152129) (the "Ghalayini Action.") The complaint alleges among other things,:
(i) breach of employment contract against Four Point due to termination of Mr.
Ghalayini's employment without good cause, adequate notice or opportunity to
cure any alleged breaches and (ii) fraud in that defendants allegedly never
intended to honor the terms of the employment agreement. The complaint seeks
damages under the employment agreement of not less than $900,000, loss of future
earnings estimated at $20,000,000, and damage to his reputation, mental and
emotional distress, punitive damages and attorney's fees.
On the same day, the Company filed an action against Ghalayini in the Los
Angeles Superior Court alleging, among other things, that (i) Ghalayini breached
his fiduciary duty to the company by diverting corporate assets to pay his
personal expenses, (ii) that in order to induce the Company into closing the
Four Point acquisition, Mr. Ghalayini made false representations, including
misrepresenting the tangible shareholder's equity of Four Point as of the
closing, diverted production and other funds and held checks previously drawn to
pay accounts payable in order to meet a closing condition that outstanding bank
debt be below a specified level, and that Mr. Ghalayini made false
representations to induce Dove Four Point to enter into his employment
agreement. Although the Company believes that it has good and valid claims
against Mr. Ghalayini, and that it has good and meritorious defenses to his
claims, there can be no assurance that it will untimately prevail in either of
these two actions.
In July 1996, the Company was served with a complaint in an action entitled
Terrie Maxine Frankle and Jennie Louise Frankle v. Dove Audio (U.S. District
Court, Central District of California Case No. 96-4073 RSWL) (the "Frankle
Action.") The Frankles claim to be the authors of "You'll Never Make Love In
This Town Again," and have alleged claims for copyright infringement and fraud.
The Frankles' application for a preliminary injunction was denied because they
could not demonstrate a likelihood of success on the merits of their claims. The
Company believes that it has good and meritorious defenses and counterclaims
against the Frankles. Nevertheless, there is no assurance that the Company will
prevail.
In January 1997, the Company was served with a complaint in an action
titled Greer v. Dove (Los Angeles Superior Court Case No. BC160871) (the "Greer
Action"). Ms. Greer is another contributor to the book "You'll Never Make Love
In This Town Again" and has sought damages in excess of one million dollars
alleging causes of action for breach of contract, breach of the implied covenant
of good faith and fair dealing, breach of fiduciary duty, fraud, imposition of
constructive trust and an accounting, recission, declaratory relief, conspiracy
and unfair competition. Although the Company believes that it has good and
meritorious defenses to the Greer Action, and, in fact, has a demurred to the
complaint (which is still pending), there can be no assurance that the Company
will untimately prevail in the action.
The Company is a party to various other legal proceedings and claims. The
Company believes that the ultimate resolution of these matters, individually and
in the aggregate, will not have a material adverse effect upon the Company's
financial position.
F-12
<PAGE> 42
OFFICE LEASE
The Company leases office space under a noncancelable operating lease
expiring Jan. 31, 1999. The Company's lease obligation is secured by a
$15,000 irrevocable letter of credit. The lease is subject to annual rent
escalations and the pass-through of certain costs of the landlord. Rent
expense was $302,000 and $254,000 in 1996 and 1995, respectively. The
minimum future noncancelable lease payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 264,000
1998 264,000
1999 22,000
-------
550,000
=======
</TABLE>
WILDE DISTRIBUTION AGREEMENT
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 December 31, 1996,
approximately $1,150,000 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 11 - CAPITAL ACTIVITIES
PREFERRED STOCK
The Company has 2,000,000 shares designated as Preferred Stock. At
December 31, 1996, 214,113 of such shares have been designated as Series A
Preferred Stock. At December 31, 1996 there were no other designations
of Preferred Stock.
The Series A Preferred Stock has a stated value of $4.00 per share. The
Series A Preferred Stock has a dividend preference at an annual rate per
share equal to 8%. Such dividends are cumulative and, to the extent in
arrears, bear interest at 8%, compounded quarterly. The Series A Preferred
Stock bears a preference in the amount equal to the stated value plus all
accumulation of unpaid dividends and interest thereon. Each share of
Series A Preferred Stock is convertible into one share of common stock,
subject to adjustment.
In 1995, Mr. Viner exercised his option to acquire 214,113 shares of Series
A Preferred Stock. The Series A Preferred Stock has a stated value of $4.00
per share. Dividends are cumulative and occur at a rate of 8% per annum.
Each share of Series A Preferred Stock is convertible into one share of
Common Stock at the option of the holder. The Series A Preferred Stock has
a liquidation preference equal to its stated value plus unpaid dividends.
COMMON STOCK
In December 1995 the Company received net proceeds of approximately
$4,770,000 from the initial closings of a private placement of the
Company's equity securities ("Placement"). Pursuant to the December closing
of the Placement the Company issued 729,687 shares of Common Stock and
Common Stock purchase warrants allowing the purchase of 729,687 shares of
Common Stock at $12.00 per share exercisable for a period of 51 months
beginning 9 months subsequent to the initial closing of the Placement.
In January 1996 the Company received additional net proceeds of
approximately $1,547,000 from the Placement. Pursuant to the January 1996
closings of the Placement the Company issued 220,313 shares of common stock
and common stock purchase warrants allowing the purchase of 220,313 shares
of common stock at $12.00 per share exercisable for a period of 51 months
beginning 9 months subsequent to the initial closing of the Placement. In
conjunction with the December 1995 and January 1996 placements, the broker
received a warrant to acquire 7.6 units for $100,000 per Unit. Each unit
consists of 12,500 shares of common stock and 12,500 warrants to acquire
12,500 shares of common stock at $12.00 per share. The Company has included
95,000 warrants and 190,000 shares issuable pursuant to the exercise of
such warrants in the warrant table below.
The shares issued in the acquisition of Four Point Entertainment, Inc. and
shares of Common Stock outstanding at December 31, 1996 exclude 40,000
shares issued in the acquisition which were placed in escrow pending the
receipt of certain outstanding receivables.
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). In 1996, the Plan was
amended to increase the aggregate number of shares of Common Stock
available under the Plan to 750,000.
The Plan authorizes the granting of stock incentive awards ("Awards") to
qualified officers, employee directors, key employees, and third parties
providing valuable services to the Company, e.g., independent contractors,
consultants, and advisors to the Company. The Plan is administered by a
committee appointed by the Company Board consisting
F-13
<PAGE> 43
of two or more members, each of whom must be disinterested (the "Committee").
The Committee determines the number of shares to be covered by an Award, the
term and exercise price, if any, of the Award, and other terms and provisions of
Awards; members of the Committee receive formula awards.
Awards can be Stock Options, Stock Appreciation Rights, Performance Share
Awards, and Restricted Stock Awards. The number and kind of shares available
under the Plan are subject to adjustment in certain events.
Options activity under the Plan was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
PRICE PRICE
<S> <C> <C> <C>
Options outstanding at December 31, 1994 62,500 $6.00 $6.00
Options issued 269,500 $6.75-$9.75 $8.44
Options cancelled (22,001) $6.00 $6.00
--------
Options outstanding at December 31, 1995 309,999 $6.00-$9.75 $8.12
Options issued 285,000 $3.50 $3.50
Options cancelled (215,000) $6.75- 8.50 $8.48
--------
Options outstanding at December 31, 1996 379,999 $3.50-$9.75 $4.25
========
</TABLE>
At December 31, 1996 options to acquire 177,999 shares of Common Stock
under the Plan were 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 75,000 shares of Common Stock at an exercise price of
$8.00 per share in 1995. At December 31, 1996 options covering the 250,000
shares and 75,000 noted above were exercisable. In 1996, in conjunction with the
acquisition of Four Point, 300,000 options at $11.00 per share were issued to
one of the Principals of Four Point as part of an employment agreement. Vesting
of these options will accelerate based on meeting certain performance criteria.
None of these options were exercisable at December 31, 1996.
During 1996, the Company issued 80,000 options under the Plan, with an
exercise price of $3.50 per share to the Company's public relations firm. The
Company will record expense, equal to the fair market value of such options
calculated using the Black-Scholes model, over the term of the agreement.
At December 31, 1996, the weighted average remaining contractual life of
all outstanding options was 8.79 years.
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (ABP) Option
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 in accounting for its Plan, and accordingly,
no compensation cost has been recognized for its stock options granted at fair
market value in the consolidated financial statements. Compensation cost will
be recorded for options granted below fair market value and options granted to
hourly employees.
Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
----------- -------
<S> <C> <C>
Net income (loss) As reported $(6,673,000) $ 91,000
Pro forma (7,212,000) (228,000)
Earnings (loss) per share As reported (1.31) .02
Pro forma (1.42) (.05)
=========== =========
</TABLE>
Pro forma net income (loss) reflects only options granted in the years
ended December 31, 1996 and 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net income amounts presented above because compensation cost is
reflected over the options' vesting period of five years and compensation cost
for options granted prior to January 1, 1995 is not considered.
At December 31, 1996 and 1995, the per share weighted-average fair value of
stock options granted was $6.63 and $6.10, respectively, on the date of grant
using the modified Black-Scholes option-pricing model with the following
weighted-average assumptions: December 31, 1996 -- expected dividend yield 0%,
risk-free interest rate of 6.5%, expected volatility of 70%, and an expected
life of 8 years; December 31, 1995 -- expected dividend yield 0%, risk-free
interest rate of 6.2%, expected volatility of 70%, and an expected life of
9 years.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
SHARES OF AVERAGE
NUMBER OF COMMON EXERCISE EXERCISE
WARRANTS STOCK PRICE PRICE
<S> <C> <C> <C> <C>
Warrants outstanding at
December 31, 1994 411,666 261,666 $0.01-$ 8.20 $ 7.20
Warrants issued 729,687 729,687 $12.00 $12.00
Warrants exercised (16,666) (16,666) $ .01 $ .01
--------- ---------
Warrants outstanding as of
December 31, 1995 1,124,687 974,687 $6.00-$12.00 $10.92
Warrants issued 495,313 590,313 $2.75-$12.00 $ 7.89
Warrants exercised/surrendered (12,500) (6,250) $ 8.20 $ 8.20
--------- ---------
Warrants outstanding as of
December 31, 1996 1,607,500 1,558,750 $0.01-$12.00 $ 9.78
--------- ---------
</TABLE>
At December 31, 1996 warrants to acquire 1,558,750 shares of common stock
were exercisable.
During 1996, the Company issued 220,313 warrants to acquire 220,313 shares
of common stock in conjunction with the January 1996 placement. The broker was
issued warrants to acquire 95,000 shares of common stock and 95,000 warrants to
acquire 95,000 shares of common stock at $12.00 per share.
During 1996, the holder of 12,500 warrants to acquire 6,250 shares of
Common Stock exchanged all such warrants for 1,800 shares of Common Stock.
In October 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. The Company will
record expense, equal to the fair market value of such warrants derived using
the Black-Scholes method, over the term of the agreement. The remaining warrants
issued and outstanding were issued in conjunction with equity placements.
NOTE 12 - MAJOR CUSTOMERS AND SUPPLIERS
For the years ended December 31, 1996 and 1995, revenues, net of returns,
as a percentage of the Company's net revenues from the Company's customers
exceeding 10% in any given year were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Ingram 9% 16%
Barnes & Noble/ B. Dalton 6% 12%
CBS 18% -
MGM 13% -
ACI Pearson 11% -
</TABLE>
A significant amount of audio inventory is supplied by one manufacturer.
The Company believes there are other suppliers and accordingly, the Company
is not dependent on the manufacturer as its sole source of product.
NOTE 13 - 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.
F-14
<PAGE> 44
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 pro forma results listed below are unaudited and reflect the
acquisition of Four Point using purchase accounting and assume the
acquisition occurred at the beginning of each of the periods presented.
Year ended
December 31,
----------------------
1996 1995
------- -------
Revenues 29,492 32,194
Net income (loss) (7,324) 291
Net income (loss) per common share ($1.39) $ .06
======= =======
NOTE 14 - LIQUIDITY
The Company has historically experienced significant negative cash flows
from operations, including $3,350,000 for the year ended December 31, 1994. In
the year ending December 31,1995 the Company generated $186,000 from operating
activities; while in the year ended December 31, 1996, the Company experienced a
negative cash flow from operations of $4,208,000. The Company believes its
capital resources will be sufficient to meet the Company's working capital
requirements for at least the next twelve months. The Company plans to expand
its development, production and distribution activities, including the expansion
of its print publishing and television and film operations (although there is no
assurance that the Company will expand or that such expansion will be
profitable). Such expansion may include future acquisitions of library product
or other assets complementary to its current operations or acquisition of rights
involving significantly greater outlays of capital than required in the business
conducted to date by the Company. Expansion of the Company or acquisitions of
particular properties or libraries, to a significant extent, would require
capital resources beyond those available to the Company, in which case such
expansion will 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. However, there are no
assurances that such financing would be available.
NOTE 15 - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1995, the Company recorded an increase to the
reserve for returns of approximately $1,000,000 due to higher than anticipated
return rates principally in its printed book sales.
During the fourth quarter of 1996, the Company recorded a $1,400,000
write-down in inventory and production costs consisting of (i) approximately
$600,000 relating to various titles associated with the O.J. Simpson trial which
were written down in the fourth quarter as the estimates for remainder sales
timed for the O.J. Simpson civil trial were not realized due to diminished
market interest and (ii) efforts to consummate remainder sales of excess
inventory have proven more difficult than anticipated due to a general market
over-supply in the remainder market and accordingly, such inventory has been
written down to revised estimates of remainder or destruction value, as
appropriate.
NOTE 16 - SUBSEQUENT EVENTS
In March 1997, the Company consummated a deal for an equity investment of
$6,000,000 from a private placement. In the first of two closings to be
completed under such private placement (i) Media Equities International, L.L.C.
("MEI"), purchased 3,000 shares of the Company's 6% Series B Preferred Stock
(the "Series B Preferred Stock") and warrants to purchase 500,000 shares of
Common Stock at $2.00 per share, warrants to purchase 500,000 shares of Common
Stock at $2.50 per share and warrants to purchase 500,000 shares of Common Stock
at $3.00 per share for an aggregate of $3,000,000 and (ii) two of the principal
shareholders/officers of the Company purchased 920 shares of the Company's 6%
Series C Preferred Stock (the "Series C Preferred Stock") and warrants to
purchase 166,666 shares of Common Stock at $2.00 per share, warrants to purchase
166,667 shares of Common Stock at $2.50 per share and warrants to purchase
166,667 shares of Common Stock at $3.00 per share for an aggregate of $920,000
(including the contribution of $676,000 payable by the Company to such
shareholders). The agreement contains a commitment for a second closing ("Second
Closing"), which is currently expected to be on or before May 25, 1997. At the
Second Closing (i) MEI has agreed to purchase 1,000 shares of the Company's
Series B Preferred Stock and warrants to purchase 166,666 shares of Common Stock
at $2.00 per share, warrants to purchase 166,667 shares of Common Stock at $2.50
per share and warrants to purchase 166,667 shares of Common Stock at $3.00 per
share for $1,000,000 and (ii) two of the principal shareholders/officers of the
Company have agreed to purchase 1,000 shares of the Company's Series C Preferred
Stock and warrants to purchase 166,666 shares of Common Stock at $2.00 per
share, warrants to purchase 166,667 shares of Common Stock at $2.50 per share
and warrants to purchase 166,667 shares of Common Stock at $3.00 per share for
an aggregate of $1,000,000 (including the contribution of $175,000 payable by
the Company to such shareholders.) Each share of Series B Preferred Stock and
Series C Preferred Stock is convertible at the option of the holder thereof into
500 shares of Common Stock, subject to certain anti-dilution adjustments, at any
time following the date six months after the issuance thereof. Each of the
Series B Preferred Stock and Series C Preferred Stock are redeemable, in whole
or in part at the option of the Company, at any time after March 28, 2002 at a
redemption price of 110% of the stated value ($1,000) plus all accumulated but
unpaid dividends thereon (plus interest on such accumulations).
In October 1996 Morgan Fuller completed a loan to the Company in the
aggregate amount of $800,000. Such loan bore interest at the rate of 10% per
annum. In April 1997, the Company retired $500,000 of its loan from Morgan
Fuller in exchange for 210,526 shares of the Company's Common Stock along with
warrants to purchase 35,088 shares of the Company's Common Stock at $2.50 per
share, warrants to purchase 35,088 shares of the Company's Common Stock at
$3.50 per share and warrants to purchase 35,087 shares of the Company's Common
Stock at $4.50 per share. The balance of the loan plus accrued interest was
repaid in cash.
F-15
<PAGE> 45
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, on this 14th day of April, 1997.
DOVE ENTERTAINMENT, INC.
By /s/ Michael Viner
------------------------
Michael Viner, President
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Michael Viner Chief Executive Officer, April 14, 1997
- ------------------------- President and Director
Michael Viner
/s/ Lee Ruttenberg Acting Chief Financial Officer and April 14, 1997
- ------------------------- Acting Chief Accounting Officer
Lee Ruttenberg
/s/ Gerald Leider Chairman and Director April 14, 1997
- -------------------------
Gerald Leider
Vice President, Secretary and April __, 1997
- ------------------------- Director
Deborah Raffin
/s/ Steven Soloway Vice President, General Counsel April 14, 1997
- ------------------------- and Director
Steven Soloway
/s/ James Belasco Director April 14, 1997
- -------------------------
James Belasco
/s/ Steven Mayer Director April 14, 1997
- -------------------------
Steven Mayer
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ronald Lightstone Director April 14, 1997
- -------------------------
Ronald Lightstone
Director April __, 1997
- -------------------------
Ken Gorman
Director April __, 1997
- -------------------------
John T. Healy
</TABLE>
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Articles of Incorporation of the Company (filed as Exhibit 3.1 to
the Registration Statement)
3.2 Certificate of Amendment of Articles of Incorporation of the Company
filed with the Secretary of State of the State of California on
March 14, 1990 (filed as Exhibit 3.2 to the Registration Statement)
3.3 Certificate of Amendment of Articles of Incorporation of the Company
filed with the Secretary of State of the State of California on
November 17, 1990 (filed as Exhibit 3.3 to the Registration
Statement)
3.4 Certificate of Amendment of Articles of Incorporation of the Company
filed with the Secretary of State of the State of California on
August 26, 1994 (filed as Exhibit 3.4 to the Registration Statement)
3.5 Bylaws of the Company, as amended (filed as Exhibit 3.5 to the
Registration Statement)
3.6 Certificate of Amendment of Articles of Incorporation of the
Company filed with the Secretary of State of the State of
California on December 24, 1996
3.7 Form of Amendment to Bylaws dated as of November 7, 1996
4.1 Specimen common stock certificate of the Company (filed as Exhibit
4.1 to Amendment No. 2 to the Registration Statement ("Amendment No.
2") filed with the Commission on November 29, 1994)
4.2 Specimen Series A Preferred Stock certificate of the Company (filed
as Exhibit 4.2 to Amendment No. 2)
4.3 Form of Certificate of Determination of the Series A Preferred Stock
of the Company (filed as Exhibit 4.3 to the Registration Statement)
4.4 Form of Underwriter's Warrant Agreement (filed as Exhibit 4.4 to the
Registration Statement)
4.5 Form of Warrant Agreement (filed as Exhibit 4.5 to the Registration
Statement)
4.6 Form of Subscription Agreement (filed as Exhibit 4.6 to Amendment
No. 1 to the Registration Statement ("Amendment No. 1") filed with
the Commission on November 2, 1994)
4.7 Placement Agency Agreement dated August 1, 1994 between the Company
and Joseph Stevens & Company, L.P. (filed as Exhibit 4.7 to
Amendment No. 1)
4.8 Placement Agent Warrant Agreement dated December 24, 1995 between
Whale Securities Co., L.P. and Dove Audio (filed as the same
numbered Exhibit to the Annual Report on Form 10-KSB for the
fiscal year ended 1995)
4.9 Placement Agent Warrant (filed as the same numbered Exhibit to the
Annual Report on Form 10-KSB for the fiscal year ended 1995)
</TABLE>
<PAGE> 48
<TABLE>
<S> <C>
4.10 Form of Registration Rights Agreement (filed as the same numbered
Exhibit to the Annual Report on Form 10-KSB for the fiscal year
ended 1995)
4.11 Form of Common Stock Purchase Warrant (filed as the same numbered
Exhibit to the Annual Report on Form 10-KSB for the fiscal year
ended 1995)
4.12 Form of Warrant Agreement dated as of October 1, 1996
4.13 Certificate of Determination of the Series B Preferred Stock
of the Company
4.14 Warrant Agreement dated as of March 27, 1997 between the Company
and Media Equities International, LLC
4.15 Certificate of Determination of the Series C Preferred Stock
of the Company
4.16 Warrant Agreement dated as of March 27, 1997 between the Company,
Michael Viner and Deborah Raffin Viner
4.17 Certificate of Determination of the Series D Preferred Stock
of the Company
4.18 Form of Warrant Agreement dated as of April 1, 1997
10.3 Office Building Lease for Suite 203, 301 N. Canon Drive, Beverly
Hills, California 90210 (the "Office Lease") between Village on
Canon and Dove, Inc. dated July 3, 1990 and Amendment appended
thereto dated 1992 (filed as Exhibit 10.10 to the Registration
Statement)
10.4 Second Amendment to the Office Lease between Village on Canon and
Dove, Inc. dated March 12, 1990 (filed as Exhibit 10.11 to the
Registration Statement)
10.5 Third Amendment to the Office Lease between Pinkwood Properties
Corp. and Dove, Inc. dated December 1, 1992 (filed as Exhibit 10.12
to the Registration Statement)
10.13 Agreement to Assume and Amend Lease of Dove, Inc. dated February,
1994 among Pinkwood Properties Corp., Michael Viner and the Company
(filed as Exhibit 10.13 to the Registration Statement)
10.14 Letter Agreement between Pinkwood Properties Corp. and the Company
dated February 3, 1994 amending the Office Lease (filed as Exhibit
10.14 to the Registration Statement)
10.15 Letter Agreement dated July 1, 1994 between Penguin Books USA, Inc.
and the Company (filed as Exhibit 10.15 to the Registration
Statement)
10.16 Form of Publishing Agreement (filed as Exhibit 10.16 to Amendment
No. 1)
10.17 Form of Artist Agreement (filed as Exhibit 10.17 to Amendment No. 1)
10.18 Form of Company's 1994 Stock Incentive Plan (filed as Exhibit 10.18
to the Registration Statement)
10.19 Settlement Agreement dated as of July 13, 1994 among the Company,
SBT-Batif, S.A. and Ethos Capital Management, Inc. (filed as Exhibit
10.19 to Amendment No. 1)
</TABLE>
<PAGE> 49
<TABLE>
<S> <C>
10.20 Form of Option and Stock Purchase Agreement among Michael Viner,
Deborah Raffin Viner, Dove, Inc., Dove II, Inc., Dove
Communications, Inc. and the Company (filed as Exhibit 10.20 to
Amendment No. 2)
10.21 Agreement between the Company and Reader's Digest Association, Inc.
dated as of March 15, 1995 (filed as the same numbered Exhibit to the
Annual Report on Form 10-KSB for the fiscal year ended 1994)
10.22 Agreement between Dove International and Skouras Pictures, Inc.
dated July 1, 1995 (filed as Exhibit 1 to the Current Report on Form
8-K filed with the Commission on July 17, 1995 (the "July 17 Current
Report"))
10.23 Employment Agreement between Dove International and Dimitri T.
Skouras dated as of July 1, 1995 together with Stock Option Award
Agreement between Dove Audio and Dimitri T. Skouras, dated as of
July 1, 1995 (filed as Exhibit 2 to the July 17 Current Report)
10.24 Agreement for Purchase and Sale of Real Estate and Joint Escrow
Instructions dated September 15, 1995 among the Writers Guild of
America, west, Inc. and the Company and Amendment No. 1 thereto
dated October 3, 1995 (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB filed with the Commission on
November 14, 1995)
10.25 Employment Agreement dated as of January 1, 1995 between the
Company and Michael Viner
10.26 Employment Agreement dated as of January 1, 1995 between the
Company and Deborah Raffin
10.27 Term Loan Agreement, dated August 16, 1996, by and between
Sanwa Bank California and the Company (filed as Exhibit 10.1 to the
Quarterly Report on Form 10-QSB filed with the Commission on
November 14, 1996)
10.28 Continuing Guaranty, dated as of August 16, 1996, of Michael Viner
(filed as Exhibit 10.2 to the Quarterly Report on Form 10-QSB filed
with the Commission on November 14, 1996)
10.29 Continuing Guaranty, dated as of August 16, 1996, of Deborah Raffin
(filed as Exhibit 10.3 to the Quarterly Report on Form 10-QSB filed
with the Commission on November 14, 1996)
10.30 Security Agreement, dated August 16, 1996, by and between Sanwa Bank
California, Four Point and the Company (filed as Exhibit 10.4 to the
Quarterly Report on Form 10-QSB filed with the Commission on
November 14, 1996)
10.31 Letter Agreement, dated September 12, 1996, by and between Dove
International, Inc., Guinness, Mahon & Co. Limited, Samuelson
Entertainment Limited and Michael Viner (filed as Exhibit 10.5 to the
Quarterly Report on Form 10-QSB filed with the Commission on
November 14, 1996)
10.32 Consultancy Letter Agreement dated as of May 16, 1996 between the
Company and Gerald Leider
10.33 Separation Agreement dated as of May 31, 1996 by and between the
Company and Dimitri T. Skouras
10.34 Key Executive Severance Agreement dated as of September 4, 1996
by and between the Company and Gerald Leider
10.35 Letter Agreement dated September 12, 1996 between the
Company, Michael Viner and Deborah Raffin
10.36 Financial Advisor Agreement dated as of September 30, 1996
between the Company and Morgan Fuller Capital Group, LLC
10.37 Non-Qualified Stock Option Agreement dated as of October 15, 1996
by and between the Company and Steve Soloway
10.38 Employment Agreement dated as of October 16, 1996 by and between
the Company and Steven Soloway
10.39 Form of First Amendment to the Company's 1994 Stock Incentive Plan
dated November 7, 1996
10.40 Stock Purchase Agreement dated as of March 27, 1997 among the
Company, Media Equities International, LLC, Michael Viner and
Deborah Raffin Viner
10.41 Shareholders Voting Agreement dated as of March 27, 1997 by and
between Media Equities International, LLC, Michael Viner and
Deborah Raffin Viner
10.42 Pledge Agreement dated as of March 27, 1997 among Media Equities
International, LLC, Michael Viner and Deborah Raffin Viner
16 Letter from Ernst & Young LLP to the Securities and Exchange
Commission dated July 26, 1995 (filed as Exhibit 16 to the current
Report on Form 8-K filed with the commission on July 26, 1995)
21 Subsidiaries of Dove (filed as Exhibit 21 to the Annual Report on
Form 10-KSB for the fiscal year ended 1995)
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
DOVE AUDIO, INC.
The undersigned certify that:
1. They are the President and the Secretary, respectively, of Dove Audio, Inc.,
a California corporation (the "Corporation")
2. Article I of the Corporation's Articles of Incorporation is amended in its
entirety to read as follows:
The name of this corporation is Dove Entertainment, Inc.
3. The amendment herein set forth has been duly approved by the Board of
Directors of the Corporation.
4. The amendment herein set forth has been duly approved by the required vote
of the shareholders in accordance with Section 902 of the California
Corporations Code. The total number of outstanding shares of common stock of the
Corporation is 5,313,240. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated as of December 1, 1996
/s/ Michael Viner
--------------------------------
Michael Viner, President
/s/ Deborah Raffin
--------------------------------
Deborah Raffin, Secretary
<PAGE> 1
EXHIBIT 3.7
FORM OF AMENDMENT NUMBER ONE
TO
BYLAWS
OF
DOVE AUDIO, INC.
ARTICLE III, SECTION 2 OF THE CORPORATION'S BYLAWS SHALL BE STRICKEN AND AMENDED
TO READ AS FOLLOWS:
Section 2. Number and Qualifications. The size of the Board of
Directors of the corporation shall be not less than five (5) nor more than nine
(9), subject to vacancies from time to time. The exact number of directors
within the limits specified shall be seven (7) until changed by an amendment to
these bylaws duly adopted by the board of directors or by the shareholders. Such
indefinite number may be changed, or a definite number fixed without provision
for an indefinite number, by an amendment to these bylaws duly adopted by the
vote or written consent of the shareholders provided, however, that a bylaw
reducing the minimum number of directors to a number less than five (5) cannot
be adopted if the votes cast against its adoption at a meeting or the shares not
consenting in the case of action by written consent are equal to more than
16-2/3% of the outstanding shares entitled to vote. No amendment may change the
stated maximum number of authorized directors to a number greater than two times
the stated minimum number of directors minus one.
Dated as of November 7, 1996
<PAGE> 1
EXHIBIT 4.12
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR
THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, OCTOBER 1, 1999
DOVE AUDIO, INC.
FORM OF WARRANT CERTIFICATE
This warrant certificate (the "Warrant Certificate") certifies that
_______________ ("___________") or registered assigns, is the registered holder
of a warrant to purchase, at any time commencing on the date hereof until 5:00
P.M. New York City time on October 1, 1999, subject to acceleration pursuant to
Section 1(b) hereof (the "Expiration Date"), up to __________ fully-paid and
non-assessable shares, subject to adjustment in accordance with Section 4
hereof (the "Warrant Shares"), of the common stock (the "Common Stock"), par
value $.01 per share, of Dove Audio, Inc., a California corporation (the
"Company"), subject to the terms and conditions set forth herein. The warrant
represented by this Warrant Certificate shall sometimes hereinafter be referred
to as a "Warrant." This Warrant Certificate is being issued pursuant to a
Financial Advisor Engagement Agreement dated as of October 1, 1996 (the
"Financial Advisor Agreement") between the Company and _____________.
1. Exercise of Warrant; Acceleration of Expiration Date.
(a) Exercise of Warrant. The Warrant is exercisable to purchase the
Warrant Shares at an exercise price of $2.75 per Warrant Share, subject to
adjustment as set forth in Section 4 hereof
<PAGE> 2
(as adjusted from time to time, the "Exercise Price"), payable in cash or by
certified or official bank check to the order of the Company, or any
combination of cash or certified or official bank check. Upon surrender of
this Warrant Certificate with the annexed Form of Election to Purchase duly
executed, together with payment of the aggregate Exercise Price for the Warrant
Shares purchased, at the Company's principal offices (presently located at 8955
Beverly Boulevard, West Hollywood, California 90048) the registered holder of
the Warrant Certificate ("Holder") shall be entitled to receive a certificate
or certificates for the Warrant Shares so purchased. The purchase rights
represented by this Warrant Certificate are exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional shares of Common
Stock which shall be forfeited). In the case of the purchase of less than all
the Warrant Shares purchasable under this Warrant Certificate, the Company
shall cancel this Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Warrant Certificate of like tenor for the balance of
the Warrant Shares purchasable hereunder.
(b) Acceleration of Expiration Date. If the Company shall enter into
an agreement pursuant to which any person or entity or group of persons and/or
entities would, upon consummation of the transactions set forth in such
agreement, beneficially own 50% or more of the issued and outstanding shares of
Common Stock, the Expiration Date shall accelerate and shall be such time and
such date as immediately precedes the consummation of such transaction. Upon
the consummation of such transaction, this Warrant shall be deemed to terminate
and shall no longer be exercisable by the Holder.
2. Issuance of Certificates. Upon the exercise of the Warrant,
the issuance of certificates for the Warrant Shares purchased pursuant to such
exercise shall be made forthwith (and in any event within five business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Article 3 hereof) be issued in
the name of, or in such names as may be directed by, the Holder thereof;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the Holder and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and, upon exercise of the Warrant, the
certificates representing the Warrant Shares shall be executed on behalf of the
Company by the manual or facsimile signature of those officers required to sign
such certificates under applicable law.
2
<PAGE> 3
Upon exercise of the Warrant, in part or in whole, certificates
representing the Warrant Shares shall bear a legend substantially similar to
the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"), and may
not be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to Rule 144
under the Act (or any similar rule under the Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the Company of an
opinion of counsel, reasonably satisfactory to counsel to the Company, stating
that an exemption from registration under the Act is available."
3. Restriction on Transfer of Warrant. The Holder of this
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrant and the Warrant Shares issuable upon exercise of the Warrant are being
acquired as an investment and not with a view to the distribution thereof.
4. Adjustments of Exercise Price and Number of Warrant Shares.
i. Dividends and Distributions. In case the Company
shall at any time after the date hereof pay a dividend in
Common Stock or make a distribution in Common Stock to all of
its holders of Common Stock, then upon such dividend or
distribution, the Exercise Price in effect immediately prior to
such dividend or distribution shall be reduced to a price
determined by dividing an amount equal to the total number of
shares of Common Stock outstanding immediately prior to such
dividend or distribution multiplied by the Exercise Price in
effect immediately prior to such dividend or distribution, by
the total number of shares of Common Stock outstanding
immediately after such issuance or sale. For purposes of any
computation to be made in accordance with the provisions of
this Section 4, the shares of Common Stock issuable by way of
such dividend or distribution shall be deemed to have been
issued immediately after the opening of business on the date
following the date fixed for determination of shareholders
entitled to receive such dividend or distribution.
ii. Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding Common
Stock, the Exercise Price shall forthwith be proportionately
decreased in the case of subdivision or increased in the case
of combination.
iii. Reclassification, Consolidation, Merger, etc. In
case of any reclassification or similar change of the
outstanding Common Stock (other than a change in par value to
no par value, or from no par value to par value, or as a result
of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company
into, another corporation (except a consolidation or merger in
which the Company is the surviving corporation and which does
not result in any
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<PAGE> 4
reclassification or similar change of the outstanding Common
Stock and except a change as a result of a subdivision or
combination of such shares or a change in nominal value, as
aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the
Holder shall thereafter have the right to purchase the kind and
number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of
the Warrant Shares issuable upon exercise of the Warrants
immediately prior to any such events at a price equal to the
product of (x) the number of Warrant Shares issuable upon
exercise of the Warrants and (y) the Exercise Price in effect
immediately prior to the record date for such reclassification,
change, consolidation, merger, sale or conveyance as if such
Holder had exercised the Warrants prior to such record date;
provided, however, if the agreement of merger, consolidation,
sale or conveyance provides that the Warrants shall terminate
as of the closing of such agreement, the Warrants shall
terminate at such time and the Holders shall be entitled to
receive the consideration payable to a holder of the same
number of shares of Common Stock into which the Warrants held
by such Holder would be then exercisable less the then Exercise
Price thereof.
iv. Adjustments For Other Distributions. If, after the
date hereof, the holders of Common Stock shall have received,
or (on or after the record date fixed for the determination of
eligible stockholders) shall have become entitled to receive in
respect of their Common Stock pursuant to a transaction which
was not terminated or rescinded (i) securities other than
capital stock, (ii) evidences of its indebtedness, (iii) assets
excluding or (iv) rights, options or warrants or convertible or
exchangeable securities containing the right to subscribe for
or purchase securities of the Company, then, and in each such
case the Holder of the Warrant, upon the exercise thereof as
provided in Section 1 above, shall be entitled to receive the
amount of securities, evidence of indebtedness, assets and
rights, options or warrants or convertible or exchangeable
securities which such Holder would hold on the date of such
exercise if on the date of this Warrant such Holder had been
the holder of record of the number of shares of Common Stock
called for on the face of the Warrant held by such Holder and
had thereafter, during the period from the date of this Warrant
to and including the date of such exercise, retained such
shares receivable by such Holder as aforesaid during such
period, giving effect to all adjustments called for during such
period by this Section 5.
v. Adjustment in Number of Warrant Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of
this Section 4, the number of Warrant Shares issuable upon the
exercise of each Warrant shall be adjusted to the nearest full
share of Common Stock to the result obtained by multiplying a
number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares issuable
upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted
Exercise Price.
4
<PAGE> 5
vi. Minimum Adjustment. No adjustment in the Exercise
Price shall be required unless such adjustment would require an
increase or decrease of at least five cents in the Exercise
Price then in effect. No adjustment in the number of Warrant
Shares purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at least
one percent in the number of Warrant Shares purchasable upon
the exercise of the Warrant. Any adjustments that by reason of
this Section 5(f) are not required to be made shall be carried
forward and be taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one-thousandth of
a share, or nearest cent, as the case may be.
vii. Determination of Outstanding Shares. In connection
with any adjustment required by this Section 4, the number of
the shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable upon
the exercise of outstanding options, rights, warrants and upon
the conversion or exchange of outstanding convertible or
exchangeable securities.
viii. Notice of Adjustments. Whenever the Exercise Price
or the kind or amount of securities purchasable under the
Warrant shall be adjusted pursuant to any of the provisions
hereof, the Company shall forthwith thereafter cause to be sent
to the Holder a certificate setting forth the adjustments in
the Exercise Price and in said number of shares, and also
setting forth in detail the facts requiring such adjustments.
In addition, the Company shall within ninety days following the
end of each of its fiscal years during the term hereof, and,
promptly upon the reasonable request of the Holder, cause the
Chief Financial Officer of the Company to compute any such
adjustment in accordance with the terms of the Warrant and
prepare and deliver to the Holder a certificate setting forth
such adjustment and showing in detail the facts upon which the
adjustment is based.
ix. Notice of Certain Events. In the event of (i) any
taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or (ii)
any capital reorganization of the Company, or any
reclassification or recapitalization of the capital stock of
the Company, or (iii) any transfer of all or substantially all
of the assets of the Company to, or consolidation with or
merger of the Company into, any other person, or (iv) any
voluntary or involuntary dissolution, winding-up or liquidation
of the Company, then and in each such event the Company will
mail or cause to be mailed to the Holder a notice specifying
the date upon which any such record is to be taken for the
purpose of such dividend, distribution or right, stating the
amount and character of such dividend, distribution or right,
and the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take
place, and the time, if any, as of which the holders of record
of Common Stock shall be entitled to exchange their shares of
Common Stock for securities or other
5
<PAGE> 6
property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice
shall be mailed at least ten business days prior to the
proposed record date therein specified. Failure to give such
notice or any defect therein shall not effect the validity of
any such action or event.
5. Registration Rights.
i. Registrable Securities. As used herein the term
"Registrable Securities" means the Warrant Shares and any
shares of Common Stock issuable upon any stock split or stock
dividend in respect of such Warrant Shares; provided, however,
that with respect to any particular Registrable Security, such
security shall cease to be a Registrable Security when, as of
the date of determination, (i) it has been effectively
registered under the Act and disposed of pursuant to the
registration statement related thereto, (ii) registration under
the Act is no longer required for subsequent public
distribution of such security, or (iii) it has ceased to be
outstanding. In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be
made in the definition of "Registrable Securities" as is
appropriate in order to prevent any dilution or enlargement of
the rights granted pursuant to this Section 5, subject to the
provisions hereof.
ii. Piggyback Registration.
