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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
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(MARK ONE)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 0-24984
DOVE ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 95-4015834
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8955 BEVERLY BOULEVARD
LOS ANGELES, CALIFORNIA 90048
(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 ___
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, 1997 were
approximately $16,672,000.
As of March 30, 1998, the aggregate market value of the voting stock held
by non-affiliates of the issuer was approximately $13,401,000 based upon the
average closing bid and asked price of such stock on such date.
Transitional Small Business Disclosure format: Yes No X
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Shares of Common Stock outstanding as of March 30, 1998: 6,548,393
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's definitive proxy statement for its 1997 and 1998 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 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 I. BUSINESS
GENERAL
Dove Entertainment, Inc. ("Dove" or the "Company") 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. Through its audio division, the Company has
produced and distributed an average of approximately 100 to 120 new audio titles
annually since its inception and has built a library of over 1,000 audio titles
currently offered for sale. Through Dove Four Point, Inc. ("Dove Television"), a
wholly owned subsidiary of the Company, the Company is engaged in the production
and development of television programming. During the second quarter of 1995,
the Company formed a wholly-owned subsidiary, Dove International, Inc. ("Dove
International"), which is engaged in the distribution of feature films and
television programming.
The Company's audio books generally consist of audio recordings of abridged and
unabridged works from well-known authors such as Sidney Sheldon, Amy Tan, Jack
Higgins and Dominick Dunne and read by the author or celebrity readers such as
Linda Hamilton, Patrick Macnee and William Windom. In 1997, the Company received
two Grammy nominations and 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's audio books range from best-selling fiction and non-fiction to movie
tie-in audios, classics, humor and foreign language product. The Company's most
successful audio books to date have been "The Bridges of Madison County" read by
its author Robert James Waller and "A Brief History of Time" read by Michael
Jackson. The Company generally produces its own masters for its audio book
products, the majority of which are recorded at the Company's own recording
studios located at its principal offices.
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" by Faye Resnick. 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."
The Company published approximately 35 titles in 1996. In that year the Company
embarked on a major printed book publishing program with a scheduled 75 print
titles for 1997. However, following disappointing results from the 1996 and
early 1997 list, the Company substantially curtailed the printed book program.
The Company is currently developing up to 24 books for potential publication in
1998.
The Company has co-produced the theatrical feature film "Wilde," about the life
of Oscar Wilde, starring Vanessa Redgrave and Stephen Fry, and owns the United
States and English-speaking Canadian distribution rights to the film. In
February 1998, the Company entered into a distribution agreement with Sony
Pictures Classics and the film is scheduled to be released on May 1, 1998 after
making its North American premiere at the San Francisco Film Festival in April
1998. The Company's television and theatrical films include the theatrical
release "Morning Glory" (1993) and the television motion pictures "Home Song"
(1996), "Memories of Midnight" (1991) and "Sands of Time" (1992).
In April 1996, the Company significantly expanded its presence in television
programming through the acquisition of Four Point Entertainment, Inc. ("Four
Point Entertainment" now Dove Television). Dove Television develops and produces
both episodic series and long-form television programming, including pilots,
series, telefilms, mini-series, talkshows and gameshows for the major network,
cable and syndicated markets. In addition, Dove Television owns and operates
post-production and edit facilities for its own and third-party programming.
Since its inception ten years ago, Four Point Entertainment has produced over 26
television shows (accounting for 1,415 episodes of national television
programming), including "American Gladiators" and "Amazing America." In April
1997, Dove Television received an order from the ABC Television Network for a
made for television motion picture entitled "Unwed Father" and entered into a
distribution agreement with respect to the non-US network
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rights with Bonneville Worldwide Entertainment. Unwed Father aired on ABC on
October 12, 1997. Dove Television currently produces the syndicated series "Make
Me Laugh" (distributed by Buena Vista in association with The Walt Disney
Company). Dove Television is currently in production on the made-for-television
motion picture "Futuresport" starring Wesley Snipes, Dean Cain and Vanessa L.
Williams, which is scheduled for delivery to ABC in May of 1998.
The Company generally seeks to limit its financial risk in the production of
long-form television by presales and licensing to third parties. The Company's
previous plans to produce projects for initial release in video format,
including children's and business videos, has been discontinued. The Company has
also discontinued the production of theatrical feature films.
During the second quarter of 1995, the Company formed Dove International to
engage in domestic distribution of feature films. In July 1995, the Company,
through Dove International, acquired certain rights with respect to 48 films in
the Skouras Pictures, Inc. library (plus certain other films). In July 1996, the
Company embarked on a program to acquire independent films and videos for
distribution in the United States and Canada on an all rights basis (including
theatrical, home video and all forms of television and a video output
arrangement), but following review in 1997, has discontinued the theatrical
production and video distribution operations and has limited the film and
television distribution operations to the existing film and future television
library, and television programs provided by Dove Television.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including those utilizing the phrases "will",
"expects", "intends", "estimates", "contemplates", and similar phrases, are
"forward-looking" statements (as such term is defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended), including statements regarding, among other items, (i)
the Company's growth strategy, (ii) the Company's intention to acquire or
develop additional audio book, printed book and television product, (iii) the
Company's intention to enter or broaden distribution markets, and (iv) the
Company's ability to successfully implement its business strategy. Certain, but
not necessarily all, of such forward-looking statements can be identified by the
use of forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or be discussions of strategy that involve risks and
uncertainties. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
and achievements of the Company and its subsidiaries to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, but are not limited to,
the following: uncertainty as to future operating results; growth and
acquisition risks; certain risks relating to the entertainment industry;
dependence on a limited number of projects; possible need for additional
financing; potential for liability claims; dependence on certain outlets for
publishing product; competition and legal proceedings and claims. Other factors
which may materially affect actual results include, among others, the following:
general economic and business conditions, industry capacity, changes in
political, social and economic conditions and various other factors beyond the
Company's control. The Company does not undertake and specifically declines any
obligation to publicly release the results of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events. See the relevant discussions elsewhere herein, in the Company's
registration statement on Form S-3 (Registration No. 333-43527) 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 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 television programming,
(iv) continue the publication of printed books and (v) continue its feature film
and television programming distribution operations.
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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 format classic literature in the public domain, through strategic
acquisitions of audio libraries currently owned by others and through strategic
relationships.
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 such as through 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.
The Company believes that its broad strategy of diversity in development for
television programming has allowed Dove Television to take advantage of sales
opportunities in emerging markets, while continuing to service mainstream
distribution channels in network and syndication, allowing Dove Television to
stay in production generally throughout the year. Dove Television plans to
expand on its expertise from previous projects and to continue to utilize its
existence as a vertically integrated production company.
The Company from time to time also considers the acquisition of businesses
complementary to its current operations. Along with its acquisition of Four
Point Entertainment, the Company has from time to time entered into discussions
or submitted bids to acquire other companies or assets in related entertainment
fields.
The Company's business is dependent on its ability to acquire rights to exploit
new audio, book and television 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 television 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 audio, book, television and other product.
AUDIO BOOKS
Industry Overview
"Audio books" consist of audio recordings of literary or other works read by one
or more persons. The market is generally accepted to have started in the early
1950s, but it is really only in the past 15 years that the industry has
developed into the broad-based and widely available sector of the publishing
industry seen today. Industry statistics published by the Audio Publishers
Association in 1995 value the market at $1.6 billion annually. The first audio
book producers developed the market based mainly on sales of self-help and
literary titles that were sold primarily through direct mail, but as the market
evolved, the majority of sales were made through traditional book stores.
Subsequently, the importance of direct marketing has grown again, and audio
books are increasingly being sold through book clubs such as Columbia House,
Doubleday Direct, and Audio Book Club. Today, audio books can also be found in
discount stores, record stores, video stores, truck stops, and gas stations, and
purchased on the internet. Retail outlets specializing in audio books expanded
rapidly in the mid-1990s but this growth has now slowed considerably. Audio
books compete for the consumer's attention, time, and discretionary dollars
against an ever increasing array of entertainment, communication, and publishing
products. Markets continue to fracture into niches, while sales channels
consolidate into fewer national accounts. In addition, technology is constantly
adding
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new challenges and opportunities. From e-mail and the internet, to digital
recording, editing, mastering and duplicating, and to new delivery systems like
CDs and DVDs, internet download and transfer, and changes in playback equipment
fitted in autos, the audio book industry is facing an unparalleled period of
change.
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 1000 titles in its audio book library currently offered for
sale. The Company currently releases approximately 100 audio book titles each
year. The Company's products historically have included numerous New York Times
and Publishers Weekly best selling books. The Company is engaged in the
simultaneous sale of abridged, unabridged and foreign language translation
versions of its audio books and its audio products represent virtually all
categories of books. Although historically the Company has published audio books
primarily on cassette tape, the Company has also published new and existing
titles in CD format on a selective basis.
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.
Dove uses an array of celebrity talent for its recordings. Books are read by
celebrity readers or, in some cases, by the authors themselves. The Company
believes that, by virtue of its Los Angeles base, it has an advantage in gaining
access to highly recognizable celebrity reading talent. The Company seeks to
maintain ongoing relationships with popular readers who are typically
compensated on a flat-fee basis, though readers may also be compensated on a
royalty basis.
The Company currently employs two duplicators 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 duplicator.
In 1997, the Company commenced a plan to refocus its audio publishing program
and making it more balanced. The market is moving towards longer abridgments and
the Company's publishing program already reflects that shift, with over 80% of
its new titles in the four cassette format. The Company is looking to acquire
both abridged and unabridged rights, and to publish lead titles in both formats.
The Company is also looking to strengthen its frontlist program and has had some
recent success with recent author signings including John Jakes, Harold Robbins,
Stephen Coonts, Sharyn McCrumb, J.A. Jance, and Barry Lopez, all New York Times
bestselling authors. At the same time, the Company is looking to increase its
penetration into the self-help and spirituality areas, and reestablish its
presence in the mystery and science fiction markets. Progress has been made, and
author signings include Marianne Larned's "Stone Soup for the World," Sue Patten
Thoele's "The Woman's Book of Soul," Judy Ford's "Wonderful Ways to Be a
Family," Carole Nelson Douglas' "Cat on a Hyacinth Hunt," and Ben Bova's "City
of Darkness."
Dove Kids was the children's publishing and audio imprint of the Company. In
late 1997, after experiencing very limited success with the program, the
decision was taken to withdraw from the children's book market altogether, only
publish children's audio titles on a highly selective basis, and concentrate the
Company's resources on its adult titles. A notable exception in 1997 was the
success of "The Owl and the Pussycat" by Eric Idle, which was nominated for a
Grammy Award.
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Distribution Agreements
In January 1998 the Company entered into a distribution agreement with UAV
Corporation, whereby UAV will duplicate, distribute and sell some of Dove's
audio book products to mutually agreed upon specialty retailers, such as mass
merchandisers, specialist music and video retailers, supermarket chains, drug
store chains, truck stops, airports, and convenience stores. In February 1998
the Company entered into an agreement with Romance Alive Audio, under which the
Company obtained the distribution rights to a 48 book romance library, including
titles by such noted bestselling authors as Johanna Lindsey, Elizabeth Lowell,
Jude Deveraux, and Kathleen E. Woodiwiss.
Foreign Language and International
The Company identified certain markets outside the United States which it
believes may provide opportunities for sales growth and 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. Such acquisitions enable the Company to exploit
such titles in international markets.
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. 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.
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 as well as to the emerging internet
market such as through Amazon.com. 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/Cosco and BJ's Wholesale Club. The Company has entered into an
agreement with UAV Corporation pursuant to which UAV Corporation will distribute
selected audio product of the Company to non-traditional retail outlets such as
supermarket and drug store chains, truck stops, airports and convenience stores.
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 ten 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 was responsible for, among other things, billing, collections and
issuance of credit to customers, order solicitation, order entry, invoicing,
customer service, warehousing, handling and fulfillment of orders and for
receiving returns; and the Company responsible for marketing, promotion,
publicity and advertising. The Company and Penguin terminated this arrangement
in December 1997.
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To replace the Penguin arrangement, the Company entered into an agreement in
November 1997 with Mercedes Distribution Center ("Mercedes") under which
Mercedes will perform storage and distribution services on the Company's behalf.
The agreement has a term of five years and provides for Mercedes to receive,
store, pack and ship the Company's products, and process returned shipments.
Further, Mercedes will provide a computer inventory control and invoicing
system. Under the agreement, the Company will be responsible for all order
solicitation, order entry, invoicing and customer service, as well as marketing,
promotion, publicity, and advertising.
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 written consent on a
title-by-title basis. The Reader's Digest Agreement expires in December 1998.
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 if not resold to the public.
Historically, the Company has experienced significant returns and there is no
assurance that the Company will not experience returns of its audio and printed
book products in excess of its historical returns, which in certain cases have
been substantial. Although the Company makes allowances and reserves for
returned products, significant increases in return rates could materially and
adversely impact the Company's results of operations or financial condition. In
addition, the Company from time to time makes price concessions or allowances or
grants 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. 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 such 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
In 1997 the Company experienced extremely heavy returns from its book publishing
program, partly as a result of the general shake-out in the marketplace, and
partly as a result of the high risk nature of much of the Company's publishing
program. Consequently, the Company has reevaluated its book publishing program
and is now in the process of changing its focus from event-related/national
interest topics to areas such as business, self-help, psychology, health &
fitness, entertainment, and California interest. At the same time, the number of
publications has been reduced to 20-25 titles per year.