(1) If the Company proposes to prepare and file
with the Securities and Exchange Commission
(the "Commission") a registration statement
covering equity securities of the Company, or
any such securities of the Company held by its
shareholders (in any such case, other than in
connection with a merger, acquisition or
similar transaction or pursuant to a Form S-4,
Form S-8 or successor forms) (for purposes of
this Section 5, collectively, the
"Registration Statement"), it will give
written notice of its intention to do so by
mail ("Notice"), at least twenty (20) days
prior to the filing of each such Registration
Statement, to all holders of the Registrable
Securities. Upon the written request of such a
holder (a "Requesting Holder"), made within
ten (10) days after the sending of the Notice,
that the Company include any of the Requesting
Holder's Registrable Securities in the
proposed Registration Statement, the Company
shall, as to each such Requesting Holder, use
its reasonable efforts to include such
Requesting Holder's Registrable Securities
which it has been so requested to register in
the Registration Statement ("Piggyback
Registration"), at the Company's sole cost and
expense and at no cost or expense to the
Requesting Holders (other than any commission,
discounts, fees or counsel fees payable by
such
6
<PAGE> 7
Requesting Holder, as further provided in
Section 5(c)(2) hereof); provided, however,
that if, the Piggyback Registration is in
connection with an underwritten public
offering and in the written opinion of the
Company's managing underwriter, if any, for
such offering, the inclusion of all or a
portion of the Registrable Securities
requested to be registered, when added to the
securities being registered by the Company or
the selling shareholder(s), will adversely
affect the offering, then the Company may
exclude from such offering all or a portion of
the Registrable Securities which it has been
requested to register. Without limiting the
generality of the foregoing, the managing
underwriter may condition its consent to the
inclusion of all or a portion of the
Registrable Securities requested to be
registered upon the participation by the
holders of such Registrable Securities in the
underwritten public offering on the terms and
conditions thereof or agreeing to a lockup for
a duration not to exceed six months.
(2) Notwithstanding the provisions of this
Section 5(b), the Company shall have the right
at any time after it shall have given written
notice pursuant to this Section 5(b)
(irrespective of whether any written request
for inclusion of such securities shall have
already been made) to elect not to file any
such proposed Registration Statement, or to
withdraw the same after the filing but prior
to the effective date thereof.
iii. Covenants of the Company with Respect to
Registration. The Company covenants and agrees as
follows:
(1) The Company shall use its reasonable efforts
to have any such Registration Statement
declared effective at the earliest possible
time, and shall furnish each holder of
Registrable Securities such reasonable number
of prospectuses as shall reasonably be
requested.
(2) The Company shall pay all costs, fees and
expenses in connection with all Registration
Statements filed pursuant to this Section 5,
including, without limitation, the Company's
legal and accounting fees, printing expenses,
and blue sky fees and expenses; provided,
however, that the Holder shall be solely
responsible for the fees of any counsel
retained by the holder in connection with
7
<PAGE> 8
such registration and any transfer taxes or
underwriting discounts, commissions or fees
applicable to the Registrable Securities sold
by the Holder pursuant thereto.
(3) The Company will use its reasonable efforts
to qualify or register the Registrable
Securities included in the Registration
Statement, for offering and sale under the
Securities or blue sky laws of such states as
are requested by the holders of such states as
are requested by the holders of such
securities; provided that the Company shall
not be obligated to execute or file any
general consent to service of process or to
qualify as a foreign corporation to do
business under the laws of any such
jurisdiction.
(4) The Company shall indemnify any holder of
the Registrable Securities to be sold pursuant
to any Registration Statement and any
underwriter or person deemed to be an
underwriter under the Act and each person, if
any, who controls, within the meaning of
Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended
("Exchange Act"), such holder or underwriter
or person deemed to be an underwriter against
all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in
investigating, preparing or defending against
any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act
or otherwise, arising from any material
omission or misstatement by the Company in
such Registration Statement and to provide for
just and equitable contribution in connection
therewith.
(5) Any Holder of Registrable Securities to be
sold pursuant to a Registration Statement, and
its successors and assigns, shall severally,
and not jointly, indemnify, the Company, its
officers and directors, any underwriter or
person deemed to be an underwriter under the
Act, and each person, if any, who controls,
within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, the Company
or underwriter or person deemed to be an
underwriter against all loss, claim, damage or
expense or liability (including all expenses
reasonably incurred in investigating,
preparing or defending against any claim
whatsoever) to which any of them may become
subject under the Act, the Exchange Act or
otherwise, arising from information furnished
by or on behalf of such holder, or its
successors or assigns, for specific inclusion
in such Registration Statement and to provide
for just and equitable contribution in
connection therewith.
8
<PAGE> 9
(6) Nothing contained in this Agreement
shall be construed as requiring any Holder to
exercise his, her or its Warrants prior to the
initial filing of any Registration Statement
or the effectiveness thereof, unless the
Registrable Securities have been included in a
Registration Statement filed on Form S-3 and
the Commission requires that exercise of the
Warrants is required prior to the
effectiveness of the Registration Statement.
(7) The Company shall deliver promptly to
each Holder of Registrable Securities
participating in the offering in which such
Holder's shares are being registered pursuant
to this Section 5 and requesting the
correspondence and memoranda described in this
Section 5(c)(7), copies of all correspondence
between the Commission and the Company, its
counsel or auditors and all memoranda relating
to discussions with the Commission or its
staff with respect to the Registration
Statement and permit each Holder of
Registrable Securities to do such
investigation, upon reasonable advance notice
and at reasonable times and places, with
respect to information contained in or omitted
from the Registration Statement as it deems
reasonably necessary to comply with applicable
securities laws or rules of the National
Association of Securities Dealers, Inc. Such
investigation shall include access to books,
records and properties and opportunities to
discuss the business of the Company with its
officers and independent auditors, all to such
reasonable extent and at such reasonable times
and places and as often as any such holder of
Registrable Securities shall reasonably
request.
6. Exchange and Replacement of Warrant Certificates. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant Certificate, and, in case of
loss, theft or destruction, of indemnity or security satisfactory to it, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor, in lieu thereof.
7. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock and shall not be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction down to the nearest
whole number of shares of Common Stock.
8. Reservation of Shares. The Company covenants and agrees that
it will at all times
9
<PAGE> 10
reserve and keep available out of its authorized share capital, solely for the
purpose of issuance upon the exercise of the Warrant, such number of shares of
Common Stock as shall be equal to the number of Warrant Shares issuable upon
the exercise of the Warrant, for issuance upon such exercise, and that, upon
exercise of the Warrant and payment of the Exercise Price therefor, all Warrant
Shares issuable upon such exercise shall be duly and validly issued, fully paid
and nonassessable.
9. Notices. All notices, requests, consents and other
communications shall be effective (a) upon receipt if (i) hand delivered or
(ii) sent by facsimile transmission and confirmed by mail, (b) the third day
after mailing, postage prepaid return receipt requested and (c) one day after
sending by recognized "over-night" delivery service. Any such notice,
requests, consents or other communications not contemplated above shall be
effective upon receipt. For the purposes of this Section 9, the addresses of
the parties to which notices shall be sent shall be as follows:
(1) If to Morgan Fuller Capital Group, to the address for notices
given under the Financial Advisor Agreement; or
(2) If to a subsequent Holder, to the address set forth in the
Form of Assignment transferring the Warrants to such
transferee; or
(3) If to the Company, to the address of its principal office set
forth in Section 1 of this Agreement, attention: Chief
Financial Officer.
Each Holder and the Company may change the address to which such notices,
requests, consents or other communications are to be directed by notice to the
other parties as provided in this Section 9.
10. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company and the Holder inure to the
benefit of their respective successors and permitted assigns hereunder.
11. Governing Law.
i. Choice of Law. This Warrant shall be governed by
the internal laws of the State of California without giving
effect to the conflict of law provisions thereof.
ii. Jurisdiction and Service of Process. The Company
and the Holder each (a) agrees that any suit, action or
proceeding arising out of or relating to this Warrant, or any
other agreement entered into between the Company and the Holder
in connection herewith, shall be instituted exclusively in
California State Superior Court, County of Los Angeles, or in
the United States District Court for the Central District of
California, (b) waives any objection which the Company or such
Holder may have now or hereafter to the venue of any such suit,
action or proceeding, and (c) irrevocably consents to the
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<PAGE> 11
jurisdiction of the California State Superior Court, County of
Los Angeles and the United States District Court for the
Central District of California in any such suit, action or
proceeding. The Company and the Holder each further agrees to
accept and acknowledge service of any and all process which may
be served in any such suit, action or proceeding in the
California State Superior Court, County of Los Angeles or in
the United States District Court for the Central District of
California and agrees that service of process upon the Company
or the Holder mailed by certified mail to their respective
addresses for notice shall be deemed in every respect effective
service of process upon the Company or the Holder, as the case
may be, in any such suit, action or proceeding.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, as of the day and year set forth
below.
[SEAL] DOVE AUDIO, INC.
By:
---------------------------------------
Name:
Title:
Date: as of October 1, 1996
Attest:
- ------------------------------------
Name:
Title:
11
<PAGE> 12
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ________ Warrant
Shares and herewith tenders in payment for such Warrant Shares cash or a
certified or official bank check payable to the order of Dove Audio, Inc. in
the amount of $_________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such Warrant Shares be registered
in the name of ______________________, whose address is ___________________
________________________, and that such certificate be delivered to
__________________, whose address is ______________________________.
Dated: Signature:
------------------------------------
------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
------------------------------------
------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
12
<PAGE> 13
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________ hereby sells,
assigns and transfers unto ___________________________________________________
______________________________________________________________________________
______________________________________________________________________________
________________________________ (Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________,
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: Signature:
------------------------------------
------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
------------------------------------
------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
13
<PAGE> 1
EXHIBIT 4.13
CERTIFICATE OF DETERMINATION
OF THE SERIES B PREFERRED STOCK
OF
DOVE ENTERTAINMENT, INC.
We, Michael Viner and Deborah Raffin certify that:
1. We are the President and Secretary, respectively, of Dove
Entertainment, Inc., a California corporation (the "Corporation").
2. The number of shares of Series B Preferred Stock is 5,000, none of
which has been issued.
3. The Board of Directors of the Corporation duly adopted the following
resolution:
WHEREAS, Article IV of the Articles of Incorporation of the
Corporation, as amended, authorizes the Preferred Stock of the Corporation to be
issued in series and authorizes the Board of Directors of the Corporation to
determine the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the number
of shares and designation of any such series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Corporation does hereby establish a series of Preferred Stock which shall be
designated Series B Preferred Stock, the maximum number of shares of which shall
be 5,000, which shall have the following rights, preferences, privileges and
restrictions:
1. Voting.
a. General. Except as may be otherwise provided in these terms of
the Series B Preferred Stock or by law, the Series B Preferred Stock shall vote
together with all other voting classes and series of stock of the Corporation as
a single class on all actions to be taken by the shareholders of the Corporation
except that the Series B Preferred Stock shall not be entitled to vote on the
election of directors except as a separate class as provided in Section (c)
hereof. Each share of Series B Preferred Stock shall entitle the holder thereof
to such number of votes per share on each such action as to which the Series B
Preferred Stock votes together with such other classes as shall equal the number
of shares of Common Stock (including fractions of a
<PAGE> 2
share) into which each share of Series B Preferred Stock is then convertible on
the record date for such action.
b. Board Size. The Corporation shall not, without the written
consent or affirmative vote or consent of the holders of at least a majority of
the then outstanding shares of Series B Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
series, change the maximum number of directors constituting the Board of
Directors to a number greater than nine (9).
c. Board Seats. The holders of the outstanding shares of the Series
B Preferred Stock, voting as a separate class, shall be entitled to elect
one-third of the directors of the Corporation so long as the initial holders of
the Series B Preferred Stock as of the date of the initial issuance of Series B
Preferred Stock (together with their shareholders as of such date, the "Initial
Purchasers") hold of record not less than an aggregate of 750,000 shares of
Common Stock (assuming for this purpose that all shares of Series B Preferred
Stock that the Initial Purchasers are then record holders of are converted in
their entirety into shares of Common Stock and subject to adjustments, if any,
for stock splits and combinations) and the Initial Purchasers hold a majority of
the outstanding Series B Preferred Stock (absent which, the provisions of this
Section 1(c) shall become null and of no further force or effect). So long as
this Section 1(c) is in effect, at any meeting (or in a written consent in lieu
thereof) held for the purpose of electing directors, the presence in person or
by proxy (or the written consent) of the holders of a majority of the shares of
Series B Preferred Stock then outstanding (whether or not Initial Purchasers)
shall constitute a quorum of the Series B Preferred Stock for the election of
directors to be elected solely by the holders of the Series B Preferred Stock. A
vacancy in any directorship elected by the holders of the Series B Preferred
Stock shall be filled only by vote or written consent of the holders of the
Series B Preferred Stock.
2. Liquidation. Upon the dissolution and liquidation of the Corporation
and prior to the distribution of any assets of the Corporation to the holders of
all classes of Common Stock ("Common Stock") and any other class of stock
ranking junior to the Series B Preferred Stock, the assets remaining after the
payment of all debts and liabilities of the Corporation shall be distributed to
the holders of the Series B Preferred Stock, to the extent available, in an
amount equal to $1,000.00 per share of Series B Preferred Stock (the "Stated
Value") plus all accumulations of accrued and unpaid dividends and interest
accrued on such accumulations as set forth in Section 4 hereof to the date of
such dissolution or liquidation (such amounts, in the aggregate, the
"Liquidation Preference"), but if the funds available therefor are insufficient,
then to the holders of Series B Preferred Stock (together with any other
Preferred Stock ranking equally in the event of liquidation with the Series B
Preferred Stock) on a pro-rata basis. The Liquidation Preference shall be paid
to the holders of Series B Preferred Stock before the holders of Common Stock
and any other class of stock ranking junior to the Series B Preferred Stock are
entitled to receive any payment or distribution of cash, securities or other
property with respect to such shares following the dissolution or liquidation of
the Corporation.
2
<PAGE> 3
Notwithstanding the foregoing, the amounts to which the holders of Series B
Preferred Stock shall be entitled shall be equitably adjusted to take account of
any stock splits, stock dividends, recapitalizations, reorganizations or other
transactions affecting the number of shares of Series B Preferred Stock
outstanding as a class.
The Series B Preferred Stock shall be junior to the Company's Series A
Preferred Stock with respect to liquidation and pari passu with the Company's
Series A Preferred Stock with respect to dividends. The Series B Preferred Stock
shall be pari passu with respect to liquidation and dividends with the Company's
Series C Preferred Stock and Series D Preferred Stock.
3. Conversion Rights. The holders of the Series B Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
a. Conversion. The holders of Series B Preferred Stock shall have
the right to convert each of such shares at any time following the date six
months after issuance into 500 shares of Common Stock of the Corporation (the
"Conversion Shares"). The number of Conversion Shares into which shares of
Series B Preferred Stock may be converted shall be subject to adjustment in the
event certain circumstances occur prior to such conversion. In such event, each
share of Series B Preferred Stock shall be converted into the number of shares
of Conversion Shares calculated by dividing $1,000.00 by the then applicable
Conversion Price. The Conversion Price shall initially be Two Dollars ($2.00).
The Conversion Price shall be adjusted as hereinafter provided.
b. Mechanics of Conversion. Before any holder of Series B Preferred
Stock shall be entitled to receive certificates evidencing Conversion Shares
into which Series B Preferred Stock have been converted, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for such stock, and shall give
written notice to the Corporation at such office that such holder wishes to
receive certificates evidencing the Conversion Shares and shall state therein
the name or names in which such holder wishes the certificate or certificates
for shares of Conversion Shares to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series B Preferred Stock, a certificate or certificates for the number of shares
of Conversion Shares to which such holder shall be entitled as aforesaid. The
person or persons entitled to receive the shares of Conversion Shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Conversion Shares on the date of conversion into such
Conversion Shares.
c. Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion of the Series B
Preferred Stock the Corporation shall pay or make a stock dividend or other
distribution (payable otherwise than in cash out of funds legally available
therefor) on any class of Common Stock of the Corporation payable in shares of
Common Stock, the Conversion Price in effect at the
3
<PAGE> 4
opening of business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced so that the same shall equal the price determined by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such adjustment to become effective immediately after the opening
of business on the day following the date fixed for such determination.
(ii) In case at any time prior to conversion of the Series B
Preferred Stock the Corporation shall (A) subdivide its outstanding Common
Stock, (B) combine its outstanding Common Stock into a smaller number of shares,
or (C) issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger) any shares, the
Conversion Price in effect at the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any Series B Preferred Stock surrendered for conversion after such
time shall be entitled to receive the aggregate number and kind of shares which,
if such Series B Preferred Stock had been converted immediately prior to such
time, such holder would have owned upon such conversion and been entitled to
receive upon such subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(iii) In case at any time prior to conversion of the Series B
Preferred Stock the Corporation shall fix a record date for the making of a
distribution, by dividend or otherwise, to all holders of its Common Stock, of
evidences of its indebtedness or assets (including securities, but excluding (x)
any dividend or distribution referred to in paragraph (i) of this subsection (c)
and (y) any dividend or distribution paid in cash out of funds legally available
therefor of the Corporation), then in each such case the Conversion Price in
effect after such record date shall be determined by multiplying the Conversion
Price in effective immediately prior to such record date by a fraction, of which
the numerator shall be the total number of outstanding shares of Common Stock
multiplied by the current market price per share of Common Stock (as defined in
paragraph (v) of this subsection (c)) on such record date, less the fair market
value (as determined by the Board of Directors of the Corporation, whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so to be distributed, and of which the denominator shall be the
total number of outstanding shares of Common Stock multiplied by such current
market price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such record date had not
been fixed.
(iv) If the Company shall, at any time and from time to time,
hereafter sell or issue shares of Common Stock, or rights, options, warrants or
convertible or exchangeable for shares of Common Stock (excluding shares issued
(w) in any of the transactions described in paragraphs (i), (ii) or (iii) of
clause (c) of this Section 3, (x) upon conversion of the Series A
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<PAGE> 5
Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock,
(y) upon the exercise or conversion of any options, warrants and other
securities convertible into or exchangeable for shares of Common Stock which
options, warrant and other securities are outstanding as of the date hereof or
are issued in connection with the transaction in which the Series B Preferred
Stock was issued, and (z) upon the exercise of options granted after the date
hereof pursuant to the Company's employee stock option plans currently
outstanding, as amended from time to time (but not exceeding the total number of
shares authorized thereunder as of the date hereof)) at a price per share of
Common Stock (or exercise price or conversion price per share of Common Stock,
as the case may be) lower than the current market price per share of Common
Stock, then such Conversion Price shall be reduced to a price determined by
multiplying the Conversion Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such sale or issuance plus (y) the
number of shares of Common Stock which the aggregate consideration received for
such sale or issuance (or the aggregate initial conversion or exercise price of
the convertible securities issued plus any other consideration to be paid upon
such exercise or conversion) would purchase at the current market price per
share of Common Stock on the applicable record date, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such issuance or sale (or into which the newly issued rights, options,
warrants or convertible securities are initially exercisable or convertible as
of the date of such issuance or sale). If the Company shall sell or issue shares
of Common Stock for in consideration for property other than cash or its
equivalent, then the price per share of Common Stock and fair value of such
property shall be determined in good faith by the Board of Directors of the
Company. Any such adjustment shall be determined and effective on the date of
such sale or issuance and not upon exercise or conversion, as the case may be,
of such rights, options, warrants, or convertible or exchangeable securities. If
any of such rights, options, warrants or convertible or exchangeable securities
expire without having been exercised, converted or exchanged, the Conversion
Price shall be adjusted as if the rights, options, warrants or convertible or
exchangeable securities not so exercised, converted or exchanged had not been
sold or issued.
(v) For the purpose of any computation under paragraph (iii) or
(iv) of this subsection (c), the current market price per share of Common Stock
on any date shall be deemed to be the average of the Closing Prices for the five
(5) consecutive days upon which the principal trading market for the Common
Stock prior to the record date for the action in question. The Closing Price for
any day shall be the average of the reported closing bid and asked prices
regular way on NASDAQ, or if the Common Stock is listed or admitted to trading
on a national securities exchange, the last reported sales prices regular way,
or if the Common Stock is quoted on the NASDAQ National Market ("NNM"), the
closing sale price, or if not so quoted, as reasonably determined by the Board
of Directors of the Corporation.
(vi) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least ten
cents ($0.10) in such Conversion Price; provided, however, that any adjustment
which by reason of this paragraph (vi)
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<PAGE> 6
is not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this subsection (c) shall be
made to the nearest cent or to the nearest 1/100 of a share, as the case may be.
d. Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this subsection
3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a certificate executed by the Corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price for the Series B Preferred Stock at the
time in effect, and (iii) the number of shares of Conversion Shares and the
amount, if any, of other property which at the time would be received upon the
conversion of the Series B Preferred Stock.
e. Notice of Record Date. In the event that the Corporation shall
propose at any time prior to conversion of the Series B Preferred Stock; (i) to
declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash dividend and
whether or not out of earnings or earned surplus; (ii) to offer for subscription
pro rata to the holders of any class or series of its stock (other than the
Series B Preferred Stock) any additional shares of stock of any class or series
or other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation where the Corporation is
not the surviving corporation, or sell, lease or convey all or substantially all
of its assets, or to liquidate, dissolve or wind up; then, in connection with
each such event, the Corporation shall send to the holders of Series B Preferred
Stock:
(1) at least twenty (20) days prior written notice of the
record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, at least twenty (20) days prior written notice of the date when the same
shall take place (and specifying the date, if any, on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
f. Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series B Preferred Stock, such
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<PAGE> 7
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Preferred Stock,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of Series B Preferred Stock, the Corporation will take such action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
4. Dividends.
a. The holders of Series B Preferred Stock shall be entitled
to receive therefor, prior and in preference to any declaration or payment of
any dividend (except for dividends payable solely in shares of Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock) on any
shares of any class or series of Common Stock (all such shares shall be referred
to herein as "Junior Stock") dividends at an annual rate per share equal to six
percent (6%) multiplied by $1,000.00 for so long as the Series B Preferred Stock
is outstanding or, if earlier, the fourth anniversary of the date hereof,
payable, at the Company's option, from time to time, in cash or in shares of
Series B Preferred Stock. Dividends shall be payable annually on the tenth day
of each calendar year commencing after the date of issuance of the Series B
Preferred Stock (and the amount payable shall be reduced pro rata for a partial
calendar year), when and as declared by the Board of Directors. Such dividends
shall accrue on each share of Series B Preferred Stock on a daily basis, whether
or not earned or declared and shall be cumulative, and, to the extent not paid
in accordance herewith shall accrue interest on each share of Series B Preferred
Stock, whether earned or declared on a cumulative basis, at an annual rate per
share equal to six percent (6%), compounded quarterly, from the date such
dividends were first payable until the date such dividends are paid (whether
before or after the fourth anniversary of the date hereof).
b. Dividend Policy. For so long as accumulated dividends and
interest with respect to the Series B Preferred Stock remain unpaid, (i) no
dividend or other distribution (except for dividends payable solely in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock)
shall be paid or made on any Junior Stock and (ii) no deposit, payment, or
distribution of any kind shall be made in or to any purchase or redemption
requirement applicable to any Junior Stock.
5. Redemption by the Corporation.
a. Right of Redemption. The Series B Preferred Stock may be
called for redemption and redeemed for cash at the option of the Corporation by
resolution of the Board of Directors, in whole or in part, at any time after the
fifth anniversary of the date hereof (provided that at such time the Common
Stock underlying the Series B Preferred Stock may be disposed of
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<PAGE> 8
by each holder whose Series B Preferred Stock is called for redemption pursuant
to an effective registration statement or sold publicly without registration
under the Securities Act of 1933, as amended). In the case of a partial
redemption, the shares of Series B Preferred Stock to be so redeemed shall be
determined by the Board of Directors at its discretion.
b. Redemption Price. The redemption price per share of Series
B Preferred Stock to be paid upon a redemption under this Section 5 shall be
equal to the sum of (i) 110% of the Stated Value thereof and (ii) all
accumulations of accrued but unpaid dividends on such share of Series B
Preferred Stock and interest accrued on such accumulations as set forth in
Section 4 hereof prior to the date of such redemption.
c. Redemption Notice. Notice of redemption of any shares of
Series B Preferred Stock pursuant to this Section 5 shall be given by the
Corporation by first-class mail, not less than 30 nor more than 60 days prior to
the date fixed by the Board of Directors of the Corporation for redemption, to
the holders of record of the Series B Preferred Stock at their respective
addresses than appearing on the records of the Corporation. The notice of the
redemption shall state: the redemption date, the redemption price, that on the
redemption date the redemption price will become due and payable upon each date
the redemption price will become due and payable upon each share of Series B
Preferred Stock, and the place where such shares of Preferred Stock to be
redeemed are to be surrendered for payment of the redemption price.
6. Protective Provisions. The Corporation shall not without first
obtaining the approval (by vote or written consent) of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock (voting as a
separate class):
a. alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock so as to affect adversely such shares;
b. amend its Articles of Incorporation in any respect so as to
adversely affect the shares of Series B Preferred Stock, except that the
Corporation may authorize and increase the number of authorized shares of Common
Stock;
c. increase the number of authorized shares of Series B
Preferred Stock; issue any class or series of equity security senior or pari
passu (except for Series A Preferred Stock, Series C Preferred Stock to the
extent issued pursuant to the Stock Purchase Agreement dated the date hereof and
Series D Preferred Stock and dividends accruing on each of the foregoing) to the
Series B Preferred Stock in connection with rights upon liquidation or
dissolution of the Company; or reissue any shares of Series B Preferred Stock
that may be acquired by the Corporation by reason of redemption, purchase, or
otherwise; or
d. so long as the Initial Purchasers hold of record not less than
an aggregate of 750,000 shares of Common Stock (assuming for this purpose that
all shares of Series B Preferred Stock that the Initial Purchasers are then
record holders of are converted in their
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<PAGE> 9
entirety into shares of Common Stock and subject to adjustments, if any, for
stock splits and combinations) and the Initial Purchasers hold a majority of the
outstanding Series B Preferred Stock, merge with or acquire any other entity or
sell all or substantially all of the assets of the Corporation.
7. Effect of Acquisition of Preferred Stock by Corporation. All shares
of Series B Preferred Stock acquired by the Corporation by reason of redemption,
purchase or otherwise shall be canceled and cease to be outstanding and shall
have the status of authorized but unissued shares of undesignated preferred
stock.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge. Executed as of the 28th day of March, 1997 in Los
Angeles, California.
/s/ Michael Viner
--------------------------
Michael Viner
President
/s/ Deborah Raffin
--------------------------
Deborah Raffin
Secretary
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<PAGE> 1
EXHIBIT 4.14
NEITHER THE SECURITIES EVIDENCED HEREBY NOR THE SECURITIES INTO WHICH THE
SECURITIES ARE EXERCISABLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED
OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY THE COMPANY OR ITS
TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
WARRANT NO. ___________________ 1,500,000 SHARES
Void after 5:00 p.m. California Time, on March 27, 2001.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
DOVE ENTERTAINMENT, INC.
This Is To Certify That, FOR VALUE RECEIVED, Media Equities
International, LLC (the "HOLDER"), is entitled to purchase, subject to the
provisions of this Warrant, from Dove Entertainment, Inc., a California
corporation, (the "COMPANY"), 1,500,000 fully paid, validly issued and
non-assessable shares of common stock of the Company, par value $.01 per share
(the "COMMON STOCK"), at an exercise price per share as set forth in Section 1
herein, the expiration dates set forth in Section 1. The shares of Common
Stock deliverable upon such exercise are hereinafter referred to as the
"WARRANT SHARES."
1. EXERCISE PRICE AND EXERCISE OF WARRANT.
(a) This Warrant may be exercised in whole or in part, at any time or
from time to time on or after the date hereof as follows:
(i) 500,000 Warrant Shares shall be exercisable until March
27, 2000 ("TRANCHE 1"), at an exercise price of $2.00 per Warrant
Share ("EXERCISE PRICE 1");
(ii) 500,000 Warrant Shares shall be exercisable until March
27, 2000 ("TRANCHE 2") at an exercise price of $2.50 per Warrant Share
("EXERCISE PRICE 2"); and
<PAGE> 2
(iii) 500,000 Warrant Shares shall be exercisable until March
27, 2001 ("TRANCHE 3" and, each of Tranche 1, Tranche 2 and Tranche 3,
a "TRANCHE") at an exercise price of $3.00 per Warrant Share
("EXERCISE PRICE 3" and, each of Exercise Price 1, Exercise Price 2
and Exercise Price 3, an "EXERCISE PRICE");
provided, however, that if any such day is a day on which banking institutions
in the State of California are authorized by law to close, then this Warrant
may be exercised on the next succeeding day when the banking institutions shall
not be closed.
(b) Anything herein to the contrary notwithstanding, if the Company
shall at any time fail for a period of more than thirty days to comply with the
provisions of Sections 6.3(a) and (b) of that certain Stock Purchase Agreement
dated the date hereof between the Company and among others, the Holder, or the
provisions of the Certificate of Designation relating to the Series B Preferred
Shares of the Company relating to the election by holders of shares of Series B
Preferred Stock of directors of the Company) for each full month of such
noncompliance, the Exercise Price of each Tranche shall be reduced by five
percent (5%) of the then Exercise Price thereof.
(c) This Warrant may be exercised by presentation and surrender
hereof to the Company at its principal office or to the Company's warrant
agent, if any has been so appointed, with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price of the applicable
Tranche, in cash, by certified or bank cashier's check or by wire transfer, for
the number of Warrant Shares specified in such form. The Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of any such exercise, provided that such exercise is in accordance with
the provisions set forth herein.
(d) As soon as practicable after each such exercise of the Warrant,
the Company shall issue or cause to be issued and delivered to the Holder a
certificate or certificates for the Warrant Shares, registered in the name of
the Holder. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant or cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares purchasable thereunder.
(e) Upon exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
physically delivered to the Holder.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery of the Warrant
Shares upon exercise of this Warrant.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant or any
portion hereof, notwithstanding any
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<PAGE> 3
adjustment pursuant to Section 6 below. In lieu of fractional shares, the
Company shall issue to the Holder the next higher number of full shares.
4. LOSS OF WARRANT. Upon receipt by the Company or its warrant agent, if
any, of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will execute and deliver a new Warrant
of like tenor and date.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein. The acceptance of this Warrant by the Holder shall be deemed
consent by the Holder for the Company to enter into any warrant agreement with
a warrant agent, provided such warrant agreement does not adversely affect any
of the rights of the Holder set forth in this Warrant.
6. ANTI-DILUTION PROVISIONS. The Exercise Price for each Tranche and the
number of Warrant Shares issuable upon exercise of such Tranche shall be
adjusted from time to time as hereinafter provided:
(a) Dividend, Subdivision, Combination or Reclassification of Common
Stock. If the Company shall, at any time and from time to time, hereafter (i)
declare a dividend or make a distribution on its Common Stock in shares of its
capital stock (whether shares of Common Stock or of capital stock of any other
class), (ii) subdivide its outstanding shares of Common Stock into a larger
number of shares, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares or (iv) issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, then the number of
Warrant Shares issuable upon exercise of each Tranche and the Exercise Price in
effect for each Tranche on the record date for such dividend or the effective
date of such other actions shall be adjusted so that the Holder, upon exercise,
shall be entitled to receive the number of shares of capital stock of the
Company which the Holder would have owned immediately following such date had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this subsection shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If a dividend is declared and such dividend is not paid, the Exercise Price
shall again be adjusted to be the Purchase Price in effect, immediately prior
to such record date.
(b) Issuance of Common Stock and Rights, Options and Warrants.
(i) If the Company shall, at any time and from time to
time, hereafter fix a record date for the issuance of rights, options or
warrants to holders of Common Stock as a class entitling them to subscribe for
or purchase Common Stock (or securities convertible into Common Stock) at a
price per share of Common Stock (or having an exercise or conversion
3
<PAGE> 4
price, as the case may be) lower than the Current Market Price per share of
Common Stock on such record date, then such Exercise Price shall be reduced to
the price determined by multiplying such Exercise Price by a fraction, the
numerator of which shall be the sum of (x) the number of shares of Common Stock
outstanding on such record date plus (y) the number of additional shares of
Common Stock which the aggregate offering price of such additional shares (or
the aggregate initial conversion or exercise price of the convertible
securities to be offered plus any other consideration to be paid upon such
exercise or conversion) would purchase at the the Current Market Price per
share of Common Stock on the applicable record date, and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock to be offered (or
into which the rights, options, warrants or convertible securities issued are
initially exercisable or convertible as of the date of such issuance or sale).
Any such adjustment shall become effective immediately after the record date
for such rights, options or warrants. If such rights, options or warrants are
not issued, the Exercise Price shall be adjusted to the Exercise Price in
effect immediately prior to such record date.
(ii) If the Company shall, at any time and from time to
time, hereafter sell or issue shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock
(excluding shares issued (w) in any of the transactions described in
paragraphs (a), (b)(i) and (c) of this Section 6, (x) upon exercise of
this Warrant, (y) upon the exercise or conversion of any options,
warrants and other securities convertible into or exchangeable for
shares of Common Stock which options, warrants and other securities
are outstanding as of the date hereof or are issued in connection with
this transaction, and (z) upon the exercise of options granted after
the date hereof pursuant to the Company's employee stock option plan)
at a price per share of Common Stock (or exercise price or conversion
price per share of Common Stock, as the case may be) lower than the
Current Market Price per share of Common Stock, then such Exercise
Price shall be reduced to a price determined by multiplying the
Exercise Price of the applicable Tranche in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (x)
the number of shares of Common Stock outstanding immediately prior to
such sale or issuance plus (y) the number of shares of Common Stock
which the aggregate consideration received for such sale or issuance
(or the aggregate initial conversion or exercise price of the
convertible securities issued plus any other consideration to be paid
upon such exercise or conversion) would purchase at the Current Market
Price per share of Common Stock on the applicable record date, and the
denominator or which shall be the number of shares of Common Stock
outstanding immediately after such issuance or sale (or into which the
rights, options, warrants or convertible securities issued are
initially exercisable or convertible as of the date of such issuance
or sale). If the Company shall sell or issue shares of Common Stock
for in consideration for property other than cash or its equivalent,
then the price per share of Common Stock and the fair value of such
property shall be determined in good faith by the Board of Directors
of the Company. Any such adjustment shall be determined and effective
on the date of such sale or issuance and not upon exercise or
conversion, as the case may be, of such rights,
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<PAGE> 5
options, warrants, or convertible or exchangeable securities. If any
of such rights, options, warrants or convertible or exchangeable
securities expire without having been exercised, converted or
exchanged, the Exercise Price shall be adjusted as if the rights,
options, warrants or convertible or exchangeable securities not so
exercised, converted or exchanged had not been sold or issued.
(c) Issuance of Debt and Distribution of Assets. If the Company
shall, at any time or from time to time, fix a record date for the issuance of
debt or distribution of assets or property to all holders of Common Stock
(other than regularly scheduled cash or stock dividends or cash distributions),
including in connection with a consolidation or merger in which the Company (i)
is the surviving corporation, then the Exercise Price for the applicable
Tranche shall be reduced to the price determined by multiplying such Exercise
Price in effect immediately prior to such record date by a fraction (which
shall in no event be less than zero), the numerator of which shall be the
difference between (x) the Current Market Price per share of Common Stock on
such record date, less (y) the fair market value (as determined in good faith
by the Board of Directors of the Company) of the portion of the assets, debt,
other property, subscription rights or warrants to be distributed applicable to
one share of Common Stock, and the denominator of which shall be the Current
Market Price per share of Common Stock; or (ii) not the surviving corporation,
then, as a condition thereof, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provisions
whereby the Holder of this Warrant shall have the right thereafter to receive
upon exercise the kind and amount of shares of stock and other securities and
property receivable upon such issuance of debt or distribution of assets by a
holder of the number of shares of Common Stock issuable upon exercise of this
Warrant immediately prior to such issuance of debt or distribution of assets.
Such provisions shall include adjustments as nearly equivalent as possible to
the adjustments set forth in this Section 6. Any such adjustment shall become
effective immediately after the record date for such distribution. In the
event such distribution is not made, the Exercise Price for the applicable
Tranche shall be adjusted to such Exercise Price in effect immediately prior to
such record date.
(d) Determination of Current Market Price. For the purpose of any
computation under this Paragraphs (a), (b) and (c) of this Section 6 or other
applicable Sections of this warrant, the Current Market Price per share of
Common Stock on any date shall be deemed to be the average of the daily closing
price per share of Common Stock for the [5] consecutive trading days
immediately prior to such date (i) on any national securities exchange, or if
the Common Stock is not listed or admitted for trading on any such exchange,
(ii) as quoted on Nasdaq. If on any such date, the Common Stock is not listed
or admitted for trading on any national securities exchange or quoted on
Nasdaq, the Current Market Price for such shares shall be the fair market value
of such shares on such date as determined in good faith by the Board of
Directors of the Company.
(e) De Minimis Adjustment. No adjustment in the Exercise Price of
the applicable Tranche shall be required to be made unless such adjustment
would require an increase or decrease of at least $.01; provided, however, that
any adjustments which by reason of this subsection are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 6 shall be made to the nearest cent or
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<PAGE> 6
to the nearest one-one hundredth of a share, as the case may be, but in no
event shall the Company be obligated to issue fractional shares upon the
exercise of any Warrant.
(f) Adjustment of Number of Warrant Shares Issuable Upon Exercise.
Upon each adjustment of the Exercise Price as a result of the calculations made
in Subsections 6(b) or 6 (c), this Warrant shall thereafter with respect to
each Tranche evidence the right to receive, at the adjusted Exercise Price,
that number of shares of Common Stock (calculated to the nearest one-hundredth)
obtained by dividing (x) the product of the aggregate number of shares of
Common Stock covered by this Warrant immediately prior to such adjustment and
the Exercise Price in effect immediately prior to such adjustment of the
Exercise Price by (y) the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(g) Certificate as to Adjustments. Whenever the Purchase Price and
the number of Warrant Shares, or the securities or other property deliverable
upon the exercise of this Warrant, shall be adjusted pursuant to the provisions
hereof, the Company shall promptly give written notice thereof to the Holder,
in accordance with Section 8, in the form of a certificate signed by the
Chairman of the Board, President or one of the Vice Presidents of the Company,
and by the Chief Financial Officer, Treasurer or one of the Assistant
Treasurers of the Company, stating the adjusted Purchase Price, the number of
Warrant Shares, or the securities or other property deliverable upon exercise
of the Warrant, calculated to the nearest cent or the nearest one-hundredth of
a share and setting forth in reasonable detail the method of calculation and
the facts requiring such adjustment and upon which such calculation is based.
Each adjustment shall remain in effect until a subsequent adjustment is
required or reversed.
7. TRANSFERABILITY; INVESTMENT REPRESENTATIONS.
(a) Transfer or Assignment. This Warrant may be transferred or
assigned by the Holder at anytime to any person. However, no such transfer or
assignment may take place in violation of any securities laws or regulations.
Other than pursuant to registration under federal and applicable state
securities laws or an exemption from such registration, the availability of
which the Company shall determine in its reasonable discretion, neither this
Warrant nor any Warrant Shares may be sold, pledged, assigned or otherwise
transferred or disposed of (whether voluntarily or involuntarily). The Company
may condition such sale, pledge, assignment or other disposition on the receipt
from the party to whom this Warrant is to be transferred or to whom Warrant
Shares are to be issued or transferred of any representations and agreements
requested by the Company in order to permit such issuance or transfer to be
made pursuant to exemptions from registration under federal and applicable
state securities laws. Each certificate representing this Warrant (or any part
thereof) and any Warrant Shares shall bear appropriate legends setting forth
these restrictions on transferability.
(b) Investment Representations. The Holder, by acceptance hereof,
represents and warrants that (i) it is acquiring this Warrant for its own
account for investment purposes only and not with a view to its resale or
distribution and (ii) it has no present intention to resell or
6
<PAGE> 7
otherwise dispose of all or part of this Warrant, other than to officers,
directors, employees and affiliates of the Holder.