In the fall of 1996, the Company launched Dove Kids, a children's publishing
program, but following disappointing results has discontinued the Dove Kids
division.
FILM AND TELEVISION PRODUCTION
The Company had from time to time developed and produced long form programming
made for television. In April 1996, the Company significantly expanded its
presence in television programming through the acquisition of Dove Television.
Dove Television develops and produces various forms of television programming,
including pilots, series, telefilms, mini-series, talk shows and game shows for
network, cable and syndicated markets. The Company's strategy is to develop and
produce long form television programming substantially financed by third parties
through pre-sale contracts with United States television networks, foreign
distributors and other sources. Although the Company enters into such
arrangements, there is no assurance that the Company's funding of such
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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.
In 1997, under an agreement with Buena Vista Television, a division of the Walt
Disney Company, Dove Television produced a total of 165 half hour episodes of
the game show "Make Me Laugh" for the cable network Comedy Central. Dove
Television also developed and produced the made for television movie "Unwed
Father" which aired on ABC on October 12, 1997. The Company entered into a
distribution agreement with Bonneville Worldwide Entertainment with respect to
the non-US network rights to "Unwed Father". Dove Television is currently
developing a two hour telefilm "Futuresport," starring Wesley Snipes, Dean Cain
and Vanessa L. Williams, 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 Television 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.
The Company acquired the United States and English-speaking Canadian
distributions rights to the theatrical feature film "Wilde," about the life of
Oscar Wilde, starring Vanessa Redgrave and Stephen Fry, which was produced by
Marc and Peter Samuelson in association with Dove International and others. In
February 1998 the Company entered into a distribution agreement with Sony
Pictures Classics, and the film is scheduled to be released in New York on May
1, 1998 after making its North American premiere at the San Francisco Film
Festival in April 1998. "Wilde" has been a critical success in Australia, Italy,
France and the United Kingdom and has won major awards in Britain and France.
The Company does not plan to produce theatrical feature films in the future.
The Company's television operations are dependent on a limited number of
television projects. There is no assurance the Company will have any television
projects or any significant revenues from television projects in any given
quarterly or annual period.
FILM LIBRARY AND DISTRIBUTION
In conjunction with the formation of its distribution subsidiary, Dove
International, the Company completed the purchase of certain rights to 48 films
from the library of Skouras Pictures, Inc. Motion pictures acquired from Skouras
Pictures, Inc., now in the Company's film library, includes films with 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." The Company had embarked on a program to acquire independent
films and videos for distribution in the United States and Canada on an all
rights basis (including theatrical, home video and all forms of television) and
a video output arrangement with Paramount Pictures (which commenced in July
1996), but following review in 1997, the Company has discontinued the video
distribution operations and has limited the film and television distribution
operations to the existing film and future television library, and television
programs produced by Dove Television.
COMPETITION
Competition is intense within the publishing, television and motion picture
industries and between each of these industries and other entertainment media.
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 the Company and other audio
book
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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.
Many of the entities against which the Company competes have substantially
greater financial, distribution, technical and creative resources than the
Company. There is no assurance that the Company will be able to successfully
compete in the various businesses in which it operates.
EMPLOYEES; LABOR RELATIONS
At March 30, 1998, the Company had 51 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
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.
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 acquired a
certain amount of programming (typically including game shows) for exhibition
during prime time from independent television producers and syndicators. While
the Company's sale of syndicated programming during prime time is primarily to
independent television stations and network-affiliated stations, it is possible
that the repeal 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 competition.
The impact on the Company of the changes in the communications laws brought
about by the Telecommunications Act of 1996 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%
of the nation's television households, may place additional competitive
pressures on program suppliers who are unaligned with any television station
group owners.
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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.
NATURE OF ACCOUNTING PRINCIPLES APPLICABLE TO THE PUBLISHING AND ENTERTAINMENT
INDUSTRIES
The Company recognizes revenues from the sale of audio and printed books,
including the licensing of audio and printed book rights to third parties, net
of estimated returns and allowances, upon shipment of the product or upon
availability of the rights pursuant to the Company's licensing arrangements. To
allow for returns, the Company establishes a reserve against revenues from audio
and printed book sales, the magnitude of which is based on management's estimate
of returns. The Company's future reported revenues will be negatively impacted
if the Company's actual return experience exceeds its established reserves.
There is no assurance that the Company's actual return experience will not
exceed its reserves.
Audio and printed book inventory is valued at the lower of cost or market using
estimated average cost, determined using the first-in, first-out method. If the
Company's reserves for excess inventory are not adequate at any time, the
Company will be required, under generally accepted accounting principles, to
write down audio and printed book inventory, which will increase cost of sales.
Any such write-downs would have an adverse impact on the Company's operating
results. Excess inventory may arise as a result of, among other things, customer
returns. The extent of any write-downs will depend on, among other things, the
quantity of actual returns received and the level of production and sales
activity and the state and volatility of the remainder market. The Company
establishes reserves against such write-downs based on past experience with
similar products. There is no assurance that the Company's reserve for excess
inventory at any time will be adequate and that additional write-downs will not
be necessary.
Film costs, which include development, production and acquisition costs of
television programming and feature films, are capitalized and amortized, and
participations and royalties are accrued, in accordance with the individual film
forecast method in the proportion that current quarter'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 the
Company's results of operations may be adversely affected as a result of a
write-down of carrying value of particular films in the event management's
estimate of ultimate revenues is materially decreased. There is no assurance
that the Company will not incur write-downs in the future in respect of its film
and television operations; any such write-downs would have an adverse impact on
operating results.
POSSIBLE NEED FOR ADDITIONAL FINANCING; LIQUIDITY.
The Company's operations in general, and its publishing and television
operations in particular, are capital intensive. The Company anticipates, based
on currently proposed plans and assumptions relating to its operations and
anticipated outcomes of current litigation, that the projected cash flow from
operations and available cash resources, including its existing financing
arrangements, will be sufficient to satisfy its anticipated cash requirements
for the fiscal year ending December 31, 1998. In the event that the Company's
plans change, its assumptions change or prove to be inaccurate or the cash flow
proves to be insufficient to fund operations (due to unanticipated expenses,
delays, problems, difficulties or otherwise), the Company would be required to
seek additional financing sooner than anticipated or to curtail its activities.
The Company has experienced from time to time significant negative cash flows
from operating activities which have been offset by equity and debt financings.
The Company plans to expand its audio publishing, television production and
television distribution activities and it may 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,
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from additional debt or equity financings from outside sources, or from other
financing arrangements. 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.
To the extent the Company obtains financing through sales of equity securities,
any such issuance of equity securities would result in dilution to the interests
of the Company's shareholders. Additionally, to the extent that the Company
incurs indebtedness or issues debt securities in connection with any acquisition
or otherwise, the Company will be subject to risks associated with incurring
substantial indebtedness, including the risks that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness.
The Company's television production activities can affect its capital needs in
that the revenues from the initial licensing of television programming may be
less than the associated production costs. The ability of the Company to cover
the production costs of particular television programming is dependent upon the
availability, timing and 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 revenues, out of its
working capital or financing facilities.
In order to obtain rights to certain properties for the Company's publishing and
television 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.
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 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 the underlying land
(collectively, the "Property") in Los Angeles, 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. 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. In 1997, the Company made additional improvements of approximately
$121,000 to relocate its video post production and audio recording facilities to
the Property. The federal tax basis of the Property (including the Company's
equipment) is $2,650,000. Depreciation is based on the straight-line method at a
rate of 2.56%, with a claimed life of 39 years. The annual realty taxes are
approximately $35,000, based upon a tax rate of 1.8759%. In the opinion of
management, the property is adequately covered by insurance. The Company
continues to lease property at its old headquarters at 301 N. Canon, Beverly
Hills, CA, but has subleased all of such space. Under the lease, the monthly
rent payable by the Company is approximately $21,000 and the lease expires
January 31, 1999. Under the sublease arrangement, which also terminates on
January 31, 1999, the sublessee's monthly rent payments to the Company are
approximately $16,250. The Company does not intend to renew the lease when it
terminates in January 1999.
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ITEM 3. LEGAL PROCEEDINGS
In August 1993, the trial court confirmed an arbitration award in favor of the
Company, Michael Viner and Gerald J. 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" ("Stern Judgment"). 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.
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 1993, Mr. Stern filed a complaint against the Company, Mr. Viner and
Mr. Leider entitled Steven A. Stern and Steven A. Stern as assignee of the
claims of Sharmhill Productions (B.C.), Inc., a bankrupt company v. Dove Audio,
Inc. et al. (British Columbia Supreme Court, Vancouver Registry No. C930935)
(the "Canadian Stern Action") claiming that he had been fraudulently induced to
enter into the agreement underlying the arbitration award and seeking as damages
the amount of the judgment. The Company believes that it has good and
meritorious defenses to the Canadian Stern Action. Nevertheless, there is no
assurance that the Company will prevail in the Canadian Stern Action.
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, and that information he
provided to the Company was used in another book published by the Company,
"Legacy of Deception." Mr. Tourtelot alleged causes of action for breach of oral
contract, fraud, suppression of fact, 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, which permitted Mr. Tourtelot to pursue claims for breach of
oral contract, fraud, suppression of fact, breach of the implied covenant of
good faith and fair dealing, breach of fiduciary duty, conversion, conspiracy
and quantum meruit. In March 1998, the Company prevailed on summary judgment and
obtained a dismissal of the infringement of common law copyright, conversion,
conspiracy and breach of duty claims. Such claims were dismissed with prejudice
by the trial court. While the Company believes that it has good and meritorious
defenses to the Tourtelot Action, there is no assurance that the Company will
prevail in the Tourtelot 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. Ms. Datig has appealed the judgment. While the Company
believes that it will prevail on the appeal, there is no assurance that the
Company will in fact be successful on appeal.
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.
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In May 1997, the Company was served with a complaint in an action entitled
Kenneth Raskoff v. Dove (Los Angeles Superior Court Case No. BC171355) (the
"Raskoff Action"). Mr. Raskoff is a former employee of Dove Television. The
complaint seeks unspecified damages and other relief for breach of Mr. Raskoff's
alleged employment contract, breach of the implied covenant of good faith and
fair dealing, breach of implied-in-fact contract, promissory estoppel, and
fraudulent inducement. The complaint also seeks an injunction requiring that Mr.
Raskoff receive producer credit with respect to the television program entitled
"Unwed Father" and other unnamed projects. Although the Company believes that it
has good and meritorious defenses to the Raskoff Action, there is no assurance
that the Company will prevail in the action.
In June 1997, the Company was served with a complaint in an action entitled
Michael Bass v. Penguin USA Inc., et al. (New York Superior Court Case No.
97-111143) (the "New York Bass Action"). The complaint in the New York Bass
Action alleges, among other things, that the contribution of Liza Greer, one of
the authors of the book "You'll Never Make Love In This Town Again", defames Mr.
Bass and violates his rights of publicity under New York statutes. The complaint
seeks damages of $70,000,000 for defamation and $20,000,000 for violation of the
New York right of publicity statutes and an injunction taking the book out of
circulation and prohibiting the use of Mr. Bass' name. The New York Bass Action
has voluntarily been stayed after Mr. Bass filed a similar action in the State
of California in an action entitled Michael Bass v. Penguin USA et.al.
(California Superior Court Case No. SC049191) seeking essentially the same
damages as in the New York Bass Action. The Company believes that it has good
and meritorious defenses to the New York Bass Action and the action filed in
California. Nevertheless, there is no assurance that the Company will prevail.
As a result of the New York Bass Action, the Company has brought a
cross-complaint against Ms. Greer.
In July 1997, Michael Viner and Deborah Raffin Viner (the "Former Principals")
commenced an arbitration against the Company. In their arbitration demand, the
Former Principals claim that they are owed in excess of $1 million by the
Company relating to the motion picture entitled "Morning Glory". The Former
Principals claim that they are also entitled to the repayment of certain
deferred amounts for producing and acting services rendered by them in
connection with "Morning Glory" and to 50% of the profits. They claim that a
former director of the Company, Gerald Leider, is entitled to the other 50% of
the profits. The Former Principals have also asserted that from any recovery of
the Stern Judgment, they are entitled to receive $1 million, as well as the
deferred amounts and 50% of the profits. Present management believes it has good
and sufficient defenses to the claims, including, but not limited to the Former
Principals' waiver of their claims that any amounts are owed to them as debt, as
profit participation or as deferred compensation and that the Company has not
yet recouped its investment in the Picture. The Company has also asked the
arbitrator to determine that the Former Principals are not entitled to any
moneys or rights with respect to "Morning Glory", including from the proceeds of
the Stern Judgment. There is no assurance that the Company will prevail on these
defenses and claims.
In August 1997, the Former Principals commenced an arbitration against the
Company seeking specific performance of, and alleging breach of, a termination
agreement to which they and the Company are a party (the "Termination
Agreement"). The Former Principals subsequently identified in writing their
intention to arbitrate a variety of miscellaneous claims, including the
Company's alleged failure to timely pay the full amount of consulting fees under
the Termination Agreement, as well as the Producer and Executive Producer fees
on "Unwed Father", to reimburse business expenses, payments to one of the Former
Principal's masseuse and psychologist, and medical and dental expenses, to
return certain personal property, to account for sales with respect to certain
titles, and other matters, including claims that the Former Principals did not
receive appropriate credit on "Unwed Father" and various audio books. On October
16, 1997, however, the Former Principals filed an action in the Los Angeles
Superior Court (Case No. BC179639) for "Breach of Written Contract; Specific
Performance; Temporary Restraining Order, Preliminary and Permanent Injunctive
Relief" which sought damages for some of the same claims identified as the
Former Principals' claims in arbitration. In this action the Former Principals
claimed that, in addition to other damages, they were entitled to accelerate all
payments to become due under the Termination Agreement, in the aggregate amount
of $1,511,824 and to the rights to certain titles. This action appears to have
been filed for purposes of obtaining an attachment. After the Company obtained a
temporary restraining order in the action staying the arbitration, the Former
Principals and Dove II, a company purportedly controlled by the Former
Principals, filed another action in the Los Angeles Superior Court (Case No. BC
180301) seeking declaratory relief and an injunction staying other arbitration
proceedings between them and the Company. After the Company defeated an
application for temporary restraining order in that action, the Former
Principals and Dove II, filed requests for dismissals of both actions and are
proceeding in the arbitrations. In the arbitration, the
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Company is (i) seeking over $105,000 in compensatory damages from the Former
Principals for certain unauthorized Company checks that one of the Former
Principals signed to the Former Principals, to the Former Principal's personal
attorney, for repairs for one of the Former Principal's car and for payments of
the Former Principals' credit card accounts, (ii) seeking punitive damages for
one of the Former Principals causing the Company to pay to the Former Principals
amounts that had already been credited to them in their purchase of Company
stock, (iii) seeking damages of at least $175,000 for breach of the
non-interference provision of the Termination Agreement, (iv) seeking
reimbursement of approximately $9,600 for unused airline tickets and (v) as a
result of their breach of the non-competition provision of the Termination
Agreement, requesting that the arbitrator enjoin the Former Principals from
competing with the Company in the audio book business through June 9, 2001. The
Company believes that, with the exception of certain immaterial amounts which it
expects to pay, it has good and meritorious defenses to the claims by the Former
Principals and that the Company has meritorious claims against the Former
Principals. There is no assurance, however, that the Company will prevail on
these issues and claims.
The Former Principals also claimed that their agreement not to compete with the
Company in the book and audio business is not enforceable. On January 12, 1998,
the arbitrator issued his decision in which he held that the Former Principals'
contention that the non-compete provision of the Termination Agreement is
invalid and unenforceable is without merit and that the provision prohibiting
the Former Principals from competing with the Company in the audio book business
for a period of four years from June 10, 1997 is valid and enforceable, and the
arbitrator enjoined the Former Principals from engaging in the audio book
business during such period.
In another arbitration proceeding involving the Former Principals and the
Company, the Former Principals claimed that the Company breached the Termination
Agreement by failing to prepare office space for use by the Former Principals
and interfering with their use of the space, failing to repair a toilet and
failing to provide for and pay secretaries for the Former Principals, and that a
subsequent purported occupancy agreement that allowed the Former Principals to
use the Company's offices at 301 N. Canon was enforceable. The Company claimed,
among other things, that the Company was entitled to compensatory damages plus
costs incurred in restoring the Former Principals' offices to their original
condition and the costs of recovering possession and that the occupancy
agreement was invalid because it was never disclosed to or approved, authorized
or ratified by the Company's shareholders or the Board. The arbitrator rendered
a decision on February 13, 1998 (amended and corrected on March 2, 1998), in
which he awarded the Company the sum of $14,093 plus costs, finding, among other
things, that neither of the Former Principals had the right to occupy the
Company's office space after September 1, 1997 and that the occupancy agreement
is invalid and unenforceable.
In July 1997, the Company was served with a complaint in an action entitled Alan
Fields v. Dove Entertainment, Inc., et al. (Los Angeles Superior Court No. BC
174659) (the "Fields Action"). The Fields Action was brought by an alleged
purchaser of Common Stock against the Company and the Former Principals as a
putative class action on behalf of all persons who acquired Common Stock between
July 25, 1995 and August 20, 1996. The complaint alleges a cause of action for
violation of Section 25400(d) of the California Corporations Code based on the
alleged dissemination of false and misleading statements about, among other
things, the success of the Company's printed book operations, financial results,
business condition and future prospects. The plaintiff seeks unspecified damages
and other relief. In August 1997, an action entitled Global Asset Allocation
consultants, L.L.C. v. Dove Entertainment, Inc., et al. (Civil Action No.
97-6253-WDK) (the "Global Asset Action"), was commenced against the Company and
the Former Principals in the United States District Court for the Central
District of California. The Global Asset Action was brought by an alleged
purchaser of Common Stock as a putative class action on behalf of all persons
who acquired Common Stock between July 25, 1995 and August 20, 1996. The
complaint alleges a cause of action for violation of Section 10(b) of the
Securities and Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder
based on the conduct at issue in the Fields Action. The plaintiff seeks
unspecified damages and other relief. The Company has learned that another
putative federal securities class action was filed in the United States District
Court for the Central District of California by an alleged purchase of Common
Stock represented by the law firm of Berman, DeValerio & Pease LLP (the "Berman
Action"; and collectively with the Fields Action and the Global Asset Action,
the "Securities Actions"). The complaint is reportedly brought on behalf of all
persons who acquired Common Stock between April 15, 1996 and October 10, 1996
and to allege a cause of action against the Company and certain of its former
officers for violation of Section 10(b) of the Securities Exchange Act of 1934
and SEC Rule 10b-5 promulgated thereunder. As of December 31, 1997, the Company
has not been served with the complaints in the Global Asset Action or the Berman
Action. The
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Company has not yet filed a response to the complaints in the Securities
Actions. While the Company believes it has good and meritorious defenses against
the claim, the Company has taken a charge of $150,000 in the quarter ended June
30, 1997 in respect of potential costs associated with the claim.
In July 1997, the Company was served with a complaint in an action entitled
Steven A. Soloway v. Dove Entertainment, Inc., etc. et al. (Los Angeles Superior
Court Case No. BC 175516) (the "Soloway Action"). Mr. Soloway is a former
director and employee of the Company and has sought damages of approximately
$350,000 for breach of contract. Mr. Soloway claims that as a result of the
Securities Purchase Agreement he was entitled to declare his employment
agreement terminated without cause and to receive his base salary through
September 1999. In September 1997, Mr. Soloway obtained a writ of attachment for
$350,000 in respect of his claims, for which the Company has substituted an
undertaking for the amount of the attachment. Although the Company believes that
it has good and meritorious defenses and setoffs to the Soloway Action, there is
no assurance that the Company will prevail in the Soloway Action. The Company
has filed a cross-complaint against Mr. Soloway for breach of fiduciary duty and
legal malpractice asserting that Mr. Soloway fabricated a version of his
employment agreement, submitted the fabricated version for inclusion in the
Company's public documents, without authorization or approval drafted and signed
on behalf of the Company an occupancy agreement pursuant to which the Former
Principals unrightfully occupied the Company's offices, fabricated minutes of
the Board and disclosed confidential information that he obtained as an officer.
On November 4, 1997, James Belasco, a former director of the Company, filed an
action against the Company in Los Angeles County Superior Court entitled James
A. Belasco v. Dove Entertainment, Inc. etc. et al. LASC case no. BC 180707. Mr.
Belasco seeks to recover over $178,000 that he claims he is owed for royalties
from the distribution of the book entitled "Flight of the Buffalo: Soaring to
Excellence. Learning to Let Employees Lead." Mr. Belasco also seeks punitive
damages. On November 4, 1997, James Belasco filed an action against the Company
in Los Angeles County Superior Court entitled James A. Belasco v. Dove
Entertainment, Inc. etc. et al. LASC case no. BC 180706. Mr. Belasco alleges
that the Company has interfered with the publication of the work entitled "The
Phoenix Organization." Mr. Belasco seeks punitive damages and over $200,000 in
general damages. Mr. Belasco and the Company have agreed to settle all such
claims for payments over time to Mr. Belasco totaling $150,000 and the grant to
the Company of audio rights to certain current and future books by Mr. Belasco
and payment of certain book commissions by Mr. Belasco to the Company.
In December of 1997, the Company was served with a complaint in an action
entitled Gerald J. Leider V. Dove Entertainment, Inc. f.k.a. Dove Audio, Inc.
(Los Angeles Superior Court Case No. BC 183056). Mr. Leider is a former Chairman
of the Board and consultant to the Company and has sought damages of
approximately $287,000 for breach of contract and $60,000 for unpaid consulting
fees. Mr. Leider also is seeking a declaration that the Company must comply with
certain purported stock option agreements and for an order for inspection and
copying of certain records of the Company and an award of expenses related
thereto. Although the Company believes that it has good and meritorious defenses
and setoffs to such action, there is no assurance that the Company will prevail
in such action. The Company has filed a separate complaint against Mr. Leider
for breach of fiduciary duty, fraud and breach of covenant of good faith and
fair dealing asserting that Mr. Leider entered into purported agreements with
the Company that were unfair to the Company, were not disclosed to the Board or
the Company's shareholders and were never approved by the Board or the Company's
shareholders.
In addition to the above claims, the Company is a party to various other routine
legal proceedings and claims incidental to its business.
There can be no assurance that the ultimate outcome of these matters will be
resolved in favor of the Company. In addition, even if the ultimate outcome is
resolved in favor of the Company, involvement in any litigation or claims could
entail considerable cost to the Company and the diversion of the attention of
management, either of which could have a material adverse effect on the business
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 1997, through the solicitation of proxies
or otherwise.
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<PAGE> 16
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 March 27, 1998,
there were 91 holders of record of Common Stock.
<TABLE>
<CAPTION>
Low High
--- ----
<S> <C> <C>
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 13/16
Second quarter (through June 30, 1997) 1 1/8 3 3/4
Third quarter (through September 30, 1997) 1 7/16 3 1/8
Fourth quarter (through December 31, 1997) 1 1/16 1 7/8
Year Ending December 31, 1998:
First quarter (through March 31, 1998) 1 3/16 2 7/8
</TABLE>
On March 28, 1997, in the first of two closings under a private placement of
preferred stock and warrants to purchase Common Stock, the Company sold to Media
Equities International, LLC ("MEI") and the Former Principals (i) 3,000 shares
of the Company's Series B Preferred Stock, 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) 920
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 $920,000
(including the contribution of $676,000 payable by the Company to the Former
Principals). On June 3, 1997, the second closing (the "Second Closing") was
completed whereby the Company sold to MEI and the Former Principals (i) 1,000
shares of 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 an aggregate of $1,000,000 in cash and (ii) 1,000 shares
of 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 the Former Principals).
In October 1996 Morgan Fuller Capital Group L.L.C. ("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 March 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.
In April 1997, the Company issued 301,111 shares of Common Stock in satisfaction
for vendor payables amounting to $750,000.
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<PAGE> 17
In August 1997, the Company issued 200,000 shares of Common Stock to a
substantial shareholder for the acquisition of further rights to a future title
and certain rights on past titles.
In October 1997, the Company issued 66,667 shares of Common Stock to Shukri
Ghalayini, a former officer of Dove Television, in settlement of all claims by
him against the Company. Following this settlement, the Company released 40,000
shares of Common Stock held in escrow since the acquisition of Four Point
Entertainment.
During the year, the Company issued 250,000 shares of Common Stock in exercise
of options.
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 cash dividends if the ratio of (i) the sum of the Company's
consolidated net income plus interest expense of the Company plus the provision
for income taxes to (ii) interest expense of the Company is at least 20:1. 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.
ITEM 6. MANAGEMENTS 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 approximately 1000 titles currently offered
for sale. Through Dove Television, the Company is engaged in the production and
development of television programming. Other activities of the Company include a
limited printed book publishing program and the distribution of feature films
and television programming.
1997 was a year of consolidation and rationalization of operations of the
Company.
In 1996 the Company had rapidly expanded its printed book publishing and
television production operations and entered into the theatrical film
distribution business. However, heavy returns from the printed book publishing
operations and the liquidity needs of the rapid expansion led to working capital
shortages in early 1997 which in turn, affected the Company's ability to acquire
and develop new product. The effect of working capital shortages and heavy
printed book publishing returns led to a reduction in revenues of 38% in 1997
compared to 1996 and to increased cost of sales arising from surplus
inventories.
In June 1997, the second of two closings was completed resulting in the Company
having issued 5,920 shares of Preferred Stock with warrants for approximately
$6,000,000 to the Former Principals and MEI. Subsequently and also in June 1997
following the purchase of all of the Preferred Stock held by the Former
Principals, the Former Principals' employment with the Company terminated and
the Former Principals resigned from the Board. As a result of these changes,
representatives of MEI were named to five Board positions and Mr. Ronald
Lightstone, a partner of MEI and a member of the Board was appointed President
and Chief Executive Officer of the Company. Subsequently, certain other Board
members resigned their positions.
An extensive review of all operations led to the discontinuance of "Dove Kids"
book publishing, "Dove Video" and theatrical distribution (other than existing
library) operations, the curtailment of printed book publishing operations and
the cancellation of unprofitable elements of the new audio book publishing
program. These, together with the cost of disposing of excess returns, resulted
in write-offs of $2,495,000 in audio book and printed
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<PAGE> 18
book operations and $3,767,000 in film distribution operations (primarily
theatrical) for the year. Additionally, the Company incurred $1,614,000 in
employee separation costs and approximately $2,000,000 in legal and settlement
costs in respect of claims pertaining to events prior to the change in
management.