(c) Warrant Register. The Company shall maintain a warrant register
in its principal office for the purpose of registering the Warrant and any
transfer thereof, which register shall reflect and identify, at all times, the
ownership of any interest in the Warrant. Upon the issuance of this Warrant,
the Company shall record the name of the initial purchaser in the Warrant
Register as the first Holder. Upon surrender for registration of transfer or
exchange of this Warrant together with a properly executed Form of Assignment
attached hereto as Exhibit B at the principal office of the Company, the
Company shall, at its expense, execute and deliver one or more new Warrants of
like tenor which shall be exercisable for a like aggregate number of shares of
Common Stock, registered in the name of the Holder or a transferee or
transferees.
8. REGISTRATION RIGHTS. The Company and the Holder have entered into a
Registration Rights Agreement as of even date herewith with respect to the sale
of the Shares and the Warrant Shares. The Company shall comply with the terms
thereof in connection with the preparation and filing of a registration
statement under the Securities Act of 1933, as amended, to register the sale of
the Shares and Warrant Shares.
9. NOTICES. All notices and other communications which are required or
may be given under this Warrant shall be in writing and shall be deemed to have
been duly given when delivered in person or transmitted by fax, one (1) day
after being sent by overnight courier service or three (3) days after being
mailed, first-class postage prepaid, in the case of the Company to Dove
Entertainment, Inc., 8955 Beverly Blvd., Los Angeles, CA 90048, Attn: Chief
Financial Officer, and in the case of the Holder to Media Equities
International LLC, 1 Stamford Plaza, 12th Floor, Stamford, CT 16901, Attn:
President, or to such other address as such party shall have specified by
notice to the other party hereto. If notice is given by registered or
certified first class mail, postage prepaid, return receipt requested, the
return receipt shall be conclusive evidence of the notice having been received.
10. MISCELLANEOUS. This Warrant contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof. This Warrant may
not be changed orally, but only by an agreement in writing signed by the party
against whom enforcement is sought; provided however, that this Warrant may be
amended or modified without the consent of the Holder if such amendment or
7
<PAGE> 8
modification does not adversely affect the rights of the Holder hereunder.
This Warrant will not be assigned by either party hereto and shall be
interpreted under the laws of the State of New York without application to the
principles of conflicts of laws.
DOVE ENTERTAINMENT, INC.
By: /s/ Michael Viner
----------------------------------------
Name: Michael Viner
Title: President
Dated: March 27, 1997
Attest:
/s/ Steven Soloway
- ----------------------------------------
Name: Steven Soloway
Title: Executive Vice-President
and General Counsel
8
<PAGE> 9
- -------------------------------------------------------------------------------
Exhibit A
FORM OF ELECTION TO PURCHASE SHARES
-----------------------------------
The undersigned hereby irrevocably elects to exercise Tranche 1,
Tranche 2 or Tranche 3 (CIRCLE ONE) of the Warrant to purchase _ _____________
shares of Common Stock, par value $.01 per share (the "Common Stock"), of DOVE
ENTERTAINMENT, INC. (the "Company") at the applicable exercise price per share
of $_____________________and hereby [makes payment of $__________ therefor by
bank or cashier's check] or [makes payment therefor by wire transfer to the
Company of $__________. The undersigned hereby requests that certificates for
such shares be issued and delivered as follows:
ISSUE TO:
-----------------------------------------------------------------------
(NAME)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:
---------------------------------------------------------------------
(NAME)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is less
than the number of shares of Common Stock covered by the Tranche of the Warrant
be exercised, the undersigned requests that a new Warrant covering the number
of shares of Common Stock not purchased be issued and delivered as follows:
ISSUE TO:
-----------------------------------------------------------------------
(NAME OF HOLDER)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:
---------------------------------------------------------------------
(NAME OF HOLDER)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
Dated:
------------------------------------
[NAME OF HOLDER]
By:
-------------------------------
Name:
Title:
- -------------------------------------
1 Name of Holder must conform in all respects to name of Holder as
specified on the face of the Warrant.
9
<PAGE> 10
Exhibit B
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, par value$.01 per share ("Common Stock"), of DOVE
ENTERTAINMENT, INC. (the "Company") represented by this Warrant, with respect
to the number of shares of Common Stock set forth below:
Name of Assignee Address Tranche and No. of Shares
- ---------------- ------- -------------------------
and does hereby irrevocably constitute and appoint ____________________________
Attorney to make such transfer on the books of the Company maintained for that
purpose, with full power of substitution in the premises.
Dated: ____________________________ [NAME OF HOLDER]
By:________________________________
Name:
Title:
_____________________________
1 Name of Holder must conform in all respects to name of Holder as
specified on the face of the Warrant.
10
<PAGE> 1
EXHIBIT 4.15
CERTIFICATE OF DETERMINATION
OF THE SERIES C PREFERRED STOCK
OF
DOVE ENTERTAINMENT, INC.
We, Michael Viner and Deborah Raffin, certify that:
1. We are the President and Secretary, respectively, of Dove
Entertainment, Inc., a California corporation (the "Corporation").
2. The number of shares of Series C Preferred Stock is 5,000, none of
which has been issued.
3. The Board of Directors of the Corporation duly adopted the following
resolution:
WHEREAS, Article IV of the Articles of Incorporation of the
Corporation, as amended, authorizes the Preferred Stock of the Corporation to be
issued in series and authorizes the Board of Directors of the Corporation to
determine the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the number
of shares and designation of any such series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Corporation does hereby establish a series of Preferred Stock which shall be
designated Series C Preferred Stock, the maximum number of shares of which shall
be 5,000, which shall have the following rights, preferences, privileges and
restrictions:
1. Voting. Except as may be otherwise provided by law, the Series C
Preferred Stock shall vote together with all other voting classes and series of
stock of the Corporation as a single class on all actions to be taken by the
shareholders of the Corporation. Each share of Series C Preferred Stock shall
entitle the holder thereof to such number of votes per share on each such action
as to which the Series C Preferred Stock votes together with such other classes
as shall equal the number of shares of Common Stock (including fractions of a
share) into which each share of Series C Preferred Stock is then convertible on
the record date for such action.
2. Liquidation. Upon the dissolution and liquidation of the Corporation
and prior to the distribution of any assets of the Corporation to the holders of
all classes of Common Stock ("Common Stock") and any other class of stock
ranking junior to the Series C Preferred Stock,
<PAGE> 2
the assets remaining after the payment of all debts and liabilities of the
Corporation shall be distributed to the holders of the Series C Preferred Stock,
to the extent available, in an amount equal to $1,000.00 per share of Series C
Preferred Stock (the "Stated Value") plus all accumulations of accrued and
unpaid dividends and interest accrued on such accumulations as set forth in
Section 4 hereof to the date of such dissolution or liquidation (such amounts,
in the aggregate, the "Liquidation Preference"), but if the funds available
therefor are insufficient, then to the holders of Series C Preferred Stock
(together with any other Preferred Stock ranking equally in the event of
liquidation with the Series C Preferred Stock) on a pro-rata basis. The
Liquidation Preference shall be paid to the holders of Series C Preferred Stock
before the holders of Common Stock and any other class of stock ranking junior
to the Series C Preferred Stock are entitled to receive any payment or
distribution of cash, securities or other property with respect to such shares
following the dissolution or liquidation of the Corporation.
Notwithstanding the foregoing, the amounts to which the holders of Series C
Preferred Stock shall be entitled shall be equitably adjusted to take account of
any stock splits, stock dividends, recapitalizations, reorganizations or other
transactions affecting the number of shares of Series C Preferred Stock
outstanding as a class.
The Series C Preferred Stock shall be junior to the Company's Series A
Preferred Stock with respect to liquidation and pari passu with the Company's
Series A Preferred Stock with respect to dividends. The Series C Preferred Stock
shall be pari passu with respect to liquidation and dividends with the Company's
Series B Preferred Stock and Series D Preferred Stock.
3. Conversion Rights. The holders of the Series C Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
a. Conversion. The holders of Series C Preferred Stock shall
have the right to convert each of such shares at any time following the date six
months after issuance into 500 shares of Common Stock of the Corporation (the
"Conversion Shares"). The number of Conversion Shares into which shares of
Series C Preferred Stock may be converted shall be subject to adjustment in the
event certain circumstances occur prior to such conversion. In such event, each
share of Series C Preferred Stock shall be converted into the number of shares
of Conversion Shares calculated by dividing $1,000.00 by the then applicable
Conversion Price. The Conversion Price shall initially be Two Dollars ($2.00).
The Conversion Price shall be adjusted as hereinafter provided.
b. Mechanics of Conversion. Before any holder of Series C
Preferred Stock shall be entitled to receive certificates evidencing Conversion
Shares into which Series C Preferred Stock have been converted, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for such stock, and shall
give written notice to the Corporation at such office that such holder wishes to
receive certificates evidencing the Conversion Shares and shall state therein
the name or names in which
2
<PAGE> 3
such holder wishes the certificate or certificates for shares of Conversion
Shares to be issued. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series C Preferred Stock, a
certificate or certificates for the number of shares of Conversion Shares to
which such holder shall be entitled as aforesaid. The person or persons entitled
to receive the shares of Conversion Shares issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such shares of
Conversion Shares on the date of conversion into such Conversion Shares.
c. Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion of the Series C
Preferred Stock the Corporation shall pay or make a stock dividend or other
distribution (payable otherwise than in cash out of funds legally available
therefor) on any class of Common Stock of the Corporation payable in shares of
Common Stock, the Conversion Price in effect at the opening of business on the
day following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced so that the same
shall equal the price determined by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
and the denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
adjustment to become effective immediately after the opening of business on the
day following the date fixed for such determination.
(ii) In case at any time prior to conversion of the Series C
Preferred Stock the Corporation shall (A) subdivide its outstanding Common
Stock, (B) combine its outstanding Common Stock into a smaller number of shares,
or (C) issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger) any shares, the
Conversion Price in effect at the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any Series C Preferred Stock surrendered for conversion after such
time shall be entitled to receive the aggregate number and kind of shares which,
if such Series C Preferred Stock had been converted immediately prior to such
time, such holder would have owned upon such conversion and been entitled to
receive upon such subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(iii) In case at any time prior to conversion of the Series C
Preferred Stock the Corporation shall fix a record date for the making of a
distribution, by dividend or otherwise, to all holders of its Common Stock, of
evidences of its indebtedness or assets (including securities, but excluding (x)
any dividend or distribution referred to in paragraph (i) of this subsection (c)
and (y) any dividend or distribution paid in cash out of funds legally available
therefor of the Corporation), then in each such case the Conversion Price in
effect after such record date shall be determined by multiplying the Conversion
Price in effective immediately prior to such record date by a fraction, of which
the numerator shall be the total number of
3
<PAGE> 4
outstanding shares of Common Stock multiplied by the current market price per
share of Common Stock (as defined in paragraph (v) of this subsection (c)) on
such record date, less the fair market value (as determined by the Board of
Directors of the Corporation, whose determination shall be conclusive) of the
portion of the assets or evidences of indebtedness so to be distributed, and of
which the denominator shall be the total number of outstanding shares of Common
Stock multiplied by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such record date had not been fixed.
(iv) If the Company shall, at any time and from time to time,
hereafter sell or issue shares of Common Stock, or rights, options, warrants or
convertible or exchangeable for shares of Common Stock (excluding shares issued
(w) in any of the transactions described in paragraphs (i), (ii) or (iii) of
clause (c) of this Section 3, (x) upon conversion of the Series A Preferred
Stock or the Series B Preferred Stock or this Series C Preferred Stock, (y) upon
the exercise or conversion of any options, warrants and other securities
convertible into or exchangeable for shares of Common Stock which options,
warrants and other securities are outstanding as of the date hereof or are
issued in connection with the transaction in which the Series C Preferred Stock
was issued, and (z) upon the exercise of options granted after the date hereof
pursuant to the Company's employee stock option plans currently outstanding, as
amended from time to time (but not exceeding the total number of shares
authorized thereunder as of the date hereof)) at a price per share of Common
Stock (or exercise price or conversion price per share of Common Stock, as the
case may be) lower than the current market price per share of Common Stock, then
such Conversion Price shall be reduced to a price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of (x) the number of shares of Common Stock
outstanding immediately prior to such sale or issuance plus (y) the number of
shares of Common Stock which the aggregate consideration received for such sale
or issuance (or the aggregate initial conversion or exercise price of the
convertible securities issued plus any other consideration to be paid upon such
exercise or conversion) would purchase at the current market price per share of
Common Stock on the applicable record date, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately after such
issuance or sale (or into which the newly issued rights, options, warrants or
convertible securities are initially exercisable or convertible as of the date
of such issuance or sale). If the Company shall sell or issue shares of Common
Stock for in consideration for property other than cash or its equivalent, then
the price per share of Common Stock and fair value of such property shall be
determined in good faith by the Board of Directors of the Company. Any such
adjustment shall be determined and effective on the date of such sale or
issuance and not upon exercise or conversion, as the case may be, of such
rights, options, warrants, or convertible or exchangeable securities. If any of
such rights, options, warrants or convertible or exchangeable securities expire
without having been exercised, converted or exchanged, the Conversion Price
shall be adjusted as if the rights, options, warrants or convertible or
exchangeable securities not so exercised, converted or exchanged had not been
sold or issued.
4
<PAGE> 5
(v) For the purpose of any computation under paragraph (iii)
or (iv) of this subsection (c), the current market price per share of Common
Stock on any date shall be deemed to be the average of the Closing Prices for
the five (5) consecutive days upon which the principal trading market for the
Common Stock prior to the record date for the action in question. The Closing
Price for any day shall be the average of the reported closing bid and asked
prices regular way on NASDAQ, or if the Common Stock is listed or admitted to
trading on a national securities exchange, the last reported sales prices
regular way, or if the Common Stock is quoted on the NASDAQ National Market
("NNM"), the closing sale price, or if not so quoted, as reasonably determined
by the Board of Directors of the Corporation.
(vi) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least ten
cents ($0.10) in such Conversion Price; provided, however, that any adjustment
which by reason of this paragraph (vi) is not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this subsection (c) shall be made to the nearest cent or to
the nearest 1/100 of a share, as the case may be.
d. Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this subsection
3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series C Preferred Stock a certificate executed by the Corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series C Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price for the Series C Preferred Stock at the
time in effect, and (iii) the number of shares of Conversion Shares and the
amount, if any, of other property which at the time would be received upon the
conversion of the Series C Preferred Stock.
e. Notice of Record Date. In the event that the Corporation shall
propose at any time prior to conversion of the Series C Preferred Stock; (i) to
declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash dividend and
whether or not out of earnings or earned surplus; (ii) to offer for subscription
pro rata to the holders of any class or series of its stock (other than the
Series C Preferred Stock) any additional shares of stock of any class or series
or other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation where the Corporation is
not the surviving corporation, or sell, lease or convey all or substantially all
of its assets, or to liquidate, dissolve or wind up; then, in connection with
each such event, the Corporation shall send to the holders of Series C Preferred
Stock:
5
<PAGE> 6
(1) at least twenty (20) days prior written notice of the
record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least twenty (20) days prior written notice of the date when the
same shall take place (and specifying the date, if any, on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
f. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series C Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series C Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
C Preferred Stock, the Corporation will take such action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
4. Dividends.
a. The holders of Series C Preferred Stock shall be entitled
to receive therefor, prior and in preference to any declaration or payment of
any dividend (except for dividends payable solely in shares of Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock) on any
shares of any class or series of Common Stock (all such shares shall be referred
to herein as "Junior Stock") dividends at an annual rate per share equal to six
percent (6%) multiplied by $1,000.00 for so long as the Series C Preferred Stock
is outstanding or, if earlier, the fourth anniversary of the date hereof,
payable, at the Company's option, from time to time, in cash or in shares of
Series C Preferred Stock. Dividends shall be payable annually on the tenth day
of each calendar year commencing after the date of issuance of the Series C
Preferred Stock (and the amount payable shall be reduced pro rata for a partial
calendar year), when and as declared by the Board of Directors. Such dividends
shall accrue on each share of Series C Preferred Stock on a daily basis, whether
or not earned or declared, and shall be cumulative and, to the extent not paid
in accordance herewith shall accrue interest on each share of Series C Preferred
Stock, whether earned or declared on a cumulative basis, at an annual rate per
share equal to six percent (6%), compounded quarterly, from the date such
dividends were first payable until the date such dividends are paid (whether
before or after the fourth anniversary of the date hereof).
6
<PAGE> 7
b. Dividend Policy. For so long as accumulated dividends and
interest with respect to the Series C Preferred Stock remain unpaid, (i) no
dividend or other distribution (except for dividends payable solely in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock)
shall be paid or made on any Junior Stock and (ii) no deposit, payment, or
distribution of any kind shall be made in or to any purchase or redemption
requirement applicable to any Junior Stock.
5. Redemption by the Corporation.
a. Right of Redemption. The Series C Preferred Stock may be
called for redemption and redeemed for cash at the option of the Corporation by
resolution of the Board of Directors, in whole or in part, at any time after the
fifth anniversary of the date hereof (provided that at such time the Common
Stock underlying the Series C Preferred Stock may be disposed of by each holder
whose Series C Preferred Stock is called for redemption pursuant to an effective
registration statement or sold publicly without registration under the
Securities Act of 1933, as amended). In the case of a partial redemption, the
shares of Series C Preferred Stock to be so redeemed shall be determined by the
Board of Directors at its discretion.
b. Redemption Price. The redemption price per share of Series
C Preferred Stock to be paid upon a redemption under this Section 5 shall be
equal to the sum of (i) 110% of the Stated Value thereof and (ii) all
accumulations of accrued but unpaid dividends on such share of Series C
Preferred Stock and interest accrued on such accumulations as set forth in
Section 4 hereof prior to the date of such redemption.
c. Redemption Notice. Notice of redemption of any shares of
Series C Preferred Stock pursuant to this Section 5 shall be given by the
Corporation by first-class mail, not less than 30 nor more than 60 days prior to
the date fixed by the Board of Directors of the Corporation for redemption, to
the holders of record of the Series C Preferred Stock at their respective
addresses than appearing on the records of the Corporation. The notice of the
redemption shall state: the redemption date, the redemption price, that on the
redemption date the redemption price will become due and payable upon each date
the redemption price will become due and payable upon each share of Series C
Preferred Stock, and the place where such shares of Preferred Stock to be
redeemed are to be surrendered for payment of the redemption price.
6. Protective Provisions. The Corporation shall not without first
obtaining the approval (by vote or written consent) of the holders of at least a
majority of the then outstanding shares of Series C Preferred Stock (voting as a
separate class):
a. alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock so as to affect adversely such shares;
7
<PAGE> 8
b. amend its Articles of Incorporation in any respect so as to
adversely affect the shares of Series C Preferred Stock, except that the
Corporation may authorize and increase the number of authorized shares of Common
Stock; or
c. increase the number of authorized shares of Series C
Preferred Stock; issue any class or series of equity security senior or pari
passu (except for Series A Preferred Stock, Series B Preferred Stock to the
extent issued pursuant to the Stock Purchase Agreement dated the date hereof and
Series D Preferred Stock and dividends accruing on each of the foregoing) to the
Series C Preferred Stock in connection with rights upon liquidation or
dissolution of the Company; or reissue any shares of Series C Preferred Stock
that may be acquired by the Corporation by reason of redemption, purchase, or
otherwise.
7. Effect of Acquisition of Preferred Stock by Corporation. All
shares of Series C Preferred Stock acquired by the Corporation by reason of
redemption, purchase or otherwise shall be canceled and cease to be outstanding
and shall have the status of authorized but unissued shares of undesignated
preferred stock.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge. Executed as of the 28th day of March, 1997 in Los
Angeles, California.
/s/ Michael Viner
---------------------------
Michael Viner
President
/s/ Deborah Raffin
---------------------------
Deborah Raffin
Secretary
8
<PAGE> 1
EXHIBIT 4.16
NEITHER THE SECURITIES EVIDENCED HEREBY NOR THE SECURITIES INTO WHICH THE
SECURITIES ARE EXERCISABLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED
OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY THE COMPANY OR ITS
TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
WARRANT NO. ___________________ 500,000 SHARES
Void after 5:00 p.m. California Time, on March 27, 2001.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
DOVE ENTERTAINMENT, INC.
This Is To Certify That, FOR VALUE RECEIVED, Michael Viner and Deborah
Raffin, individuals residing at 1072 North Beverly Boulevard, Beverly Hills, CA
90210 (the "HOLDER"), are entitled to purchase, subject to the provisions of
this Warrant, from Dove Entertainment, Inc., a California corporation, (the
"COMPANY"), 500,000 fully paid, validly issued and non-assessable shares of
common stock of the Company, par value$.01 per share (the "COMMON STOCK"), at
an exercise price per share as set forth in Section 1 herein, the expiration
dates set forth in Section 1. The shares of Common Stock deliverable upon such
exercise are hereinafter referred to as the "WARRANT SHARES."
1. EXERCISE PRICE AND EXERCISE OF WARRANT. (a) This Warrant may be
exercised in whole or in part, at any time or from time to time on or after the
date hereof as follows:
(i) 166,666 Warrant Shares shall be exercisable until March
27, 2000 ("TRANCHE 1"), at an exercise price of $2.00 per Warrant Share
("EXERCISE PRICE 1");
(ii) 166,667 Warrant Shares shall be exercisable until March
27, 2000 ("TRANCHE 2") at an exercise price of $2.50 per Warrant Share
("EXERCISE PRICE 2"); and
<PAGE> 2
(iii) 166,667 Warrant Shares shall be exercisable until March
27, 2001 ("TRANCHE 3" and, each of Tranche 1, Tranche 2 and Tranche 3, a
"TRANCHE") at an exercise price of $3.00 per Warrant Share ("EXERCISE PRICE 3"
and, each of Exercise Price 1, Exercise Price 2 and Exercise Price 3, an
"EXERCISE PRICE");
provided, however, that if any such day is a day on which banking institutions
in the State of California are authorized by law to close, then this Warrant
may be exercised on the next succeeding day when the banking institutions shall
not be closed.
(b) This Warrant may be exercised by presentation and surrender
hereof to the Company at its principal office or to the Company's warrant
agent, if any has been so appointed, with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price of the applicable
Tranche, in cash, by certified or bank cashier's check or by wire transfer, for
the number of Warrant Shares specified in such form. The Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of any such exercise, provided that such exercise is in accordance with
the provisions set forth herein.
(c) As soon as practicable after each such exercise of the Warrant,
the Company shall issue or cause to be issued and delivered to the Holder a
certificate or certificates for the Warrant Shares, registered in the name of
the Holder. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant or cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder to purchase the balance of the
Warrant Shares purchasable thereunder.
(d) Upon exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
physically delivered to the Holder.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery of the Warrant
Shares upon exercise of this Warrant.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant or any
portion hereof, notwithstanding any adjustment pursuant to Section 6 below. In
lieu of fractional shares, the Company shall issue to the Holder the next
higher number of full shares.
4. LOSS OF WARRANT. Upon receipt by the Company or its warrant agent, if
any, of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will execute and deliver a new Warrant
of like tenor and date.
2
<PAGE> 3
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein. The acceptance of this Warrant by the Holder shall be deemed
consent by the Holder for the Company to enter into any warrant agreement with
a warrant agent, provided such warrant agreement does not adversely affect any
of the rights of the Holder set forth in this Warrant.
6. ANTI-DILUTION PROVISIONS. The Exercise Price for each Tranche and the
number of Warrant Shares issuable upon exercise of such Tranche shall be
adjusted from time to time as hereinafter provided:
(a) Dividend, Subdivision, Combination or Reclassification of Common
Stock. If the Company shall, at any time and from time to time, hereafter (i)
declare a dividend or make a distribution on its Common Stock in shares of its
capital stock (whether shares of Common Stock or of capital stock of any other
class), (ii) subdivide its outstanding shares of Common Stock into a larger
number of shares, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares or (iv) issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, then the number of
Warrant Shares issuable upon exercise of each Tranche and the Exercise Price in
effect for each Tranche on the record date for such dividend or the effective
date of such other actions shall be adjusted so that the Holder, upon exercise,
shall be entitled to receive the number of shares of capital stock of the
Company which the Holder would have owned immediately following such date had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this subsection shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If a dividend is declared and such dividend is not paid, the Exercise Price
shall again be adjusted to be the Purchase Price in effect, immediately prior
to such record date.
(b) Issuance of Common Stock and Rights, Options and Warrants.
(i) If the Company shall, at any time and from time to
time, hereafter fix a record date for the issuance of rights, options
or warrants to holders of Common Stock as a class entitling them to
subscribe for or purchase Common Stock (or securities convertible into
Common Stock) at a price per share of Common Stock (or having an
exercise or conversion price, as the case may be) lower than the
Current Market Price per share of Common Stock on such record date,
then such Exercise Price shall be reduced to the price determined by
multiplying such Exercise Price by a fraction, the numerator of which
shall be the sum of (x) the number of shares of Common Stock
outstanding on such record date plus (y) the number of additional
shares of Common Stock which the aggregate offering price of such
additional shares (or the aggregate initial conversion or exercise
price of the convertible securities to be offered plus any other
consideration to be paid upon such exercise or conversion) would
purchase at the the Current Market Price per share of Common Stock on
the applicable record date, and the denominator of which
3
<PAGE> 4
shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock to be
offered (or into which the rights, options, warrants or convertible
securities issued are initially exercisable or convertible as of the
date of such issuance or sale). Any such adjustment shall become
effective immediately after the record date for such rights, options
or warrants. If such rights, options or warrants are not issued, the
Exercise Price shall be adjusted to the Exercise Price in effect
immediately prior to such record date.
(ii) If the Company shall, at any time and from time to
time, hereafter sell or issue shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock
(excluding shares issued (w) in any of the transactions described in
paragraphs (a), (b)(i) and (c) of this Section 6, (x) upon exercise of
this Warrant, (y) upon the exercise or conversion of any options,
warrants and other securities convertible into or exchangeable for
shares of Common Stock which options, warrants and other securities
are outstanding as of the date hereof or are issued in connection with
this transaction, and (z) upon the exercise of options granted after
the date hereof pursuant to the Company's employee stock option plan)
at a price per share of Common Stock (or exercise price or conversion
price per share of Common Stock, as the case may be) lower than the
Current Market Price per share of Common Stock, then such Exercise
Price shall be reduced to a price determined by multiplying the
Exercise Price of the applicable Tranche in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (x)
the number of shares of Common Stock outstanding immediately prior to
such sale or issuance plus (y) the number of shares of Common Stock
which the aggregate consideration received for such sale or issuance
(or the aggregate initial conversion or exercise price of the
convertible securities issued plus any other consideration to be paid
upon such exercise or conversion) would purchase at the Current Market
Price per share of Common Stock on the applicable record date, and the
denominator or which shall be the number of shares of Common Stock
outstanding immediately after such issuance or sale (or into which the
rights, options, warrants or convertible securities issued are
initially exercisable or convertible as of the date of such issuance
or sale). If the Company shall sell or issue shares of Common Stock
for in consideration for property other than cash or its equivalent,
then the price per share of Common Stock and the fair value of such
property shall be determined in good faith by the Board of Directors
of the Company. Any such adjustment shall be determined and effective
on the date of such sale or issuance and not upon exercise or
conversion, as the case may be, of such rights, options, warrants, or
convertible or exchangeable securities. If any of such rights,
options, warrants or convertible or exchangeable securities expire
without having been exercised, converted or exchanged, the Exercise
Price shall be adjusted as if the rights, options, warrants or
convertible or exchangeable securities not so exercised, converted or
exchanged had not been sold or issued.
(c) Issuance of Debt and Distribution of Assets. If the Company
shall, at any time or from time to time, fix a record date for the issuance of
debt or distribution of assets or property to
4
<PAGE> 5
all holders of Common Stock (other than regularly scheduled cash or stock
dividends or cash distributions), including in connection with a consolidation
or merger in which the Company (i) is the surviving corporation, then the
Exercise Price for the applicable Tranche shall be reduced to the price
determined by multiplying such Exercise Price in effect immediately prior to
such record date by a fraction (which shall in no event be less than zero), the
numerator of which shall be the difference between (x) the Current Market Price
per share of Common Stock on such record date, less (y) the fair market value
(as determined in good faith by the Board of Directors of the Company) of the
portion of the assets, debt, other property, subscription rights or warrants to
be distributed applicable to one share of Common Stock, and the denominator of
which shall be the Current Market Price per share of Common Stock; or (ii) not
the surviving corporation, then, as a condition thereof, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provisions whereby the Holder of this Warrant shall have the right
thereafter to receive upon exercise the kind and amount of shares of stock and
other securities and property receivable upon such issuance of debt or
distribution of assets by a holder of the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such issuance of
debt or distribution of assets. Such provisions shall include adjustments as
nearly equivalent as possible to the adjustments set forth in this Section 6.
Any such adjustment shall become effective immediately after the record date
for such distribution. In the event such distribution is not made, the
Exercise Price for the applicable Tranche shall be adjusted to such Exercise
Price in effect immediately prior to such record date.
(d) Determination of Current Market Price. For the purpose of any
computation under this Paragraphs (a), (b) and (c) of this Section 6 or other
applicable Sections of this warrant, the Current Market Price per share of
Common Stock on any date shall be deemed to be the average of the daily closing
price per share of Common Stock for the [5] consecutive trading days
immediately prior to such date (i) on any national securities exchange, or if
the Common Stock is not listed or admitted for trading on any such exchange,
(ii) as quoted on Nasdaq. If on any such date, the Common Stock is not listed
or admitted for trading on any national securities exchange or quoted on
Nasdaq, the Current Market Price for such shares shall be the fair market value
of such shares on such date as determined in good faith by the Board of
Directors of the Company.
(e) De Minimis Adjustment. No adjustment in the Exercise Price of
the applicable Tranche shall be required to be made unless such adjustment
would require an increase or decrease of at least $.01; provided, however, that
any adjustments which by reason of this subsection are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 6 shall be made to the nearest cent or to
the nearest one-one hundredth of a share, as the case may be, but in no event
shall the Company be obligated to issue fractional shares upon the exercise of
any Warrant.
(f) Adjustment of Number of Warrant Shares Issuable Upon Exercise.
Upon each adjustment of the Exercise Price as a result of the calculations made
in Subsections 6(b) or 6 (c), this Warrant shall thereafter with respect to
each Tranche evidence the right to receive, at the adjusted Exercise Price,
that number of shares of Common Stock (calculated to the nearest one-hundredth)
obtained by dividing (x) the product of the aggregate number of shares of
5
<PAGE> 6
Common Stock covered by this Warrant immediately prior to such adjustment and
the Exercise Price in effect immediately prior to such adjustment of the
Exercise Price by (y) the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(g) Certificate as to Adjustments. Whenever the Purchase Price and
the number of Warrant Shares, or the securities or other property deliverable
upon the exercise of this Warrant, shall be adjusted pursuant to the provisions
hereof, the Company shall promptly give written notice thereof to the Holder,
in accordance with Section 8, in the form of a certificate signed by the
Chairman of the Board, President or one of the Vice Presidents of the Company,
and by the Chief Financial Officer, Treasurer or one of the Assistant
Treasurers of the Company, stating the adjusted Purchase Price, the number of
Warrant Shares, or the securities or other property deliverable upon exercise
of the Warrant, calculated to the nearest cent or the nearest one-hundredth of
a share and setting forth in reasonable detail the method of calculation and
the facts requiring such adjustment and upon which such calculation is based.
Each adjustment shall remain in effect until a subsequent adjustment is
required or reversed.
7. TRANSFERABILITY; INVESTMENT REPRESENTATIONS.
(a) Transfer or Assignment. This Warrant may be transferred or
assigned by the Holder at anytime to any person. However, no such transfer or
assignment may take place in violation of any securities laws or regulations.
Other than pursuant to registration under federal and applicable state
securities laws or an exemption from such registration, the availability of
which the Company shall determine in its reasonable discretion, neither this
Warrant nor any Warrant Shares may be sold, pledged, assigned or otherwise
transferred or disposed of (whether voluntarily or involuntarily). The Company
may condition such sale, pledge, assignment or other disposition on the receipt
from the party to whom this Warrant is to be transferred or to whom Warrant
Shares are to be issued or transferred of any representations and agreements
requested by the Company in order to permit such issuance or transfer to be
made pursuant to exemptions from registration under federal and applicable
state securities laws. Each certificate representing this Warrant (or any part
thereof) and any Warrant Shares shall bear appropriate legends setting forth
these restrictions on transferability.
(b) Investment Representations. The Holder, by acceptance hereof,
represents and warrants that (i) it is acquiring this Warrant for its own
account for investment purposes only and not with a view to its resale or
distribution and (ii) it has no present intention to resell or otherwise
dispose of all or part of this Warrant, other than to officers, directors,
employees and affiliates of the Holder.
(c) Warrant Register. The Company shall maintain a warrant register
in its principal office for the purpose of registering the Warrant and any
transfer thereof, which register shall reflect and identify, at all times, the
ownership of any interest in the Warrant. Upon the issuance of this Warrant,
the Company shall record the name of the initial purchaser in the Warrant
Register as the first Holder. Upon surrender for registration of transfer or
exchange of this Warrant together with a properly executed Form of Assignment
attached hereto as Exhibit B at
6
<PAGE> 7
the principal office of the Company, the Company shall, at its expense, execute
and deliver one or more new Warrants of like tenor which shall be exercisable
for a like aggregate number of shares of Common Stock, registered in the name
of the Holder or a transferee or transferees.
8. REGISTRATION RIGHTS. The Company and the Holder have entered into a
Registration Rights Agreement as of even date herewith with respect to the sale
of the Shares and the Warrant Shares. The Company shall comply with the terms
thereof in connection with the preparation and filing of a registration
statement under the Securities Act of 1933, as amended, to register the sale of
the Shares and Warrant Shares.
9. NOTICES. All notices and other communications which are required or
may be given under this Warrant shall be in writing and shall be deemed to have
been duly given when delivered in person or transmitted by fax, one (1) day
after being sent by overnight courier service or three (3) days after being
mailed, first-class postage prepaid, in the case of the Company to Dove
Entertainment, Inc., 8955 Beverly Blvd., Los Angeles, CA 90048, Attn: Chief
Financial Officer, and in the case of the Holder to Michael Viner and Deborah
Raffin Viner, 1072 North Beverly Boulevard, Beverly Hills, CA 90210, or to
such other address as such party shall have specified by notice to the other
party hereto. If notice is given by registered or certified first class mail,
postage prepaid, return receipt requested, the return receipt shall be
conclusive evidence of the notice having been received.
10. MISCELLANEOUS. This Warrant contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof. This Warrant may
not be changed orally, but only by an agreement in writing signed by the party
against whom enforcement is sought; provided however, that this Warrant may be
amended or modified without the consent of the Holder if such amendment or
7
<PAGE> 8
modification does not adversely affect the rights of the Holder hereunder.
This Warrant will not be assigned by either party hereto and shall be
interpreted under the laws of the State of New York without application to the
principles of conflicts of laws.
DOVE ENTERTAINMENT, INC.
By: /s/ Michael Viner
--------------------------------------
Name: Michael Viner
Title: President
Dated: March 27, 1997
Attest:
/s/ Steven Soloway
- --------------------------------------------
Name: Steven Soloway
Title: Executive Vice-President
and General Counsel
8
<PAGE> 9
Exhibit A
FORM OF ELECTION TO PURCHASE SHARES
The undersigned hereby irrevocably elects to exercise Tranche 1,
Tranche 2 or Tranche 3 (CIRCLE ONE) of the Warrant to purchase _ _____________
shares of Common Stock, par value$.01 per share (the "Common Stock"), of DOVE
ENTERTAINMENT, INC. (the "Company") at the applicable exercise price per share
of $_____________________and hereby [makes payment of $__________ therefor by
bank or cashier's check] or [makes payment therefor by wire transfer to the
Company of $__________. The undersigned hereby requests that certificates for
such shares be issued and delivered as follows:
ISSUE TO:
----------------------------------------------------------------------
(NAME)
- -------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
- -------------------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:
--------------------------------------------------------------------
(NAME)
- -------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is
less than the number of shares of Common Stock covered by the Tranche of the
Warrant be exercised, the undersigned requests that a new Warrant covering the
number of shares of Common Stock not purchased be issued and delivered as
follows:
ISSUE TO:
----------------------------------------------------------------------
(NAME OF HOLDER)
- -------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:
--------------------------------------------------------------------
(NAME OF HOLDER)
- -------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
Dated:
-------------------------------------------------
[NAME OF HOLDER]
By:
-----------------------------------
Name:
Title:
- ----------------------------
1 Name of Holder must conform in all respects to name of Holder as
specified on the face of the Warrant.
<PAGE> 10
Exhibit B
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, par value $.01 per share ("Common Stock"), of DOVE
ENTERTAINMENT, INC. (the "Company") represented by this Warrant, with respect
to the number of shares of Common Stock set forth below:
Name of Assignee Address Tranche and No. of Shares
- ---------------- ------- -------------------------
and does hereby irrevocably constitute and appoint ____________________________
Attorney to make such transfer on the books of the Company maintained for that
purpose, with full power of substitution in the premises.
Dated: ___________________ [NAME OF HOLDER]
By: __________________________
Name:
Title:
_____________________________
1 Name of Holder must conform in all respects to name of Holder as
specified on the face of the Warrant.
<PAGE> 1
EXHIBIT 4.17
CERTIFICATE OF DETERMINATION
OF THE SERIES D PREFERRED STOCK
OF
DOVE ENTERTAINMENT, INC.
Michael Viner and Deborah Raffin certify that:
1. We are the President and Secretary, respectively, of Dove
Entertainment, Inc., a California corporation (the "Corporation").
2. The number of shares of Series D Preferred Stock is 400,000, none of
which has been issued.
3. The Board of Directors of the Corporation duly adopted the following
resolution:
WHEREAS, Article IV of the Articles of Incorporation of the
Corporation, as amended, authorizes the Preferred Stock of the Corporation to be
issued in series and authorizes the Board of Directors of the Corporation to
determine the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and to fix the number
of shares and designation of any such series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Corporation does hereby establish a series of Preferred Stock which shall be
designated Series D Preferred Stock, the maximum number of shares of which shall
be 400,000, which shall have the following rights, preferences, privileges and
restrictions:
1. Voting. Except as may be otherwise provided by law, the Series D
Preferred Stock shall vote together with all other voting classes and series of
stock of the Corporation as a single class on all actions to be taken by the
shareholders of the Corporation. Each share of Series D Preferred Stock shall
entitle the holder thereof to such number of votes per share on each such action
as to which the Series D Preferred Stock votes together with such other classes
as shall equal the number of shares of Common Stock (including fractions of a
share) into which each share of Series D Preferred Stock is then convertible on
the record date for such action.
2. Liquidation. Upon the dissolution and liquidation of the Corporation
and prior to the distribution of any assets of the Corporation to the holders of
all classes of Common Stock ("Common Stock") and any other class of stock
ranking junior to the Series D Preferred Stock,
<PAGE> 2
the assets remaining after the payment of all debts and liabilities of the
Corporation shall be distributed to the holders of the Series D Preferred Stock,
to the extent available, in an amount equal to $4.00 per share of Series D
Preferred Stock (the "Stated Value") plus all accumulations of accrued and
unpaid dividends and interest accrued on such accumulations as set forth in
Section 4 hereof to the date of such dissolution or liquidation (such amounts,
in the aggregate, the "Liquidation Preference"), but if the funds available
therefor are insufficient, then to the holders of Series D Preferred Stock
(together with any other Preferred Stock ranking equally in the event of
liquidation with the Series D Preferred Stock) on a pro-rata basis. The
Liquidation Preference shall be paid to the holders of Series D Preferred Stock
before the holders of Common Stock and any other class of stock ranking junior
to the Series D Preferred Stock are entitled to receive any payment or
distribution of cash, securities or other property with respect to such shares
following the dissolution or liquidation of the Corporation.