Following the change in management, the Company reduced overhead and
substantially strengthened its management team. In November 1997, the Company
secured a three year $8,000,000 loan facility for the purpose of repaying its
existing senior term loan with Sanwa Bank and providing working capital.
In September 1997, Dove Television delivered the made for television motion
picture, "Unwed Father" to ABC Television and sold international distribution
rights to BWE Distribution, Inc. "Unwed Father" aired on ABC on Sunday, October
11, 1997 achieving a rating of 9.4/15. Dove Television also commenced production
of a further 100 episodes of "Make Me Laugh" for Buena Vista Television and 165
episodes were delivered during 1997. In 1997, Dove Television commenced
negotiations for a number of new made for television motion pictures resulting
in an agreement with ABC Television in 1998 to produce "Futuresport", a two-hour
television motion picture. "Futuresport" completed principal photography in
March 1998 and is anticipated to be delivered to ABC Television by May 1998. In
early 1998, Dove Television commenced marketing "Futuresport" for the home video
and international markets achieving initial success with the sale of worldwide
home video rights to Columbia Tri-Star and a number of international sales.
The theatrical movie "WILDE" was delivered to the Company mid 1997. The film, a
biography of the 19th century writer Oscar Wilde, was successfully launched by
its producers in the United Kingdom and other international markets during 1997.
The Company owns United States and Engligh-speaking Canadian distribution rights
to this film and in late 1997, the Company entered into an agreement with Sony
Pictures Classics for its distribution in North America. Sony Pictures Classics
has scheduled the film to premiere at the San Francisco film festival in April
1998 and fine arts theater openings in New York and Los Angeles in May 1998.
Due to the Company's focus on stabilizing working capital, the Company
significantly limited its new title releases in the latter half of 1997. Key
audio books published by the Company included "Best Laid Plans" by Sidney
Sheldon, "Another City Not My Own" by Dominick Dunne, "Then Came Heaven" by
LaVryle Spencer, "The President's Daughter" by Jack Higgins, "The Cat Who Tailed
A Thief" by Lilian Jackson Brun and "Small Vices" by Robert Parker. In December
1997, the Company transferred its traditional audio book and printed book
distribution to a new distributor, Mercedes Distribution of Brooklyn, New York.
With the transfer of audio book and printed book distribution to Mercedes
Distribution Center, the Company has assumed direct sales responsibility to all
key traditional accounts. In early 1998, the Company entered into a distribution
agreement with UAV Corporation to manufacture and distribute selected audio
books into major mass market retail outlets. It is planned that this innovative
program will broaden audio book distribution providing back-list sales impetus.
The Company plans an expanded audio book publishing program in development for
1998 with greater emphasis on quality. The Company's catalog of 1998 audio book
releases includes "The Last Hostage" by John Nance, "Sudden Mischief" by Robert
Parker and "Flight of Eagles" by Jack Higgins. A limited printed book program is
planned for 1998.
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.
From time to time, the Company may have several television projects in
development and generally seeks to limit its financial risk in the production of
television motion pictures and mini-series by pre-sales and licensing to third
parties. The production of television programming 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 television programming
revenues.
In accordance with the 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
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<PAGE> 19
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 operations 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.
RESULTS OF OPERATIONS
The following table sets forth (i) publishing and television and film revenues
and (ii) publishing, television and film, and selling, general and
administrative expenses as a percentage of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Publishing 41% 43% 98%
Television and Film 59 57 2
--- --- ---
Total 100% 100% 100%
=== === ===
OPERATING EXPENSES
Publishing 55% 42% 64%
Television and Film 72 44 1
Selling, general & administrative 59 37 33
--- --- ---
Employee separation costs 10 -- --
--- --- ---
Total 196% 123% 98%
=== === ===
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Publishing
Revenues. Net publishing revenues for 1997 decreased $4,786,000 to $6,800,000
compared with $11,586,000 for 1996. Of the 1997 net publishing revenues, net
audio book revenue was approximately $7,400,000 and printed books incurred net
returns of approximately $600,000. In 1996, net audio book revenue was
approximately $6,810,000 and net printed book revenue was approximately
$4,776,000. The decrease in net publishing revenues was primarily attributable
to cancellation or delay in the planned new release of most printed book titles,
as well as some audio titles, due to working capital constraints and high
returns of printed books throughout the year and audio book product during the
three months ended March 31, 1997 but partly offset by increased remainder
sales. Substantially all of the Company's sales of book products are and will
continue to be subject to potential returns by distributors and retailers if not
sold to the public. Although the Company makes allowances and reserves for
returned product that it believes are adequate, significant increases in return
rates can materially and adversely impact the Company's financial condition or
results of operations.
Cost of Sales. Cost of sales for 1997 decreased $2,189,000 to $9,164,000
compared with $11,353,000 for 1996. The decrease was attributable to the
decrease in revenues for the year. Cost of sales as a percentage of net
publishing revenues increased from 98% in 1996 to 135% for 1997 due primarily to
the effect of fixed elements of cost of sales, such as product development
expense being spread over a lower revenue base, the inclusion of abnormally high
low or negative margin remainder sales in the revenue base, the write-off of
$200,000 in product master costs due to a reduction in future sales estimates
for a number of titles, the write-off of $564,000 following the decision to
discontinue the Dove Kids and Video Books lines, the write-off of $885,000 due
to the cancellation of product under development, and the write-down of $846,000
in recorded inventories to estimated net realizable value.
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<PAGE> 20
Film and Television
Revenues. Film and television revenues for 1997 decreased $5,395,000 to
$9,872,000, compared with $15,267,000 for 1996. The reduction was due to a
reduced production schedule in 1997 where the Company through Dove Television
produced only one made for television motion picture compared with two in 1996
and reduced series production by Dove Television.
Cost of sales. Film and television amortization for 1997 increased $124,000 to
$11,979,000, compared with $11,855,000 for 1996. Cost of sales as a percentage
of net film and television revenues increased from 78% in 1996 to 121% for 1997,
due primarily to the write-off of $3,767,000 in production costs arising from an
assessment of film net realizable values, mainly in theatrical productions. In
addition, cost overages on certain film projects were incurred.
General
Gross Profit/(Loss). The Company experienced a gross loss of $4,471,000 for
1997 versus a gross profit of $3,645,000 for 1996, resulting from the matters
previously discussed regarding publishing and film revenues and cost of sales.
Selling, General and Administrative ("SG&A"). SG&A includes costs associated
with selling, marketing and promoting the Company's products, as well as general
corporate expenses including salaries, occupancy costs, professional fees,
travel and entertainment. SG&A decreased 2% to $9,898,000 for 1997 compared to
$10,089,000 for 1996. The decrease in SG&A was mostly attributable to cost
savings implemented by the new management in June 1997, partially offset by
legal costs associated with a number of claims outstanding at or in respect of
the period leading up to the change in management in June 1997, and in respect
of arbitration associated with the Former Principals. In addition to SG&A, the
Company expensed $1,614,000 in employee separation costs representing contracted
payments to the Former Principals in their employment capacity together with
associated costs arising from their termination in June 1997. The contracted
payments to the Former Principals are payable over the next five years from June
1997 in approximately equal monthly installments.
Net Interest Expense. Net interest expense for 1997 was $358,000 compared with
$197,000 for 1996. The interest expense is primarily the result of the
utilization of funds and the assumption of debt in connection with the
acquisition of Dove Television in 1996, the purchase of the Company's new office
building in 1996 and the operating cash losses experienced during 1996 and 1997.
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. "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.
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 1995 to 98% 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
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<PAGE> 21
various titles associated with the O.J. Simpson trial which were written down in
the fourth quarter because 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 which have proven more
difficult than anticipated due to a general market over-supply in the remainder
market (accordingly, 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 motion picture 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 eight months of activity from Dove Television (including the activities of
Dove Television arising from the acquisition of Four Point Entertainment 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 1996 compared to
$99,000 for 1995. The increase was attributable to a significant increase in
film sales in 1996 and the inclusion of eight months of activity from Dove
Television (including the activities of Four Point Entertainment subsequent to
the date of its acquisition by Dove Television in April 1996). Film amortization
is generally incurred in proportion to the estimated revenues generated from the
release or licensing of film properties.GeneralGross 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.
SG&A. SG&A increased by $6,393,000 or 172% from $3,696,000 in 1995 to
$10,089,000 in 1996. The increase was primarily attributable to additional
direct SG&A costs associated with the operations of Dove Television ($2,388,000
for the year) subsequent to its establishment and the acquisition of Four Point
Entertainment 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 then had 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 due 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.
LIQUIDITY AND CAPITAL RESOURCES
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 to purchase shares of Common Stock at $12.00 per share. In September
1994, the Company completed the sale of 300,000 Units in a private placement for
an aggregate of approximately $926,000, each Unit
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<PAGE> 22
consisting of one share of Common Stock and one Redeemable Warrant to purchase
Common Stock at $8.00 per share. In December 1994, the Company completed its
initial public offering ("IPO"), resulting in net proceeds of approximately
$4,805,000 to the Company. In January 1995, the underwriter of the IPO exercised
its over allotment option relating to the IPO in full resulting in additional
net proceeds to the Company of approximately $770,000.
In April 1996 the Company refinanced its $1,900,000 mortgage note which the
Company borrowed from the seller in connection with the acquisition of its new
office building. The loan from Asahi Bank of California 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 schedule.
In connection with the acquisition of Four Point Entertainment, which was
completed on April 29, 1996, the Company guaranteed certain term debt and a $1
million revolving line of credit of Four Point Entertainment from Sanwa Bank of
California ("Sanwa Bank"). In August 1996, the Company refinanced its existing
line of credit and term loan with Sanwa Bank with a $1,365,000 term loan from
Sanwa Bank, maturing on August 1, 1997. In addition, the Company borrowed a
further $220,000 with a short-term bridge loan which was repaid on October 7,
1996. Both loans were secured by the Company's assets, other than the Company's
building, and were guaranteed by the Former Principals. The Sanwa Bank loan had
various covenants with which the Company was required to 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 and at certain times
during the year ended December 31, 1997, but received waivers from compliance
from Sanwa Bank on each occasion. The balance of the Sanwa Bank loan was repaid
on November 12, 1997 with proceeds from a loan facility provided by The Chase
Manhattan Bank ("Chase Bank"), and the Sanwa Bank facility was terminated.
In May 1996 the Company entered into an agreement with Samuelson Entertainment
Ltd. to acquire the North American (excluding French speaking Canada)
distribution rights to the theatrical film "Wilde" and the exclusive worldwide
print, audio and interactive rights. The film was financed by Guinness Mahon &
Co. Ltd. whereby the Company was required to pay sums totaling pound
sterling1,333,333 (approximately $2,000,000) over the 12 months subsequent to
the agreement for such rights. As of December 31, 1997, the Company had fully
paid all obligations in respect of "Wilde" and had taken delivery of the
picture.
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 October 1996, the Company obtained a bridge loan of $800,000 from Morgan
Fuller. In March 1997, the Company retired $500,000 of such loan through the
issuance of 210,526 shares of Common Stock with warrants and the balance of the
loan plus accrued interest was repaid in cash.
In October 1996 the Company entered into a financial advisory agreement with
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 per share.
In March 1997, the Company entered into an agreement with MEI and the Former
Principals for an equity investment of approximately $6,000,000 through the sale
of Preferred Stock and warrants to purchase Common Stock of the Company in a
private placement. In the first of two closings, the Company received an
aggregate of $3,920,000 (including the contribution of $676,000 payable by the
Company to the Former Principals) and in a second closing completed May 31, 1997
received an additional $2,000,000.
In September 1997, the Company entered into an agreement with MEI providing the
Company with a $450,000 loan facility for working capital purposes ("MEI Loan").
The MEI Loan was subsequently increased to $550,000 The MEI Loan was secured by
substantially all of the Company's assets, other than the Company's building
which
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<PAGE> 23
security interest was junior to the security interest of Sanwa Bank. On November
12, 1997, the MEI Loan was repaid in full with the proceeds from a loan facility
provided by Chase Bank, and the MEI Loan was terminated.
On November 12, 1997, the Company entered into an agreement with Chase Bank
providing the Company with an $8,000,000 loan facility for working capital
purposes ("Chase Loan"). The Chase Loan is secured by substantially all of the
Company's assets, other than the Company's building. The Chase Loan runs for
three years until November 4, 2000. The Chase Loan establishes a "Borrowing
Base" comprising: (1) 35% of an independent valuation of the Company's audio
library, (2) 85% of the Company's eligible receivables and (3) 30% of the
Company's finished goods audio and book inventory. At any time, the Company may
borrow up to the Borrowing Base. In addition, the Company may borrow a further
$2,000,000 (provided the aggregate amount borrowed does not exceed $8,000,000)
with the consent and guarantee of MEI. The Chase Loan provides for interest at
the bank prime rate plus 2% per annum or the bank's LIBOR rate plus 3% per
annum, at the option of the Company. In addition, unused commitment fees are
payable at 1/2% per annum. The Chase Loan contains various covenants to which
the Company must adhere including limitations on additional indebtedness,
investments, acquisitions, capital expenditures and sale of assets, restrictions
on the payment of dividends and distributions to shareholders, and various
financial compliance tests. At December 31, 1997, the Company was not in
compliance with certain of the financial compliance tests but received a waiver
and amendment from Chase Bank. At December 31, 1997, the Company had borrowed
$5,250,000 against the facility. In addition, Chase Bank had provided a letter
of guarantee for $350,000 in respect of certain litigation.