Notwithstanding the foregoing, the amounts to which the
holders of Series D Preferred Stock shall be entitled shall be equitably
adjusted to take account of any stock splits, stock dividends,
recapitalizations, reorganizations or other transactions affecting the number of
shares of Series D Preferred Stock outstanding as a class.
The Series D Preferred Stock shall be junior to the Company's
Series A Preferred Stock with respect to liquidation and pari passu with the
Company's Series A Preferred Stock with respect to dividends. The Series D
Preferred Stock shall be pari passu with respect to liquidation and dividends
with the Company's Series B Preferred Stock and Series C Preferred Stock.
3. Conversion Rights. The holders of the Series D Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
a. Conversion. The holders of Series D Preferred Stock shall
have the right to convert each of such shares at any time into 1.20497 shares of
Common Stock of the Corporation (the "Conversion Shares"). The number of
Conversion Shares into which shares of Series D Preferred Stock may be converted
shall be subject to adjustment in the event certain circumstances occur prior to
such conversion. In such event, each share of Series D Preferred Stock shall be
converted into the number of shares of Conversion Shares calculated by dividing
$4.00 by the then applicable Conversion Price. The Conversion Price shall
initially be $3.31958.
The Conversion Price shall be adjusted as hereinafter provided.
b. Mechanics of Conversion. Before any holder of Series D
Preferred Stock shall be entitled to receive certificates evidencing Conversion
Shares into which Series D Preferred Stock have been converted, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for such stock, and shall
give written notice to the Corporation at such office that such holder wishes to
receive certificates evidencing the Conversion Shares and shall state therein
the name or names in which such holder wishes the certificate or certificates
for shares of Conversion Shares to be issued.
2
<PAGE> 3
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series D Preferred Stock, a certificate or
certificates for the number of shares of Conversion Shares to which such holder
shall be entitled as aforesaid. The person or persons entitled to receive the
shares of Conversion Shares issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Conversion Shares
on the date of conversion into such Conversion Shares.
c. Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion of the
Series D Preferred Stock the Corporation shall pay or make a stock dividend or
other distribution (payable otherwise than in cash out of funds legally
available therefor) on any class of Common Stock of the Corporation payable in
shares of Common Stock, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced so that the same shall equal the price determined by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such adjustment to become effective immediately after the opening
of business on the day following the date fixed for such determination.
(ii) In case at any time prior to conversion of the
Series D Preferred Stock the Corporation shall (A) subdivide its outstanding
Common Stock, (B) combine its outstanding Common Stock into a smaller number of
shares, or (C) issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger) any shares, the
Conversion Price in effect at the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any Series D Preferred Stock surrendered for conversion after such
time shall be entitled to receive the aggregate number and kind of shares which,
if such Series D Preferred Stock had been converted immediately prior to such
time, such holder would have owned upon such conversion and been entitled to
receive upon such subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(iii) In case at any time prior to conversion of the
Series D Preferred Stock the Corporation shall fix a record date for the making
of a distribution, by dividend or otherwise, to all holders of its Common Stock,
of evidences of its indebtedness or assets (including securities, but excluding
(x) any dividend or distribution referred to in paragraph (i) of this subsection
(c) and (y) any dividend or distribution paid in cash out of funds legally
available therefor of the Corporation), then in each such case the Conversion
Price in effect after such record date shall be determined by multiplying the
Conversion Price in effective immediately prior to such record date by a
fraction, of which the numerator shall be the total number of outstanding shares
of Common Stock multiplied by the current market price per share of
3
<PAGE> 4
Common Stock (as defined in paragraph (v) of this subsection (c)) on such record
date, less the fair market value (as determined by the Board of Directors of the
Corporation, whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so to be distributed, and of which the
denominator shall be the total number of outstanding shares of Common Stock
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such record date had not been fixed.
(iv) If the Company shall, at any time and from time to
time, hereafter sell or issue shares of Common Stock, or rights, options,
warrants or convertible or exchangeable for shares of Common Stock (excluding
shares issued (w) in any of the transactions described in paragraphs (i), (ii)
or (iii) of clause (c) of this Section 3, (x) upon conversion of the Series B
Preferred Stock or the Series C Preferred Stock or this Series D Preferred
Stock, (y) upon the exercise or conversion of any options, warrants and other
securities convertible into or exchangeable for shares of Common Stock which
options, warrant and other securities are outstanding as of the date hereof or
are issued in connection with the transaction in which the Series D Preferred
Stock was issued, and (z) upon the exercise of options granted after the date
hereof pursuant to the Company's employee stock option plans currently
outstanding, as amended from time to time (but not exceeding the total number of
shares authorized thereunder as of the date hereof)) at a price per share of
Common Stock (or exercise price or conversion price per share of Common Stock,
as the case may be) lower than the current market price per share of Common
Stock, then such Conversion Price shall be reduced to a price determined by
multiplying the Conversion Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such sale or issuance plus (y) the
number of shares of Common Stock which the aggregate consideration received for
such sale or issuance (or the aggregate initial conversion or exercise price of
the convertible securities issued plus any other consideration to be paid upon
such exercise or conversion) would purchase at the current market price per
share of Common Stock on the applicable record date, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such issuance or sale (or into which the newly issued rights, options,
warrants or convertible securities are initially exercisable or convertible as
of the date of such issuance or sale). If the Company shall sell or issue shares
of Common Stock for in consideration for property other than cash or its
equivalent, then the price per share of Common Stock and fair value of such
property shall be determined in good faith by the Board of Directors of the
Company. Any such adjustment shall be determined and effective on the date of
such sale or issuance and not upon exercise or conversion, as the case may be,
of such rights, options, warrants, or convertible or exchangeable securities. If
any of such rights, options, warrants or convertible or exchangeable securities
expire without having been exercised, converted or exchanged, the Conversion
Price shall be adjusted as if the rights, options, warrants or convertible or
exchangeable securities not so exercised, converted or exchanged had not been
sold or issued.
4
<PAGE> 5
(v) For the purpose of any computation under paragraph
(iii) or (iv) of this subsection (c), the current market price per share of
Common Stock on any date shall be deemed to be the average of the Closing Prices
for the five (5) consecutive days upon which the principal trading market for
the Common Stock prior to the record date for the action in question. The
Closing Price for any day shall be the average of the reported closing bid and
asked prices regular way on NASDAQ, or if the Common Stock is listed or admitted
to trading on a national securities exchange, the last reported sales prices
regular way, or if the Common Stock is quoted on the NASDAQ National Market
("NNM"), the closing sale price, or if not so quoted, as reasonably determined
by the Board of Directors of the Corporation.
(vi) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least ten cents ($0.10) in such Conversion Price; provided, however, that any
adjustment which by reason of this paragraph (vi) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subsection (c) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
d. Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this subsection
3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series D Preferred Stock a certificate executed by the Corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series D Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price for the Series D Preferred Stock at the
time in effect, and (iii) the number of shares of Conversion Shares and the
amount, if any, of other property which at the time would be received upon the
conversion of the Series D Preferred Stock.
e. Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of the Series D Preferred Stock;
(i) to declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus; (ii) to offer for
subscription pro rata to the holders of any class or series of its stock (other
than the Series D Preferred Stock) any additional shares of stock of any class
or series or other rights; (iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or (iv) to merge or consolidate with or into any other corporation
where the Corporation is not the surviving corporation, or sell, lease or convey
all or substantially all of its assets, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Series D Preferred Stock:
5
<PAGE> 6
(1) at least twenty (20) days prior written
notice of the record date for such dividend, distribution or subscription rights
(and specifying the date upon which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in
(iii) and (iv) above, at least twenty (20) days prior written notice of the date
when the same shall take place (and specifying the date, if any, on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
f. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series D Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series D Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
D Preferred Stock, the Corporation will take such action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
4. Dividends.
a. The holders of Series D Preferred Stock shall be entitled
to receive therefor, prior and in preference to any declaration or payment of
any dividend (except for dividends payable solely in shares of Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock) on any
shares of any class or series of Common Stock (all such shares shall be referred
to herein as "Junior Stock") dividends at an annual rate per share equal to six
percent (6%) multiplied by $4.00 for so long as the Series D Preferred Stock is
outstanding or, if earlier, the fourth anniversary of the date hereof, payable,
at the Company's option, from time to time, in cash or in shares of Series D
Preferred Stock. Dividends shall be payable annually on the tenth day of each
calendar year commencing after the date of issuance of the Series D Preferred
Stock (and the amount payable shall be reduced pro rata for a partial calendar
year), when and as declared by the Board of Directors. Such dividends shall
accrue on each share of Series D Preferred Stock on a daily basis, whether or
not earned or declared and shall be cumulative, and, to the extent not paid in
accordance herewith shall accrue interest on each share of Series D Preferred
Stock, whether earned or declared on a cumulative basis, at an annual rate per
share equal to six percent (6%), compounded quarterly, from the date such
dividends were first payable until the date such dividends are paid (whether
before or after the fourth anniversary of the date hereof).
6
<PAGE> 7
b. Dividend Policy. For so long as accumulated dividends and
interest with respect to the Series D Preferred Stock remain unpaid, (i) no
dividend or other distribution (except for dividends payable solely in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock)
shall be paid or made on any Junior Stock and (ii) no deposit, payment, or
distribution of any kind shall be made in or to any purchase or redemption
requirement applicable to any Junior Stock.
5. Redemption by the Corporation.
a. Right of Redemption. The Series D Preferred Stock may be
called for redemption and redeemed for cash at the option of the Corporation by
resolution of the Board of Directors, in whole or in part, at any time after the
fifth anniversary of the date hereof (provided that at such time the Common
Stock underlying the Series D Preferred Stock may be disposed of by each holder
whose Series D Preferred Stock is called for redemption pursuant to an effective
registration statement or sold publicly without registration under the
Securities Act of 1933, as amended). In the case of a partial redemption, the
shares of Series D Preferred Stock to be so redeemed shall be determined by the
Board of Directors at its discretion.
b. Redemption Price. The redemption price per share of Series
D Preferred Stock to be paid upon a redemption under this Section 5 shall be
equal to the sum of (i) 110% of the Stated Value thereof and (ii) all
accumulations of accrued but unpaid dividends on such share of Series D
Preferred Stock and interest accrued on such accumulations as set forth in
Section 4 hereof prior to the date of such redemption.
c. Redemption Notice. Notice of redemption of any shares of
Series D Preferred Stock pursuant to this Section 5 shall be given by the
Corporation by first-class mail, not less than 30 nor more than 60 days prior to
the date fixed by the Board of Directors of the Corporation for redemption, to
the holders of record of the Series D Preferred Stock at their respective
addresses than appearing on the records of the Corporation. The notice of the
redemption shall state: the redemption date, the redemption price, that on the
redemption date the redemption price will become due and payable upon each date
the redemption price will become due and payable upon each share of Series D
Preferred Stock, and the place where such shares of Preferred Stock to be
redeemed are to be surrendered for payment of the redemption price.
6. Protective Provisions. The Corporation shall not without
first obtaining the approval (by vote or written consent) of the holders of at
least a majority of the then outstanding shares of Series D Preferred Stock
(voting as a separate class):
a. alter or change the rights, preferences or privileges of
the shares of Series D Preferred Stock so as to affect adversely such shares;
7
<PAGE> 8
b. amend its Articles of Incorporation in any respect so as to
adversely affect the shares of Series D Preferred Stock, except that the
Corporation may authorize and increase the number of authorized shares of Common
Stock; or
c. increase the number of authorized shares of Series D
Preferred Stock; issue any class or series of equity security senior or pari
passu (except for Series B Preferred Stock and Series C Preferred Stock to the
extent issued pursuant to the Stock Purchase Agreement dated the date hereof and
dividends accruing on each of the foregoing) to the Series D Preferred Stock in
connection with rights upon liquidation or dissolution of the Company; or
reissue any shares of Series D Preferred Stock that may be acquired by the
Corporation by reason of redemption, purchase, or otherwise.
7. Effect of Acquisition of Preferred Stock by Corporation. All shares
of Series D Preferred Stock acquired by the Corporation by reason of redemption,
purchase or otherwise shall be canceled and cease to be outstanding and shall
have the status of authorized but unissued shares of undesignated preferred
stock.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge. Executed as of the 28th day of March, 1997 in Los
Angeles, California.
/s/ Michael Viner
------------------------
Michael Viner
President
/s/ Deborah Raffin
------------------------
Deborah Raffin
Secretary
8
<PAGE> 1
EXHIBIT 4.18
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR
THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
EXERCISABLE ON OR BEFORE
5:00 P.M., CALIFORNIA TIME, APRIL 1, 2001
DOVE ENTERTAINMENT, INC.
FORM OF WARRANT CERTIFICATE
This warrant certificate (the "Warrant Certificate") certifies that
_______________ is the registered holder of a warrant to purchase, exercisable
as set forth below until 5:00 P.M., California time, on April 1, 1999 (the
"First Tranche Expiration Date"), April 1, 2000 (the "Second Tranche Expiration
Date") and April 1, 2001 (the "Third Tranche Expiration Date"), of _________
fully-paid and non-assessable shares, subject to adjustment in accordance with
Section 4 hereof (the "Warrant Shares"), of the common stock (the "Common
Stock"), par value $.01 per share, of Dove Entertainment, Inc., a California
corporation (the "Company"), subject to the terms and conditions set forth
herein. The warrant represented by this Warrant Certificate shall sometimes
hereinafter be referred to as a "Warrant."
1. Exercise of Warrant. The Warrant is exercisable to purchase
one-third (_______ shares) of the Warrant Shares (the "First Tranche") until
the First Tranche Expiration Date at an exercise price of $2.50 per Warrant
Share, one-third (_________ shares) of the Warrant Shares (the "Second
Tranche") until the Second Tranche Expiration Date at an exercise price of
$3.50 per Warrant Share and one-third (________ shares) of the Warrant Shares
(the "Third Tranche") until the Third Tranche Expiration Date at an exercise
price of $4.50 per Warrant Share, subject to adjustment as set forth in Section
4 hereof (as adjusted from time to time, the "Exercise
<PAGE> 2
Price"), payable in cash or by certified or official bank check to the order of
the Company, or any combination of cash or certified or official bank check.
Upon surrender of this Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the aggregate Exercise Price
for the Warrant Shares then purchased, at the Company's principal offices
(presently located at 8955 Beverly Boulevard, West Hollywood, California 90048)
the registered holder of the Warrant Certificate ("Holder") shall be entitled
to receive a certificate or certificates for the Warrant Shares so purchased.
The purchase rights represented by this Warrant Certificate are exercisable at
the option of the Holder hereof, but not as to fractional shares of Common
Stock which shall be forfeited. In the case of the purchase of less than all
the Warrant Shares purchasable under this Warrant Certificate, the Company
shall cancel this Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Warrant Certificate of like tenor for the balance of
the Warrant Shares purchasable hereunder.
2. Issuance of Certificates. Upon exercise or partial exercise
of the Warrant, the issuance of certificates for the Warrant Shares purchased
pursuant to such exercise shall be made forthwith (and in any event within five
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 3
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and, upon exercise of the Warrant, the
certificates representing the Warrant Shares shall be executed on behalf of the
Company by the manual or facsimile signature of those officers required to sign
such certificates under applicable law.
Upon exercise or partial exercise of the Warrant, certificates
representing the Warrant Shares shall bear a legend substantially similar to
the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except (i) pursuant to
an effective registration statement under the Act, (ii) to
the extent applicable, pursuant to Rule 144 under the Act (or
any similar rule under the Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the
Company of an opinion of counsel, reasonably satisfactory to
counsel to the Company, stating that an exemption from
registration under the Act is available."
2
<PAGE> 3
3. Restriction on Transfer of Warrant. The Holder of this
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrant and the Warrant Shares issuable upon exercise of the Warrant are being
acquired as an investment and not with a view to the distribution thereof.
4. Adjustments of Exercise Price and Number of Warrant Shares.
1. Dividends and Distributions.
In case the Company shall at any time after the date
hereof pay a dividend in Common Stock or make a
distribution in Common Stock to all of its holders of
Common Stock, then upon such dividend or
distribution, the Exercise Price in effect for each
Tranche of Warrants not already exercised immediately
prior to such dividend or distribution shall be
reduced to a price determined by dividing an amount
equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or
distribution multiplied by the Exercise Price for
each such Tranche in effect immediately prior to such
dividend or distribution, by the total number of
shares of Common Stock outstanding immediately after
such issuance or sale. For purposes of any
computation to be made in accordance with the
provisions of this Section 4, the shares of Common
Stock issuable by way of such dividend or
distribution shall be deemed to have been issued
immediately after the opening of business on the date
following the date fixed for determination of
shareholders entitled to receive such dividend or
distribution.
2. Subdivision and Combination.
In case the Company shall at any time subdivide or
combine the outstanding Common Stock, the Exercise
Price for each Tranche of Warrants not already
exercised shall forthwith be proportionately
decreased in the case of subdivision or increased in
the case of combination.
3. Reclassification,
Consolidation, Merger, etc. In case of any
reclassification or similar change of the outstanding
Common Stock (other than a change in par value to no
par value, or from no par value to par value, or as a
result of a subdivision or combination), or in the
case of any consolidation of the Company with, or
merger of the Company into, another corporation
(except a consolidation or merger in which the
Company is the surviving corporation and which does
not result in any reclassification or similar change
of the outstanding Common Stock and except a change
as a result of a subdivision or combination of such
shares or a change in nominal value, as aforesaid),
or in the case of a sale or conveyance to another
corporation of the property of the Company as an
entirety, the Holder shall thereafter have the right
to purchase the kind and number of shares of stock
and other securities and property receivable upon
such reclassification, change, consolidation, merger,
sale or conveyance as if the Holder were the owner of
each Tranche of Warrant Shares issuable upon exercise
of each Tranche of Warrant Shares issuable upon
exercise of each Tranche of Warrants not already
exercised immediately prior to any such events at a
price per Tranche equal to the product of (x) the
number of Warrant Shares issuable upon exercise of
the Warrants in each such Tranche
3
<PAGE> 4
and (y) the Exercise Price in effect for such Tranche
immediately prior to the record date for such
reclassification, change, consolidation, merger, sale
or conveyance as if such Holder had exercised each
Tranche of Warrants prior to such record date;
provided, however, if the agreement of merger,
consolidation, sale or conveyance provides that the
Warrants shall terminate as of the closing of such
agreement, each Tranche of Warrants not already
exercised shall terminate at such time and the
Holders shall be entitled to receive the
consideration payable to a holder of the same number
of shares of Common Stock into which each such
Tranche of Warrants held by such Holder would be then
exercisable less the then Exercise Price thereof.
4. Adjustments For Other
Distributions. If, after the date hereof, the
holders of Common Stock shall have received, or (on
or after the record date fixed for the determination
of eligible stockholders) shall have become entitled
to receive in respect of their Common Stock pursuant
to a transaction which was not terminated or
rescinded (i) securities other than capital stock,
(ii) evidences of its indebtedness, (iii) assets
excluding or (iv) rights, options or warrants or
convertible or exchangeable securities containing the
right to subscribe for or purchase securities of the
Company, then, and in each such case the Holder of
the Warrant, upon the exercise or partial exercise
thereof as provided in Section 1 above, shall be
entitled to receive the amount of securities,
evidence of indebtedness, assets and rights, options
or warrants or convertible or exchangeable securities
which such Holder would hold on the date of such
exercise if on the date of this Warrant such Holder
had been the holder of record of the number of shares
of Common Stock called for on the face of the Warrant
held by such Holder and had thereafter, during the
period from the date of this Warrant to and including
the date of such exercise, retained such shares
receivable by such Holder as aforesaid during such
period, giving effect to all adjustments called for
during such period by this Section 5.
5. Adjustment in Number of
Warrant Shares. Upon each adjustment of the Exercise
Price of each Tranche of Warrants pursuant to the
provisions of this Section 4, the number of Warrant
Shares issuable upon the exercise or partial exercise
of each Warrant shall be adjusted to the nearest full
share of Common Stock to the result obtained by
multiplying a number equal to the Exercise Price for
such Tranche in effect immediately prior to such
adjustment by the number of Warrant Shares issuable
upon exercise or partial exercise of the Warrant
immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
6. Minimum Adjustment. No
adjustment in the Exercise Price for any Tranche
shall be required unless such adjustment would
require an increase or decrease of at least five
cents in the Exercise Price then in effect. No
adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of
at least one percent in the number of Warrant Shares
purchasable per Tranche upon the exercise or partial
exercise of the Warrant. Any adjustments that by
reason of this Section 5(f) are not required to be
made shall be carried
4
<PAGE> 5
forward and be taken into account in any subsequent
adjustment. All calculations shall be made to the
nearest one-thousandth of a share, or nearest cent,
as the case may be.
7. Determination of Outstanding
Shares. In connection with any adjustment required
by this Section 4, the number of the shares of Common
Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon
the exercise of outstanding options, rights, warrants
and upon the conversion or exchange of outstanding
convertible or exchangeable securities.
8. Notice of Adjustments.
Whenever the Exercise Price or the kind or amount of
securities purchasable under the Warrant shall be
adjusted pursuant to any of the provisions hereof,
the Company shall forthwith thereafter cause to be
sent to the Holder a certificate setting forth the
adjustments in the Exercise Price and in said number
of shares, and also setting forth in detail the facts
requiring such adjustments. In addition, the Company
shall within ninety days following the end of each of
its fiscal years during the term hereof, and,
promptly upon the reasonable request of the Holder,
cause the Chief Financial Officer of the Company to
compute any such adjustment in accordance with the
terms of the Warrant and prepare and deliver to the
Holder a certificate setting forth such adjustment
and showing in detail the facts upon which the
adjustment is based.
9. Notice of Certain Events.
In the event of (i) any taking by the Company of a
record of the holders of any class of securities for
the purpose of determining the holders thereof who
are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive
any other right, or (ii) any capital reorganization
of the Company, or any reclassification or
recapitalization of the capital stock of the Company,
or (iii) any transfer of all or substantially all of
the assets of the Company to, or consolidation with
or merger of the Company into, any other person, or
(iv) any voluntary or involuntary dissolution,
winding-up or liquidation of the Company, then and in
each such event the Company will mail or cause to be
mailed to the Holder a notice specifying the date
upon which any such record is to be taken for the
purpose of such dividend, distribution or right,
stating the amount and character of such dividend,
distribution or right, and the date on which any such
reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the
time, if any, as of which the holders of record of
Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other
property deliverable upon such reorganization,
reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten
business days prior to the proposed record date
therein specified. Failure to give such notice or
any defect therein shall not effect the validity of
any such action or event.
5
<PAGE> 6
5. Exchange and Replacement of Warrant Certificates. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant Certificate, and, in case of
loss, theft or destruction, of indemnity or security satisfactory to it, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor, in lieu thereof.
6. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock and shall not be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction down to the nearest
whole number of shares of Common Stock.
7. Reservation of Shares. The Company covenants and agrees that
it will at all times reserve and keep available out of its authorized share
capital, solely for the purpose of issuance upon the exercise of the Warrant,
such number of shares of Common Stock as shall be equal to the number of
Warrant Shares issuable upon the full exercise of the Warrant, for issuance
upon such exercise, and that, upon exercise or partial exercise of the Warrant
and payment of the applicable Exercise Price therefor, all Warrant Shares
issuable upon such exercise shall be duly and validly issued, fully paid and
nonassessable.
8. Notices. All notices, requests, consents and other
communications shall be effective (a) upon receipt if (i) hand delivered or
(ii) sent by facsimile transmission and confirmed by mail, (b) the third day
after mailing, postage prepaid return receipt requested and (c) one day after
sending by recognized "over-night" delivery service. Any such notice,
requests, consents or other communications not contemplated above shall be
effective upon receipt. For the purposes of this Section 9, the addresses of
the parties to which notices shall be sent shall be as follows:
(1) If to the original Holder, to _______________________; or
(2) If to a subsequent Holder, to the address set forth in the
Form of Assignment transferring the Warrants to such
transferee; or
(3) If to the Company, to the address of its principal office set
forth in Section 1 of this Agreement, attention: Chief
Financial Officer.
Each Holder and the Company may change the address to which such notices,
requests, consents or other communications are to be directed by notice to the
other parties as provided in this Section 9.
9. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company and the Holder inure to the
benefit of their respective successors and permitted assigns hereunder.
6
<PAGE> 7
10. Governing Law.
1. Choice of Law. This Warrant
shall be governed by the internal laws of the State
of California without giving effect to the conflict
of law provisions thereof.
2. Jurisdiction and Service of
Process. The Company and the Holder each (a) agrees
that any suit, action or proceeding arising out of or
relating to this Warrant, or any other agreement
entered into between the Company and the Holder in
connection herewith, shall be instituted exclusively
in California State Superior Court, County of Los
Angeles, or in the United States District Court for
the Central District of California, (b) waives any
objection which the Company or such Holder may have
now or hereafter to the venue of any such suit,
action or proceeding, and (c) irrevocably consents to
the jurisdiction of the California State Superior
Court, County of Los Angeles and the United States
District Court for the Central District of California
in any such suit, action or proceeding. The Company
and the Holder each further agrees to accept and
acknowledge service of any and all process which may
be served in any such suit, action or proceeding in
the California State Superior Court, County of Los
Angeles or in the United States District Court for
the Central District of California and agrees that
service of process upon the Company or the Holder
mailed by certified mail to their respective
addresses for notice shall be deemed in every respect
effective service of process upon the Company or the
Holder, as the case may be, in any such suit, action
or proceeding.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, as of the day and year set forth below.
DOVE ENTERTAINMENT, INC.
By: _______________________________
Name:
Title:
Date: as of April 1, 1997
Attest:
________________________________
Name:
Title:
7
<PAGE> 8
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ________ Warrant
Shares and herewith tenders in payment for such Warrant Shares cash or a
certified or official bank check payable to the order of Dove Entertainment,
Inc. in the amount of $_________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such Warrant Shares be registered
in the name of ______________________, whose address is_______________________
___________________________________, and that such certificate be delivered
to __________________, whose address is_______________________________________
__________________________.
Dated: Signature:
---------------------------
---------------------------
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
---------------------------
---------------------------
(Insert Social Security or
Other Identifying Number of
Holder)
8
<PAGE> 9
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________ hereby sells,
assigns and transfers unto
---------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Please print name and address of transferee) this Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________, Attorney, to transfer the within
Warrant Certificate on the books of the within-named Company, with full power
of substitution.
Dated: Signature:
---------------------------------------------
---------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant Certificate.)
--------------------------------------------
--------------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
9
<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
AGREEMENT dated as of January 1, 1995 between DOVE AUDIO, INC., a
California corporation (the "Company"), and MICHAEL VINER (the "Employee").
The Company desires to employ the Employee as the Vice President of the
Company and the Employee is willing to accept such employment, in each case, for
the purposes and on the terms and conditions described in the Agreement.
Accordingly, the Company and the Employee hereby agree as follows:
I. TERM OF EMPLOYMENT
The term of the Employee's employment under this Agreement shall be for
a period of seven years, commencing as of January 1, 1995, unless earlier
terminated as provided in Article IV hereof (the "Employment Period").
II. EMPLOYMENT; BOARD MEMBERSHIP; DUTIES AND ACCEPTANCE
SECTION 2.01. Employment. The Company hereby employs the Employee on a
non-exclusive basis to devote such time, energy, attention and skills as may be
necessary to faithfully and diligently carry out the affairs of the Company and
the promotion of its interests. The Employee shall be the President and Chief
Executive Officer of the Company, and shall be responsible for day-to-day
operational management of the business and affairs of the Company, subject
always to the direction of the Company's Board of Directors, and such other
duties and services normally associated with chief executive officer and chief
operating officer as may be reasonably assigned to him from time to time by the
Board of Directors of the Company. The Employee shall report to the Board of
Directors of the Company. It is especially understood that this contract does
include the Employee services as writer or producer, etc. It is agreed that
the Employee will be paid in line with prevailing industry standards.
SECTION 2.02. Board Membership. The Company shall use its best efforts
to cause the election of the employee to the Board of Directors of the Company,
and to be a member of the Executive Committee of such Board, if there shall be
such a committee, for so long as the Employee is employed by the Company
hereunder.
SECTION 2.03. Acceptance of Employment by Employee. The Employee
accepts such employment and shall render the services required by this Agreement
to be rendered by him.
<PAGE> 2
III. EMPLOYEE'S COMPENSATION
SECTION 3.01. Base Compensation.
(a) Annual Salary. As compensation for all services to be rendered
by him pursuant to this Agreement, the Company shall pay the Employee and the
Employee shall accept, an annual salary in the sum of $230,000 (the "Annual
Salary"), payable in 24 level payments on the fifteenth and last day of each
month.
(b) Annual Review. Commencing with the first anniversary of the
Employee's employment, if any, of the term of this Agreement and annually
thereafter during the term of this Agreement, the Annual Salary shall be
reviewed by the Board of Directors of the Company and may be adjusted for the
then upcoming year but in no event shall the annual salary be less than
$230,000, if the Board of Directors of the Company, in its sole discretion,
determines that such adjustment is warranted.
SECTION 3.02. Bonus. In addition to the Annual Salary, the Employee
shall be entitled to an annual bonus (the "Bonus") in accordance with the terms
and provisions of the executive bonus program to be mutually agreed upon by the
Employee and the Company.
SECTION 3.03. Health Insurance. The Company shall furnish the Employee,
without cost to the Employee, full medical and dental insurance and, shall
reimburse the Employee's medical and dental expenses up to $25,000 per year for
any expenses not covered by the insurance.
SECTION 3.04. Life Insurance. The Company shall furnish the Employee
without cost to the Employee, a life insurance policy in the amount of one
million dollars. The beneficiaries of such policy shall be the Company and
Deborah Raffin Viner, with any proceeds of such policy shared equally among the
beneficiaries.
SECTION 3.05. Automobile. The Company shall arrange for and pay all
costs (other than a $25 monthly payment for personal use for each such
automobile) of owning or leasing and operating an automobile or automobiles for
use by the employee of the make and model authorized by the Company's policies.
SECTION 3.06. Participation in Other Employee Benefit Plans. The
Company shall make available to the Employee the Company benefit program
currently in effect or as may be established from time to time by the Company's
Board of Directors for senior executives, including without limitation, any
incentive compensation plans, pension or profit sharing plans, group benefit
plans, bonus plans or other benefit plans.
SECTION 3.07. Vacation and Sick Leave Provisions. The Employee shall
receive such number of working days' vacation each year, exclusive of legal
holidays, as mutually agreed upon by the Employee and the Company. The Employee
currently receives 4 weeks
2
<PAGE> 3
annually which can be accumulated if not used. In addition, the Employee shall
be entitled to sick leave benefits during the term of this Agreement in
accordance with the customary policies applied to senior executives of the
Company.
SECTION 3.08. Reimbursement of Expenses. The Employee is authorized to
incur reasonable expenses in connection with the business of the Company,
including expenses for entertainment, travel and similar items. The Company
shall reimburse the Employee for all such expenses upon the presentation by the
Employee, from time to time, of an itemized account of and proper receipts for
such expenditures. In addition the Employee will also receive a $50,000 annual
non-accountable expense allowance to use as deemed appropriate in his sole
judgment.
SECTION 3.09. Other Compensation. The Employee shall receive such other
compensation as may from time to time be granted to the employee by the
Company's Board of Directors.
SECTION 3.10. Withholding. All payments due to the Employee under any
provisions of this Agreement shall be reduced by any amounts required to be
withheld by the Company from time to time from such payments under applicable
federal, state or local law regulations then in effect.
IV. TERMINATION
SECTION 4.01. Termination by Employee Upon Notice. The Employee may
terminate this Agreement, with or without cause, effective upon delivery of
30 days' written notice of termination to the Company.
SECTION 4.02. Termination by Company for Cause. The Company may, at any
time, terminate this Agreement, in case of happening of any of the following
events:
(a) effective upon delivery of 30 days' written notice of
termination to the Employee, upon the occurrence of the breach by the Employee
of any of his obligations hereunder, if such breach continues for 30 days
after receipt by the Employee of notice defining such breach in reasonable
detail, unless such breach cannot with due diligence be cured within such 30-day
period, in which case such failure shall not be deemed to continue if the
Employee proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof; or
(b) upon the date specified by notice from the Company to the
Employee of the termination of the Employee's employment for cause. For purposes
of this subsection, "cause" shall include, action by the Employee involving
conviction for violation of any criminal statute constituting a felony, gross
misconduct, theft or embezzlement, or repeated failure to render services as
contemplated by the terms of this Agreement after at least 30
3
<PAGE> 4
days' notice of same during which the Employee shall not have effected or begun
diligently to effect a cure.
Upon termination pursuant to the provisions of this Section, the Employee would
be entitled to receive only such compensation accrued and unpaid as of the
termination date.
SECTION 4.03. Termination for Death and Disability.
(a) Death. This Agreement shall be terminated effective
immediately and automatically upon the death of the Employee. Upon death, the
Employee would be entitled to receive all accrued an unpaid compensation and
benefits.
(b) Permanent Disability. This Agreement shall be terminated
effective immediately and automatically upon the permanent disability of the
Employee. For purposes of this subsection, "permanent disability" shall be
deemed to have occurred if the Employee is unable by reason of illness or
physical or mental disability to perform the services required under this
Agreement for a period aggregating 6 months within any period of 12
consecutive months during the Employment Period. Upon termination pursuant to
the provisions of this subsection, the Employee would be entitled to receive all
accrued and unpaid compensation and benefits, less the amount, if any, the
Employee is entitled to receive under the terms of the Company's long-term
disability insurance policy as and if in effect at the time of termination. Any
payments made pursuant to this Section shall be reduced by such amounts as are
required by law to be withheld or deducted.
SECTION 4.04. Effect of Termination. Survival of Obligations.
Termination of this Agreement shall not release or discharge either party hereto
from any obligation, debt or liability which may previously have occurred and
remains to be performed upon the date of termination.
V. MISCELLANEOUS
SECTION 5.01. Notices. All notices, requests, demands and other
communications shall be in writing and shall be deemed to have been duly given
when delivered personally or three days following deposit in the United States
mail, first class, postage prepaid, duly addressed:
If to the Employee, addressed: Michael Viner
2630 Eden Place
Beverly Hills, California 90210
4
<PAGE> 5
If to the Company, addressed: Dove Audio, Inc.
301 North Canon Drive, Suite 203
Beverly Hills, California 90210
Attention of Board of Directors
SECTION 5.02. Assignment. This Agreement shall not be assigned, pledged
or transferred in any way by either party hereto. Any attempted assignment,
pledge, transfer or other disposition of this Agreement or of any rights,
interests or benefits contrary to the foregoing provisions shall be null and
void.
SECTION 5.03. Conflicting Agreements. The Employee hereby represents
and warrants to the Company that her entering into this Agreement, and the
obligations and duties undertaken by him hereunder, will not conflict with,
constitute a breach of or otherwise violate the terms of any employment or other
agreement to which he is a party and that he is not required to obtain the
consent of any person, firm, corporation or other entity in order to enter into
this Agreement.
SECTION 5.04. Indemnification. The Company shall indemnify the Employee
and hold the Employee harmless from any claims, actions, charges, expense,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding to which the Employee was or is a party or is
threatened to be made a party arising by reason of the fact that the Employee is
or was an employee of the Company. For purposes of this Section, "proceeding"
means any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative, and includes an action or proceeding
by or in the right of the Company to procure a judgment in its favor, and
"expenses" includes, without limitation, attorneys' fees and any expense of
establishing a right to indemnification under this Agreement or under the laws
of the State of California.
SECTION 5.05. No Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall any party hereto be estopped from
enforcing any provision of this Agreement, except by written instrument of the
party charged with such waiver or estoppel. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
the specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than the specifically
waived.
SECTION 5.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 5.07. Entire Agreement. This Agreement contains the entire
agreement of the parties hereto in regard to the subject matter hereof, and may
not be changed orally but only by a written document signed by the party against
whom enforcement of waiver, change, modification, extension or discharge is
sought.
5
<PAGE> 6
SECTION 5.08. Headlines. Headlines contained herein are for convenient
references only; they are not a part of this Agreement and are not to affect in
any way the substance or interpretation of the Agreement.
SECTION 5.09. Survival of Provisions. In case any one or more of the
provisions of any portion of any provision contained in this Agreement should be
found to be invalid, illegal or unenforceable in any respect, such provision or
portion thereof shall be modified or deleted in such manner so as to afford the
Company the fullest protection commensurate with making the Agreement, as
modified, legal and enforceable under applicable laws, and the validity,
legality and enforceability of any such provision shall not in any way be
affected or impaired thereby, such remaining provisions or portion of any such
provision construed as severable and independent thereof.
SECTION 5.10. Arbitration; Attorneys' Fees. Any dispute or conflict
which arises between the parties hereto shall be submitted to the American
Arbitration Association in accordance with its then current Commercial Rules in
Los Angeles County, California, for arbitration and the parties shall be bound
by the results of such arbitration in accordance with the California Code of
Civil Procedure Section 1283.05. If either party brings an action for judicial
review or enforcement of the arbitration proceedings, award or decision, the
prevailing party to any such action, trial or appeal shall be entitled to its
reasonable attorneys' fees to be paid by the nonprevailing party as fixed by the
court.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, in the case of Company, by its duly authorized officer, all as of the
date first above written.
DOVE AUDIO, INC.
By: /s/ DEBORAH RAFFIN /s/ MICHAEL VINER
------------------------------------ ----------------------
Deborah Raffin, Vice President Michael Viner
6
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
AGREEMENT dated as of January 1, 1995, between DOVE AUDIO, INC., a
California corporation (the "Company"), and DEBORAH RAFFIN (the "Employee").
The Company desires to employ the Employee as the Vice President of the
Company and the Employee is willing to accept such employment, in each case, for
the purposes and on the terms and conditions described in the Agreement.
Accordingly, the Company and the Employee hereby agree as follows:
I. TERM OF EMPLOYMENT
The term of the Employee's employment under this Agreement shall be for
a period of 7 years, commencing as of January 1, 1995, unless earlier
terminated as provided in Article IV hereof (the "Employment Period").
II. EMPLOYMENT; BOARD MEMBERSHIP; DUTIES AND ACCEPTANCE
SECTION 2.01. Employment. The Company hereby employs the Employee on a
non-exclusive basis to devote such time, energy, attention and skills as may be
necessary to faithfully and diligently carry out the affairs of the Company and
the promotion of its interests. The Employee shall be the Vice President of the
Company, and shall be responsible for such duties and series as may reasonably
assigned to her from time to time by the President and/or Board of Directors of
the Company, subject always to the direction of the Company's Board of
Directors. The Employee shall report to the President of the Company. It is
especially understood that this contract does not include the Employee services
as actor, producer or director. It is agreed that the Employee will be paid
comparable industry standards for such services if the Employee renders them for
the Company.
SECTION 2.02. Board Membership. The Company shall use its best efforts
to cause the election of the employee to the Board of Directors of the Company,
and to be a member of the Executive Committee of such Board, if there shall be
such a committee, for so long as the Employee is employed by the Company
hereunder.
SECTION 2.03. Acceptance of Employment by Employee. The Employee
accepts such employment and shall render the services required by this Agreement
to be rendered by her.
<PAGE> 2
III. EMPLOYEE'S COMPENSATION
SECTION 3.01. Base Compensation.