In February 1998, the Company entered into an agreement with Chase Bank
providing the Company with up to $3,000,000 in short-term financing to produce
the television motion picture "Futuresport". This loan is secured against
"Futuresport" and is expected to be repaid in 1998 with proceeds from the sale
of the television motion picture.
The Company has historically experienced significant negative cash flows from
operations, including $8,546,000 for 1997 - see "Financial Statements of the
Company - Consolidated Statements of Cash Flows". Such negative cash flows have
resulted from, among other things, use of working capital for expansion of audio
and printed book publishing, development of television programming and the
acquisition of theatrical motion picture product. The Company plans to
significantly increase the level of activity in both its audio book and
television production operations. In addition, the Company will consider
acquisitions of properties or libraries or companies in related lines of
business. It will be necessary to obtain additional capital in order to
accomplish its growth objective. Such additional capital would likely be
obtained through sales of equity securities, by obtaining debt financing or
through the sale of assets. Even if the Company does not pursue its growth
objective, if the Company is unable to realize anticipate revenues or if the
Company incurs costs inconsistent with anticipated levels, the Company would
either need to obtain additional financing (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. There is no assurance that any such additional financing
will be available on acceptable terms.
The Company's television production activities can affect its capital needs in
that the revenues from the initial licensing of television programming may be
less than the associated production costs. The ability of the Company to cover
the production costs of particular programming 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
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 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 any such additional financing will be available on acceptable terms. If the
Company is unable to obtain such financing, it may be required to reduce or
curtail certain operations.
In order to obtain rights to certain properties for the Company's publishing and
television operations, the Company may be required to make advance cash payments
to sources of such properties, including book authors and
23
<PAGE> 24
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.
The Company's operations in general, and its publishing and television
operations in particular, are capital intensive. The Company anticipates, based
on currently proposed plans and assumptions relating to its operations and
anticipated outcomes of current litigation, that the projected cash flow from
operations and available cash resources, including its existing financing
arrangements, will be sufficient to satisfy its anticipated cash requirements
for the fiscal year ending December 31, 1998. In the event that the Company's
plans change, its assumptions change or prove to be inaccurate or the cash flow
proves to be insufficient to fund operations (due to unanticipated expenses,
delays, problems, difficulties or otherwise), the Company would be required to
seek additional financing sooner than anticipated or to curtail its activities.
As of March 30, 1998 the Company's unused sources of funds consisted primarily
of approximately $163,000 in cash and $1,000,000 available under the Chase Loan.
Any draw-downs of such currently available amounts under the Chase Loan are
subject to approval and guarantee by MEI.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements. This
statement is effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way public business enterprises report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. The Company has not yet determined whether it
has any separately reportable business segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits. This
Statement is effective for fiscal years beginning after December 15, 1997.
Management does not believe that the impact of this statement will be material
to the Company's financial statements.
INFLATION
The Company does not believe its business and operations have been materially
affected by inflation.
YEAR 2000
Some of the Company's financial business systems were written using two digits,
rather than four, to define the applicable year. As a result, those systems have
date-sensitive software that recognizes a date "00" as the year 1900 rather than
2000. If not modified or updated, this could cause system failure or
miscalculations, potentially resulting in the temporary disruption of operations
due to the inability to process certain transactions.
The Company plans to convert its financial business systems to standardized
package systems that are 2000 compliant within 1998. The only other critical
business system to the Company is the distribution system run by Mercedes
Distribution. Mercedes Distribution have assured the Company that their
distribution system is 2000 compliant.
24
<PAGE> 25
The Company has initiated communications with significant suppliers and
customers to determine the extent that they may be vulnerable to their own year
2000 issues. Based on the representations on suppliers and customers contacted,
management does not believe the Company's continued operation is at risk due to
key business partners not addressing the year 2000 issue.
ITEM 7. FINANCIAL STATEMENTS
The financial statements, including notes thereto, required by Item 7 are set
forth on the pages indicated in Item 13(a)(1).
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, 1997.
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, 1997.
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 Owner 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, 1997.
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, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
<TABLE>
<CAPTION>
(1) FINANCIAL STATEMENTS Page
<S> <C>
Report of KPMG Peat Marwick LLP.................................................F-l
Balance Sheet at December 31, 1997..............................................F-2
Statements of Operations for the Years Ended December 31, 1997 and 1996 ........F-3
Statements of Shareholder's Equity for the Years
Ended December 31, 1997 and 1996 ...............................................F-4
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 ........F-5
Notes to Financial Statements ..................................................F-7
</TABLE>
25
<PAGE> 26
(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 (filed as Exhibit 3.6 to the
Annual Report on Form 10-KSB for the fiscal year ended 1996)
3.7 Form of Amendment to Bylaws dated as of November 7, 1996
(filed as Exhibit 3.7 to the Annual Report on Form 10-KSB for
the fiscal year ended 1996)
3.8 Amended and Restated Bylaws of the Company
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, LP (filed as Exhibit 4.7
to Amendment No. 1 )
4.8 Placement Agent Warrant Agreement dated December 24, 1995
between Whale Securities Co., LP and Dove Audio (filed as the
same numbered Exhibit to the Annual Report on Form 10-KSB for
the fiscal year ended 1995)
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
<S> <C>
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 (filed
as Exhibit 4.12 to the Annual Report on Form 10-KSB for the
fiscal year ended 1996)
4.13 Certificate of Determination of the Series B Preferred Stock
of the Company (filed as Exhibit 4.13 to the Annual Report on
Form 10-KSB for the fiscal year ended 1996)
4.14 Warrant Agreement dated as of March 27, 1997 between the
Company and Media Equities Intentional, LLC (filed as Exhibit
4.14 to the Annual Report on Form 10-KSB for the fiscal year
ended 1996)
4.15 Certificate of Determination of the Series C Preferred Stock
of the Company (filed as Exhibit 4.15 to the Annual Report on
Form 10-KSB for the fiscal year ended 1996)
4.16 Warrant Agreement dated as of March 27, 1997 between the
Company, Michael Viner and Deborah Raffin Viner (filed as
Exhibit 4.16 to the Annual Report on Form 10-KSB for the
fiscal year ended 1996)
4.17 Certificate of Determination of the Series D Preferred Stock
of the Company (filed as Exhibit 4.17 to the Annual Report on
Form 10-KSB for the fiscal year ended 1996)
4.18 Form of Warrant Agreement dated as of April 1, 1997 (filed as
Exhibit 4.18 to the Annual Report on Form 10-KSB for the
fiscal year ended 1996)
4.19 Certificate of Determination of the Series E Preferred Stock
of the Company (filed as Exhibit 4.19 to the Company's Current
Report on Form 8-K dated June 10, 1997)
4.20 Specimen Series E Preferred Stock Certificate of the Company
(filed as Exhibit 4.20 to the Company's Current Report on Form
8-K dated June 10, 1997)
4.21 Registration Rights Agreement, dated June 10, 1997, by and
among the Company, Michael Viner and Deborah Raffin Viner
(filed as Exhibit 4.21 to the Company's Current Report on Form
8-K dated June 10, 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)
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
<S> <C>
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 OfficeLease (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)
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)
10.27 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)
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
<S> <C>
10.33 Separation Agreement dated as of May 31, 1996 by and between
the Company and Dimitri T. Skouras (filed as Exhibit 10.33 to
the Annual Report on Form 10-KSB for the fiscal year ended
1996)
10.35 Letter Agreement dated September 12, 1996 between the Company,
Michael Viner and Deborah Raffin (filed as Exhibit 10.35 to
the Annual Report on Form 10-KSB for the fiscal year ended
1996)
10.36 Financial Advisor Agreement dated as of September 30, 1996
between the Company and Morgan Fuller Capital Group, LLC
(filed as Exhibit 10.36 to the Annual Report on Form 10-KSB
for the fiscal year ended 1996)
10.39 Form of First Amendment to the Company's 1994 Stock Incentive
Plan dated November 7, 1996 (filed as Exhibit 10.39 to the
Annual Report on Form 10-KSB for the fiscal year ended 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 (filed as Exhibit 10.40 to the Annual
Report on Form 10-KSB for the fiscal year ended 1996)
10.41 Shareholders Voting Agreement dated as of March 27, 1997 by
and between Media Equities International, LLC, Michael Viner
and Deborah Raffin Viner (filed as Exhibit 10.41 to the Annual
Report on Form 10-KSB for the fiscal year ended 1996)
10.42 Pledge Agreement dated as of March 27, 1997 among Media
Equities International, LLC, Michael Viner and Deborah Raffin
Viner (filed as Exhibit 10.42 to the Annual Report on Form
10-KSB for the fiscal year ended 1996)
10.45 Employment Termination Agreement, dated June 10, 1997, by and
among the Company, Michael Viner and Deborah Raffin (filed as
Exhibit 10.45 to the Company's Current Report on Form 8-K
dated June 10, 1997)
10.46 Securities Purchase Agreement, dated June 10, 1997, by and
among Media Equities International, LLC, Michael Viner and
Deborah Raffin Viner (filed as Exhibit 10.46 to the Company's
Current Report on Form 8-K dated June 10, 1997)
10.47 Loan Agreement, dated as of September 26, 1997, between the
Company and Dove Four Point, Inc. and Media Equities
International, Inc.
10.48 Debt Subordination and Intercreditor Agreement, dated
September 26, 1997, among the Company, Dove Four Point, Inc.,
Media Equities International, Inc. and Sanwa Bank California
10.49 Security Agreement, dated as of September 26, 1997, between
the Company, Dove Four Point, Inc. and Media Equities
International, Inc.
10.50 Copyright Security Agreement, dated as of September 26, 1997,
by Dove Four Point, Inc. in favor of Media Equities
International, Inc.
10.51 Copyright Security Agreement, dated as of September 26, 1997
by the Company in favor of Media Equities International, Inc.
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
<S> <C>
10.52 Credit, Security, Guaranty and Pledge Agreement dated as of
November 4, 1997, among the Company, Dove Four Point, Inc.,
Dove International, Inc. and The Chase Manhattan Bank, as
Lender (the "Credit Agreement")
10.53 Copyright Security Agreement dated as of November 4, 1997 by
the Company, Dove Four Point, Inc. and Dove International,
Inc. in favor of The Chase Manhattan Bank (the "Copyright
Security Agreement")
10.54 Security Agreement, dated as of November 4, 1997 between the
Company and Media Equities International
10.55 Subordination Agreement, dated as of November 4,1997, among
the Company, Dove International, Inc. and Dove Four Point,
Inc., Terrence A. Elkes, Kenneth F. Gorman, Ronald Lightstone,
John T. Healy, and Bruce Maggin, Media Equities International,
LLC and The Chase Manhattan Bank.
10.56 Contribution Agreement, dated as of November 4, 1997, among,
the Company Dove Four Point, Inc. and Dove International, Inc.
10.57 Fee Agreement, made as of November 4, 1997 between the Company
and Media Equities International, LLC.
10.58 Employment Agreement, dated as of February 4, 1998 between the
Company and Ronald Lightstone
10.59 Supplement No. 1 to the Copyright Security Agreement dated as
of February 20, 1998 by Dove Four Point, Inc. in favor of The
Chase Manhattan Bank
10.60 Amendment No. 1 to the Credit Agreement, dated as of February
27, 1998, between the Company, Dove International, Inc., Dove
Four Point, Inc. and The Chase Manhattan Bank
10.61 Amendment No. 2 to the Credit Agreement, dated as of April 1,
1998, between the Company, Dove International, Inc., Dove Four
Point, Inc.
10.62 Form of Publishing Agreement (1997)
10.63 Form of Artist Agreement (1997)
10.64 Form of Executive Publication Agreement
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.
30
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Dove Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of Dove
Entertainment, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended December 31, 1997 and 1996. 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 audits.