(a) Annual Salary. As compensation for all services to be rendered
by her pursuant to this Agreement, the Company shall pay the Employee and the
Employee shall accept, an annual salary in the sum of $115,000 (the "Annual
Salary"), payable in 24 level payments on the fifteenth and last day of each
month.
(b) Annual Review. Commencing with the first anniversary of the
Employee's employment, if any, of the term of this Agreement and annually
thereafter during the term of this Agreement, the Annual Salary shall be
reviewed by the Board of Directors of the Company and may be adjusted for the
then upcoming year but in no event shall the annual salary be less than
$115,000, if the Board of Directors of the Company, in its sole discretion,
determines that such adjustment is warranted.
SECTION 3.02. Bonus. In addition to the Annual Salary, the Employee
shall be entitled to an annual bonus (the "Bonus") in accordance with the terms
and provisions of the executive bonus program to be mutually agreed upon by the
Employee and the Company.
SECTION 3.03. Health Insurance. The Company shall furnish the Employee,
without cost to the Employee, full medical and dental insurance and, shall
reimburse the Employee's medical and dental expenses up to $25,000 per year for
any expenses not covered by the insurance.
SECTION 3.04. Automobile. The Company shall arrange for and pay all
costs (other than a $25 monthly payment for personal use for each such
automobile) of owning or leasing and operating an automobile or automobiles for
use by the Employee of the make and model authorized by the Company's policies.
SECTION 3.05. Participation in Other Employee Benefit Plans. The
Company shall make available to the Employee the Company benefit program
currently in effect or as may be established from time to time by the Company's
Board of Directors for senior executives, including without limitation, any
incentive compensation plans, pension or profit sharing plans, group benefit
plans, bonus plans or other benefit plans.
SECTION 3.06. Vacation and Sick Leave Provisions. The Employee shall
receive such number of working days' vacation each year, exclusive of legal
holidays, as mutually agreed upon by the Employee and the Company. The Employee
currently receives 4 weeks annually which can be accumulated if not used. In
addition, the Employee shall be entitled to sick leave benefits during the term
of this Agreement in accordance with the customary policies applied to senior
executives of the Company.
2
<PAGE> 3
SECTION 3.07. Reimbursement of Expenses. The Employee is authorized to
incur reasonable expenses in connection with the business of the Company,
including expenses for entertainment, travel and similar items. The Company
shall reimburse the Employee for all such expenses upon the presentation by the
Employee, from time to time, of an itemized account of and proper receipts for
such expenditures. In addition the Employee will also receive a $25,000 annual
non-accountable expense account to be used at the Employees' discretion.
SECTION 3.08. Withholding. All payments due to the Employee under any
provisions of this Agreement shall be reduced by any amounts required to be
withheld by the Company from time to time from such payments under applicable
federal, state or local law regulations then in effect.
IV. TERMINATION
SECTION 4.01. Termination by Employee Upon Notice. The Employee may
terminate this Agreement, with or without cause, effective upon delivery of
30 days' written notice of termination to the Company.
SECTION 4.02. Termination by Company for Cause. The Company may, at any
time, terminate this Agreement, in case of happening of any of the following
events:
(a) effective upon delivery of 30 days' written notice of
termination to the Employee, upon the occurrence of the breach by the Employee
of any of her obligations hereunder, if such breach continues for 30 days
after receipt by the Employee of notice defining such breach in reasonable
detail, unless such breach cannot with due diligence be cured within such 30-day
period, in which case such failure shall not be deemed to continue if the
Employee proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof; or
(b) upon the date specified by notice from the Company to the
Employee of the termination of the Employee's employment for cause. For purposes
of this subsection, "cause" shall include, action by the Employee involving
conviction for violation of any criminal statute constituting a felony, gross
misconduct, theft or embezzlement, or repeated failure to render services as
contemplated by the terms of this Agreement after at least 30 days' notice
of same during which the Employee shall not have effected or begun diligently to
effect a cure.
Upon termination pursuant to the provisions of this Section, the Employee would
be entitled to receive only such compensation accrued and unpaid as of the
termination date.
3
<PAGE> 4
SECTION 4.03. Termination for Death and Disability.
(a) Death. This Agreement shall be terminated effective
immediately and automatically upon the death of the Employee. Upon death, the
Employee would be entitled to receive all accrued and unpaid compensation and
benefits.
(b) Permanent Disability. This Agreement shall be terminated
effective immediately and automatically upon the permanent disability of the
Employee. For purposes of this subsection, "permanent disability" shall be
deemed to have occurred if the Employee is unable by reason of illness or
physical or mental disability to perform the services required under this
Agreement for a period aggregating 6 months within any period of 12
consecutive months during the Employment Period. Upon termination pursuant to
the provisions of this subsection, the Employee would be entitled to receive all
accrued and unpaid compensation and benefits, less the amount, if any, the
Employee is entitled to receive under the terms of the Company's long-term
disability insurance policy as and if in effect at the time of termination. Any
payments made pursuant to this Section shall be reduced by such amounts as are
required by law to be withheld or deducted.
SECTION 4.04. Effect of Termination. Survival of Obligations.
Termination of this Agreement shall not release or discharge either party hereto
from any obligation, debt or liability which may previously have occurred and
remains to be performed upon the date of termination.
V. MISCELLANEOUS
SECTION 5.01. Notices. All notices, requests, demands and other
communications shall be in writing and shall be deemed to have been duly given
when delivered personally or three days following deposit in the United States
mail, first class, postage prepaid, duly addressed:
If to the Employee, addressed: Deborah Raffin
2630 Eden Place
Beverly Hills, California 90210
If to the Company, addressed: Dove Audio, Inc.
301 North Canon Drive, Suite 203
Beverly Hills, California 90210
Attention of Board of Directors
SECTION 5.02. Assignment. This Agreement shall not be assigned, pledged
or transferred in any way by either party hereto. Any attempted assignment,
pledge, transfer or other disposition of this Agreement or of any rights,
interests or benefits contrary to the foregoing provisions shall be null and
void.
4
<PAGE> 5
SECTION 5.03. Conflicting Agreements. The Employee hereby represents
and warrants to the Company that her entering into this Agreement, and the
obligations and duties undertaken by her hereunder, will not conflict with,
constitute a breach of or otherwise violate the terms of any employment or other
agreement to which she is a party and that she is not required to obtain the
consent of any person, firm, corporation or other entity in order to enter into
this Agreement.
SECTION 5.04. Indemnification. The Company shall indemnify the Employee
and hold the Employee harmless from any claims, actions, charges, expense,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding to which the Employee was or is a party or is
threatened to be made a party arising by reason of the fact that the Employee is
or was an employee of the Company.
SECTION 5.05. No Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall any party hereto be estopped from
enforcing any provision of this Agreement, except by written instrument of the
party charged with such waiver or estoppel. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
the specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than the specifically
waived.
SECTION 5.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 5.07. Entire Agreement. This Agreement contains the entire
agreement of the parties hereto in regard to the subject matter hereof, and may
not be changed orally but only by a written document signed by the party against
whom enforcement of waiver, change, modification, extension or discharge is
sought.
SECTION 5.08. Headlines. Headlines contained herein are for convenient
reference only; they are not a part of this Agreement and are not to affect in
any way the substance or interpretation of the Agreement.
SECTION 5.09. Survival of Provisions. In case any one or more of the
provisions of any portion of any provision contained in this Agreement should be
found to be invalid, illegal or unenforceable in any respect, such provision or
portion thereof shall be modified or deleted in such manner so as to afford the
Company the fullest protection commensurate with making the Agreement, as
modified, legal and enforceable under applicable laws, and the validity,
legality and enforceability of any such provision shall not in any way be
affected or impaired thereby, such remaining provisions or portion of any such
provision construed as severable and independent thereof.
SECTION 5.10. Arbitration; Attorneys' Fees. Any dispute or conflict
which arises between the parties hereto shall be submitted to the American
Arbitration Association in
5
<PAGE> 6
accordance with its then current Commercial Rules in Los Angeles County,
California, for arbitration and the parties shall be bound by the results of
such arbitration in accordance with the California Code of Civil Procedure
Section 1283.05. If either party brings an action for judicial review or
enforcement of the arbitration proceedings, award or decision, the prevailing
party to any such action, trial or appeal shall be entitled to its reasonable
attorneys' fees to be paid by the nonprevailing party as fixed by the court.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, in the case of Company, by its duly authorized officer, all as of the
date first above written.
DOVE AUDIO, INC.
By: /s/ MICHAEL VINER /s/ DEBORAH RAFFIN
------------------------------- ---------------------------
Michael Viner, President Deborah Raffin
6
<PAGE> 1
EXHIBIT 10.32
[THE JERRY LEIDER COMPANY LETTERHEAD]
May 16, 1996
Michael Viner
President
Dove Audio
8955 Beverly Blvd.
Los Angeles, CA 90048
Re: Consultancy Arrangement
Dear Michael:
As agreed in our discussion last week, commencing June 1, 1996 I will be engaged
by Dove Audio as a non-exclusive management consultant focusing on long-term
financial and corporate strategies, as well as assisting in the supervision of
the television and film production and distribution activities of the company.
My compensation will be $125,000 yearly, payable monthly.
In addition, I will receive new stock options of 50,000 shares of Dove Audio
stock on the same terms and conditions that will be offered to you and Deborah
at the next Board meeting.
This consultancy arrangement will continue until terminated by mutual agreement.
No modification or changes in the terms and conditions of this agreement can be
made without our mutual agreement.
If the above accurately reflects our agreement, please sign where indicated and
return a fully executed copy to me for my files.
I look forward to a long, fruitful and continuing relationship with you and the
company.
<PAGE> 2
Warmest personal regards,
/s/ JERRY LEIDER
- ------------------------
Jerry Leider
AGREED TO AND ACCEPTED
/s/ MICHAEL VINER May 11, 1996
- -------------------------------- ------------------
Michael Viner Date
President - Dove Audio
cc: Alan Tivoli
2
<PAGE> 1
EXHIBIT 10.33
SEPARATION AGREEMENT
This Separation Agreement (the "Agreement"), dated as of May 31, 1996,
by and between Dimitri T. Skouras (the "Executive") on the one hand, and Dove
Audio, Inc. ("Dove") and Dove International, Inc. (a/k/a Dove Pictures, Inc.)
("DI") on the other hand, (collectively the "Company");
WHEREAS, the Executive and DI are parties to an employment agreement and
the Executive and Dove are parties to a stock option agreement, each dated as of
July 1, 1995 (the "Employment Agreement" and the Option Agreement",
respectively); and
WHEREAS, on the terms and conditions hereof, the Executive and the
Company wish to terminate the Employment Agreement subject to certain exceptions
hereinbelow expressly set forth and to terminate all unexercised stock options
(whether vested or unvested) granted under the Stock Option Agreement as
hereinbelow provided except as set forth below;
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained, and wishing to be legally bound hereby, the Executive and the
Company hereby agree as follows:
1. Termination of Employment; Termination of Employment Agreement;
Exceptions
a. The Executive and the Company agree that as of the close of
business on May 31, 1996 (the "Separation Date") the employment of the Executive
by the Company will end and except as expressly provided herein, all
responsibilities of the Executive to the Company and of Company to the Executive
under the Employment Agreement shall be terminated. Likewise, to the extent
Executive served or had the right to serve as a director, officer or employee of
the Company or any of the Company's subsidiaries or divisions (including but not
limited to Dove Pictures, Inc. (f/k/a Dove International, Inc.) as of or prior
to the Separation Date all such positions and rights shall end and are waived
and except as expressly provided herein, all responsibilities of the Executive
to the Company and of the Company to the Executive as a result thereof will
terminate.
b. The Executive and the Company agree that as of the Separation
Date, the Employment Agreement will be terminated and that, except as expressly
provided herein, the Executive and the Company (including its subsidiaries and
divisions) shall have no liability or obligations to each other arising under,
or which could have arisen under, the Employment Agreement or the Option
Agreement.
c. The provisions of Section 6 ("Covenant Not to Interfere") of
the Employment Agreement shall remain in full force and effect, and for purposes
of the application of such provisions the Term shall be deemed to end on the
Separation Date. The provisions of Section 7 ("Confidential Information") of the
Employment Agreement shall remain in full force and effect, and for purposes of
the application of
<PAGE> 2
the third sentence of such provisions the Term and Initial Term shall be deemed
to end on the Separation Date. Executive agrees in order to implement the
provisions of Section 7, but without expanding the scope thereof, not to remove
any documents or writings from Company's office without Company's written
consent, which will not be unreasonably withheld.
d. It is expressly understood and agreed that all work performed
by Executive for Company, as well as all rights acquired by Executive and all
contracts entered into by Executive including all proceeds therefrom, for or on
behalf of Company are the sole and exclusive property of Company only, and
Executive agrees that he has no rights or interest thereto or therein.
2. Payment Obligations of the Company
a. Concurrent with the full execution of this Agreement, the
Company shall pay to the Executive an amount equal to all amounts due under
Section 5(e)(I) of the Employment Agreement, less an amount representing
applicable withholding for income taxes, FICA and Medicare.
b. Upon full execution of this Agreement and within 3 days of the
submission of a written expense report, the Company shall pay to the Executive
an amount equal to reimbursement of actual and approved expenses advanced by the
Executive and not theretofore reimbursed, currently estimated not to exceed
$2,000.
3. Termination of Stock Options
The Company and the Executive agree that all unexercised options
(whether vested or unvested) granted to Executive under the Stock Option
Agreement to acquire common stock of the Company shall lapse and be terminated
as of the Separation Date, except that Executive's options to purchase 37,500
shares of Dove Common Stock which vested on July 1, 1995 shall not terminate but
shall be exercisable pursuant to the terms of the Corporation's 1994 Stock
Incentive Plan, or may be sold through the contemplated offering of Dove. If
Executive elects to sell such shares through the contemplated offering, and such
contemplated offering is not consummated, then Executive shall have three months
from the cancellation of such offering within which to exercise such options,
but if they are not exercised within such period, then they shall automatically
and forever terminate. If Executive elects not to sell through the contemplated
offering, Executive shall offer to Company the exclusive right to purchase such
shares at the non-weighted average market price on the day of offer, on a net
exercise basis. Company shall have four (4) business days from receipt of
Executive's written offer to sell such shares to Company within which to elect
to purchase and pay for Executive's shares. If Company does not notify Executive
in writing of its election to purchase such shares within such four day period,
than Executive may sell such shares as he sees fit.
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<PAGE> 3
4. Releases
As of the date hereof, the Company is executing and delivering to the
Executive a release in the form of Exhibit 1 hereto and the Executive is
executing and delivering to the Company and to Michael Viner releases in the
form of Exhibits 2 and 3 hereto and Michael Viner is executing and delivering to
the Executive a release in the form of Exhibit 4 hereto (the "Releases").
5. Cooperation
a. At all times hereafter, the Executive shall provide reasonable
cooperation to the Company's counsel in connection with any litigation or other
legal proceedings involving Company.
6. General
a. This Agreement and the Releases constitute the entire agreement
with respect to the subject matter hereof, and supersede all other prior
agreements and undertakings, both written and oral, between the parties hereto
with respect to the subject matter hereof and thereof. This is an integrated
Agreement, which cannot be altered or amended except by a written agreement
executed by all of the parties hereto. The captions in this Agreement are for
convenience of reference only and shall not affect the interpretation of the
provisions hereof. If any provision hereof shall be found by the court of
competent jurisdiction to be unenforceable, the balance of the provisions hereof
shall remain in effect and shall be applied in such a manner as to give effect
as nearly as possible to the intentions of the parties as manifested hereby.
b. Each of the parties hereto warrants, represents and agrees
that in executing this Agreement and the related documents:
(1) It or he has received independent legal advice from
its or his attorneys with respect to each aspect of
this Agreement and the Releases;
(2) It or he is not relying upon any representation of
statement made by or on behalf of any of the
entities and persons released by such party with
respect to any aspect of this Agreement and the
Releases;
(3) It or he assumes the risk of any mistake of fact
with regard to any aspect of this Agreement and the
Releases; and
(4) It or he carefully has read and considered this
Agreement and the Releases in their entirety and
fully understands their contents and the
significance of each of their aspects.
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<PAGE> 4
c. Each of the parties hereto understands, acknowledges and
agrees that nothing contained in this Agreement and/or the related Releases, or
any performance thereunder shall be construed as an admission or acknowledgment
of any wrongful conduct or fault by any party.
d. This Agreement is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder and shall not be
assigned by any party by operation of law or otherwise, except that it shall be
binding upon and inure to the benefit of Executive and his heirs as well as
Company, Company's subsidiaries, corporate affiliates, divisions, employees and
any successor to the business of the Company, whether by sale, merger, sale of
stock, sale of assets or otherwise.
e. The individuals signing this Agreement represent, warrant and
agree that they have the full right, power and authority to enter into this
Agreement on behalf of the entities for whom they are executing it. The parties
hereto further represent, warrant and agree that they have not assigned or
encumbered any of the claims released by them hereunder or in the Releases, that
their respective claims belong to no others than themselves, and that they will
hold harmless and defend all parties from and against all costs, losses or
damages, including reasonable attorney's fees, arising out a breach of the
warranties and representations set forth herein.
f. This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of California
(without regard to principles of conflicts of law). In interpreting and
construing this Agreement, it shall be deemed that it was drafted jointly by
counsel for Executive and Company.
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<PAGE> 5
g. This Agreement may be executed in counterparts each of which
shall constitute an original but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
DOVE AUDIO, INC.
Steven Soloway
-----------------------------
Name:
Title:
DOVE INTERNATIONAL, INC.
/s/ Steven Soloway
-----------------------------
Name:
Title:
/s/ Dimitri T. Skouras
-----------------------------
Dimitri T. Skouras
5
<PAGE> 6
EXHIBIT 1
R E L E A S E
DOVE AUDIO, INC. and DOVE INTERNATIONAL, INC., corporations organized under the
laws of the State of California, for themselves and their subsidiaries
(RELEASOR), in consideration of the mutual promises set forth in the Separation
Agreement of even date herewith between RELEASOR and Dimitri T. Skouras, the
sufficiency of which is hereby acknowledged, releases and discharges Dimitri T.
Skouras (RELEASEE), RELEASEE'S heirs, executors, administrators, successors and
assigns, from all actions, causes of actions, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialities, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
extent, executions, claims, and demands whatsoever, in law, admiralty or equity,
which against the RELEASEE, the RELEASOR, RELEASOR'S successors and assigns ever
had, now have or hereafter can, shall or may have, for, upon, or by reason of
any matter, cause or thing whatsoever from the beginning of the world to the day
of the date of this Release, including without limitation, all claims concerning
RELEASEE'S employment with RELEASOR, the Employment Agreement and/or the Option
Agreement (as those terms are defined in the Separation Agreement), provided,
however, that nothing herein shall be deemed to constitute a release of the
RELEASEE with respect to the obligations of the RELEASEE under the Separation
Agreement of even date herewith between RELEASOR and RELEASEE or with respect to
any matter that is not known to the RELEASOR as of the date hereof (and for such
purposes, a matter shall only be deemed known to RELEASOR if it is known to any
of the individuals set forth in Exhibit A hereto) or which is based on an
intentional or knowing misrepresentation or fraud of RELEASSEE.
This Release shall be governed by and interpreted and enforced in
accordance with the laws of the State of California, without regard to
principles of conflicts of law.
The words "RELEASOR" and "RELEASEE" include all releasors and all
releasees under this Release.
This Release may not be changed orally.
By [SIG]
--------------------------------
EXHIBIT 2
6
<PAGE> 7
R E L E A S E
Dimitri T. Skouras, for himself and his heirs and assigns (RELEASOR), in
consideration of the mutual promises set forth in the Separation Agreement of
even date herewith between RELEASOR and DOVE AUDIO, INC., the sufficiency of
which is hereby acknowledged, releases and discharges, DOVE AUDIO, INC., its
subsidiaries, directors, officers and employees, (collectively, "RELEASEES") and
RELEASEE'S successors and assigns from all actions, causes of actions, suits,
debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages, judgments, extent, executions, claims, and demands
whatsoever, in law, admiralty or equity, which against the RELEASEE, the
RELEASOR, RELEASOR'S successors and assigns ever had, now have or hereafter can,
shall or may have, for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the day of the date of this
Release, including without limitation, all claims concerning RELEASOR's
employment with RELEASEE, the Employment Agreement and/or the Option Agreement
(as those terms are defined in the Separation Agreement), provided, however,
that nothing herein shall be deemed to constitute a release of the RELEASEE with
respect to the obligations of the RELEASEE under the Separation Agreement of
even date herewith between RELEASOR and RELEASEE or with respect to any matter
that is not known to the RELEASOR as of the date hereof or based on an
intentional or knowing misrepresentation or fraud of RELEASEE.
This Release shall be governed by and interpreted and enforced in
accordance with the laws of the State of California, without regard to
principles of conflicts of law.
The words "RELEASOR" and "RELEASEE" include all releasors and all
releasees under this Release.
This Release may not be changed orally.
By ____________________________
7
<PAGE> 8
EXHIBIT 3
R E L E A S E
Dimitri T. Skouras, for himself and his heirs and assigns (RELEASOR), in
consideration of the mutual promises set forth in the Separation Agreement of
even date herewith between RELEASOR and Dove Audio, Inc., the sufficiency of
which is hereby acknowledged, releases and discharges Michael Viner (RELEASEE),
and RELEASEE'S heirs, executors, administrators, successors and assigns, from
all actions, causes of actions, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialities, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extent,
executions, claims, and demands whatsoever, in law, admiralty or equity, which
against the RELEASEE, the RELEASOR, RELEASOR'S successors and assigns ever had,
now have or hereafter can, shall or may have, for, upon, or by reason of any
matter, cause or thing whatsoever from the beginning of the world to the day of
the date of this Release, including without limitation, all claims concerning
RELEASOR'S employment with RELEASEE, the Employment Agreement and/or the Option
Agreement (as those terms are defined in the Separation Agreement), provided,
however, that nothing herein shall be deemed to constitute a release of the
RELEASEE with respect to the obligations of the RELEASEE under the Separation
Agreement of even date herewith between RELEASOR and RELEASEE or with respect to
any matter that is not known to the RELEASOR as of the date hereof or based on
an intentional or knowing misrepresentation or fraud of RELEASEE.
This Release shall be governed by and interpreted and enforced in
accordance with the laws of the State of California, without regard to
principles of conflicts of law.
The words "RELEASOR" and "RELEASEE" include all releasors and all
releasees under this Release.
This Release may not be changed orally.
By ____________________________
8
<PAGE> 9
EXHIBIT 4
R E L E A S E
Michael Viner, for himself and his heirs and assigns (RELEASOR), in
consideration of the mutual promises set forth in the Separation Agreement of
even date herewith between Dimitri T. Skouras and DOVE AUDIO, INC., the
sufficiency of which is hereby acknowledged, releases and discharges Dimitri T.
Skouras ("RELEASEE") and RELEASEE'S successors, heirs, executors, administrators
and assigns from all actions, causes of actions, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialities, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
extent, executions, claims, and demands whatsoever, in law, admiralty or equity,
which against the RELEASEE, the RELEASOR, RELEASOR'S successors and assigns ever
had, now have or hereafter can, shall or may have, for, upon, or by reason of
any matter, cause or thing whatsoever from the beginning of the world to the day
of the date of this Release, including without limitation, all claims concerning
RELEASEE'S employment with Company, the Employment Agreement and/or the Option
Agreement (as those terms are defined in the Separation Agreement), provided,
however, that nothing herein shall be deemed to constitute a release of the
RELEASEE with respect to the obligations of the RELEASEE under the Separation
Agreement of even date herewith between RELEASOR and RELEASEE or with respect to
any matter that is not known to the RELEASOR as of the date hereof or based on
an intentional or knowing misrepresentation or fraud of RELEASEE.
This Release shall be governed by and interpreted and enforced in
accordance with the laws of the State of California, without regard to
principles of conflicts of law.
The words "RELEASOR" and "RELEASEE" include all releasors and all
releasees under this Release.
This Release may not be changed orally.
By [SIG]
-------------------------------
9
<PAGE> 1
EXHIBIT 10.34
KEY EXECUTIVE SEVERANCE AGREEMENT
This Key Executive Severance Agreement (the "Agreement") is dated as of
September 4, 1996, and is made by and between Dove Audio, Inc., a California
corporation (the "Company"), and Gerald Leider who is presently Chairman of the
Board of and a consultant to the Company (the "Executive").
WITNESSETH:
WHEREAS:
A. The Executive is Chairman of the Board of and a consultant to the
Company and an integral part of the Company's management.
B. The Company wishes to assure both itself and the Executive of
continuity of management generally, including continuity of management in the
event of any actual or threatened change in control of the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and in further consideration of services performed and to be performed
by Executive for the Company, it is hereby agreed by and between the parties as
follows:
1. Company's Right to Terminate. The Company may not terminate the
consulting arrangement with Executive unless, to the extent provided for herein,
the Company provides the benefits hereinafter specified in accordance with the
terms hereof.
2. Event. For purposes of this Agreement, an "Event" shall have the
meaning set forth in the Company's 1994 Stock Incentive Plan as in effect on the
date hereof.
3. Termination of Consulting Arrangement.
(a) If an Event shall have occurred while Executive is a consultant
to and Chairman of the Board of the Company, upon the subsequent Termination of
the Consultancy of Executive within one (1) year of such Event, Executive shall
be entitled to receive the benefits provided in Section 4(a) hereof.
(b) If there shall be a Termination of the Consultancy of Executive
under any circumstances other than as set forth in Section 3(a) hereof,
Executive shall be entitled to receive the benefits provided in Section 4(b)
hereof.
<PAGE> 2
(c) The phrase "Termination of the Consultancy" of Executive for
purposes of this Agreement shall mean:
(i) Termination by the Company of the consultancy of Executive
for any reason other than death, Disability, Retirement or for Cause as defined
below; or
(ii) Termination by the Executive of his consultancy to the
Company within three (3) months of the occurrence of any of the following
events:
(A) The assignment to Executive of any duties materially
inconsistent with his positions, duties, responsibilities and status with the
Company immediately prior thereto, or a material change in Executive's reporting
responsibilities, titles or offices as in effect immediately prior thereto, or
any removal of Executive from or any failure to appoint Executive to any of such
positions, except in connection with the termination of Executive's employment
due to death, Disability, Retirement or for Cause;
(B) A material reduction by the Company in Executive's
consulting compensation as in effect on the date hereof or as the same may be
increased from time to time;
(C) Subsequent to an Event, the failure by the Company to
continue in effect any benefit or compensation plan, stock ownership plan, stock
purchase plan, stock option plan, life insurance plan, health-and-accident plan
or disability plan in which Executive is participating at the time of an Event
(or plans providing him with substantially similar benefits), the taking of any
action by the Company which would materially adversely affect Executive's
benefits under any of such plans or deprive Executive of any material fringe
benefit enjoyed by him at the time of the Event;
(D) Any purported termination of Executive's consultancy
which is to effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(e) below; and for purposes of this Agreement, no such
purported termination shall be effective.
(d) The words "Disability,: "Retirement" and "Cause" for purposes of
this Agreement shall mean:
2
<PAGE> 3
(i) Disability. Termination by the Company of Executive's
consultancy based on "Disability" shall mean termination because of Executive's
absence from his duties with the Company (or its subsidiaries) on a full-time
basis for 130 consecutive business days, as a result of incapacity due to
physical or mental illness, unless within thirty (30) days after Notice of
Termination (as hereinafter defined) is given following such absence Executive
shall have returned to the regular performance of his duties.
(ii) Retirement. Termination by the Company of Executive's
consultancy based on "Retirement" shall mean termination in accordance with the
Company's retirement policy (as if Consultant were an employee), including early
retirement, generally applicable to its salaried employees.
(iii) Cause. Termination by the Company of Executive's
consultancy for "Cause" shall mean termination upon (A) the willful and
continued failure by Executive to substantially perform his duties with the
Company (or its subsidiaries) other than any such failure resulting from his
incapacity due to physical or mental illness, after a demand for substantial
performance is delivered to Executive by the Chief Executive Officer of the
Company, which specifically identifies the manner in which Executive has not
substantially performed his duties, or (B) the willful engaging by Executive in
misconduct which is materially injurious to the Company (or its subsidiaries),
monetarily or otherwise, and that constitutes on the part of Executive common
law fraud or a felony.
(e) Any purported termination by the Company pursuant to Sections
(c)(i) or 3(d) above, or by Executive pursuant to Section 3(c)(ii) shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's consultancy under the provision
so indicated.
(f) "Date of Termination" shall mean (i) if Executive's consultancy
is terminated for Disability, thirty (30) days after Notice of Termination is
given (provided that
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<PAGE> 4
Executive shall not have returned to the performance of his duties on a regular
basis during such thirty(30) day period), and (ii) if Executive's consultancy is
terminated for any other reason, the date on which a Notice of Termination is
given.
4. Certain Benefits Upon Termination.
(a) If there is a Termination of the consultancy of Executive as
provided in Section 3(a) hereof, Executive shall be entitled to the following
benefits:
(i) The Company shall pay Executive his full consulting
compensation through the Date of Termination at the rate in effect at the time
Notice of Termination; and
(ii) The Company shall pay Executive his full consulting
compensation on a bi-weekly basis at the rate in effect at the time Notice of
Termination is given for a one-year period following the Date of Termination.
(b) If there is a termination of the consultancy of Executive as
provided in Section 3(b) hereof, Executive shall be entitled to the following
benefits:
(i) The Company shall pay Executive his full consulting
compensation through the Date of Termination at the rate in effect at the time
Notice of Termination is given; and
(ii) The Company shall pay Executive his full consulting
compensation on a bi-weekly basis at the rate in effect at the time Notice of
Termination is given for a period of three months following the Date of
Termination.
5. Mitigation of Damages. Executive shall not be required to mitigate
the amount of any payment provided for in Section 4 by seeking other employment
or otherwise, nor shall the amount of any payment provided for in Section 4 be
reduced by any compensation earned by Executive as the result of employment by
or consultancy to another employer after the Date of Termination, or otherwise.
4
<PAGE> 5
6. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to Executive, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place.
(b) This Agreement shall inure to the benefit of and be enforceable
by Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amount would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to his devisee, legatee or other
designee or, if there be no such designee, to his estate.
7. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, in the records of
the Company.
8. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement; it being understood that this Agreement shall not
provide or constitute any term of employment or consultancy to Executive, only
certain severance provisions in the case of termination under certain
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<PAGE> 6
circumstances. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have agreed as set forth above.
DOVE AUDIO, INC.
By /s/ MICHAEL VINER
- -------------------------
Title
Executive:
/s/ GERALD LEIDER
- -------------------------
Gerald Leider
6
<PAGE> 1
EXHIBIT 10.35
September 12, 1996
Mr. Michael Viner
Ms. Deborah Raffin
c/o Dove Audio, Inc.
8955 Beverly Boulevard
West Hollywood, CA 90048
Dear Mr. Viner and Ms. Raffin,
As an accommodation to Dove Audio, Inc., a California corporation ("Dove" or
"the Company"), you have recently provided or agreed to provide your personal
guarantee (collectively, the "Guarantees") of certain obligations of the
Company, namely certain obligations (the "Bank Obligations") of or guaranteed by
the Company to Sanwa Bank California and certain obligations (the "Wilde
Obligations") of the Company and/or its subsidiary to Samuelson Entertainment
Limited ("SEL") or its assignees in connection with the financing of the
production of the feature film presently entitled "Wilde." The Company
acknowledges that you have no obligation to the Company to provide any of the
Guarantees, that your providing the Guarantees has substantial value to the
Company, in order, among other things, to avoid material potential defaults by
the Company and in consideration of your providing (or agreeing with any third
party to provide) any Guarantee, the Company agrees as follows:
(1) Company hereby grants to you a security interest in and to all
of the Company's Equipment, Inventory, Accounts and Contract
Rights, General Intangibles, Chattel Paper and Documents,
Monies and other Property (the "Security Interest") in the
amount of your total liabilities under the Guarantees. This
Security Interest shall be a continuing lien on all of the
aforementioned property and assets, including all proceeds
from such property and assets, until such time as all of your
obligations under the Guaranties are fully, finally and
completely exonerated. Company agrees to execute a standard
security agreement, UCC Financing Statements and all other
documents necessary to carry out the purpose of this
paragraph.
(2) Dove hereby agrees that any consideration received by you from
any third party unaffiliated with Dove in connection with the
Guarantee does not constitute a corporate opportunity and may
be indefeasibly retained by you.
<PAGE> 2
(3) If, at any time during the next three years, Dove or any of
its subsidiaries desire to sell, assign or transfer any asset
outside of the ordinary course of business to any person
(excluding Dove or any of its subsidiaries and any bona fide
grant of a security interest to third party financial
institutions in connection with the providing a line of credit
to Dove), Dove shall notify you of the identity of the
proposed purchaser, the price and other terms and conditions
of sale and give Michael Viner, in the first instance, and
Deborah Raffin, secondarily if Michael Viner shall not so
elect, the right to buy such assets at the same price, terms
and conditions as Dove is willing to accept from such third
party. You shall have 30 days from the giving of such notice
in which to elect, by written notice to Dove, to purchase such
assets on such basis, and 30 days after giving notice of such
election to purchase in which to consummate such purchase
(subject to extension in the event there are delays due to
third-party or governmental consents required to be obtained
by the Company) to consummate such purchase. If you do not
elect to so purchase or fail to consummate the purchase within
the time period provided for herein, Dove may then sell such
assets to the third party on the basis offered within 90 days
of the date notice of the proposed sale was given to you.
(4) (a) Upon the occurrence and during the continuation of an
Event of Default (as hereinafter defined), or at any time
after demand has been made under any of the Guarantees, you
may, but shall not be obligated to, by written notice to the
Company, direct the Company to pay (and the Company agrees
that upon receipt of such notice it will pay) to you (x) all
amounts paid by you under any of the Guarantees and (y) such
additional amount, to be held as cash security in a cash
collateral account, equal to the maximum amount of the
Guarantees. Such cash security shall at all times be free and
clear of all rights or claims of third parties. The cash
collateral account shall be maintained in Dove's name but
under your sole dominion and control and Dove hereby pledges,
and grants a security interest in, such account and all
amounts from time to time held therein to you as security for
all the obligations, contingent or otherwise, of Dove to you
hereunder or in respect of the Guarantees. Dove and you agree
to take such further action and execute such documents as may
be reasonably requested by you to confirm the intent of this
provision. If at any time any amount shall have been paid
under or in respect of the Guarantees and shall not have been
repaid in full immediately upon demand, then notwithstanding
any other provision herein, you may, in your sole discretion,
but shall not be obligated to, apply all amounts then on
deposit in the cash collateral account, in such priority as
you may elect, toward the payment in full of any or all of the
Company's obligations secured thereby.
(b) As used herein, the term "Event of Default" shall mean (i)
Dove shall fail to make any payment required to be made by it
or perform any obligation required to be performed by it under
or in respect of the Guarantees, the Bank Obligations or the
Wilde Obligations; (ii) an "event of default" or "default"
shall occur and be continuing under any bank line of credit
entered into or guaranteed by the
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<PAGE> 3
Company; (iii) an "Event" (as defined in the Company's 1994
Stock Incentive Plan as in effect on the date hereof) shall
have occurred, or (iv) you shall no longer be Chief Executive
Officer of the Company (in the case of Michael Viner) or as an
officer of the Company (in the case of Deborah Raffin) unless
you shall have consented to your successor.
(c) In the event you elect to terminate your employment
agreement pursuant to Section 4.01 thereof (which permits you
to terminate such agreement, with or without cause, upon
delivery of 30 days' written notice of termination) within
twelve months of the occurrence of an "Event" or a "Material
Breach" by the Company (which shall consist of failure or
refusal by the Company to comply with a material term of such
employment agreement, such as but not limited to your right to
be Chief Executive Officer (in the case of Michael Viner) and
a member of the Board of Directors of the Company (in the case
of Deborah Raffin), and in both cases, a member of the Board
of Directors of the Company, the Company shall for the
remainder of the Employment Period, pay to you the base
compensation, health insurance, life insurance, automobile
allowance and other benefits that you would have earned during
such period. Upon any such termination, you will be free to
establish, invest, or be employed by any business, whether or
not in competition with the Company. Should any payments from
the Company to you, in whatever form, made either hereunder or
under any other plan or arrangement (the "Payment"), be
subject to excise tax pursuant to Section 4999 of the Internal
Revenue Code or any successor or similar provision thereto, or
comparable state or local tax laws (an "Excise Tax"), the
Company shall pay you additional compensation equal to the
amount of the Excise Tax calculated with respect to the
Payment (but without any gross-up for any additional taxes to
which you are subject based on such additional compensation).
Very truly yours,
DOVE AUDIO, INC.
By: /s/ STEVEN SOLOWAY
-----------------------------------------
Steven A. Soloway
Executive Vice President, General Counsel
Accepted and Agreed To:
/s/ Michael Viner /s/ Deborah Raffin
- --------------------------------- ----------------------------------
Michael Viner Deborah Raffin
3
<PAGE> 1
EXHIBIT 10.36
[Morgan Fuller Letterhead]
September 30, 1996
Mr. Michael Viner
Chief Executive Officer
Dove Audio, Inc.
8955 Beverly Boulevard
West Hollywood, California 90048 Delivered by Fax and Mail
Dear Michael: Re: Financial Advisor Engagement
Based on the results of our continuing discussions, we are positioned
to proceed with a plan of action to assist Dove Audio, Inc. ("Dove Audio" or
the "Company") in its corporate development and financing activities as
Financial Advisor on a non-exclusive basis:
(i) In the phased expansion of
its equity and debt capital resources
while providing strategic guidance as
to the proper structuring of the
Company's equity market relationships;
(ii) To facilitate and support the
completion of future financings; and
(iii) To sponsor the establishment of Market
Maker and Research Report
relationships in the securities
industry.
The purpose of this agreement-in-principal Letter Agreement
("Agreement") is to set forth our mutual understandings as to the proposed terms
of Dove Audio's engagement of Morgan Fuller Capital Group, LLC ("Morgan Fuller"
or the "Firm") as the Company's Financial Advisor. The completion of the
sponsorship and financings will be subject to the receipt of regulatory
approvals, the completion of mutually satisfactory structuring of the financings
and the satisfactory completion of due diligence reviews by Morgan Fuller and
its agents. The Agreement includes the terms and conditions set forth herein.
Morgan Fuller is prepared to serve as Dove Audio's Financial Advisor in
the orderly expansion of its capital resources and the related development of a
broadly based and appropriately structured level of retail investor and
institutional ownership base. In approaching the assignment, our perspective
will be long-term in its orientation as we work to provide
<PAGE> 2
Dove Audio, Inc.
September 30, 1996
Page 2
Dove Audio with a dynamic public ownership vehicle, expanded capital resources,
an appropriate level of market maker and research support, while providing
introductions to appropriate acquisition candidate(s) and strategic relationship
partners.
Services To Be Rendered. Morgan Fuller will perform such of the
following financial advisory services as Client may reasonably request
including:
1. Advise the Company in developing general equity and debt
financing strategies and provide collaborative assistance
(including Business Plan review) to Dove Audio in the
completion of future debt and equity financings.
2. Publish periodic research reports, serve as a market maker,
and facilitate the establishment of market maker/research
relationships with other investment banking and brokerage
firms for the purpose of achieving investor interest and
support.
3. Render such other financial advisory and investment banking
services as may from time to time be agreed upon by Dove Audio
and the Firm including strategic and tactical guidance and
liaison with the Company's financial public relations advisor.
4. Identify and provide consultative advice for business
development opportunities, negotiating and structuring
acquisitions, identifying acquisition candidates and corporate
partner relationships, and completing associated financings.
5. Familiarize itself to the extent it deems appropriate and
feasible with the business, financial condition and prospects
of the Company. It is understood that Morgan Fuller shall, in
the course of such orientation, rely entirely upon publicly
available information and such other information as may be
supplied by the Company without independent investigation.
Retainer Fee For Advisory Services
The Company shall pay to Morgan Fuller for its services hereunder on an
as-needed basis a Retainer based on an hourly billing rate of $250. To
the extent possible, projects and/or advisory requirements will be
identified in advance.
The Company will issue to Morgan Fuller $1,000,000 of Warrants with a
three-year expiration date and an exercise price set at the closing Bid
price on the date of the execution of this Agreement (e.g., if the
closing Bid price is $4.00, issued warrants will be 250,000 shares at
$4.00 each). The exercise expiration date will be subject to
acceleration in the event of a change of control.
<PAGE> 3
Dove Audio, Inc.
September 30, 1996
Page 3
Other Engagement Provisions:
Success Fee - Subsequent Mergers and Acquisitions
In the event that through Morgan Fuller's introduction to Dove Audio
the Company purchases a controlling interest in, merges, amalgamates or
otherwise acquires a third party company, Morgan Fuller shall be
compensated by way of a commission equal to 5% of the first $1 million
USD of the gross transaction value ("value"), 4% of the second $1
million USD of value, 3% of the third $1 million USD of value, 2% of
the fourth $1 million USD of value, and 1% of the gross transaction
value in excess of $4 million USD, in addition to any other work fee or
advisory fee that may be agreeable to the Company and Morgan Fuller at
the time.
Expenses. The Company hereby agrees, from time to time upon request, to
reimburse Morgan Fuller for all reasonable travel and out-of-pocket
costs (including legal and other professional fees) related to this and
successor engagements. All such expenditures in excess of $1,000 will
require the Company's prior written approval.
Indemnity. The Company will enter into a separate standard form
agreement providing for the mutual indemnification of the parties in
connection with this engagement.
Termination Of Engagement. Morgan Fuller's engagement(s) hereunder may
be terminated by either the Company or Morgan Fuller at any time, with
or without cause, upon written advice to that effect to the other party
provided however that Morgan Fuller will be entitled to its full fee(s)
as specified above to the extent earned prior to such termination.
Due Diligence. The Company will make available to the Firm and its
counsel and advisors, on a timely basis, all corporate, financial
information and operating information and other records and access to
its senior management for the purposes of completing their due
diligence investigation of the business and affairs of the Company.
Company's Undertakings. The Company agrees to:
1. Use its reasonable best efforts to assist the Firm in the
current and future financings in contacting persons and
sourcing information in addition to that determined necessary
pursuant to the Firm's conduct of its Due Diligence review.
2. Assist the Firm(s) in the development of marketing materials
and a marketing presentation in connection with any
financing(s).
3. Obtain the cooperation of senior officers to commit the time
necessary to support and/or make presentations to prospective
Investors.
<PAGE> 4
Dove Audio, Inc.
September 30, 1996
Page 4
4. Utilize its best efforts to provide names of potential
investors together with background information concern the
nature and extent of such interest.
Governing Law. This letter agreement and the related indemnification
letter referred to above shall be deemed made in California. Such
agreements shall be governed by the laws of California without regard
to such state's rules concerning conflicts of laws. Any right to trial
by jury with respect to any claim or proceeding related to or arising
out of this engagement, or any transaction or conduct in connection
herewith, is waived.
Beneficial Use Of Advice. The Company expressly acknowledges that all
advice (written or oral) given by Morgan Fuller to the Company in
connection with this engagement are intended solely for the benefit and
use of the Company (including its management, directors, and
attorneys). The Company agrees that no such opinion or advice shall be
used for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose, nor shall
any public references to Morgan Fuller be made by Client (or such
persons) without the prior written consent of Morgan Fuller, which
consent shall not be unreasonably withheld.
Limited Scope Of Engagement. The Company expressly acknowledges that
Morgan Fuller has been retained solely as a financial advisor and/or
Firm and not as an advisor or agent of any other person, and that the
Company's engagement of Morgan Fuller is not intended to confer rights
upon any persons not a party hereto (including shareholders,
employees, or creditors of the Company) as against Morgan Fuller.
Morgan Fuller's affiliates, or their respective directors, officers,
agents and employees.
Please confirm that the foregoing is in accordance with your
understandings and agreements with Morgan Fuller by signing and returning to
Morgan Fuller the duplicate of this letter enclosed herewith.
ACCEPTED AND AGREED:
/s/ Gordon R. Taubenheim /s/ Michael Viner
Gordon R. Taubenheim Michael Viner
Managing Director Chief Executive
Morgan Fuller Capital Group, LLC Dove Audio Communications, Inc.
Date: October 30, 1996 Date: October 30, 1996
<PAGE> 5
Dove Audio, Inc.
September 30, 1996
Page 5
Exhibit A
MORGAN FULLER CAPITAL GROUP, LLC
STANDARD FORM - INDEMNIFICATION AGREEMENT
The following provisions regarding indemnification are an integral part of the
letter agreement ("Letter Agreement") to which they are attached between Morgan
Fuller Capital Group, LLC (the "Placement Agent" or "Firm") and Dove Audio, Inc.
(the "Company") named therein. Capitalized terms used but not defined below have
the meanings given them in such Letter Agreement.
In connection with the services which the Firm has agreed to render to the
Company in the Letter Agreement, the Company shall indemnify the Firm, each of
its directors, officers, employees, and agents and each person, if any, who
controls the Firm within the meaning of Section 15 of the Securities Act of 1933
(the "Act") (such parties being referred to herein collectively as the Firm) and
hold the Firm harmless to the fullest extent permitted by law against any and
all losses, claims, damages and liabilities (and actions in respect thereof) to
which the Firm may become subject in connection with (i) the Firm's use of
information contained in any Private Placement Memorandum/Subscription Agreement
("Memorandum") that is materially inaccurate or alleged to be materially
inaccurate in any respect (as a result of misrepresentation, omission, failure
to update, or otherwise) that is provided to the Firm by the Company or its
representatives, agents, or advisors, regardless of whether the Firm knew or
should have known of such inaccuracy, (ii) the breach of any representation or
warranty of the Company contained in the Letter Agreement, or (iii) any other
aspect of the rendering of such services under the Letter Agreement by the Firm,
unless it is finally judicially determined that losses, claims, damages, or
liabilities relating thereto solely as a result of the bad faith, intentional
wrongdoing or willful misconduct of the Firm. Notwithstanding the foregoing, the
Company shall not be required to indemnify the Firm for matters for which the
Company is indemnified by the Firm hereafter.
The Firm shall indemnify the Company and each person, if any, who controls the
Company within the meaning of Section 15 of the Act and hold such persons
harmless to the fullest extent permitted by law against any and all losses,
claims, damages and liabilities (and actions in respect thereof) to which such
person may become subject if such loss, claim, damage, liability and action
arises out of, or is based upon (i) any untrue statement of a material fact
contained in the Memorandum (as amended or supplemented), or arises out of, or
is based on, the omission to state therein a material fact necessary to make the
statements therein not misleading, but in each case only to the extent that the
untrue statement or omission was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Firm
specifically for inclusion therein, or (ii) any known violation by the Firm of
the provisions of Rule 502(c) of Regulation D.
Each party indemnified agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such
<PAGE> 6
Dove Audio, Inc.
September 30, 1996
Page 6
indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnified party
shall be entitled if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel chose
by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable for any legal or other expenses subsequently incurred by the indemnified
party or parties in connection with the defense of the actions, suit,
investigation, inquiry or proceeding, except that (A) the indemnifying party or
parties shall bear the legal and other expenses incurred in connection with the
conduct of the defense as referred to in clause (i) of the proviso to the
preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after the receipt of the Notice,
no Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding. The indemnifying party shall not be liable for settlement
of any such action effected without its written consent, but if settled with its
written consent, or if there be a final judgment for the plaintiff in any such
action, the indemnifying party shall indemnify with respect to such settlement
or judgment.
If for any reason the foregoing indemnity is unavailable to the indemnified
party or insufficient to hold the indemnified party harmless, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such claims, liabilities, losses, damages or
expenses, in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnifying party on the one hand and the indemnified
party on the other, but also the relative fault of the indemnifying party and
the indemnified party, as well as any relevant equitable considerations.
Notwithstanding the provisions of this agreement, the aggregate contribution of
the Firm to all claims, liabilities, losses, damages, and expenses shall not
exceed the amount of fees actually received by the Firm pursuant to its
engagement by the Company. It is hereby further agreed that the relative
benefits to the Company on the one hand and Firm on the other hand with respect
to the transaction contemplated in the Letter Agreement shall be deemed to be in
the same proportion as (i) the net proceeds actually received by the Company
resulting from the sale of the Securities bears to (ii) the fees paid to Firm
with respect to such sale. The indemnifying party agrees that its
indemnification commitments herein set forth
<PAGE> 7
Dove Audio, Inc.
September 30, 1996
Page 7
shall apply whether or not the indemnified party is a formal party to any such
actions or other proceedings, that such commitments shall be in addition to any
liability that the indemnifying party may have to the indemnified party at
common law or otherwise, and that such commitments shall survive any termination
of the Letter Agreement.
This Indemnity Agreement and the representations and warranties of the parties
contained in the Letter Agreement shall remain in full force and effect
regardless of any investigation made by or on behalf of the Firm, and shall
survive any termination of such letter Agreement or the issuance and delivery of
the Securities.
AGREED:
- ------
DOVE AUDIO, INC.
By: /s/ Michael Viner Date: October 30, 1996
--------------------------------------
Michael Viner, Chief Executive
MORGAN FULLER CAPITAL GROUP, LLC
By: /s/ Gordon R. Taubenheim Date: October 30, 1996
--------------------------------------
Gordon R. Taubenheim
Managing Director
<PAGE> 1
EXHIBIT 10.37
Schedule I
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is entered
into as of the 15th day of October, 1996 (the "Grant Date"), by and between DOVE
AUDIO, INC., a California corporation (the "Corporation"), and Steve Soloway
(the "Participant").
W I T N E S S E T H
WHEREAS, pursuant to the Corporation's 1994 Stock Incentive Plan (the
"Plan"), the Corporation's Stock Incentive Plan Committee (the "Committee")
committed to grant to the Participant, effective as of the Grant Date, a
non-qualified stock option (the "Option") to purchase all or any part of 30,000
shares of Common Stock, par value $0.01 per share, of the Corporation (the
"Common Stock") upon the terms and conditions hereinafter set forth (capitalized
terms not otherwise defined herein shall have the respective meanings assigned
to them in the Plan).
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows:
1. Grant of Option. The Corporation has granted to the Participant as a matter
of separate inducement and agreement in connection with the Participant's
employment with, or other services provided by the Participant to, the
Corporation, but not in lieu of any salary or other compensation for such
employment or services, the right and option to purchase, in accordance with the
Plan and on the terms and conditions hereinafter set forth, all or any part of
an aggregate of 30,000 shares (the "Shares") of Common Stock at the price of $
2.50 per share (the "Exercise Price"), exercisable from time to time subject to
the provisions of this Agreement and the Plan prior to the close of business on
November 29, 2004 (the "Expiration Date").
2. Vesting and Exercise of Option. The Option is to vest in three
equal parts: 33.33% of the Shares are to vest immediately as of the Grant Date
and 33.33% are to vest on each of the first and second anniversaries of the
Grant Date, such that except as otherwise provided in this Agreement, the Option
may be exercised from time to time ; provided, however, that the Option may not
be exercised as to less than 100 shares at any one time unless the number of
Shares purchased is the total number at the time available for purchase under an
installment of the Option. The Option may be exercised only as to whole shares;
fractional share interests shall be disregarded except that they may be
accumulated. The Option may not be exercised within the first six months
following the date of grant.
<PAGE> 2
3. Method of Exercise and Payment.
(a) Exercise of Option. Each exercise of the Option shall be by
means of written notice of exercise in the form attached hereto as Exhibit A
duly delivered to the Corporation, specifying the number of whole Shares with
respect to which the Option is being exercised (the "Exercised Shares"),
together with any written statements required pursuant hereunder and payment
equaling the Exercise Price multiplied by the number of Exercised Shares (the
"Aggregate Price"), in cash or by check payable to the order of the Corporation.
The Participant may also deliver in payment of a portion or all of the Aggregate
Price certificates for Common Stock, which shall be valued at the Fair Market
Value of such Common Stock on the date of exercise of the Option. With the prior
written consent of the Committee, the Participant may pay for all or a portion
of the Aggregate Price by means of a promissory note to the Corporation, on such
terms and conditions as the Committee may determine.
4. Continuance of Employment. Nothing contained in this Agreement or in
the Plan shall confer upon the Participant any right to continue in the employ
of, or to continue rendering services to, the Corporation or constitute any
contract or agreement of engagement or employment. The Participant acknowledges
that the Corporation has the right to terminate the Participant's employment or
services at will except as may be otherwise provided by separate agreement.
Nothing contained in this Agreement or in the Plan shall interfere in any way
with the right of the Corporation to (i) terminate the employment or services of
the Participant at any time for any reason whatsoever, with or without cause, or
(ii) reduce the compensation received by the Participant from the rate in
existence on the Grant Date.
5. Non-Assignability of Option. Other than by will or the laws of
descent and distribution, or pursuant to a "qualified domestic relations order"
as defined by the Code, no benefit payable under, or interest in, the Plan or in
any Grant shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, regardless of any community
property or other interest therein of the Participant's spouse or such spouse's
successor in interest, and any such attempted action shall be void and no such
benefit or interest shall be, in any manner, liable for, or subject to, debts,
contracts, liabilities, engagements or torts of any Eligible Person, Participant
or Beneficiary. In the event that the spouse of the Participant shall have
acquired a community property interest in the Option, the Participant, or his or
her permitted transferee, may exercise it on behalf of the spouse of the
Participant or such spouse's successor in interest. Amounts payable pursuant to
a Grant shall be paid only to the Participant or, in the event of the
Participant's death, to the Participant's Beneficiary or, in the event of the
Participant's Total Disability, to the Participant's Personal Representative or,
if there is none, to the Participant.
6. Adjustments Upon Specified Changes. Upon the occurrence of certain
Events relating to the Corporation's stock, such as stock splits, combinations,
extraordinary cash dividends, or mergers in which the Corporation is not the
Surviving Corporation as further set forth in the Plan, adjustments will be made
in the number and kind of shares that may be issuable under, or in the
consideration payable with respect to, the Option.
-2-
<PAGE> 3
7. Acceleration. Upon the occurrence of certain Events, the Option may
become immediately exercisable to the full extent theretofore not exercisable
unless prior to an Event the Committee determines otherwise. However, no Option
may become exercisable on a date less than six months after the Grant Date.
8. Application of Securities Laws.
(a) No shares of Common Stock may be purchased pursuant to the
Option unless and until any then applicable requirements of the Commission, and
any other regulatory agencies, including any other state securities agencies
having jurisdiction over the Corporation or such issuance, and any exchanges
upon which the Common Stock may be listed, shall have been fully satisfied. The
Participant represents, agrees and certifies that:
(1) The Participant (A) can bear the economic risk of
losing the Participant's entire investment in the Shares; and (B) has adequate
means of providing for the Participant's current needs and possible personal
contingencies.
(2) The Participant has had an opportunity to ask
questions of and receive answers from the Chief Financial Officer and President
concerning the terms and conditions of this investment. The Participant has
received and reviewed a copy of the Plan.
(3) The Participant understands that the Option and the
Shares issuable upon exercise of the Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities act, in reliance on available exemptions from registration or
qualification thereunder, as the case may be, and that the Corporation is
relying upon the Participant's representations and warranties herein in availing
itself of said exemptions.
(4) The Option hereby granted to the Participant is being
acquired solely for the Participant's own account for investment purposes, and
is not being purchased with a view to or for the purposes of the resale,
transfer or other distribution thereof; and the Participant has no present plans
to enter into any contract, undertaking, agreement or arrangement for such
resale, transfer or distribution, and the Participant further agrees that the
Option and Common Stock acquired pursuant to the Option will not be transferred
or distributed without (a) first having presented to the Corporation a written
opinion of legal counsel in form and substance satisfactory to the Corporation's
counsel indicating the proposed transfer will not be in violation of any of the
provisions of the Securities Act and applicable state securities laws and the
rules and regulations promulgated thereunder, or (b) a registration statement
covering the resale of such Common Stock being effective. Finally, the
Participant recognizes that a legend reading substantially as follows shall be
placed on all certificates representing the Common Stock and a stop order shall
be placed against a transfer of same in accordance with the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
-3-
<PAGE> 4
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED.
(5) The Participant either has a preexisting personal or
business relationship with the Corporation or any of its officers, directors or
controlling persons, or by reason of the Participant's business or financial
experience reasonably can be assumed to have the capacity to protect his or her
own interests in connection with acquisition of the Option and exercise thereof.
The foregoing representations and warranties are and will be true
and accurate as of both the Grant Date and the date of delivery of Common Stock
acquired pursuant to the Option and shall survive such delivery.
(b) The Committee may impose such conditions on the Option or on
its exercise or acceleration or on the payment of any withholding obligation
(including without limitation restricting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated by
the Commission pursuant to the Securities Exchange Act of 1934, as amended.
9. Notices. Any notice to be given to the Corporation under the terms of
this Agreement or pursuant to the Plan shall be in writing and addressed to the
Secretary of the Corporation at its principal office and any notice to be given
to the Participant shall be sent to the Participant at the address given beneath
the Participant's signature hereto, or at such other address as either party may
hereafter designate in writing to the other party. Any such notice shall be
deemed to have been duly given on the date of delivery, if delivered by hand, or
3 days after deposit into U.S. mails of a notice sent by registered or certified
mail (postage and registry or certification fee prepaid).
10. Effect of Agreement. This Agreement shall be assumed by, be
binding upon and inure to the benefit of any successor or successors of the
Corporation to the extent provided in the Plan.
11. Tax Withholding. The provisions of the Plan are hereby incorporated
and shall govern any withholding that the Corporation is required to make with
respect to an exercise of the Option as well as the Corporation's right to
condition a transfer of Common Stock upon compliance with the applicable
withholding requirements of federal, state and local authorities. No Common
Stock acquired pursuant to an exercise of the Option may be transferred until
the Corporation has withheld, or has received payment from the Participant of,
all amounts the Corporation is required to withhold.
12. Terms of the Plan Govern. Except with respect to terms specifically
set forth in this Agreement, the Option and this Agreement are subject to, and
the Corporation and the Participant agree to be bound by, all of the terms and
conditions of the Plan, which terms and conditions are hereby incorporated as
though set forth at length. In the event of a conflict between this Agreement
and the Plan, the terms of the Plan shall govern. The rights of the Participant
are
-4-
<PAGE> 5
subject to limitations, adjustments, modifications, suspension and termination
in certain circumstances and upon the occurrence of certain conditions as set
forth in the Plan.
13. Liability of Corporation. The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to the
Option shall relieve the Corporation of any liability in respect of the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained.
14. Stockholder Rights. The Participant shall not have any rights of a
stockholder with respect to any Shares covered by this Option unless such Shares
have been issued to the Participant by the Corporation pursuant to the valid
exercise of the Option and the full payment by the Participant of the Exercise
Price in respect thereof.
15. Laws Applicable to Construction. The interpretation, performance
and enforcement of the Participant's Grant and this Agreement shall be governed
by the laws of the State of California.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to
be executed on its behalf by a duly authorized officer and the Participant has
hereunto set his or her hand as of the date and year first above written.
DOVE AUDIO, INC.
By: /s/ Michael Viner
----------------------------------------
Title:
PARTICIPANT
/s/ Steve Soloway
-------------------------------------------
--------------------------------
(Print Name)
--------------------------------
(Address)
--------------------------------
(City, State, Zip Code)
-------------------------------------------
(Social Security Number)
-5-
<PAGE> 1
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into this 15th day of
October, 1996, by and between Dove Audio, Inc., a California corporation
("Company" or "Dove"), and Steven Soloway ("Employee").
Whereas, Company desires to assure that it retains the services of
Employee, whose experience, knowledge and abilities with respect to the business
and affairs of Company are extremely valuable to Company;
Now, therefore, Company and Employee agree as follows:
1. Positions and Duties.
1. The Company hereby employs Employee as Executive Vice-President and
General Counsel (or other mutually agreed-upon title(s)) of Company
during the term of this Agreement, with powers and duties consistent
with such position. Employee shall report solely to the Board of
Directors and to the President of the Company. Employee shall, during
the term of this Agreement, perform such additional or different duties,
and accept the election or appointment to such other offices or
positions, as may mutually be agreeable to Employee and Company.
2. Employee shall devote his full working time and use his best efforts
to promote Company's business and welfare. During the term of his
employment with Company, Employee will not accept any other employment.
Employee shall perform such duties and responsibilities incidental to
his employment as may from time to time be requested by Company and
shall faithfully observe Company's policies and procedures.
2. Compensation and Benefits.
1. Generally; Base Salary. Beginning on the date of this Agreement,
during the term of employment, for the services to be rendered by
Employee hereunder, Employee shall receive the following compensation
and benefits, payable as earned, in the intervals indicated, and
prorated for any partial year:
i) An annual salary (the "Base Salary"), at the
rate of one hundred twenty-five thousand dollars
($125,000.00), payable from the period commencing as of
1
<PAGE> 2
the date of commencement of the Term. The Base Salary shall be
payable no less frequently than monthly. Company may deduct from
each installment of the Base Salary an amount sufficient to cover
applicable federal, state and/or local income tax withholdings,
old age and survivors and other social security payments, state
disability insurance premiums and any other amounts which Company
is required to withhold by applicable law. The Base Salary shall
be increased by a minimum of ten percent (10%) of the then
current Base Salary effective commencing upon each of the first
and second anniversaries of commencement of the Term of this
Agreement;
ii) A stock option grant of 30,000 shares (the "Option
Shares") of Dove common stock, pursuant to the Non-Qualified
Stock Option Agreement dated as of even date hereof between Dove
and Employee substantially in the form of Schedule I hereto (the
"Stock Option Agreement"); and
iii) An annual bonus, for each year of the Term of this
Agreement, of at least ten thousand dollars ($10,000.00), payable
at the end of each year of the Term, provided, however, that
Company shall forthwith advance to Employee, on a non-recoupable
and interest free basis, ten thousand dollars ($10,000.00)
representing the bonus for the first year of the Term of this
Agreement. In addition, Company shall also forthwith pay to
Employee the sum of ten thousand dollars ($10,000.00)
representing a bonus for Employee's services rendered prior to
the commencement of the Term of this Agreement (receipt of which
is hereby acknowledged by Employee.)
2. Fringe Benefits. Employee shall receive the following
fringe benefits from the Company during the Term:
i) three (3) weeks of paid vacation during each fiscal
year of Company (as used in this Paragraph, a "fiscal year" shall
be the date which is 12 months following the date of commencement
of the Term under this Agreement and each 12-month period
thereafter). Any such vacation shall be taken at times in
accordance with the vacation policies of Company, or if accrued
by Employee and not taken in any fiscal year shall be accrued and
carried forward to the subsequent fiscal year;
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ii) payment of the premium payable with respect to the
health insurance plan provided by Company for its executive
officers as from time to time in effect. In addition, Employee
shall be named as an additional insured under the Company's
Errors and Omissions insurance policy, and shall be permitted
during the term hereof, if and to the extent eligible, to
participate in any group life, hospitalization or disability
insurance plan, health program, pension plan, similar benefit or
other fringe benefits of Dove which may be available to executive
officers of Company;
iii) a monthly, non-reimbursable and non-taxable
automobile allowance of five hundred dollars($500.00), payable no
less frequently than monthly; and
iv) reimbursement to Employee for all reasonable costs
and expenses he incurs in connection with the performance of his
duties and obligations under this Agreement, and which are
consistent with the policies of Company for executive officers.
3. Term. The term of this Agreement (the "Term") shall commence on the
date hereof and shall terminate upon the first to occur of the following
events:
a) October , 1999;
b) The death or permanent disability of Employee as defined
herein;
c) The discharge of Employee for cause or special cause as
defined herein.
4. Termination.
a. Termination Due to Disability, etc. The Company may, by written
notice to Employee, terminate his employment under the Agreement as of
the date of that notice if Employee shall fail or be unable to perform
his duties as the result of any physical or mental disability for 180
consecutive days or during any 210 days in any 240-day period (a
"Permanent Disability"); Employees's employment under this Agreement
shall terminate automatically upon Employee's death or adjudication of
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incompetency.
b. Termination for Cause. By complying with the provisions hereof,
the Company may terminate Employee's employment under this Agreement for
"Cause."
1) For purposes of this agreement, "Cause" shall mean: (i) fraud,
embezzlement or conviction of or the pleading of guilty or no
contest to any felony or to any misdemeanor involving dishonesty,
ii) gross negligence or willful failure of Employee to perform
his duties hereunder, (iii) any material uncured breach by
Employee of his covenants or obligations under this Agreement, or
(iv) the occurrence of any matter relating to Employee of the
type set forth in Item 401(f) of Regulation S-K promulgated by
the Securities and Exchange Commission.
2) If any one or more of the events enumerated under Section
4(b)(1)above shall occur, the Company shall provide written
notice (the "Warning Notice") to Employee of its intention to
terminate this Agreement for Cause, the basis of such Cause, and
the steps which the Company believes should be taken by the
Employee to correct and cure the same. Unless Employee, within 30
days following receipt of the Warning Notice, substantially
corrects and cures or initiates steps to correct and cure all
matters delineated in the Warning Notice to Dove's reasonable
satisfaction or if the matters set forth in the Warning Notice
are not reasonably susceptible of being so cured or corrected,
the Company may terminate this Agreement so that the Company
shall have no further obligation to Employee except as set forth
herein, by delivering a notice of termination to Employee, which
notice of termination shall be effective as of the date of
delivery of such notice; provided however, that Employee shall
not be entitled to any notice or opportunity to cure a
termination arising as a result of the "Cause" set forth in
Section 4(b)(1)(i).
c. Payments Upon Termination.
1. In the event Employee is terminated for any reason whatsoever,
the Company shall pay to Employee all
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<PAGE> 5
accrued and unpaid Base Salary, all accrued and unpaid vacation
and other accrued and unpaid benefits set forth herein to the
date of termination, reimbursement of expenses prior to the date
of termination in accordance with the provisions of this
Agreement; continued insurance benefits under such circumstances
and for such periods of time as are mandated by applicable state
or federal law; and such other benefits or entitlements that are
deemed to be vested pursuant to the provisions of Employee
Retirement Income Security Act of 1974, as from time to time
amended, and any regulations promulgated pursuant thereto. Such
benefits shall be payable in accordance with the provisions
therefor in this Agreement, or with regard to benefits for which
no provision is made, promptly following termination of
employment.
2. In the event Employee is terminated by the Company without
Cause, then, in addition to the payments due to Employee
hereunder, and as Employee's sole and exclusive rights and
remedies, the Company shall, for the remainder of the Term, be
obligated to continue to provide to the Employee his Base Salary
in accordance with the terms hereof, and all Option Shares as
defined herein shall automatically vest and be exercisable
pursuant to the Stock Option Agreement.
3. Employee shall have no duty to mitigate the amount of any
payment provided for in Section 4(c)(2) by seeking other
employment or otherwise, nor shall the amount of any payments
provided for in Section 4(c)(2) be reduced by any compensation
earned by Employee as the result of employment by Employee with
another employer after the date of termination.
5. Confidential Information. Employee acknowledges that the information,
observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company or its Affiliates (the
"Confidential Information") are the property of the Company or such
Affiliate. Therefore, Employee agrees that Employee shall not disclose
to any unauthorized person or use for Employee's own account any
Confidential Information without the prior written consent of the Board,
unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a
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<PAGE> 6
result of Employee's acts or omissions to act or unless such information
is required to be disclosed in connection with an administrative or
judicial proceeding, provided that in such case, Employee agrees to
notify the Company of the Confidential Information to be disclosed
sufficiently in advance of such disclosure, and agrees, if requested, to
use reasonable efforts to cooperate with the Company or an Affiliate in
seeking a protective order for such information. Employee shall deliver
to the Company at the termination of the Term, or at any other time the
Company or an Affiliate may request, all "documents" and "writings", as
defined in the California Evidence Code, and copies thereof, relating to
the Confidential Information, work product or the business of Dove, the
Company or any Affiliate which Employee may then possess or have under
his control. In the event of the breach or a threatened breach by
Employee of any of the provisions of this Section, the Company or any of
its Affiliates, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of law or equity
of competent jurisdiction for specific performance and/or injunctive or
other relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security). Employee
acknowledges and agrees that the covenant under this Section 6 shall
apply during the Term and thereafter regardless of the reason for the
termination of Employee's employment.
6. Entire Agreement. This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements
of the parties with respect to the subject matter hereof.
This Agreement may not changed or amended except in writing
signed by the parties.
7. Governing Law. This Agreement shall be subject to, and be
governed by, the laws of the State of California.
8. Assignment. Employee may not assign, transfer or convey
this Agreement or any interest therein. This Agreement and
all of the Company's rights and obligations hereunder may be
assigned or transferred by it, in whole but not in part, to
and shall be binding upon and inure to the benefit of any
successor of the Company, but Company shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation, purchase of assets or otherwise) to all or
substantially all of the assets of the Company, by agreement
in form and substance reasonably satisfactory to Employee,
to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company
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<PAGE> 7
would be required to perform it if no such succession had taken place.
Notwithstanding the foregoing, in the event of any such merger,
consolidation, purchase of assets or other transfer, other than to a
related company of Company, or the occurrence of any "Event" (as that
term is defined in the Company's 1994 Stock Incentive Plan as in effect
on the date hereof), then Employee may, at his sole election, by written
notice to Company, deem such event to be a Termination without Cause and
Company shall comply with all of its obligations under Section 4(c)(2)
hereof for the remainder of the Term, or for six months following such
written notice by Employee, whichever is longer.
9. Severability. If any provision of this Agreement as applied to either
party or to any circumstances shall be adjudged by a court of competent
jurisdiction to be void or unenforceable, the same shall in no way
affect any other provision of this Agreement or the validity or
enforceability of this Agreement.
10. Waiver. Waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any
subsequent breach.
11. Counterparts. This Agreement shall be executed in a number of identical
counterparts, each of which shall be construed as an original for all
purposes, but all of which taken together shall constitute one and the
same Agreement.
12. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and delivered in person or sent by
registered or certified Unites States mail, postage and fees prepaid, to
the addresses of the parties set forth below, or such other address as
shall be furnished by notice hereunder by any such party:
THE COMPANY DOVE AUDIO, INC.
8955 Beverly Boulevard
West Hollywood, California 90048
Att.: President
EMPLOYEE: Steven Soloway
5654 Ranchito Avenue
Van Nuys, California 91401
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
DOVE AUDIO, INC.
By: /s/ MICHAEL VINER
--------------------------------
Michael Viner
Employee
/s/ STEVEN A. SOLOWAY
--------------------------------
Steven A. Soloway
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<PAGE> 1
EXHIBIT 10.39
FORM OF FIRST AMENDMENT
TO THE
DOVE AUDIO, INC. 1994 STOCK INCENTIVE PLAN
FIRST
The Plan is hereby renamed the "Dove Entertainment, Inc. 1994 Stock
Incentive Plan," and all references to "Dove Audio, Inc." in the Plan are hereby
amended to refer to "Dove Entertainment, Inc."
SECOND
The definition of "Committee" in Section 1.1(i) of the Plan is hereby
amended in its entirety, to read as follows:
(i) "Committee" shall mean either a committee appointed by the
Board, consisting of two or more members, each of whom is a
Non-Employee Director, or the entire Board if each member is a
Non-Employee Director (except as otherwise permitted under Rule 16b-3
promulgated under the Exchange Act). If there are two or more members
of the Board who are "outside directors" within the meaning of Section
162(m) of the Code and the regulations promulgated thereunder, then the
Committee shall consist only of such members.
THIRD
Section 1.1 of the Plan is hereby amended by deleting the definition of
"Disinterested" in Section 1.1(m) in its entirety, and the remaining subsections
of Section 1.1 are hereby renumbered accordingly, to the extent necessary.
FOURTH
Section 1.1 of the Plan is hereby amended by adding the following
definition thereto as Section 1.1(r), and the remaining subsections are hereby
renumbered accordingly, to the extent necessary:
(r) "Non-Employee Director" shall mean a Non-Employee Director
within the meaning of the applicable regulatory requirements
promulgated under Section 16 of the Exchange Act.
<PAGE> 2
FIFTH
Section 2.3 of the plan is hereby amended in its entirety to read as
follows:
Awards may be granted only to Eligible Persons. An Eligible
Person who has been granted an Award may, if otherwise eligible, be
granted additional Awards if the Committee shall so determine.
Section 2.4 of the Plan is hereby amended in its entirety, to read as
follows:
2.4 Stock Subject to the Plan
The stock to be offered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock. The aggregate
amount of Common Stock that may be issued or transferred pursuant to
Awards granted under this Plan shall not exceed 250,000 shares
(750,000, effective as of October 30, 1996), subject to adjustment as
set forth in Section 7.2; provided that any Stock Appreciation Rights
granted concurrently in accordance with Section 4.1 are not subject to
the foregoing limitation. If an Option and any Stock Appreciation Right
shall lapse or terminate without having been exercised in full, or any
Common Stock subject to a Restricted Stock Award shall not vest or any
Common Stock subject to a Performance Share Award shall not have been
transferred, the unpurchased or nontransferred shares subject thereto
shall again be available for purposes of this Plan; provided, however,
that the counting of shares subject to Awards granted under the Plan
against the number of shares available for further Awards shall in all
cases conform to the requirements of Rule 16b-3 under the Exchange Act;
and provided, further, that with respect to any Option and any Stock
Appreciation Right granted to any Eligible Person who is a "covered
employee," as defined in Section 162(m) of the Code and the regulations
promulgated thereunder, that is canceled, the number of shares subject
to such Option and Stock Appreciation Right shall continue to count
against the maximum number of shares which may be the subject of
Options and Stock Appreciation Rights granted to such Eligible Person.
For purposes of the preceding sentence, if, after grant, the exercise
price of an Option and/or the base amount of any Stock Appreciation
Right is reduced, such reduction shall be treated as a cancellation of
such Option and Stock Appreciation Right and the grant of a new Option
and Stock Appreciation Right (if any), and both the cancellation of the
Option and Stock Appreciation Right and the new Option and Stock
Appreciation Right shall reduce the maximum number of shares for which
Options and Stock Appreciation Rights may be granted to the holder of
such Option and Stock Appreciation Right, to the extent required by
Section 162(m) of the Code and the regulations promulgated thereunder.
SIXTH
The first sentence of Section 2.5 of the Plan is hereby amended in its
entirety, to read as follows:
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Subject to the express provisions of the Plan, the Committee
shall determine from the class of Eligible Persons those individuals to
whom Awards under the Plan shall be granted, the terms of Awards (which
need not be identical) and the number of shares of Common Stock subject
to each Award; provided, however, that no Eligible Person may be
granted Options and Stock Appreciation Rights relating in the aggregate
to more than 250,000 shares of Common Stock (subject to adjustment as
provided in Section 7.2) in any calendar year; and provided, further,
that any shares of Common Stock relating to Stock Appreciation Rights
granted concurrently with one or more Options in accordance with
Section 4.1 shall only be counted once for purposes of such limit.
SEVENTH
The first sentence of Section 3.4 of the Plan is hereby amended in its
entirety, to read as follows:
Except as otherwise provided in Section 7.4, an Option may
become exercisable, in whole or in part, on the date or dates specified
in the Award Agreement, and thereafter shall remain exercisable until
the expiration or earlier termination of such Option.
EIGHTH
Section 4.2(d) of the Plan is hereby amended in its entirety, to read
as follows:
(d) A Stock Appreciation Right granted independently of any
Option shall be exercisable pursuant to the terms of the Award
Agreement.
NINTH
The second sentence of Section 5.1 of the Plan is hereby amended in its
entirety, to read as follows:
Each Restricted Stock Award Agreement shall specify the number
of shares of common Stock to be issued to the Participant, the date of
such issuance, the price, if any, to be paid for shares and the
restrictions imposed on such shares.
TENTH
The second sentence of Section 6.1 of the Plan is hereby amended in its
entirety, to read as follows:
A Performance Share Award Agreement shall specify the number
of shares of Common Stock subject to the Performance Share Award, the
price, if
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any, to be paid for such shares by the Participant and the conditions
upon which issuance to the Participant shall be based.
ELEVENTH
The first sentence of Section 7.4 of the Plan is hereby amended in its
entirety, to read as follows:
Unless prior to an Event the Committee determines that, upon
its occurrence, there shall be no acceleration of Awards or determines
those Awards which shall be accelerated and the extent to which they
shall be accelerated upon the occurrence of an Event (i) each Option
and each Stock Appreciation Right shall become immediately exercisable
to the full extent theretofore not exercisable, (ii) Restricted Stock
shall immediately vest free of restrictions, and (iii) the number of
shares covered by each Performance Share Award shall be issued to the
Participant.
TWELFTH
Section 7.7(b) of the Plan is hereby amended in its entirety, to read
as follows:
(b) If an amendment would (i) materially increase the benefits
accruing to Participants within the meaning of Rule 16b-3(a) under the
Exchange Act or any successor thereto, (ii) increase the aggregate
number of shares which may be issued under this Plan or to any
individual, (iii) modify the requirements of eligibility for
participation in this Plan, or (iv) require shareholder approval in
order to qualify Options and Stock Appreciation Rights as
"performance-based compensation," within the meaning of Section 162(m)
of the Code and the regulations promulgated thereunder, the amendment
shall be approved by the Board or the Committee and a majority of the
shareholders. If the provisions of Rule 16b-3 under the Exchange Act or
any successor thereto or Section 162(m) of the Code and the regulations
promulgated thereunder are amended after the effective date of this
Plan to permit the amendment of stock option plans without compliance
with the shareholder approval requirements then set forth therein, the
foregoing restrictions on the ability of the Board and the Committee to
amend the Plan shall terminate to the extent such approval is no longer
required thereunder (or under any other applicable law or regulation),
and the Board and the Committee shall thereafter be empowered to amend
the Plan without regard to the terminated restrictions in appropriate
circumstances.
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<PAGE> 1
EXHIBIT 10.40
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "AGREEMENT") made as of March 27, 1997
among Dove Entertainment, Inc., a California corporation (the "COMPANY"), and
the persons listed on Appendix I hereto (each a "PURCHASER" and collectively
the "PURCHASERS")
WITNESSETH:
WHEREAS, the Company desires to sell, and Media Equities
International, LLC ("MEI") desires to purchase, subject to the terms and
conditions of this Agreement, shares of the newly designated Series B Preferred
Stock of the Company, par value $.01 per share (the "SERIES B PREFERRED
STOCK");
WHEREAS, the Company desires to sell, and Michael Viner and Deborah
Raffin ("VINER/RAFFIN") desire to purchase, subject to the terms and conditions
of this Agreement, shares of the newly designated Series C Preferred Stock of
the Company, par value $.01 per share (the "SERIES C PREFERRED STOCK" and
together with the Series B Preferred Stock, the "PREFERRED STOCK"); and
WHEREAS, MEI will not purchase the Series B Preferred Stock unless
Viner/Raffin purchase the Series C Preferred Stock.