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, 1997, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
April 3, 1998
F-1
<PAGE> 32
DOVE ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 302,000
Accounts receivable, net of allowances of $1,125,000 2,073,000
Inventory 3,037,000
Film costs - note 6 928,000
Prepaid expenses and other assets 504,000
------------
Total current assets 6,844,000
NON-CURRENT ASSETS
Production masters - note 5 1,527,000
Film costs, net - note 6 716,000
Property and equipment, net - note 4 3,935,000
Goodwill and other assets 6,049,000
------------
Total non-current assets 12,227,000
------------
Total assets $ 19,071,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 6,672,000
Notes payable - note 8 47,000
Due to related party - note 9 150,000
Royalties payable 633,000
Advances and deferred income 524,000
Accrued dividends 376,000
------------
Total current liabilities 8,402,000
NON-CURRENT LIABILITIES
Notes payable, less current portion - note 8 7,033,000
Accrued liabilities 824,000
------------
Total non-current liabilities 7,857,000
------------
Total liabilities 16,259,000
COMMITMENTS AND CONTINGENCIES - note 10
LIQUIDITY - note 16
SHAREHOLDERS' EQUITY - note 11
Preferred stock $.01 par value; 2,000,000 shares authorized
and 220,033 shares issued and outstanding, liquidation
preference $7,152,000 2,000
Common stock $.01 par value; 20,000,000 shares authorized and
6,341,544 shares issued and outstanding 63,000
Additional paid-in capital 28,029,000
Accumulated deficit (25,282,000)
------------
Total shareholders' equity 2,812,000
------------
Total liabilities and shareholders' equity $ 19,071,000
============
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 33
DOVE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues - Note 12
Publishing, net $ 6,800,000 $ 11,586,000
Film 9,872,000 15,267,000
------------ ------------
16,672,000 26,853,000
Less: Cost of sales
Publishing 9,164,000 11,353,000
Film 11,979,000 11,855,000
------------ ------------
21,143,000 23,208,000
------------ ------------
(4,471,000) 3,645,000
Less: Selling, general and administrative expenses- Note 9 9,898,000 10,089,000
Employee separation costs 1,614,000 --
------------ ------------
11,512,000 10,089,000
------------ ------------
Loss from operations (15,983,000) (6,444,000)
Less: Interest expense, net 358,000 197,000
------------ ------------
Loss before income taxes (16,341,000) (6,641,000)
Less: Income tax expense - Note 7 229,000 32,000
------------ ------------
Net loss $(16,570,000) $ (6,673,000)
============ ============
Basic and diluted loss attributable to common shareholders $(19,018,000) $ (6,742,000)
============ ============
Basic and diluted loss per common share $ (3.27) $ (1.31)
============ ============
Weighted average number of common and common
equivalent shares outstanding 5,819,000 5,138,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 34
DOVE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1996 214,113 $ 856,000 4,663,853 $ 47,000 $ 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 Entertainment -- -- 387,274 4,000 4,789,000 -- 4,793,000
Exercise of warrants -- -- 1,800 -- -- -- --
Accrued preferred
stock dividend -- -- -- -- -- (69,000) (69,000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
December 31, 1996 214,113 856,000 5,273,240 53,000 19,599,000 (8,407,000) 12,101,000
Net loss -- -- -- -- -- (16,570,000) (16,570,000)
Terms of preferred
stock revised -- (854,000) -- -- 854,000 --
Issuance of common
stock in payment of
debt, vendors, legal
settlements and
publishing rights -- -- 778,304 7,000 1,727,000 1,734,000
Issuance of
preferred stock 5,920 -- -- -- 5,789,000 5,789,000
Escrow common stock
released as part of
litigation settlement -- -- 40,000 -- 60,000 60,000
Exercise of options -- -- 250,000 3,000 -- 3,000
Accrued preferred
stock dividend -- -- -- -- -- (305,000) (305,000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
December 31, 1997 220,033 $ 2,000 6,341,544 $ 63,000 $ 28,029,000 $(25,282,000) $ 2,812,000
============ ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 35
DOVE ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(16,570,000) $ (6,673,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 513,000 321,000
Amortization of goodwill 253,000 164,000
Amortization of production masters 4,338,000 4,196,000
Amortization of film costs 10,235,000 11,855,000
Changes in operating assets and liabilities
Accounts receivable 201,000 (309,000)
Inventory 1,000,000 (332,000)
Prepaid expenses (159,000) 173,000
Expenditures for production masters (2,462,000) (4,366,000)
Film costs (8,184,000) (10,393,000)
Accounts payable and accrued expenses 1,582,000 3,126,000
Royalties payable 99,000 193,000
Income taxes 727,000 (81,000)
Advances and deferred revenue (637,000) (2,069,000)
Other 373,000 (13,000)
------------ ------------
Net cash used in operating activities (8,691,000) (4,208,000)
------------ ------------
INVESTING ACTIVITIES
Acquisition of Four Point Entertainment -- (2,500,000)
Purchase of marketable securities -- (214,000)
Sale of marketable securities -- 359,000
Purchases of property and equipment (166,000) (303,000)
Proceeds from the sale of equipment 26,000 --
------------ ------------
Net cash used in investing activities (140,000) (2,658,000)
------------ ------------
FINANCING ACTIVITIES
Proceeds from sale of common stock -- 1,547,000
Proceeds from sale of preferred stock 5,113,000 --
Proceeds of bank borrowings 5,800,000 1,020,000
Repayments of bank borrowings and notes payable (2,173,000) (257,000)
Proceeds from exercise of common stock options 3,000 --
------------ ------------
Net cash provided by financing activities 8,743,000 2,310,000
------------ ------------
Net decrease in cash and cash equivalents (88,000) (4,556,000)
Cash and cash equivalents at beginning of year 390,000 4,946,000
------------ ------------
Cash and cash equivalents at end of year $ 302,000 $ 390,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 36
DOVE ENTERTAINMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
NON-CASH TRANSACTIONS:
Acquisition of Four Point Entertainment, Inc.:
Assets acquired $ -- $ 10,229,000
Liabilities assumed -- (2,936,000)
Issuance of Common Stock -- (4,793,000)
------------ ------------
Net cash paid $ -- $ 2,500,000
============ ============
Cash paid for interest $ 319,000 $ 278,000
Refunds received for income taxes $ 555,000 $ --
Film cost acquired in exchange for payable
related party $ -- $ 500,000
Common stock issued as payment for debt vendor, $ -- $ --
legal settlements and publishing rights $ 1,727,000 $ --
Preferred stock issued as payment for expenses, loans and
commissions payable to former officers of the Company $ 676,000 $ --
Preferred stock dividends accrued $ 305,000 $ 69,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 37
DOVE ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
Dove Entertainment, Inc. is a diversified entertainment company primarily
engaged in publication of audio and printed books, the production of television
programming through its wholly-owned subsidiary Dove Four Point, Inc. ("Dove
Television"), and the distribution of feature films and television product, both
domestically and internationally.
The Company acquires audio publishing rights for specific titles or groups of
titles for audio production and distribution, primarily in the United States of
America.
Dove Television is an independent production company which develops and produces
television productions for which rights are controlled by Dove Television. In
addition, Dove Television is often engaged 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 and game shows for network, cable and syndicated
production.
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, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 1,825,000 $ 2,132,000
Provision for returns 6,025,000 9,119,000
Actual returns (6,815,000) (9,426,000)
----------- -----------
Balance at end of year $ 1,035,000 $ 1,825,000
=========== ===========
</TABLE>
The activity relating to the allowance for doubtful accounts during the years
ended December 31, 1997 and December 31, 1996 was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Balance at beginning of year $ 170,000 $ --
Provision for doubtful debts 90,000 552,000
Write-offs (170,000) (382,000)
--------- ---------
Balance at end of year $ 90,000 $ 170,000
========= =========
</TABLE>
F-7
<PAGE> 38
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
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 expenses through 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 commencing from the time a title is initially
released, consistent with the estimated timing of revenue for a title. Prior to
January 1, 1997, for printed book titles, this had 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 following release. Beginning January 1, 1997, the Company accelerated
the amortization of costs on printed book titles so that 80% of a title's
production master costs were amortized in the initial quarter of release with
the remaining 20% amortized over the following three quarters. This charge has
no significant financial impact. Audio book titles are amortized on a
quarter-by-quarter basis over a two-year period resulting in approximately 80%
of such audio title's production master cost being amortized in the first twelve
months of release. 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
Television programming and 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 program or film basis. Revenue forecasts for television
programs and films are periodically reviewed by management and revised if
warranted by changing conditions. If estimates of total revenue indicate that a
television program or film will result in an ultimate loss, the loss is
recognized currently.
Revenues from the distribution of television programming 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 ("SFAS") No. 109 . In accordance with SFAS No. 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.
F-8
<PAGE> 39
GOODWILL
Goodwill, representing the excess of the purchase price of Dove Television over
its net assets, is included in other assets and is being amortized over a
twenty-five year period. Goodwill amounted to $5,960,000 net of accumulated
amortization of $914,000 at December 31, 1997.
Management continuously monitors and evaluates the realizability of recorded
intangibles to determine whether their carrying values have been impaired. In
evaluating the value and future benefits of intangible assets, their carrying
value is compared to management's best estimates 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 recorded intangibles is not
impaired.
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 LOSS PER COMMON SHARE
SFAS No. 128, "Earnings per Share", is effective for financial statements issued
for periods ending after December 15, 1997. SFAS No. 128 replaces Accounting
Principles Board Opinion ("APB") No. 15 and simplifies the computation of
earnings per share ("EPS") by replacing the presentation of primary EPS with a
presentation of basic EPS. Basic EPS includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution from securities that could share in the earnings of the Company,
similar to fully diluted EPS under APB No. 15. The statement requires dual
presentation of basic and diluted EPS by entities with complex capital
structures. The Company adopted SFAS No. 128 for the financial statements ended
December 31, 1997. SFAS No. 128 had no impact on the previously reported loss
per share. Dilutive securities (described in note 11) have been omitted from the
diluted calculation since they are antidilutive. The net loss utilized in the
calculation of net loss per common share is increased by accrued dividends on
Preferred Stock of $305,000 and imputed dividends of $2,143,000 on Preferred
Stock issued during 1997. Such imputed dividend has been treated as an increase
and decrease to Additional Paid-in Capital.
USE OF ESTIMATES
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 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 the grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB No. 25 and provide
pro forma net income and pro forma earnings per share
F-9
<PAGE> 40
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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements. This
statement is effective for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way public business enterprises report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. The Company has not yet determined whether it
has any separately reportable business segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits. This
Statement is effective for fiscal years beginning after December 15, 1997.
Management does not believe that the impact of this statement will be material
to the Company's financial statements.
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. The fair value of long term debt approximates its carrying value due to
its variable interest rate.
NOTE 4 - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1997 is as follows:
<TABLE>
<S> <C>
Land $ 502,000
Building 2,147,000
Furniture, fixtures and equipment 2,428,000
Leasehold improvements 6,000
----------
Total 5,083,000
Less: Accumulated depreciation and amortization 1,148,000
----------
$3,935,000
==========
</TABLE>
F-10
<PAGE> 41
NOTE 5 - PRODUCTION MASTERS
Production masters, net of accumulated amortization of $4,226,000 at December
31, 1997 consist of the following:
<TABLE>
<S> <C>
Released titles $1,168,000
Unreleased titles 359,000
----------
Total $1,527,000
==========
</TABLE>
NOTE 6 - FILM COSTS
Film costs, net of accumulated amortization of $4,707,000 at December 31, 1997
consist of the following:
<TABLE>
<S> <C>
Current: Television and theatrical projects in production $ 928,000
Non-current: Television and theatrical projects released less
accumulated amortization 716,000
----------
Total $1,644,000
==========
</TABLE>
As of December 31, 1997 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.
NOTE 7 - INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996
-------- --------
<S> <C> <C>
Current tax expense
Federal $ -- $ --
State -- --
-------- --------
Total current -- $ --
Deferred tax expense
Federal 229,000 24,000
State -- 8,000
-------- --------
Total deferred 229,000 32,000
-------- --------
$229,000 $ 32,000
======== ========
</TABLE>
Net deferred tax assets at December 31, 1997 is comprised of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforward $ 6,539,000
Sales returns reserve 249,000
Inventory reserve 270,000
Film amortization reserve 561,000
Accrued expenses 690,000
Royalty payable 271,000
Deferred income 224,000
State taxes 468,000
Other 137,000
-----------
Total 9,409,000
Valuation allowance (9,409,000)
-----------
Net deferred taxes $ 0
===========
</TABLE>
F-11
<PAGE> 42
SFAS No. 109 requires that a valuation allowance be recorded against tax assets
which are not likely to be realized. Due to the uncertainty of their ultimate
realization based upon past earnings performance and the expiration dates of
carryforwards, 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.
Net operating loss carryforwards expire as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
2011 $ 1,989,000
2012 4,550,000
-----------
Total $ 6,539,000
===========
</TABLE>
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, 1997 and 1996, respectively, as a result of the following
differences:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1996
<S> <C> <C>
Federal income tax expense (benefit) based
on federal statutory rates $(5,556,000) $(2,336,000)
Increase (reduction) in taxes resulting from:
State income taxes (786,000) (230,000)
Non-deductible expenses 72,000 112,000
Increase in valuation allowance 6,499,000 2,486,000
----------- -----------
$ 229,000 $ 32,000
=========== ===========
</TABLE>
NOTE 8 - NOTES PAYABLE
Notes payable at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Current portion of long term mortgage note payable $ 47,000
Non-current notes payable:
Chase Manhattan Bank revolving credit loan 5,250,000
Long-term mortgage note payable, less current portion 1,783,000
----------
Total non-current notes payable 7,033,000
----------
Total notes payable $7,080,000
==========
</TABLE>
<TABLE>
<CAPTION>
Maturity of notes payable:
Year Ending December 31,
<S> <C>
1998 47,000
1999 49,000
2000 5,303,000
2001 1,681,000
----------
$7,080,000
</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 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
F-12
<PAGE> 43
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 with
a repayment of the remaining outstanding principal on August 1, 1997. In
addition, the Company borrowed a further $220,000 with a short-term bridge loan
which was repaid on October 7, 1996. Both loans were secured by the Company's
assets, other than the Company's building, and were guaranteed by two former
principal shareholders/officers of the Company ("Former Principals"). The Sanwa
Bank loan had various covenants with which the Company was required to 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 and at certain
times during the year ended December 31, 1997, but received waivers from
compliance from Sanwa Bank on each occasion. The balance of the Sanwa Bank loan
was repaid on November 12, 1997 with proceeds from a loan facility provided by
The Chase Manhattan Bank ("Chase Bank"), and the Sanwa Bank facility was
terminated.
In September 1997, the Company entered into an agreement with Media Equities
International, L.L.C. ("MEI") providing the Company with a $450,000 loan
facility for working capital purposes ("MEI Loan"). The MEI Loan was
subsequently increased to $550,000. MEI is a substantial shareholder of the
Company, see Note 9 - Related Party Transactions and Note 11 - Capital
Activities. The MEI Loan was secured by substantially all of the Company's
assets, other than the Company's building, which security interest was junior to
the security interest of Sanwa Bank. The MEI Loan provided for interest at 10%
per annum, payable monthly and to be repaid in full in the event that the
Company refinanced the term loan with Sanwa Bank. On November 12, 1997, the MEI
Loan was repaid in full with the proceeds from a loan facility provided by Chase
Bank, and the MEI Loan was terminated.
On November 12, 1997, the Company entered into an agreement with Chase Bank
providing the Company with an $8,000,000 loan facility for working capital
purposes ("Chase Loan"). The Chase Loan is secured by substantially all of the
Company's assets, other than the Company's building. The Chase Loan runs for
three years until November 4, 2000. The Chase Loan establishes a "Borrowing
Base" comprised of: (1) 35% of an independent valuation of the Company's audio
library, (2) 85% of the Company's eligible receivables and (3) 30% of the
Company's finished goods audio and book inventory. At any time, the Company may
borrow up to the Borrowing Base. In addition, the Company may borrow an
additional $2,000,000 (provided the aggregate amount borrowed does not exceed
$8,000,000) with the consent and guarantee of MEI. The Chase Loan provides for
interest at the bank prime rate (8-1/2% at December 31, 1997) plus 2% per annum
or the bank's LIBOR rate (5.69% six month rate at December 31, 1997) plus 3% per
annum, at the option of the Company. Both rates are applicable to Company
draw-downs on the Chase Loan at December 31, 1997. In addition, unused
commitment fees are payable at -1/2% per annum. The Chase Loan contains various
covenants to which the Company must adhere including limitations on additional
indebtedness, investments, acquisitions, capital expenditures and sale of
assets, restrictions on the payment of dividends and distributions to
shareholders, and various financial compliance tests. At December 31, 1997, the
Company was not in compliance with certain of the financial compliance tests but
received a waiver and amendment from Chase Bank. At December 31, 1997, the
Company had borrowed $5,250,000 against the facility. In addition, Chase Bank
had provided a letter of credit for $350,000.
NOTE 9 - RELATED PARTY TRANSACTIONS
As of January 1, 1995, the Company entered into employment agreements with the
Former Principals which were to expire in December 1999. The agreements
originally provided for aggregate compensation to the Former Principals of no
less than a combined total of $345,000 per year, plus benefits such as health
insurance and an automobile allowance and a combined non-accountable expenses of
$75,000 per year. In addition, the Former Principals were entitled to an annual
salary increase and bonus subject to certain limitations agreed upon with the
underwriter of the Company's initial public offering at the discretion of the
Company's Board. The Board approved an increase in the salary portion of the
employment agreements with the Former Principals to a combined total of $562,000
per year for 1996. On June 10, 1997, the Former Principals entered into a
Securities Purchase
F-13
<PAGE> 44
Agreement with MEI whereby they sold all their Preferred Stock and a portion of
their common stock to MEI. Concurrently each of the Former Principals resigned
as officers and directors of the Company and its subsidiaries pursuant to an
employment termination agreement ("Termination Agreement").
Pursuant to the Termination Agreement, and in consideration for the settlement
of their respective employment agreements, the Former Principals are entitled to
each receive combined monthly payments ("the Payments") of approximately
$25,000, and medical insurance for 60 months. In addition, they are entitled to
each receive a car allowance for 24 months and reimbursements for certain
medical and business expenses. Certain payments under, and other provisions of,
the Termination Agreement are subject to arbitration proceedings. See Note 10 -
Commitments and Contingencies.
To secure the Payments, the Company has issued into escrow 1,500 shares of its
Series E Preferred Stock, convertible into shares of Common Stock to the extent
set forth in the Certificate of Determination for the Series E Preferred Stock.
The Series E Preferred Stock will be held in escrow and will not be released to
the Former Principals except in the event of a default in the Payments by the
Company. In the event of a default in the Payments by the Company, the Series E
Preferred Stock will be released to the Former Principals, as the case may be,
in an amount equal to the portion of the Payments unpaid as a result of default
divided by the stated value of the Series E Preferred Stock. The Former
Principals have registration rights pursuant to a registration rights agreement,
dated June 10, 1997, among the Company and the Former Principals with respect to
any Series E Preferred Stock received by them.
In addition to full-time salary and payments pursuant to the Termination
Agreement, the Company made the following payments to the Former Principals:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Reimbursement of condominium rental $ 2,000 $ 14,000
Accrued non-accountable expenses paid 181,000 --
Automobile lease, insurance and repair payments 15,000 20,000
Medical expense and life insurance reimbursements 1,000 4,000
Executive producer fees and per-diem in respect of
television productions 103,000 290,000
Writing services 11,000 --
Interest in respect of partial funding of "Wilde", see below 13,000 --
Commission in respect of "Wilde", see below 75,000 --
-------- --------
$401,000 $328,000
======== ========
</TABLE>
The above amounts were all paid or incurred prior to the date of the Termination
Agreement.
In September 1996, 50,000 options to purchase Common Stock at an exercise price
of $2.74 were issued to each of the Former Principals. These options have since
been terminated or expired.
In May 1996, the Company's wholly owned subsidiary, Dove International, Inc.
("Dove International") entered into an agreement to acquire United States and
English-speaking Canadian distribution rights in the production of the movie
"Wilde" (the "Picture"). As part of the financing of the Picture, one of the
Former Principals personally guaranteed $1,000,000 of Dove International's
payment obligations and personally deposited $500,000 at Guinness Mahon & Co.
Ltd. ("Guinness Mahon") (and pledged the deposit plus interest thereon) to
secure Dove International's payment obligations in respect of the Picture. In
consideration for agreeing to pledge the deposit, the producers of the Picture
and Dove International agreed that one of the Former Principals would receive a
5% commission, up to a maximum of $120,000, payable from 5% of 100% of the gross
receipts from North American distribution. As partial consideration for the
acquisition by the Former Principals of Series C Preferred Stock and warrants to
acquire Common Stock of the Company (see Note 11 to the Consolidated Financial
Statements), the Company's obligation to repay one of the Former Principals the
$500,000 deposit made with Guinness Mahon and to repay one of the Former
Principals the 5% commission on proceeds from the Picture were released.
F-14
<PAGE> 45
In August 1996, the Former Principals personally guaranteed the Company's
obligations to Sanwa Bank to a maximum principal amount of $1,600,000 in order
to avoid an event of default on such obligations. On November 12, 1997 such
obligation to Sanwa Bank was repaid by the Company and the guarantee was
canceled.
Pursuant to a purported agreement, dated May 16, 1996, Mr. Leider, then a
director of the Company, was to provide management consulting services to the
Company until the Company and Mr. Leider mutually agreed to terminate such
agreement. Such purported agreement provided for an annual compensation of
$125,000 payable monthly in arrears. Under the terms of such purported
agreement, Mr. Leider was granted options to purchase 50,000 shares of Common
Stock with an exercise price of $3.50 per share. These options have since
expired. The Company is challenging the validity of such purported agreement.
Pursuant to a purported severance agreement, dated September 4, 1996, if Mr.
Leider's consultancy pursuant to the above referenced agreement is terminated,
the Company may be required to pay all amounts accrued through the date Mr.
Leider is terminated and his consulting compensation for a period of time
following the date of termination. Further, the purported agreement provides
that if Mr. Leider's consultancy is terminated for any reason other than death,
disability, retirement or for cause, as defined in the agreement, or Mr. Leider
terminates his consultancy within three months of any of the following: (i)
assignment of duties materially inconsistent with his status with the Company or
a material change in his reporting responsibilities, (ii) material reduction of
Mr. Leider's consulting compensation, (iii) subsequent to an Event, failure by
the Company to continue any benefit or compensation in which Mr. Leider is
participating at the time of the Event or (iv) any purported termination of Mr.
Leider's consultancy effected pursuant to a Notice of Termination, as defined in
the agreement, and such termination is not valid or effective; then Mr. Leider
may be entitled to all amounts accruing to him as of the date of such
termination and his consulting compensation for up to six months following the
date of termination. These options have since expired. The Company is
challenging the validity of such purported agreement.
Mr. Leider's consultancy with the Company was terminated on September 12, 1997
and in October 1997 he resigned as a director of the Company.
The Company made the following payments to Mr Leider:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Consulting retainer fees $ 52,000 $ 83,000
Executive producer fees in respect of television productions -- 75,000
-------- --------
$ 52,000 $158,000
======== ========
</TABLE>
Pursuant to a purported employment agreement with Steven Soloway, Mr. Soloway
was provided a base salary of $125,000 per year with an annual increase of at
least 10% per annum and was granted options to purchase 30,000 shares of Common
Stock pursuant to the terms of the Company's 1994 Stock Incentive Plan ("the
Plan) with an exercise price of $2.50 per share. Such purported agreement
contained various provisions related to early termination and change of
ownership of the Company's outstanding shares of Common Stock. In June 1997, Mr.
Soloway's employment with the Company ended and on July 30, 1997, Mr. Soloway
resigned from the Board.
As part of the Stock Purchase Agreement, the Company and MEI agreed to the terms
of a three year consulting arrangement with MEI which arrangement commenced on
April 1, 1997. MEI has agreed to 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. As compensation for such services and advice, the Company will pay MEI
$300,000 per year, of which $200,000 will be payable in cash on a quarterly
basis in advance and the remaining $100,000 will be paid in shares of Common
Stock valued at the current market value on the date of payment, payable
quarterly in arrears. During the year ended December 31, 1997, the Company paid
$75,000 and accrued $75,000 for such services. In January, 1998, the Company and
MEI agreed that the balance owing in respect of consulting services for the year
ended December 31, 1997 would be paid in shares of Common Stock. The Company and
MEI further agreed that consulting fees in respect of 1998 would be paid
$100,000 in cash and the balance of $200,000 in shares of Common Stock.
F-15
<PAGE> 46
In September 1997, the Company entered into an agreement with MEI for a $450,000
loan, subsequently extended to $550,000. This loan was repaid in November 1997 -
see note 8 Notes Payable.
Pursuant to Guaranty Agreements each dated as of November 4, 1997, each of the
principals of MEI (i.e. Messrs. Elkes, Gorman, Healy, Maggin and Lightstone)
have agreed to guaranty the obligations of the Company under the Chase Loan in
an amount not to exceed to lesser of $2,000,000 and the outstanding principal of
and any interest on all loans made under the credit facility in excess of the
borrowing base. Each MEI principal guarantees an amount not to exceed the
product of 110% of such principal's ownership interest in MEI multiplied by the
aggregate amount guaranteed. The Company is not permitted to borrow any amounts
under the Chase Loan in excess of the borrowing base without the prior written
approval of MEI. The Company has agreed to pay MEI a fee of $25,000 for such
guaranty by its principals. In order to secure the repayment of any amounts the
MEI principals may be required to pay to Chase Bank under the guarantees, MEI
has been granted a security interest in substantially all of the assets of the
Company, other than the Company's building. Such security interest is junior to
the security interest of Chase Bank which secures the Company's obligations
under the Chase Loan.
The Company acquired audio book rights for fifteen titles which were written by
a substantial shareholder. The Company recorded the following net audio sales
(net of returns) from these titles:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
$ 610,000 $ (74,000)
========= =========
</TABLE>
In 1997, the Company agreed to issue 50,000 shares of Common Stock to the
substantial shareholder for certain rights to future titles. In August 1997, the
Company issued 200,000 shares of Common Stock to the substantial shareholder for
further rights to future titles and certain rights on past titles.
During the fiscal years ended December 31, 1996 and December 31, 1997, the
Company made the following payments in respect of audio duplication to Tin Man
Enterprises which was an affiliate of Mr. A Bussen, a substantial shareholder
from June 10, 1997 until August 1997:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
$ 1,885,000 $ 1,766,000
=========== ===========
</TABLE>
In September 1996, the Company entered into a consulting agreement with a
director whereby the director was to provide certain financial consulting and
investment banking services to the Company. Such agreement provided 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 was
terminable by either party upon 30 days notice. Such agreement was terminated
effective February 28, 1997.
In January 1998, the Company and Mr. Ronald Ziskin agreed to cancel and option
to purchase 300,000 shares of Common Stock at an exercise price of $11.00 and in
lieu thereof, the Company will grant Mr. Ziskin the option to purchase 150,000
shares of Common Stock at an exercise price of $1.50 per share. Pursuant to an
employment agreement dated as of February 4, 1998, Ronald Lightstone is employed
by the Company as its President and Chief Executive Officer. The term of Mr.
Lightstone's employment agreement commenced on June 10, 1997 and ends on June
10, 1999.