NOW, THEREFORE, in consideration of the foregoing and the covenants,
agreements, representations and warranties herein contained, and intending to
be legally bound, the parties hereby mutually agree as follows:
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1.1. SALE OF THE SECURITIES.
(a) Subject to the terms and conditions herein set forth,
the Company agrees to sell and issue to the Purchasers, and each Purchaser
agrees to purchase from the Company, securities of the Company as follows:
(i) on the Initial Closing Date (as hereinafter
defined), MEI shall purchase (A) that number of shares (the "INITIAL
SERIES B PREFERRED SHARES") of Series B Preferred Stock set forth on
Appendix I for a purchase price of $1,000 per share (the
<PAGE> 2
"PURCHASE PRICE") or an aggregate of $3,000,000, and (B) a warrant
(the "INITIAL MEI WARRANT") to purchase the number of shares of common
stock of the Company, par value $.01 per share (the "COMMON STOCK")
set forth on Appendix I (the "INITIAL MEI WARRANT SHARES"), which
warrant shall be in the form of Exhibit A-1 annexed hereto for a
purchase price of $.001 per Initial MEI Warrant Share subject to the
Warrant (the "WARRANT PURCHASE PRICE");
(ii) On the Initial Closing Date, Viner/Raffin
will purchase (A) that number of shares (the "INITIAL SERIES C
PREFERRED SHARES") of Series C Preferred Stock set forth on Appendix 1
for the Purchase Price, or an aggregate of $920,000, and (B) a warrant
(the "INITIAL VINER/RAFFIN WARRANT") to purchase the number of shares
of Common Stock set forth on Appendix 1 (the "INITIAL VINER/RAFFIN
WARRANT SHARES"), which warrants shall be in the form of Exhibit A-2
annexed hereto for the Warrant Purchase Price;
(iii) on the Second Closing Date (as hereinafter
defined) MEI will purchase (A) that number of shares (the "SECOND
SERIES B PREFERRED SHARES") of Series B Preferred Stock set forth on
Appendix I for the Purchase Price or an aggregate of $1,000,000 and
(B) a warrant (the "SECOND MEI WARRANT") to purchase the number of
shares of Common Stock set forth on Appendix I for the Warrant
Purchase Price; and
(iv) On the Second Closing Date, Viner/Raffin will
purchase (A) that number of shares (the "SECOND SERIES C PREFERRED
SHARES") of Series C Preferred Stock set forth on Appendix I for the
Purchase Price or an aggregate of $1,000,000, and (B) a warrant (the
"SECOND VINER/RAFFIN WARRANT") to purchase the number of shares of
common stock set forth on Appendix I (the "SECOND VINER/RAFFIN WARRANT
SHARES").
(b) The following additional defined terms have the
following meanings:
(i) "INITIAL PREFERRED SHARES" means the Initial
Series B Preferred Share or the Initial Series C Preferred
Shares, or any of them.
(ii) "INITIAL WARRANTS" means the Initial MEI
Warrant or the Initial Viner/Raffin Warrant, or any of them.
(iii) "INITIAL WARRANT SHARES" means the Initial
MEI Warrant Shares or the Initial Viner/Raffin Warrant Shares, or any
of them.
(iv) "PREFERRED SHARES" means the Initial
Preferred Shares or the Second Preferred shares, or any of them.
(v) "SECOND PREFERRED SHARES" means the Second
Series B Preferred Shares or the Second Series C Preferred Shares, or
any of them.
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(vi) "SECOND WARRANTS" means the Second MEI
Warrant or the Second Viner/Raffin Warrant Shares, or any of them.
(vii) "SECOND WARRANT SHARES" means the Second MEI
Warrant Shares or the Second Viner/Raffin Warrant, or any of them.
(viii) "WARRANTS" means the Initial Warrants or the
Second Warrants, or any of them.
(ix) "WARRANT SHARES" means the Initial Warrant
Shares or the Second Warrant Shares, or any of them.
(c) In connection with the purchase of the Preferred
Shares and Warrants, each of MEI and Viner/Raffin shall each have the right to
assign, all or a portion of its rights (but not its obligation) to purchase
such securities from the Company under this Agreement to any person, provided,
such person submits to the Company at the Initial Closing or Second Closing, as
the case may be, a certificate setting forth the representations in Sections
3.2, 3.3 and 3.4 hereinbelow.
(d) In connection with the sale and issuance of the
Preferred Shares and Warrants the Company agrees to register the shares of
Common Stock issuable upon conversion of the Preferred Shares (the "COMMON
SHARES") and Warrant Shares as set forth in the form of Registration Rights
Agreement annexed hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT").
1.2. CLOSING. The closing of the issuance and sale of
the Initial Preferred Shares and Initial Warrants to the
Purchasers (the "INITIAL CLOSING") shall take place at the
offices of the Company on the date of this Agreement or on
such other date as shall be mutually agreed upon by the
parties to this Agreement (the date on which the Initial
Closing actually takes place being referred to as the "INITIAL
CLOSING DATE") and the closing of the issuance and sale of the
Second Preferred Shares and Second Warrants (the "SECOND
CLOSING") shall take place at the offices of the Company as
soon as practicable after the Initial Closing Date but in any
event not later than May 25, 1997 or on such other date as
shall be mutually agreed upon by the parties to this Agreement
(the date on which the Second Closing actually takes place
being referred to as the "SECOND CLOSING DATE").
1.3. DELIVERY.
(a) At the Initial Closing, the Company shall issue and
deliver to each Purchaser (i) a certificate or certificates, registered in the
name of the Purchaser, representing the Initial Preferred Shares being
purchased by such Purchaser, against delivery to the Company of the Purchase
Price therefor by wire transfer except as provided in Appendix I and (ii) the
Initial Warrant being purchased by such Purchaser against the delivery of the
Initial Warrant Purchase Price therefore by wire transfer and shall execute and
deliver the Registration Rights Agreement; and
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(b) At the Second Closing, the Company shall issue and
deliver to each Purchaser (i) a certificate or certificates registered in the
name of such Purchaser, representing the Second Preferred Shares being purchased
by such Purchaser against delivery to the Company of the Purchase Price therefor
by wire transfer except as provided in Appendix I and (ii) the Second Warrant
against the delivery of the Warrant Purchase Price by wire transfer.
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchasers the following
(provided, that the representations and warranties to the Purchasers who are
current members of management of the Company are limited to matters affecting
the authorization and validity of the Preferred Shares, Common Shares, Warrants
and Warrant Shares issuable to such Purchasers):
2.1. ORGANIZATION AND STANDING OF THE COMPANY. The
Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of
California, and has all requisite corporate power and
authority to own and lease its properties and assets and to
conduct its business as currently conducted. The Company is
duly qualified to do business as a foreign corporation and is
in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property in the course of its
business requires such qualification, except where the failure
to so qualify would not have a material adverse effect on the
business, operations or financial condition of the Company and
its subsidiaries taken as a whole (a "MAE").
2.2. AUTHORIZATION.
(a) The Company has all requisite corporate power and
authority to execute and deliver this Agreement, the Warrants, the Registration
Rights Agreement, the Pledge Agreement and the Consulting Agreement (as
hereinafter defined), and to carry out the transactions contemplated hereby and
thereby. The terms and provisions of this Agreement, the Warrants and the
Registration Rights Agreement, the Pledge Agreement, the Certificate of
Determination of the Series B Preferred Stock, and the Certificate of
Determination of the Series C Preferred Stock have been reviewed by the
independent directors of the Company who have unanimously recommended to the
Board of Directors that they be approved and that this Agreement, the Warrants,
the Registration Rights Agreement, the Pledge Agreement and the Consulting
Agreement, be executed and delivered. The execution, delivery and performance
of this Agreement, the Warrants, the Registration Rights Agreement, the Pledge
Agreement and the Consulting Agreement by the Company have been duly authorized
by all requisite corporate action, and this Agreement, the Warrants, the
Registration Rights Agreement and the Pledge Agreement have been, and the
Consulting Agreement when executed and delivered by the Company will, be duly
executed and delivered by the Company and constitute the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as
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enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and general equitable principles.
(b) The Company has reserved from its authorized but
unissued shares of Common Stock sufficient shares of Common Stock for issuance
upon the conversion of the Preferred Shares into Common Shares and Warrant
Shares issuable upon the date hereof, and the Consulting Shares issuable under
the Consulting Agreement
2.3. CAPITAL STOCK. The authorized shares of the Company
consist of 20,000,000 shares of Common Stock and 2,000,000
shares of preferred stock, $.01 par value per share, of which
400,000 shares have been designated Series A Preferred Stock,
5,000 shares have been designated Series B Preferred Stock,
and 5,000 shares have been designated Series C Preferred
Stock. The voting rights, preferences, limitations and
special rights of the Series B Preferred Stock are set forth
in the resolutions adopted by the Board of Directors of the
Company on March 27, 1997, a copy of which is annexed hereto
as Schedule 2.3(a). The voting rights, preferences,
limitations and special rights of the Series C Preferred Stock
are set forth in resolutions adopted by the Board of Directors
of the Company on March 27, 1997, a copy of which is annexed
hereto as Schedule 2.3(b). As of the date hereof, there are
5,313,240 shares of Common Stock and 214,113 shares of Series
A Preferred Stock of the Company outstanding and 2,819,120
shares of Common Stock issuable upon execution of currently
outstanding options and warrants and conversion of convertible
securities, as set forth in Schedule 2.3(c). Also set forth
on Schedule 2.3(c) is the number of shares of Common Stock
which will be issuable upon exercise of currently outstanding
options and warrants and conversion of convertible securities
after giving affect to the transactions contemplated by this
Agreement, including the issuance of the Warrant Shares.
Except as set forth in Schedule 2.3(c) or contemplated hereby,
there are no outstanding subscriptions, warrants, options or
other rights or commitments of any character to subscribe for
or purchase from the Company, or obligating the Company to
issue, any shares of any class of the Company's Common Stock
or any securities convertible into or exchangeable for such
shares of Common Stock. There are no voting trusts or other
agreements or understandings known to the Company with respect
to the voting of the capital stock of the Company.
2.4. ISSUANCE OF THE PREFERRED SHARES, THE COMMON SHARES,
THE WARRANTS AND THE WARRANT SHARES.
(a) The sale, issuance and delivery of the Preferred
Shares in accordance with the terms of this Agreement have been duly authorized
by all necessary corporate action, and the Preferred Shares, when so sold,
issued and delivered, against the full payment of the Purchase Price will be
duly and validly issued, fully paid and nonassessable.
(b) The issuance and delivery of the Common Shares have
been duly authorized by all necessary corporate action, and the Common Shares,
when so issued and delivered upon conversion of the Preferred Shares, will be
duly and validly issued, fully paid and nonassessable.
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(c) The issuance and delivery of the Warrant Shares have
been duly authorized by all necessary corporate action, and the Warrant Shares,
when so issued and delivered in accordance with the terms of the Warrants,
including payment of the purchase price therefor, will be duly and validly
issued, fully paid and nonassessable.
(d) The issuance and delivery of the shares issuable
pursuant to the Consulting Agreement (the "CONSULTING SHARES") have been duly
authorized by all necessary corporate action; and the Consulting Shares, when
so issued and delivered in accordance with the terms of the Consulting
Agreement, will be duly and validly issued, fully paid and nonassessable.
(e) Neither the sale, issuance and delivery of the
Preferred Shares nor the Common Shares nor the Warrants nor the Warrant Shares
nor the Consulting Shares are subject to any preemptive rights of stockholders
of the Company or to any right of first refusal or other similar right in favor
of any person.
2.5. CONSENTS AND APPROVALS. Except for filings under
Federal and applicable state securities laws and the filing of
the Certificates of Determination of the Preferred Stock with
the Secretary of State of the State of California which shall
be accomplished as required prior or subsequent to the
issuance of the Preferred Shares, no permit, consent, approval
or authorization of, or declaration to or filing with any
governmental or regulatory authority or other person, not made
or obtained, is required in connection with the execution or
delivery of this Agreement by the Company, the offer, sale,
issuance or delivery of the Preferred Shares, the Common
Shares, the Warrants or the Warrant Shares, or the carrying
out by the Company of the other transactions contemplated
hereby.
2.6. PRIVATE OFFERING.
(a) Neither the Company nor anyone acting on behalf of
the Company has offered the Preferred Shares, the Common Shares, the Warrants
or the Warrant Shares for sale to, or solicited offers to buy from, or
otherwise approached or negotiated with, any individual or entity in connection
with the sale of such securities other than a limited number of investors,
including the Purchasers. Assuming the accuracy of each Purchaser's
representations contained in Section 3 of this Agreement, the offer, issuance
and delivery of the Preferred Shares, the Common Shares, the Warrants and the
Warrant Shares are exempt from registration under the Securities Act of 1933,
as amended (the "1933 ACT"), and all action required to be taken prior to the
offer or sale of the Preferred Shares, the Common Shares, the Warrants and the
Warrant Shares has been taken under the applicable state securities laws.
(b) The Company represents and warrants to the Purchasers
that it has not since September 30, 1996 completed any financing, except as set
forth on Schedule 2.6.
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2.7. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) True, correct and complete copies of the Company's
Articles of Incorporation, including all amendments and restatements to the
date hereof (as amended, the "ARTICLES OF INCORPORATION"), as filed with the
Secretary of State of the State of California, have been delivered to the
Purchasers and remain true, correct, complete and in effect.
(b) True, correct and complete copies of the Company's
By-Laws, including all amendments and restatements to the date hereof (as
amended, the "BY-LAWS"), have been delivered to the Purchasers and remain true,
correct, complete and in effect.
2.8. NO CONFLICT WITH LAW OR DOCUMENTS. Except as set
forth on Schedule 2.8, the execution, delivery and performance
by the Company of this Agreement, the Warrants and the
Registration Rights Agreement, and the performance by the
Company of its obligations under such documents, and the sale,
issuance and delivery of the Preferred Shares, the Common
Shares, the Warrants and Warrant Shares, will not violate any
provision of law, any order of any court or other agency of
government, the Articles of Incorporation or By-Laws, or any
provision of any indenture, agreement or other instrument by
which the Company or any of its properties or assets is bound
or affected, or conflict with, result in a breach of, result
in or permit the termination of or acceleration of rights or
obligations under, or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company.
2.9. OPERATIONS. The Company has not carried on any
business except as set forth in its Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995, its Form
10-KSB/A for the fiscal year ended December 31, 1995, its
Quarterly Reports on Form 10-QSB for the quarters ended March
31, June 30 and September 30, 1996 and its Proxy Statement
relating to its Annual Meeting of Shareholders in November,
1996 (collectively, the "SEC DOCUMENTS"), true, correct and
complete copies of which have been delivered to the
Purchasers.
2.10. SUBSIDIARIES. Except set forth on Schedule 2.10, the
Company has no subsidiaries and does not own any interest,
directly or indirectly, in any other corporation, partnership,
joint venture or other enterprise or entity.
2.11. LITIGATION. Except as set forth in Schedule 2.11
hereof, there are no (a) actions, suits, customer claims
individually in excess of $50,000 or in the aggregate in
excess of $150,000, or any proceedings or investigations at
law or in equity or by or before any governmental
instrumentality or other agency now pending or to the
Company's knowledge, threatened against or adversely affecting
the Company, or (b) judgments, decrees, injunctions or orders
of any court, governmental department,
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commission, agency, instrumentality or arbitrator against or
affecting the Company, except as in all matters under (a) and
(b) which, are not reasonably expected to result in a MAE, or
are covered by appropriate amounts of insurance.
2.12. INTELLECTUAL PROPERTY.
(a) Set forth on Schedule 2.12 is a true and complete
list of the Company's library and audio titles, books, films and television
products as of December 31, 1996 (the "PRODUCTS"), except for Products
("NONMATERIAL PRODUCTS") which in the aggregate do not generate a material
amount of revenues for the Company or for which the Company is not obligated to
pay in the aggregate a material amount in connection with obtaining or
retaining the rights thereto. The Company owns, is licensed or otherwise has
the right to all intellectual property relating to the Products, and all rights
to use all patents, trademarks, service marks, trade names, copyrights,
licenses, franchises and other rights (collectively including with respect to
the intellectual property relating to the Products, the "RIGHTS") being used to
conduct its business as now operated. The Company has provided, or made
available, the Purchasers with a complete set of all such agreements permitting
the Company to use the Rights of third parties or allowing third parties to use
the Rights of the Company except agreements which relate to Nonmaterial
Products. Set forth in Schedule 2.12 is a complete list of licenses or other
contracts relating to the Rights and of registration of patents, trademarks,
service marks and copyrights including any application therefor constituting
the Rights as of December 31, 1996 except for licenses or other contracts
relating to Nonmaterial Products.
(b) No Right or Product presently sold by or employed by
the Company, or which the Company contemplates selling or employing, infringes
upon the Rights that are owned by any third party except as would not result in
a MAE.
(c) No litigation is pending and no claim has been made
against the Company, or to the best of Company's knowledge, is threatened,
contesting the right of the Company to sell or use any Right or Product
presently sold or employed by the Company except as disclosed in Schedule 2.11.
(d) Except as set forth on Schedule 2.12, no employee,
officer or consultant of the Company has any proprietary, financial or other
interest in any Right owned or used by the Company which entitles such person
to the payment of an amount in excess of $10,000 with respect to any single
Right, or $25,000 with respect to all Rights in which such person has an
interest.
(e) The Company has taken reasonable measures to protect
and preserve the security, confidentiality and value of its Rights, including
trade secrets and other confidential information.
2.13. UNDISCLOSED LIABILITIES. Except for the agreements
and obligations listed in Schedule 2.13 or on the balance
sheet for the Company included in its Quarterly Report on Form
10-QSB for the three months ended September 30, 1996, the
Company does not have any outstanding liability except for
liabilities incurred in the ordinary course of business which
are either for amounts less than $50,000 or are cancelable on
not more than 30 days notice. The Company is not in default
in the performance, observance
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or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which
it is a party that could reasonably be expected to result in a
MAE.
2.14. FINANCIAL STATEMENTS. The Company has furnished to
the Purchasers the audited consolidated balance sheets of the
Company as of December 31, 1995 and the unaudited consolidated
balance sheets of the Company as of September 30, 1996 and the
related consolidated statements of operations, stockholders'
equity (net capital deficiency), and cash flows of the Company
for the fiscal year ended December 31, 1995 and the nine
months ended September 30, 1996 (unaudited) which audited
financial statements include the report of the Company's
independent auditors, KPMG Peat Marwick LLP. The financial
statements as of and for the nine months ended September 30,
1996 have been certified by the principal financial officer of
the Company. Such financial statements are complete and
correct, have been prepared in accordance with generally
accepted accounting principles ("GAAP"), consistently applied,
and present fairly the consolidated financial position of the
Company as of such respective dates, and the consolidated
results of its operations and cash flows for the respective
periods then ended, subject with respect to the nine month
financial statements to normal year end and audit adjustments.
2.15. EVENTS SUBSEQUENT TO SEPTEMBER 30, 1996. Except as
set forth in Schedule 2.15, since September 30, 1996, there
has not been any material adverse change in the assets,
liabilities, income, business, operations or prospects of the
Company. Since September 30, 1996, other than the disclosure
set forth in Schedule 2.15 hereto, the Company has not (i)
issued any stock, bonds or other securities, (ii) borrowed any
amount or incurred any liabilities (absolute or contingent),
except current liabilities incurred, and liabilities under
contracts entered into, in the ordinary course of business,
(iii) discharged or satisfied any lien or incurred or paid any
obligation or liability (absolute or contingent) other than
current liabilities shown on its balance sheet as of September
30, 1996, referred to in Section 2.13 hereof and current
liabilities incurred since that date in the ordinary course of
business, (iv) declared or made any payment or distribution to
stockholders as such or purchased or redeemed any shares of
its capital stock or other securities or interests, (v)
mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens of current real
property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets, except in the ordinary
course of business, or canceled any debts or claims, (vii)
sold, assigned or transferred any patents, trademarks, trade
names, copyrights, trade secrets or other intangible assets
outside the ordinary course of business, (viii) made any
changes in officer compensation, or (ix) entered into any
transaction except in the ordinary course of business.
2.16. TITLE TO PROPERTIES. The Company has good and
marketable title to all of its owned properties and assets,
free and clear of all mortgages, pledges, security interests,
liens, charges and other encumbrances, except for Permitted
Encumbrances
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(as defined below). The Company enjoys peaceful and
undisturbed possession under all leases relating to real
property and all other leases (other than immaterial leases
which can be replaced on substantially the same terms)
necessary for the operation of the business; and all such
leases are valid and subsisting and in full force and effect.
As used herein, "PERMITTED ENCUMBRANCES" means any mortgages,
pledges, security interests, liens, charges and other
encumbrances (i) as described in Schedule 2.16 hereto, (ii)
liens for current taxes, assessments and other governmental
charges not overdue (other than liens, assessments or charges
being contested in good faith), (iii) mechanic's,
materialmen's and similar liens which may have arisen in the
ordinary course of business and which, in the aggregate, would
not be material to the financial condition of the Company,
(iv) security interests securing indebtedness not in default
for the purchase price of or lease rental payments on property
purchased or leased under capital lease arrangements in the
ordinary course of business, and (v) minor imperfections of
title, if any, not material in amount and not materially
detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed
operations of the Company.
2.17. REAL PROPERTY. Other than the premises containing the
Company's headquarters located at 8955 Beverly Boulevard, Los
Angeles, California, the Company owns no real property.
2.18. TAXES.
(a) The Company has timely filed all federal, state and
local income tax returns and has timely filed with all appropriate governmental
agencies all sales, ad valorem, franchise and other tax, license, gross
receipts and other similar returns and reports required to be filed by the
Company. The Company has reported all taxable income and losses on those
returns on which such information is required to be reported, and paid or
provided for the payment of all taxes on said returns or taxes due pursuant to
any assessment received by it, including without limitation, any taxes by law
to be withheld and/or paid in connection with any officer's or employee's
compensation or due pursuant to any assessment received by it. There are no
agreements for the extension of time for the assessment or payment of any
amounts of tax. The Company has made available to the Purchasers for
inspection copies of income tax returns that are true and complete copies of
the federal and applicable state, local or other income tax returns filed by
the Company.
(b) The Company has paid all tax liabilities of the
Company arising through the end of the taxable year ended December 31, 1995.
All tax liabilities of the Company arising after December 31, 1995 have been
paid or adequately disclosed and properly reserved for on the books and records
and financial statements of the Company. No federal or applicable state, local
or other tax return of the Company for any period has been or is currently
under audit by the Internal Revenue Service or any state, local or other tax
authorities. Except for an intangible tax assessment by Florida for
approximately $11,000 (inclusive of accrued interest), no claim has been made
by federal, state, local or other authorities relating to such returns or any
audit. For purposes of this section, the word "timely" shall mean that such
returns were filed within the time prescribed by law
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for the filing thereof, including the time permitted under any applicable
extensions. The Company is not aware of any facts which it believes would
constitute the basis for the proposal of any material tax deficiencies for any
unexamined year. All taxes which the Company is required by law to withhold
and collect have been duly withheld and collected, and has been timely paid
over to the proper authorities to the extent due and payable.
2.19. ENVIRONMENTAL MATTERS. The Company has complied with
each and is not in violation of any, federal, state or local
law, regulation, permit, provision or ordinance relating to
the generation, storage, transportation, treatment or disposal
of hazardous, toxic or polluting substances, except where such
noncompliance or violation could not reasonably be expected to
result in a MAE. The Company has obtained and adhered to all
necessary permits and other approvals necessary to store,
dispose, and otherwise handle hazardous, toxic and polluting
substances, the failure of which to obtain or adhere to could
not reasonably be expected to result in a MAE. The Company
has reported, to the extent required by federal, state and
local law, all past and present sites where hazardous, toxic
or polluting substances, if any, from the Company have been
treated, stored or disposed. The Company has not transported
any hazardous, toxic or polluting substances or arranged for
the transportation of such substances to any location which is
the subject of federal, state or local enforcement actions or
other investigations which may lead to claims against the
Company for clean-up costs, remedial work, damages to natural
resources or for personal injury claims, including, but not
limited to, claims under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
which claims would result in a MAE.
2.20. USE OF PROCEEDS. The Company will apply the proceeds
of the issuance and sale of the Preferred Shares and Warrant
Shares for working capital purposes.
2.21. COMPLIANCE WITH LAW.
(a) The Company is not in default under any order of any
court, governmental authority or arbitration board or tribunal to which the
Company is or was subject or in violation of any laws, ordinances, governmental
rules or regulations (including, but not limited to, those relating to
environmental, safety, building, product safety or health standards or
employment matters) to which the Company is or was subject, in each case, that
could reasonably be expected to result in a MAE. The business is being
conducted in compliance with all applicable laws, ordinances, rules and
regulations applicable to the Company, the non-compliance with which could
reasonably be expected to have a MAE. The Company has not failed to obtain any
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its properties or to the conduct of its business, which
failure could have a MAE.
(b) The Company has filed all documents (the "FILINGS")
required to be filed with the Securities and Exchange Commission (the
"COMMISSION") pursuant to the 1933 Act and the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT") and true, correct and complete
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copies of the Filings have been made available to the Purchasers. The Filings
complied in all material respects with the requirements of the 1933 Act and the
Exchange Act, as applicable, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order the render the statement not misleading in light of the
circumstances in which they were made. Except as set forth on Schedule 2.21,
the Company has filed in a timely manner all reports required to be filed since
May 1, 1996.
2.22. EMPLOYEE BENEFIT PLANS.
(a) The Company has complied and currently is in
compliance, both as to form and operation, with the applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
the Internal Revenue Codes of 1954 and/or 1986, as amended, respectively (the
"CODE"), with respect to each "employee benefit plan" as defined under Section
3(3) of ERISA ("PLAN") which the Company (i) has ever adopted, maintained,
established or to which the Company has ever been required to contribute or to
which the Company has ever contributed or (ii) currently maintains or to which
the Company currently contributes or is required to contribute or (iii)
currently participates in or is required to participate in, except in each case
or all cases in the aggregate where such noncompliance would not result in a
MAE.
(b) Except as set forth on Schedule 2.22, the Company has
never maintained, adopted or established, contributed or been required to
contribute to, or otherwise participated in or been required to participate in,
a "multi-employer plan" (as defined in Section 3(37) of ERISA). No amount is
due or owing from the Company on account of a "multi-employer plan" (as defined
in Section 3(37) of ERISA) or on account of any withdrawal therefrom.
(c) Notwithstanding anything else set forth herein, the
Company has not incurred any material liability with respect to a Plan,
including, without limitation, under ERISA (including, without limitation,
Title I or Title IV of ERISA and other than liability for premiums due to the
Pension Benefit Guaranty Corporation), the Code or other applicable law, which
has not been satisfied or reserved in full, and no event has occurred, and
except as set forth on Schedule 2.22 there exists no condition or set of
circumstances which could result in the imposition of any material liability
with respect to the Plan, including, without limitation, under ERISA
(including, without limitation, Title I or Title IV of ERISA), the Code or
other applicable law with respect to the Plan.
(d) Except as set forth on Schedule 2.22, the Company has
not committed itself, orally or in writing, to (i) provide or cause to be
provided to any person now or at any time covered by any Plan any payments or
benefits, which are material either singly or in the aggregate, in addition to,
or in lieu of, those payments or benefits set forth under any Plan, or (ii)
continue the payment of, or accelerate the payment of, benefits, which are
material either singly or in the aggregate, under any Plan, except as expressly
set forth thereunder. Complete and correct copies of all written arrangements
described in the preceding sentence as in effect on the date hereof have been
delivered to the Purchasers.
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(e) Except as set forth on Schedule 2.22, the Company has
not committed itself, orally or in writing, to provide or cause to be provided
any severance or other post-employment benefit, salary continuation,
termination, disability, death, retirement, health or medical benefit, or
similar benefit to any person (including, without limitation, any former or
current employee) except as set forth under any Plan, except for such benefits
which individually or in the aggregate are not material. Complete and correct
copies of all written arrangements described in the preceding sentence as in
effect on the date hereof have been delivered to the Purchasers.
2.23. INSURANCE. All policies of liability, theft,
fidelity, business interruption, life, fire, product
liability, workmen's compensation, health and other forms of
insurance held by the Company are valid and enforceable
policies and are outstanding and duly in force and all
premiums with respect thereto are paid to date. To the best
of the Company's knowledge, the amounts of coverage under such
policies of insurance for the assets and properties of the
Company are adequate against risks usually insured against by
persons operating similar businesses and operating similar
properties.
2.24. REGISTRATION RIGHTS. Except as contemplated by or
described in the Registration Rights Agreement and other than
as set forth on Schedule 2.24, no person has any right to
cause the Company to effect the registration under the 1933
Act of any of the Company's debt or equity securities.
2.25. COMPENSATION ARRANGEMENTS. Except as contemplated by
this Agreement or as set forth in Schedule 2.25 hereto, (i)
the Company is not a party to any employment or deferred
compensation agreements that require payments by the Company
to any individual in excess of $100,000 in any year, (ii) the
Company does not have any bonus, incentive or profit-sharing
plans that would require payments by the Company to any
individual in an amount equal to or exceeding $10,000, and
(iii) there are no existing material arrangements or proposed
material transactions between the Company and any officer or
director or holder of more than 5% of the capital stock of the
Company. Complete and correct copies of all written
arrangements described in the preceding sentence as in effect
on the date hereof have been delivered to the Purchasers.
2.26. KEY EMPLOYEES. The persons listed on Schedule 2.26
hereto are all persons considered "key employees" by the Board
of Directors. All of such persons are parties to
confidentiality customary for employees of comparable
responsibility and value. All copies of key man life
insurance policies, if any, have been delivered to the
Purchasers.
2.27. LABOR MATTERS. Except as set forth on Schedule 2.27,
the Company is not a party to any collective bargaining
agreement with any labor union or association. There are no
discussions, negotiations, demands or proposals that are
pending or have been conducted or made with or by any labor
union or association, and there are no pending or threatened
labor disputes, strikes or work stoppages that may have a
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material adverse effect upon the continued business or
operation of the Company, other matters of an industry-wide
level. The Company is in compliance in all material respects
with all federal and state laws respecting employment and
employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor
practices.
2.28. DISCLOSURE. Neither this Agreement nor any other
document, certificate, instrument or statement furnished or
made to the Purchasers by or on behalf of the Company in
connection with the transactions contemplated hereby contain
any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
contained herein and therein not misleading in light of the
circumstances under which they were made.
SECTION 3
PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants to the Company the following:
3.1. AUTHORIZATION. Such Purchaser has all requisite
power and authority to execute this Agreement and the
Registration Rights Agreement and the Pledge Agreement, and to
carry out the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement by
such Purchaser have been duly authorized by all requisite
corporate action, and this Agreement has been duly executed
and delivered by such Purchaser and the Pledge Agreement when
duly executed and delivered by such Purchaser will constitutes
its valid and binding obligation, enforceable against such
Purchaser in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally and general
equitable principles.
3.2. PURCHASE FOR INVESTMENT. The Preferred Shares,
Common Shares, Warrants and the Warrant Shares are being
acquired by such Purchaser for its own account, not as a
nominee or agent, for investment and not with a view to resale
or distribution within the meaning of the 1933 Act, and the
rules and regulations thereunder, and such Purchaser will not
distribute the Preferred Shares, Common Shares, the Warrants
or the Warrant Shares in violation or contravention of the
1933 Act. Such Purchaser is not aware of any facts or
circumstances that contradict the representation in the first
sentence of Section 2.6(a).
3.3. RESTRICTIONS ON TRANSFER. The Purchaser acknowledges
that (a) the Preferred Shares, Common Shares, the Warrants and
the Warrant Shares are not registered under the 1933 Act as of
the Closing Date, (b) the Preferred Shares, Common Shares,
Warrants and Warrant Shares will not be transferable unless so
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registered or unless an exception for such registration is
applicable and (c) the certificates representing the Preferred
Shares and the Common Shares, the Warrants, and the
certificates representing the Warrant Shares will bear a
legend substantially in the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY
THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM."
3.4. SOPHISTICATION; ACCESS TO INFORMATION.
(a) Such Purchaser represents and warrants to the
Company, that such Purchaser and if such Purchaser is a corporation each
shareholder of Purchaser (i) is an "accredited investor" as defined in the
1933 Act and is financially able to purchase the Preferred Shares, the Common
Shares, the Warrants and the Warrant Shares issuable upon exercise of the
Warrant subscribed for hereunder, (ii) is fully capable of understanding the
type of investment being made pursuant to this Agreement and the risks involved
in connection therewith, (iii) believes that the nature of the Preferred
Shares, the Common Shares, the Warrants and the Warrant Shares are consistent
with their overall investment programs and financial position, (iv) recognizes
that there are substantial risks involved in their purchase of the Preferred
Shares, the Common Shares, the Warrants and the Warrant Shares, (v) is capable
of bearing the economic risk of its investment for an indefinite period of time
and can afford a complete loss of its investment, (vi) has adequate means of
providing for their current liquidity needs, (vii) has no need for liquidity of
their investment, (viii) is not expecting any short term income from their
investment and (ix) has no reason to anticipate any change in personal
circumstances, financial or otherwise, which may cause or require any sale of
the Preferred Shares, the Common Shares, the Warrants or the Warrant Shares.
(b) Such Purchaser acknowledges to the Company that it
has had the opportunity to ask questions of and receive answers from the
Company's officers and directors concerning the terms and conditions of the (i)
purchase and delivery of the Preferred Shares, the Common Shares, the Warrants
and Warrant Shares and (ii) business and financial conditions of the Company;
and such Purchaser has received to its satisfaction, such additional
information about the business and financial conditions of the Company and the
terms and conditions of the purchase and delivery of the Preferred Shares, the
Common Shares and the Warrants, as it has requested.
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<PAGE> 16
SECTION 4
CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATIONS
A. The Purchasers' obligation to purchase the Initial Preferred Shares
and Initial Warrants on the Initial Closing Date is subject to the fulfillment
to their respective satisfaction of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES. On the Initial
Closing Date, the representations and warranties contained in
Section 2 hereof made to such Purchaser shall be true and
correct with the same effect as though made on and as of the
Closing Date (except for representations and warranties
limited to a specific time).
4.2. COMPLIANCE WITH THIS AGREEMENT. All the covenants,
agreements and conditions contained in this Agreement to be
performed or complied with by the Company on or prior to each
Closing Date shall have been performed or complied with or
waived to each Purchaser's satisfaction.
4.3. CLOSING CERTIFICATE. The Company shall have delivered
to the Purchasers a certificate, dated the Initial Closing
Date and the Second Closing Date, as the case may be, and
signed by the Company's Chief Executive Officer, President and
Chief Financial Officer, certifying that the Company has
satisfied the conditions set forth in this Agreement
applicable to such Purchaser, including by reference the
conditions specified in Sections 4.1 and 4.2.
4.4. SECRETARY'S CERTIFICATE. At the Initial Closing
Date, the Purchasers shall have received a certificate from
the Company, dated the Initial Closing Date and signed by the
Secretary of the Company, certifying (i) that the attached
copies of the Articles of Incorporation, By-Laws and
resolutions of the Board of Directors of the Company
authorizing the execution of this Agreement by the Company,
the sale, issuance and delivery by the Company to the
Purchasers of the Preferred Shares, the Common Shares, the
Warrants and the Warrant Shares and reserving for issuance the
Common Shares, the Warrant Shares and the Consulting Shares
are all true, correct and complete and remain unamended and in
full force and effect and (ii) as to the incumbency of all
officers of the Company executing any document signed on
behalf of the Company in connection with the transaction
contemplated hereby.
4.5. NO LITIGATION, MATERIAL JUDGMENTS OR ORDERS. On the
Initial Closing Date, there shall not be any pending or
threatened suit, action or litigation, or administrative,
arbitration or other proceeding or governmental inquiry or
16
<PAGE> 17
investigation questioning the validity of this Agreement or
the transactions contemplated hereby.
4.6. OPINION. At the Initial Closing, the Purchasers
shall have received an opinion of Steve Soloway, general
counsel to the Company, substantially in the form of Exhibit C
hereto.
4.7. CONSENTS AND APPROVALS. All consents, waivers,
exemptions, authorizations or other actions by, or notices to,
or filings with governmental authorities or third parties
regarding applicable laws and contractual obligations related,
necessary or required in connection with the execution,
delivery or performance of this Agreement and the sale,
issuance and delivery of the Preferred Shares, Common Shares,
Warrants and the Warrant Shares by the Company to the
Purchasers, shall have been obtained and be in full force and
effect; and the Purchasers shall have been furnished with the
appropriate evidence thereof, and all waiting periods imposed
on the Company shall have lapsed without extension or the
imposition of any conditions or restrictions.
4.8. INVESTMENT BY OTHER PURCHASERS. Each Purchaser's
obligation to purchase the Initial Preferred Shares and
Initial Warrants subscribed for by such Purchaser hereunder on
the Initial Closing Date is subject to the fulfillment by each
other Purchaser of its obligation to purchase the Initial
Preferred Shares and Initial Warrants subscribed for by such
other Purchaser on the Initial Closing Date.
B. MEI's obligation to purchase the Initial MEI Preferred Shares and the
Initial MEI Warrant on the Initial Closing Date is subject to the fulfillment
to its satisfaction of the following additional conditions:
4.9. SERIES A AMENDMENT. The voting rights, preferences,
limitations and special rights of the Series A Preferred Stock
of the Company shall have been amended to increase the number
of shares of preferred stock designated as Series A Preferred
Stock, to fix the conversion ratio at 1.20497 subject to
antidilution protection, to provide for the payment of
dividends at the Company's option in the form of Series A
Preferred Stock, to eliminate any prohibition on a series or
class of securities ranking equal to the Series A Preferred
Stock with respect to a liquidation preference or the issuance
of dividends, and to change the antidilution protection
relating to future sales of securities of the Company to be
consistent with such protections set forth in the Series B
Preferred Stock.
4.10. STOCK INCENTIVE PLAN. The Stock Option Committee or
the Board of Directors of the Company shall have taken all
action necessary under the 1994 Stock Incentive Plan (the
"PLAN") of the Company to assure that the transactions
contemplated by this Agreement, including without limitation,
the issuance of the Preferred Shares, Common Shares, Warrants,
Warrant Shares and Consulting Shares,
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<PAGE> 18
and the election to the Board of Directors of representatives
of MEI, whether pursuant to the terms of the Series B
Preferred Stock or pursuant to this Agreement, including
pursuant to the terms of Section 7.2 hereinbelow, will not
constitute an "Event" under the terms of the Plan such that,
among other things, the vesting of all options issued
thereunder would be accelerated.
4.11. EMPLOYMENT AGREEMENTS. The Company shall have
received from each of Michael Viner, Deborah Raffin, Gerald
Leider, and Steven Soloway, his or her agreement under which
each such person shall agree that for purposes of their
respective employment agreement that (i) the acquisition by
MEI or its Principals or any of their affiliates in the
aggregate of not more than 40% of the outstanding shares of
Common Stock of the Company, including without limitation, by
way of open market purchases, or the issuance of the Preferred
Shares, Common Shares, Warrants, Warrant Shares or Consulting
Shares, pursuant to this Agreement, and (ii) the election to
the Board of Directors of representatives of MEI pursuant to
or as contemplated in this Agreement, whether pursuant to the
terms of the Series B Preferred Stock or Section 6.3 or
Section 7.2 hereinbelow, will not constitute an "Event"
triggering any rights under their respective employment
agreements, such waiver agreements to be in form and substance
acceptable to MEI. It is expressly acknowledged by MEI that
the foregoing waiver will not extend to the election to the
Board of Directors of representatives of MEI constituting more
than one third of the total number of directors constituting
the entire Board of Directors, except if elected pursuant to
Section 7.2 hereinbelow or otherwise nominated by the Board of
Directors, and in the event of such election, director
representatives of MEI will not constitute continuing
directors for purposes of determining whether an "Event" has
occurred under such employment agreement.
4.12. VOTING AGREEMENT. Michael Viner and Deborah Raffin
shall have executed and delivered the Voting Agreement
substantially in the form of Exhibit F.
C. The Purchasers' obligation to purchase the Second Preferred Shares and
the Second Warrants on the Second Closing Date is subject to the fulfilment to
their respective satisfaction of the following conditions:
4.13. INVESTMENT BY OTHER PURCHASERS. Each Purchaser's
obligation to purchase the Second Preferred Shares and Second
Warrants subscribed for by such Purchaser hereunder on the
Second Closing Date is subject to the fulfilment by each other
Purchaser of its obligation to purchase the Second Preferred
Shares and Second Warrants subscribed for by such other
Purchaser on the Second Closing Date.
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<PAGE> 19
SECTION 5
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The Company's obligation to sell, issue and deliver the Initial Shares
and the Initial Warrants on the Initial Closing Date and the Second Shares and
Second Warrants on the Second Closing Date as specifically provided, is
subject to the fulfillment to its satisfaction of the following conditions:
5.1. REPRESENTATIONS AND WARRANTIES. On the Initial
Closing Date and the Second Closing Date, the representations
and warranties contained in Section 3 hereof shall be true and
correct with the same effect as though made on and as of the
Closing Date.
5.2. COMPLIANCE WITH THIS AGREEMENT. All the covenants,
agreements and conditions contained in this Agreement to be
performed or complied with by the Purchasers on or prior to
the Initial Closing Date shall have been complied with or
performed.
5.3. NO INJUNCTION. There shall not be any pending or
threatened suit, action or litigation, or administrative,
arbitration or other proceeding or governmental inquiry or
investigation questioning the validity of this Agreement or
the transactions contemplated hereby.
5.4. PLEDGE AGREEMENT. Each Purchaser shall have executed
and delivered to the Company a pledge agreement substantially
in the form of Exhibit E hereto (the "PLEDGE AGREEMENT").
SECTION 6
COVENANTS OF THE COMPANY
6.1. FINANCIAL STATEMENTS AND REPORTS. For so long as MEI
or its Principals (as hereinafter defined) continue to hold in
the aggregate at least 1% of the outstanding shares of Common
Stock (assuming for this purpose that the Preferred Shares are
converted in their entirety), the Company shall furnish to MEI
the following financial statements and reports:
(a) Within the period prescribed by the Securities and
Exchange Commission (the "COMMISSION"), an audited balance sheet, and related
audited statements of income, cash flows and shareholders' equity of the
Company as of and for such fiscal year prepared in accordance with GAAP,
consistently applied, and accompanied by the opinion of the Company's regularly
engaged firm of independent certified public accountants.
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<PAGE> 20
(b) Within the period prescribed by the Commission, a
quarterly balance sheet and statements of income, cash flows and stockholders'
equity of the Company as of and for such quarter and the year to date and as of
and for the corresponding periods of the preceding fiscal year. The interim
statements described above shall be unaudited, but prepared in accordance with
GAAP, subject only to normal year-end audit adjustments and shall be certified
by the Chief Financial Officer of the Company; and
(c) Promptly upon their becoming available, the Company
shall deliver to the Purchasers copies of (i) all financial statements,
reports, notices and proxy statements sent or made available to shareholders by
the Company, (ii) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by the Company with any securities
exchange or with the Commission or any governmental or private regulatory
authority, and (iii) all press releases and other statements made available by
the Company to the public concerning material developments in the business of
the Company.
6.2. ACCESS. The Company shall during usual business
hours and upon reasonable notice, permit the Purchasers' duly
authorized representatives to visit and inspect the properties
of the Company, to examine the stock register, books and
records of account and records of the proceedings of the
incorporators, stockholders and directors and to make copies
or extracts therefrom, and to discuss the Company's business
with its officers and directors.
6.3. APPOINTMENT TO THE BOARD OF DIRECTORS; BY-LAW
AMENDMENTS.
(a) The number of directors constituting the Board of
Directors shall be fixed at no more than nine, and the Company shall,
concurrently with the Closing or as soon as practicable thereafter, elect to
its Board of Directors nominees designated by MEI to constitute not less than
one third of the members of the entire Board of Directors, each of whom shall
be a principal of MEI as of the date hereof (each a "PRINCIPAL"), which
directors may be newly created vacancies, which directors shall constitute the
directors entitled to be elected by the holders of Series B Preferred Stock.
(b) So long as MEI or its Principals continue to hold not
less than an aggregate of 750,000 Common Shares (assuming for this purpose that
the Preferred Shares are converted then in their entirety to Common Shares and
subject to adjustment for stock splits or combinations), if the holders of
Series B Preferred Stock are for any reason not entitled to elect directors as
contemplated in the Certificate of Determination relating to the Series B
Preferred Stock or because no Series B Preferred Stock is at such time
outstanding, the Company shall continue to include as management nominees in
the slate of persons proposed to be elected directors with respect to all
future elections of directors, whether at an annual or special meeting or
otherwise, and use its reasonable best efforts to have elected to its Board of
Directors nominees designated by MEI to constitute not less than one third of
the members of the entire Board of Directors, each of whom shall be a
Principal, except to the extent necessary to comply with the provisions of
Subparagraph (e) below.
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<PAGE> 21
(c) In the event that the Company fails for a period of
more than 30 days at any time to abide by the terms of this provision, the then
exercise price of the Initial MEI Warrants and the Second MEI Warrants,
including all tranches, shall be reduced by 5% for each full month of such
non-compliance until cured.
(d) The directors nominated by MEI shall receive such
standard compensation in accordance with the Company's regular policy for
directors.
(e) Concurrently with the Initial Closing, the Company's
Board of Directors shall establish an Audit Committee to the extent not already
established, and so long as MEI or its Principals continue to hold not less
than an aggregate of 750,000 Common Shares (assuming for this purpose that the
Preferred Shares are converted then in their entirety to Common Shares and
subject to adjustment for stock splits or combinations), at least one-half of
the designees thereof shall be directors designated by MEI of which at least
one director shall be required to qualify as an "independent" director for
purposes of meeting any requirements with respect to such committee imposed for
continued listing on NASDAQ or any national securities market on which the
Company's Common Stock is then listed. The By-laws of the Company shall be
amended to the extent necessary to establish the audit committee and to insure
the appointment of designees of MEI as members.
(f) The By-Laws of the Company shall be amended to the
extent necessary to provide that the Audit Committee shall be responsible for
approving, from time to time, the Chief Financial Officer of the Company.
6.4. OTHER FILINGS AND DISSEMINATION OF MATERIAL. For
so long as the Preferred Shares, Common Shares, Warrants or
Warrant Shares remain owned by MEI or its Principals:
(a) The Company shall make and keep public information
available as those terms are understood and defined in Rule 144 promulgated
under the 1933 Act.
(b) The Company shall file with the Commission in a
timely manner all reports and other documents as the Commission may prescribe
under the Exchange Act at any time.
(c) The Company shall furnish to MEI and its Principals a
written statement by the Company as to its compliance with the reporting
requirements of the Exchange Act as such holder may reasonably request to avail
itself of any rule or regulation of the Commission allowing such holder to sell
any such securities without registration.
6.5. ANNOUNCEMENTS. The Purchasers acknowledge that the
Company may be required by law to make certain announcements
regarding the transaction contemplated hereby. The content of
any such public announcement by either party will be subject
to review and approval of the other party, such delivery and
review
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<PAGE> 22
of content constituting such public announcement shall be
timely and approval shall not be unreasonably withheld.
6.6. INDEMNIFICATION.
(a) The Company (together with its successors and
assigns, the "INDEMNIFYING PARTY") shall indemnify and hold harmless each
Purchaser, its principals, employees (each, an "INDEMNIFIED PARTY") to the
fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including, without limitation, reasonable fees,
disbursements and other charges of counsel incurred by an Indemnified Party in
any action or proceeding between an Indemnifying Party and Indemnified Party
(or Indemnified Parties) or between an Indemnified Party (or Indemnified
Parties) and any third party or otherwise, or other liabilities (collectively,
the "LIABILITIES") resulting from or arising out of any breach of any
representation or warranty, covenant or agreement of an Indemnifying Party to
such Indemnified Party in this Agreement, or any legal, administrative or other
actions (including actions brought by any equity holder of the Company) or
derivative actions brought by any third party claiming through or in
Indemnifying Party's name), proceedings or investigations (whether formal or
informal), or written threats thereof, based upon, relating to or arising out
of any breach of any representation or warranty, covenant or agreement of an
Indemnifying Party to such Indemnified Party in this Agreement.
(b) To the extent that such indemnification is
unenforceable for any reason, the Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of the Liabilities which shall be
permissible under applicable laws.
(c) In connection with the obligation of the Indemnifying
Party to indemnify for or contribute towards expenses as set forth above, the
Indemnifying Party further agrees, upon presentation of appropriate invoices
containing reasonable detail, to reimburse each Indemnified Party for all such
expenses (including fees, disbursements and other charges of counsel incurred
by an Indemnified Party in any action or proceeding between the Indemnifying
Party and such Indemnified Party, or Parties, and any third party otherwise) as
they are incurred by such Indemnified Party subject to an undertaking to
reimburse such amounts if determined not entitled to it.
6.7. CONSULTING AGREEMENT. Not later than April 1, 1997,
the Company shall execute and deliver a consulting agreement
with MEI containing the terms and provisions set forth on
Exhibit D hereto (the "CONSULTING AGREEMENT").
6.8. MARKETING OF ASSETS. The Company shall use its
reasonable best efforts to sell or license the North American
distribution rights to the "Wilde feature film" for an amount
at least equal to that discussed between the Company and MEI
and to reduce its audiotape inventory through the sale thereof
by at least $500,000.
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<PAGE> 23
SECTION 7
NEGATIVE COVENANTS
7.1. NEGATIVE COVENANTS.
(a) So long as MEI or its Principals continue to hold not
less than an aggregate of 750,000 Common Shares (assuming for this purpose that
the Preferred Shares are converted in their entirety to Common Shares and
subject to adjustment for stock splits and combinations), the Company hereby
covenants and agrees with MEI that without the consent of MEI, which right of
consent shall be exercised in good faith and in a commercially reasonable
manner,
(i) the Company will not:
A. adopt an annual budget;
B. incur any debt for borrowed
money or sell and issue and debt or
equity securities other than
compensation for employees,
directors and consultants or
pursuant to the options, warrants or
convertible securities listed on
Schedule 2.3(c);
C. change or alter its
principal business or enter into any
new business (it being understood
that exploiting ancillary rights
shall not be considered a new
business).
(ii) no executive officer of the Company, will
knowingly:
A. hire any executive that
earns in excess of $100,000 per year;
B. make any financial
commitment for personnel in excess
of the approved budget other than
minor salary adjustments or raises
within the budget year;
C. make any changes or
additions in the Company's auditors,
consultants or principal outside
counsel;
D. commence any litigation not
in the ordinary course of business
or settle any litigation not in the
ordinary course of business or where
the amount to be paid by the Company
is $25,000 or more;
E. acquire any assets where the
required payment by the Company is
in excess of $155,000 or sell or
license outside of
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<PAGE> 24
the ordinary course of business
assets where the payment to the
Company is in excess of $155,000,
including film, audio or publishing
rights;
F. commence active
preproduction for (A) any television
movie-of-the-week, special or mini-
series, unless the license fee
payable (or previously paid) for
such program by the U.S. broadcast
or cable network together with
bankable foreign licenses is at
least equal to the budgeted negative
cost (including all normal and
customary production budget items
including for functions performed by
the Company and including customary
contingency of 10%), minus $250,000
and the Company reasonably believes
that additional revenues from
uncommitted territories is
reasonably likely to generate
revenues in excess of $250,000 in
the two years from the date of
commencement of such preproduction,
(B) any episodic television series
unless the budgeted negative cost
(including all normal and customary
production budget items including
for functions performed by the
Company and including customary
contingency of 10%) per episode is
less than $150,000 and at least 80%
of such budgeted negative cost will
be funded by a U.S. broadcast or
cable network and the Company
reasonably believes that additional
revenues from uncommitted
territories is reasonably likely to
generate revenues in excess of the
unfunded amount within two years
from the date of commencement of
such preproduction; or (C) engage in
the production of a theatrical
feature film, except to the extent
the Company's commitments are less
than $250,000 and the Company
reasonably believes that expected
revenue from such film will be in
excess of all costs relating
thereto, including the amount of the
Company's commitment;
G. issue any financial press
releases or publicly issue or
otherwise publicly discuss the
Company's projected financial
results (it being understood that
the foregoing is not intended to
restrict comments in general terms
as to the anticipated success of any
particular project).
(b) For purposes of this Section 7.1 only, MEI shall from
time to time designate a person (the "MEI REPRESENTATIVE") by notice to the
Company, who shall be appointed a member of the Executive Committee of the
Board of Directors, who shall have the authority as between the Company and MEI
to give or withhold MEI's consent as contemplated in this Section 7.1, which
MEI Representative shall, until further notice, be Ronald Lightstone. The
person designated as the MEI Representative may be changed from time to time by
like notice.
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<PAGE> 25
7.2. REMEDY. In the event that the Company breaches any
of the covenants set forth in Section 7.1., and such breach is
continuing uncured for a period of thirty (30) days after
notice thereof is given to the Company by MEI or any Principal
(with a copy thereof to Michael Viner), then the Company shall
immediately upon demand by MEI or any Principal take all steps
necessary or appropriate to elect to its Board of Directors
two additional directors nominated by MEI or its Principals,
including calling a special meeting for such purpose, which
directors shall continue to serve until the earlier of the
annual meeting of the shareholders of the Company next
following the cure of the breach which gave rise to the
exercise of rights under this Section 7.2, or until MEI and
its Principals no longer own at least 750,000 Common Shares
(assuming for this purpose that the Preferred Shares are
converted in their entirety to Common Shares and subject to
adjustment for stock splits and combinations). The rights
afforded to MEI hereunder shall arise each time there is a
breach of the covenants set forth in Section 7.1 and shall be
severable with respect thereto, provided in no event shall
this Section entitled MEI to have more than two additional
directors designated at any one time.
SECTION 8
MISCELLANEOUS
8.1. REGISTERED OWNER OF THE PREFERRED SHARES, THE COMMON
SHARES, THE WARRANTS AND THE WARRANT SHARES. The Company may
deem and treat the registered holder of the Preferred Shares
and the Warrants as the absolute owner thereof for all
purposes whatsoever, and the Company shall not be affected by
any notice to the contrary.
8.2. PAYMENT OF EXPENSES; COUNSEL. The Company and the
Purchasers shall pay their own expenses, including the fees
and expenses of their respective counsel (if any) incurred by
them in connection with the sale, issuance and delivery of the
Shares, the Warrants and the Warrant Shares and the execution,
delivery and performance of this Agreement. Michael Viner and
Deborah Raffin acknowledge and understand that they have not
been personally represented by the Company's inside or outside
counsel in connection with this Agreement and the matters
contemplated hereby.
8.3. TRANSFER TAXES. The Company will pay, and hold the
Purchasers harmless against, liability for the payment of any
transfer or similar taxes payable in connection with the
initial sale, issuance and delivery of the Shares and the
Warrants.
8.4. BROKER OR FINDER. Except as expressly provided in
this Section, the Parties individually represent and warrant
that, to the best of their individual knowledge, no broker or
finder has acted for it in connection with this Agreement or
the transactions
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<PAGE> 26
contemplated by this Agreement and that no broker or finder is
entitled to any broker's or finder's fee or other commission
in respect thereof based in any way on agreements,
arrangements or understandings made by such party. The
Company shall indemnify MEI, and the Purchasers shall
indemnify the Company against, and hold it harmless from, any
claim, liability, cost or expense (including reasonable
attorneys' fees and expenses) resulting from any agreement,
arrangement or understanding made by the Company or the
Purchasers, as the case may be. Notwithstanding the
foregoing, the parties acknowledge that Artie Ripp has made a
claim for compensation as a broker or finder in connection
with the transaction contemplated herein. Compensation which
shall consist of options to purchase 50,000 shares exercisable
at the market price thereof on the date granted to be paid to
Mr. Ripp shall be paid by the Company. This provision is for
the benefit of the Purchasers and the Company in deciding
which party will pay any compensation if determined to be due
to Mr. Ripp, and is not intended to, and shall not confer any
right on Artie Ripp.
8.5. GOVERNING LAW. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York, without reference to conflict of law
provisions.
8.6. NOTICE. Any notice or other communication required
or permitted hereunder shall be sufficiently given only if
sent by facsimile transmission or by registered or certified
mail, postage prepaid, addressed as follows or to such other
address or addresses as may hereafter be furnished in writing
by notice similarly given by one party to the other:
To the Company: Dove Entertainment, Inc.
8955 Beverly Boulevard
Los Angeles, CA 90048
Facsimile: (310) 724-7146
The Purchasers: The addresses set forth on Appendix I.
With a required
copy if to MEI to: Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attn: Peter D. Weinstein, Esq.
Jack Levy, Esq.
Telephone: 212-734-8600
Facsimile: 212-735-8708
8.7. ENTIRE AGREEMENT. This Agreement, including the
Appendix, Schedules and Exhibits hereto, contains the entire
agreement and understanding among the Parties
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<PAGE> 27
with respect to the subject matter hereof and supersedes the
letter agreement dated March 3, 1997 between MEI and the
Company, and shall not be modified or affected by any offer,
proposal, statement or representation, oral or written, made
by or for any party in connection with the negotiation of the
terms hereof. All references herein to this Agreement shall
specifically include, incorporate and refer to the Appendix,
Schedules and Exhibits attached hereto which are hereby made a
part hereof. There are no representations, promises,
warranties, covenants, undertakings or assurances (express or
implied) other than those expressly set forth or provided for
herein and in the other documents referred to herein. This
Agreement may not be modified or amended orally, but only by a
writing signed by the Parties.
8.8. SEVERABILITY. If any part of this Agreement is held
to be unenforceable or invalid under, or in conflict with, the
applicable law of any jurisdiction, the unenforceable, invalid
or conflicting part shall, to the extent permitted by
applicable law, by narrowed or replaced, to the extent
possible, with a judicial construction in such jurisdiction
that effects the intent of the Parties regarding this
Agreement and such unenforceable, invalid or conflicting part.
To the extent permitted by applicable law, notwithstanding the
unenforceability, invalidity or conflict with applicable law
of any part of this Agreement, the remaining parts shall be
valid, enforceable and binding on the parties.
8.9. HEADINGS. The headings of the Sections of this
Agreement are inserted for convenience of reference only and
shall not be considered a part hereof.
8.10. COUNTERPARTS. This Agreement may be simultaneously
executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the
same instrument.
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<PAGE> 28
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first set forth above.
THE COMPANY:
DOVE ENTERTAINMENT, INC.
By: /s/ STEVEN SOLOWAY
--------------------------------
Name: Steven Soloway
Title: Executive Vice President
THE PURCHASERS:
MEDIA EQUITIES INTERNATIONAL LLC
By: /s/ RON LIGHTSTONE
--------------------------------
Name:
Title:
/s/ MICHAEL VINER
------------------------------
Michael Viner
/s/ DEBORAH RAFFIN
-------------------------------
Deborah Raffin
28
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APPENDIX I
<TABLE>
<CAPTION>
Number of Preferred Shares to be Number of Warrant Shares Subject to
-------------------------------- -----------------------------------
purchased at Warrant
------------ -------
Initial Closing Second Closing Initial Closing Second Closing
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Media Equities International, LLC 3,000 1,000 1,500,000 500,000
a New York limited liability Series B Series B
company
1 Stamford Plaza - 12th Floor
Stamford, Connecticut 16901
Telephone: (203) 323-1263
Telecopier: (203) 323-1809
Michael Viner and Deborah Raffin 920 1,000 500,000 500,000
1072 North Beverly Boulevard Series C Series C
Beverly Hills, California _____
Telephone:
Telecopier:
</TABLE>
Payment by Michael Viner and Deborah Raffin for the Initial Preferred
Shares shall consist of the following:
(a) The contribution to the Company of the $500,000 plus
accrued interest held in escrow or pledge to secure the payment for the "Wilde
feature film" and forgiveness of the excess 10% interest due thereon from
September 9, 1996 over the amount earned, aggregating approximately $526,375.
(b) The contribution of an aggregate of $75,000 due to
Michael Viner and Deborah Raffin for nonaccountable expenses for 1995 pursuant
to their respective employment agreements.
(c) The contribution of $75,000 by Michael Viner
constituting one-half of the guaranty fee and commission relating to the
"Wilde" feature film.
(d) The balance by wire transfer.
The Purchase Price for the Second Preferred Shares by Michael Viner
and Deborah Raffin shall be paid by:
(a) The contribution of an aggregate of $100,000 due to
Michael Viner and Deborah Raffin for nonaccountable expenses for 1996 and
one-third of the amount due for 1997 pursuant to their respective employment
agreements.
<PAGE> 30
(b) The contribution of $75,000 by Michael Viner
constituting one-half of the guaranty fee and commission relating to the
"Wilde" feature film.
(c) The balance by wire transfer.
<PAGE> 31
EXHIBITS
<TABLE>
<S> <C>
Exhibit A-1 Form of MEI Warrant
Exhibit A-2 Form of Viner/Raffin Warrant
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Opinion of Counsel
Exhibit D Consulting Agreement Terms
1. ________MEI will provide substantial general management consulting
advice including but not limited to financial (including
assisting in obtaining bank financing), television and film
distribution, and business affairs.
2. ________Term 3 years commencing April 1, 1997.
3. ________Compensation: Dove will pay $300,000 per year as follows:
$200,000 in cash payable quarterly in advance and $100,000 in
Common Stock of Dove valued at current market value on the
date of payment, payable quarterly in arrears.
Exhibit E Form of Pledge Agreement
Exhibit F Voting Agreement
</TABLE>
<PAGE> 1
EXHIBIT 10.41
Shareholders Voting Agreement
This Shareholders Voting Agreement ("Agreement"), dated as of March
27, 1997, by and between Michael Viner and Deborah Raffin (collectively,
"Viner") on the one hand and Media Equities International, LLC, a New York
limited liability company ("MEI"), with its principal office at 1 Stamford
Plaza, Stamford, Connecticut 16901, on the other hand.
WHEREAS, on March 27, 1997, MEI, Viner and Dove Entertainment, Inc. a
California corporation ("Dove"), executed and delivered a stock purchase
agreement (the "Stock Purchase Agreement") pursuant to which MEI agreed to
acquire from Dove 4,000 shares (the "MEI Purchase Shares") of newly issued
Dove Series B Preferred Stock and an option to purchase up to 2.0 million
shares of Common Stock, subject to anti-dilution adjustment (the "MEI Option
Shares") and Viner agreed to acquire from Dove 2,000 shares (the "Viner
Purchase Shares") of newly issued Dove Series C Preferred Stock and an option
to purchase up to 1.0 million shares of Common Stock , subject to anti-dilution
adjustment (the "Viner Option Shares") and to amend the terms of Dove's Series
A Preferred Stock (all of such Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, collectively, the "Purchase Shares;" and
all of such MEI Option Shares and Viner Option Shares, the "Option Shares");
and
WHEREAS, Viner is the beneficial owner of, and has the power to vote
directly or indirectly, approximately 1,525,811 currently outstanding shares of
Common Stock;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
Section 1. Election of Directors.
In the event that MEI shall be entitled to have representation on the
Company's Board of Directors pursuant to Section 6.3(b) or 7.2 of the Stock
Purchase Agreement, at MEI's request, Viner shall, and shall use his reasonable
best efforts to cause each of his affiliates to, vote all of the voting
securities of Dove beneficially owned thereby and entitled to vote thereon for
the election of the requisite number of director designees of MEI then required
by such Section 6.3(b) or 7.2. In addition, Viner shall use their reasonable
efforts to take all steps necessary to cause the election of such designees,
including seeking the resignation of current directors of the Company; however
nothing herein shall require Viner to take or fail to take any action which
would, as a matter of law, have a reasonable probability of causing a breach of
any fiduciary or similar duty of Viner to the Company and the Company's
shareholders, other than MEI.
Section 2. General Provisions.
(a) If at any time either MEI shall notify Dove of its desire to
have any of its director designees removed, each of Viner and MEI shall, and
shall use his or its reasonable best efforts to cause each of their respective
affiliates to, subject to all applicable requirements of law, vote all of the
voting securities of Dove owned by them and entitled to vote thereon for the
removal of
<PAGE> 2
such director at any meeting of the shareholders of Dove or by written consent
of the holders of voting securities of Dove without a meeting.
(b) Whenever any director designee of MEI ceases to serve on the
board of directors of Dove (whether by reason of death, resignation, removal or
otherwise), MEI shall be entitled, as between Viner and MEI, to designate a
successor director to fill the vacancy so created by giving notice in the
manner provided in Section 1(a) above. Each of Viner and MEI shall, and shall
use his or its reasonable best efforts to cause their respective affiliates to,
vote for such director designee in the manner provided for in Section 1(a)
above.
(c) MEI and Viner agree to jointly request the Secretary of the
Company to call a special meeting of shareholders of Dove if either Viner or
MEI requests such a meeting.
(d) MEI acknowledges that the listing criteria of the Nasdaq
market (as contemplated to be amended) may require the Company to have at least
two "independent" directors, and an audit committee, a majority of whose
members must be "independent" directors. Accordingly, notwithstanding anything
to the contrary herein or in the Stock Purchase Agreement, in the event the
provisions of Section 1(c) apply, MEI shall designate at least one
"independent" director to the extent required by such listing criteria.
Section 3. Termination. This Agreement shall terminate on the
earlier of (a) the close of business on the tenth anniversary hereof and (b)
the date on which MEI or its Principals beneficially owns in the aggregate less
than 750,000 shares of Common Stock (subject to adjustment for stock splits or
combinations and assuming the Series B Preferred Stock held by MEI is converted
into Common Stock).
Section 4. After-Acquired Shares. All of the provisions of this
Agreement shall apply to and shall include all shares of Common Stock or other
voting securities of Dove now beneficially owned by any of the parties hereto
(including, without limitation, the Purchase Shares being acquired concurrently
with the execution and delivery of this Agreement) and all shares of Common
Stock and other voting securities of Dove issued to (including, without
limitation, the Option Shares), purchased by (whether purchased through
open-market purchases, privately negotiated transactions or otherwise) or which
otherwise become beneficially owned by any of the parties hereto except as
otherwise provided herein.
Section 5. Transfer of Shares. During the term of this
Agreement, the parties shall be free to transfer shares of Common Stock to any
person (in which event such shares will no longer be subject to any restriction
under this Agreement), except that no such transfer shall be made to a Related
Person (as defined in the next sentence) unless prior thereto the other parties
shall have been notified of such proposed transfer and the transferee Related
Person shall have agreed n writing to be bound by the provisions of this
Agreement as if a party named herein. For purposes of the foregoing sentence,
the term "Related Person," when used to indicate a relationship with a party,
means any of (a) a corporation or organization of which such party or any such
person referred to in clause (c) is an officer or partner or is, directly or
indirectly, the beneficial owner of
2
<PAGE> 3
25 percent or more of any class of equity securities, (b) any trust or other
estate in which such party or any person referred to in clause (c) has at least
a 25 percent beneficial interest or as to which such party serves as trustee or
in a similar capacity, and (c) any relative in the immediate family (i.e.,
children or step-children) or spouse of such party or any relative in the
immediate family of such spouse.
Section 6. Owner of Shares. Each party to this Agreement may
deem and treat the person in whose name shares of securities are registered in
the stock books of Dove as the owner thereof for all purposes, including,
without limitation, for the giving of notices under this Agreement.
Section 7. Legend. A copy of this Agreement shall be filed with
the Secretary of Dove and shall be kept at its principal executive office.
Upon the execution of this Agreement, each of the parties hereto shall cause
each certificate representing shares of voting securities now or hereafter
owned by it to carry a legend as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE PROVISIONS OF A SHAREHOLDERS' VOTING AGREEMENT, DATED AS OF MARCH
27, 1997, AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT AS THEREIN PROVIDED. A COPY OF SUCH AGREEMENT IS
ON FILE AT THE OFFICES OF THE COMPANY.
Section 8. Notices. All notices and other communications shall
be effective (a) upon receipt if (i) hand delivered or (ii) sent by facsimile
transmission and confirmed by mail, (b) the third day after mailing, postage
prepaid return receipt requested and (c) one day after sending by recognized
"over-night" delivery service. Any notice not contemplated above shall be
effective upon receipt. For the purposes of this Section 8, the addresses of
the parties to which notices shall be sent shall be as follows:
If to Viner:
-----------
1072 Beverly Drive
Beverly Hills, CA 90210
If to MEI or any MEI Shareholder:
--------------------------------
At the address set forth in the preamble hereto.
Each of the parties hereto may change the address to which such
communications are to be directed by notice to the other parties as provided in
this Section 8.
Section 9. Complete Agreement. This is the complete agreement
between the parties with respect to the subject matter hereof and supersedes
all prior negotiations and agreements
3
<PAGE> 4
with respect thereto. There are no representations, warranties, covenants,
conditions, terms,agreements, promises, understandings, commitments or other
arrangements with respect to the subject matter hereof other than those
expressly set forth herein.
Section 10. Governing Law. This Agreement shall be governed by,
construed under and enforced in accordance with, the laws of the State of
California without regard to any conflict of law principles thereof.
Section 11. Binding Agreement; Successors. This Agreement shall
be binding upon, inure to the benefit of and be enforceable by the parties
hereto, and, except as provided in Section 5 hereof, each of their respective
successors, assigns, heirs and other representatives.
Section 12. Headings. The section headings herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement, nor are they deemed to constitute a part of
this Agreement.
Section 13. Counterparts. This Agreement may be executed in tow
or more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
Section 14. Attorneys' Fees. In any action or proceeding brought
to enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable and actual attorneys' fees (including any such fees incurred
in connection with enforcement of any judgments) in addition to its or his
costs and expenses and any other available remedies.
Section 15. Waiver; Amendment. Any waiver of any provision or
breach of this Agreement must be in writing, executed by the waiving party. No
waiver of any provision or breach of this Agreement shall be a waiver of any
other provision or breach of this Agreement or any subsequent breach. Any
amendment or modification of this Agreement must be in writing and executed by
all of the parties hereto.
Section 16. Specific Performance. Each of the parties hereto
acknowledges that money damages would be both incalculable and an insufficient
remedy for any breach of this Agreement by a party hereto and that any such
breach would cause the other party hereto irreparable harm. Accordingly, each
party hereto agrees that in the event of any actual or threatened breach of
this Agreement by any party hereto, the other parties hereto shall be entitled
to specific performance. Such remedy shall not be the exclusive remedy for any
breach of this Agreement, but shall be in addition to all other remedies
available at law or equity to such party.
Section 17. Interpretation. The parties hereto agree that each
party has participated in the drafting and preparation of this Agreement, and,
accordingly, in any construction of the meaning herein, no party shall be
deemed to be the drafter hereof.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MEDIA EQUITIES INTERNATIONAL, LLC /s/ MICHAEL VINER
----------------------------------
Michael Viner
By: /s/ RON LIGHTSTONE /s/ DEBORAH RAFFIN VINER
----------------------------- ----------------------------------
Name: Deborah Raffin Viner
Title:
Acknowledgment of Shareholders' Voting Agreement
Dove Entertainment, Inc. hereby acknowledges the existence of the
foregoing Shareholders' Voting Agreement
Dove Entertainment, Inc.
By: /s/ STEVEN SOLOWAY
-------------------------------
Name:
Title:
5
<PAGE> 1
EXHIBIT 10.42
PLEDGE AGREEMENT dated as of March 27, 1997 among Michael Viner,
Deborah Raffin Viner, and Media Equities International, LLC (each a "Pledgor
and collectively, the "Pledgors"), and Dove Entertainment, Inc., as Pledgee
(the "Pledgee").
W I T N E S S E T H:
WHEREAS, the Pledgors have heretofore entered into a Stock Purchase
Agreement (the "Agreement") among the Pledgors and Pledgee pursuant to which
the Pledgors have agreed to purchase shares of Preferred Stock of Pledgee;
WHEREAS, capitalized terms used herein without definition shall have
the respective meanings set forth therefor in the Agreement;
WHEREAS, the Pledgee desires to secure the payment of the purchase
price for the Second Preferred Shares under the Agreement;
WHEREAS, each of Michael Viner and Deborah Raffin (collectively as a
single Pledgor), and Media Equities International, LLC as a separate Pledgor,
is responsible to provide certain cash consideration to acquire the Second
Preferred Shares at the Second Closing Date (for purposes hereof, their several
"Obligations");
NOW, THEREFORE, it is agreed:
1. Each Pledgor agrees to deposit and pledge with the Pledgee a
certificate evidencing the number of shares of the Preferred Stock, par value
$.01 per share, of Dove Entertainment, Inc. set forth opposite such Pledgor's
name on Schedule I hereto (the "Pledged Securities") as collateral security for
the payment to the Pledgee by Pledgor of their several Obligations in
accordance with the terms of the Agreement.
2. Each Pledgor hereby delivers the Pledged Securities
accompanied by instruments of assignment duly executed in blank by such Pledgor
in proper form for transfer, and the Pledgee acknowledges the receipt thereof.
3. Unless an Event of Default (as hereinafter defined) shall have
occurred and be continuing, the Pledgors shall be entitled to exercise all
rights of ownership with respect to the Pledged Securities; provided, however,
that the Pledgors shall not be entitled in any way to sell, assign, transfer,
convey, hypothecate or otherwise dispose of, grant any option with respect to,
or mortgage, pledge or encumber the Pledged Securities without Pledgee's prior
consent.
4. Unless an Event of Default shall have occurred and be
continuing, all dividends payable with respect to the Pledged Securities shall
be paid to the respective Pledgor; provided, however, stock dividends,
securities issued as a result of any split, reclassification or exchange of any
Pledged Securities and any dividends on dissolution or liquidation or as a
distribution in connection with the reclassification or reduction of capital,
in each case which shall be made in respect of the Pledged Securities
<PAGE> 2
(collectively, "Distributions"), shall be paid to the Pledgee to be held as
additional security hereunder. In case an Event of Default shall have occurred
and be continuing all such dividends and Distributions shall be paid to the
Pledgee to be held as additional security hereunder.
5. "Event of Default" with respect to any Pledgor as used herein
shall mean a default by such Pledgor in payment of the purchase price for the
Second Preferred Shares which continues for 30 days after the date when the
same shall become due and payable under the Agreement.
6. In the event any Pledgor defaults in the payment of the
Purchase Price for the Second Preferred Shares when the same shall become due
and payable under the Agreement, Pledgee will use its reasonable best efforts
to sell equity securities of the Company in mitigation of the Obligations, and
Pledgor shall be responsible only for the shortfall on a common share
equivalent basis (e.g. if the Company sells an equivalent amount of shares at
$1.50 per share, the damages for such shares would be limited to $0.50 per
share). Pledgee shall have no liability to either Pledgor with respect to the
terms of the sale of securities in mitigation of the Obligations provided
Pledgee acts in good faith and such transactions are approved by the Board of
Directors of Pledgee.
7. If an Event of Default with respect to any Pledgor shall have
occurred and be continuing, the Pledgee may sell the Pledged Securities or the
common stock equivalent (in which event for purposes of the Agreement the
Pledged Securities shall be deemed converted and the shares of common stock
issuable upon conversion sold) of such Pledgor, or any part thereof, at public
or private sale or at any broker's board or on any securities exchange, for
cash, upon credit or for future delivery as the Pledgee shall deem appropriate
subject to the terms hereof or as otherwise provided in the California Uniform
Commercial Code. The Pledgee shall be authorized at any such sale (if it deems
it advisable to do so) to restrict to the full extent permitted by law the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Pledged Securities for their own account for investment
and not with a view to the distribution or sale thereof, and upon consummation
of any such sale the Pledgee shall have the right to assign, transfer, and
deliver to the purchaser or purchasers thereof the Pledged Securities so sold.
Proceeds shall be applied first to costs, second to reasonable attorneys' fees
and disbursements payable by the Company and then to satisfy the balance of
Pledgor's Obligations not mitigated under Section 5 hereof.
8. Upon payment in full of the purchase price for the Second
Preferred Shares with respect to any Pledgor, this Agreement shall terminate
with respect to such Pledgor and the related Pledged Securities and any
additional collateral shall be delivered to such Pledgor. In case an Event of
Default shall have occurred and be continuing, Pledgee may exercise all
remedies at law to enforce the Agreement and to realize upon the collateral
securities provided hereunder.
2
<PAGE> 3
9. The Pledgee undertakes, except while an Event of Default shall
have occurred and shall be continuing, to exercise such duties and only such
duties as are specifically set forth in this Agreement, and, while an Event of
Default shall have occurred and shall be continuing, to exercise such of the
rights, powers and remedies as are vested in it by this Agreement and by law.
The Pledgee shall be under no liability with respect to any action taken in
accordance with this Agreement, except for its own gross negligence or wilful
misconduct. The Pledgee shall not be obligated to take any action which in its
reasonable judgment would involve it in expense or liability unless it has been
furnished with reasonable indemnity.
10. All notices and other communications hereunder shall be
delivered in accordance with the notice provisions of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Pledge
Agreement as of the date and the year first above written.
Media Equities International, LLC
as Pledgor
By /s/ RON LIGHTSTONE
----------------------------------
Its:
Michael Viner and Deborah Raffin Viner
as Pledgors
/s/ MICHAEL VINER
-------------------------------------
/s/ DEBORAH RAFFIN
-------------------------------------
Dove Entertainment, Inc.,
as Pledgee
By /s/ STEVEN SOLOWAY
-----------------------------------
Its:
3
<PAGE> 4
Schedule I
<TABLE>
<CAPTION>
Pledged Shares
------- ------
PLEDGOR OBLIGATIONS PLEDGED SHARES
------- ----------- ------- ------
<S> <C> <C>
Michael Viner and Deborah $825,000 500 shares of Series C
Raffin Preferred Stock
MEI $1,000,000 500 shares of Series B
Preferred Stock
</TABLE>
4
<PAGE> 1
Exhibit 23
The Board of Directors Dove Audio, Inc.:
We consent to the incorporation by reference in the registration statement (No.
333-06059) on Form S-3 and the registration statement (No. 333-06595) on Form
S-8 of Dove Entertainment, Inc. of our report dated April 9, 1997, with respect
to the consolidated balance sheet of Dove Entertainment, Inc. and subsidiaries
as of December 31, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1996 and
1995, which report appears in the December 31, 1996 annual report on Form 10-KSB
of Dove Entertainment, Inc.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
January 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 390
<SECURITIES> 0
<RECEIVABLES> 4,269
<ALLOWANCES> 1,995
<INVENTORY> 4,289
<CURRENT-ASSETS> 8,025
<PP&E> 4,942
<DEPRECIATION> 634
<TOTAL-ASSETS> 24,956
<CURRENT-LIABILITIES> 11,023
<BONDS> 1,874
0
856
<COMMON> 53
<OTHER-SE> 11,192
<TOTAL-LIABILITY-AND-EQUITY> 24,956
<SALES> 26,853
<TOTAL-REVENUES> 26,853
<CGS> 23,208
<TOTAL-COSTS> 33,279
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> (6,641)
<INCOME-TAX> 32
<INCOME-CONTINUING> (6,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> 0
</TABLE>