Pursuant to the agreement, Mr. Lightstone is paid a base salary of $200,000 per
year. In addition to such base salary, Mr. Lightstone was granted 400,000 shares
of Common Stock issued as of January 9, 1998, ownership which shall vest over a
three year period (1/36 of such shares vesting each month), commencing July 10,
1997. The employment agreement also provides for (i) three weeks paid vacation,
(ii) reimbursement of business related expenses, (iii) a car allowance of $1,000
per month, and (iv) eligibility to participate in all compensation, pension,
retirement and welfare and fringe benefit plans, programs and policies of the
Company applicable to executives of the Company generally.
F-16
<PAGE> 47
The Company has agreed to reimburse each Board member's travel expenses. For the
fiscal year ended December 31, 1997, pursuant to the Plan, each outside director
was granted options to purchase 5,000 shares of Common Stock. The Company
granted 10,000 options outside of the Plan to each of the non-employee directors
for each members' service during the prior year. For the fiscal year ending
December 31, 1998, the Company has agreed to grant to each director options to
purchase 10,000 shares of Common Stock, which options will vest 25% at the end
of each quarter, and to make a cash payment of $1,000 per quarter to each
director not associated with MEI.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LITIGATION
In August 1993, the trial court confirmed an arbitration award in favor of the
Company, Michael Viner and Gerald J. 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 ("Stern Judgment"). 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.
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 1993, Mr. Stern filed a complaint against the Company, Mr. Viner and
Mr. Leider entitled Steven A. Stern and Steven A. Stern as assignee of the
claims of Sharmhill Productions (B.C.), Inc., a bankrupt company v. Dove Audio,
Inc. et al. (British Columbia Supreme Court, Vancouver Registry No. C930935)
(the "Canadian Stern Action") claiming that he had been fraudulently induced to
enter into the agreement underlying the arbitration award and seeking as damages
the amount of the judgment. The Company believes that it has good and
meritorious defenses to the Canadian Stern Action. Nevertheless, there is no
assurance that the Company will prevail in the Canadian Stern Action.
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, and that information he
provided to the Company was used in another book published by the Company,
"Legacy of Deception." Mr. Tourtelot alleged causes of action for breach of oral
contract, fraud, suppression of fact, 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, which permitted Mr. Tourtelot to pursue claims for breach of
oral contract, fraud, suppression of fact, breach of the implied covenant of
good faith and fair dealing, breach of fiduciary duty, conversion, conspiracy
and quantum meruit. In March 1998, the Company prevailed on summary judgment and
obtained a dismissal of the infringement of common law copyright, conversion,
conspiracy and breach of duty claims. Such claims were dismissed with prejudice
by the trial court. While the Company believes that it has good and meritorious
defenses to the Tourtelot Action, there is no assurance that the Company will
prevail in the Tourtelot 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. Ms. Datig has appealed the judgment. While the Company
believes that it will prevail on the appeal, there is no assurance that the
Company will in fact be successful on appeal.
F-17
<PAGE> 48
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 May 1997, the Company was served with a complaint in an action entitled
Kenneth Raskoff v. Dove (Los Angeles Superior Court Case No. BC171355) (the
"Raskoff Action"). Mr. Raskoff is a former employee of Dove Television. The
complaint seeks unspecified damages and other relief for breach of Mr. Raskoff's
alleged employment contract, breach of the implied covenant of good faith and
fair dealing, breach of implied-in-fact contract, promissory estoppel, and
fraudulent inducement. The complaint also seeks an injunction requiring that Mr.
Raskoff receive producer credit with respect to the television program entitled
"Unwed Father" and other unnamed projects. Although the Company believes that it
has good and meritorious defenses to the Raskoff Action, there is no assurance
that the Company will prevail in the action.
In June 1997, the Company was served with a complaint in an action entitled
Michael Bass v. Penguin USA Inc., et al. (New York Superior Court Case No.
97-111143) (the "New York Bass Action"). The complaint in the New York Bass
Action alleges, among other things, that the contribution of Liza Greer, one of
the authors of the book "You'll Never Make Love In This Town Again", defames Mr.
Bass and violates his rights of publicity under New York statutes. The complaint
seeks damages of $70,000,000 for defamation and $20,000,000 for violation of the
New York right of publicity statutes and an injunction taking the book out of
circulation and prohibiting the use of Mr. Bass' name. The New York Bass Action
has voluntarily been stayed after Mr. Bass filed a similar action in the State
of California in an action entitled Michael Bass v. Penguin USA et.al.
(California Superior Court Case No. SC049191) seeking essentially the same
damages as in the New York Bass Action. The Company believes that it has good
and meritorious defenses to the New York Bass Action and the action filed in
California. Nevertheless, there is no assurance that the Company will prevail.
As a result of the New York Bass Action, the Company has brought a
cross-complaint against Ms. Greer.
In July 1997, the Former Principals commenced an arbitration against the
Company. In their arbitration demand, the Former Principals claim that they are
owed in excess of $1 million by the Company relating to the motion picture
entitled "Morning Glory". The Former Principals claim that they are also
entitled to the repayment of certain deferred amounts for producing and acting
services rendered by them in connection with "Morning Glory" and to 50% of the
profits. They claim that a former director of the Company, Gerald Leider, is
entitled to the other 50% of the profits. The Former Principals have also
asserted that from any recovery of the Stern Judgment, they are entitled to
receive $1 million, as well as the deferred amounts and 50% of the profits.
Present management believes it has good and sufficient defenses to the claims,
including, but not limited to the Former Principals' waiver of their claims that
any amounts are owed to them as debt, as profit participation or as deferred
compensation and that the Company has not yet recouped its investment in the
Picture. The Company has also asked the arbitrator to determine that the Former
Principals are not entitled to any moneys or rights with respect to "Morning
Glory", including from the proceeds of the Stern Judgment. There is no assurance
that the Company will prevail on these defenses and claims.
In August 1997, the Former Principals commenced an arbitration against the
Company seeking specific performance of, and alleging breach of the Termination
Agreement. The Former Principals subsequently identified in writing their
intention to arbitrate a variety of miscellaneous claims, including the
Company's alleged failure to timely pay the full amount of consulting fees under
the Termination Agreement, as well as the Producer and Executive Producer fees
on "Unwed Father", to reimburse business expenses, payments to one of the Former
Principal's masseuse and psychologist, and medical and dental expenses, to
return certain personal property, to account for sales with respect to certain
titles, and other matters, including claims that the Former Principals did not
receive appropriate credit on "Unwed Father" and various audio books. On October
16, 1997, however, the Former Principals filed an action in the Los Angeles
Superior Court (Case No. BC179639) for "Breach of Written Contract; Specific
Performance; Temporary Restraining Order, Preliminary and Permanent Injunctive
Relief" which sought damages for some of the same claims identified as the
Former Principals' claims in arbitration. In this action the Former Principals
claimed that, in addition to other damages, they were entitled to accelerate all
F-18
<PAGE> 49
payments to become due under the Termination Agreement, in the aggregate amount
of $1,511,824 and to the rights to certain titles. This action appears to have
been filed for purposes of obtaining an attachment. After the Company obtained a
temporary restraining order in the action staying the arbitration, the Former
Principals and Dove II, a company purportedly controlled by the Former
Principals, filed another action in the Los Angeles Superior Court (Case No. BC
180301) seeking declaratory relief and an injunction staying other arbitration
proceedings between them and the Company. After the Company defeated an
application for temporary restraining order in that action, the Former
Principals and Dove II filed requests for dismissals of both actions and are
proceeding in the arbitrations. In the arbitration, the Company is (i) seeking
over $105,000 in compensatory damages from the Former Principals for certain
unauthorized Company checks that one of the Former Principals signed to the
Former Principals, to the Former Principal's personal attorney, for repairs for
one of the Former Principal's car and for payments of the Former Principals'
credit card accounts, (ii) seeking punitive damages for one of the Former
Principals causing the Company to pay to the Former Principals amounts that had
already been credited to them in their purchase of Company stock, (iii) seeking
damages of at least $175,000 for breach of the non-interference provision of the
Termination Agreement, (iv) seeking reimbursement of approximately $9,600 for
unused airline tickets and (v) as a result of their breach of the
non-competition provision of the Termination Agreement, requesting that the
arbitrator enjoin the Former Principals from competing with the Company in the
audio book business through June 9, 2001. The Company believes that, with the
exception of certain immaterial amounts which it expects to pay, it has good and
meritorious defenses to the claims by the Former Principals and that the Company
has meritorious claims against the Former Principals. There is no assurance,
however, that the Company will prevail on these issues and claims.
The Former Principals also claimed that their agreement not to compete with the
Company in the book and audio business is not enforceable. On January 12, 1998,
the arbitrator issued his decision in which he held that the Former Principals'
contention that the non-compete provision of the Termination Agreement is
invalid and unenforceable is without merit and that the provision prohibiting
the Former Principals from competing with the Company in the audio book business
for a period of four years from June 10, 1997 is valid and enforceable, and the
arbitrator enjoined the Former Principals from engaging in the audio book
business during such period.
In another arbitration proceeding involving the Former Principals and the
Company, the Former Principals claimed that the Company breached the Termination
Agreement by failing to prepare office space for use by the Former Principals
and interfering with their use of the space, failing to repair a toilet and
failing to provide for and pay secretaries for the Former Principals, and that a
subsequent purported occupancy agreement that allowed the Former Principals to
use the Company's offices at 301 N. Canon was enforceable. The Company claimed,
among other things, that the Company was entitled to compensatory damages plus
costs incurred in restoring the Former Principals' offices to their original
condition and the costs of recovering possession and that the occupancy
agreement was invalid because it was never disclosed to or approved, authorized
or ratified by the Company's shareholders or the Board. The arbitrator rendered
a decision on February 13, 1998 (amended and corrected on March 2, 1998), in
which he awarded the Company the sum of $14,093 plus costs, finding, among other
things, that neither of the Former Principals had the right to occupy the
Company's office space after September 1, 1997 and that the occupancy agreement
is invalid and unenforceable.
In July 1997, the Company was served with a complaint in an action entitled Alan
Fields v. Dove Entertainment, Inc., et al. (Los Angeles Superior Court No. BC
174659) (the "Fields Action"). The Fields Action was brought by an alleged
purchaser of Common Stock against the Company and the Former Principals as a
putative class action on behalf of all persons who acquired Common Stock between
July 25, 1995 and August 20, 1996. The complaint alleges a cause of action for
violation of Section 25400(d) of the California Corporations Code based on the
alleged dissemination of false and misleading statements about, among other
things, the success of the Company's printed book operations, financial results,
business condition and future prospects. The plaintiff seeks unspecified damages
and other relief. In August 1997, an action entitled Global Asset Allocation
consultants, L.L.C. v. Dove Entertainment, Inc., et al. (Civil Action No.
97-6253-WDK) (the "Global Asset Action"), was commenced against the Company and
the Former Principals in the United States District Court for the Central
District of California. The Global Asset Action was brought by an alleged
purchaser of Common Stock as a putative class action on behalf of all persons
who acquired Common Stock between July 25, 1995 and August 20, 1996. The
complaint alleges a cause of action for violation of Section 10(b) of the
Securities and Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder
based on the conduct at issue in the Fields Action. The plaintiff seeks
unspecified damages and other relief. The Company has learned that another
putative federal securities class action was filed
F-19
<PAGE> 50
in the United States District Court for the Central District of California by an
alleged purchase of Common Stock represented by the law firm of Berman,
DeValerio & Pease LLP (the "Berman Action"; and collectively with the Fields
Action and the Global Asset Action, the "Securities Actions"). The complaint is
reportedly brought on behalf of all persons who acquired Common Stock between
April 15, 1996 and October 10, 1996 and to allege a cause of action against the
Company and certain of its former officers for violation of Section 10(b) of the
Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder. As of
December 31, 1997, the Company has not been served with the complaints in the
Global Asset Action or the Berman Action. The Company has not yet filed a
response to the complaints in the Securities Actions. While the Company believes
it has good and meritorious defenses against the claim, the Company has taken a
charge of $150,000 in the quarter ended June 30, 1997 in respect of potential
costs associated with the claim.
In July 1997, the Company was served with a complaint in an action entitled
Steven A. Soloway v. Dove Entertainment, Inc., etc. et al. (Los Angeles Superior
Court Case No. BC 175516) (the "Soloway Action"). Mr. Soloway is a former
director and employee of the Company and has sought damages of approximately
$350,000 for breach of contract. Mr. Soloway claims that as a result of the
Securities Purchase Agreement he was entitled to declare his employment
agreement terminated without cause and to receive his base salary through
September 1999. In September 1997, Mr. Soloway obtained a writ of attachment for
$350,000 in respect of his claims, for which the Company has substituted an
undertaking for the amount of the attachment. Although the Company believes that
it has good and meritorious defenses and setoffs to the Soloway Action, there is
no assurance that the Company will prevail in the Soloway Action. The Company
has filed a cross-complaint against Mr. Soloway for breach of fiduciary duty and
legal malpractice asserting that Mr. Soloway fabricated a version of his
employment agreement, submitted the fabricated version for inclusion in the
Company's public documents, without authorization or approval drafted and signed
on behalf of the Company an occupancy agreement pursuant to which the Former
Principals unrightfully occupied the Company's offices, fabricated minutes of
the Board and disclosed confidential information that he obtained as an officer.
On November 4, 1997, James Belasco, a former director of the Company, filed an
action against the Company in Los Angeles County Superior Court entitled James
A. Belasco v. Dove Entertainment, Inc. etc. et al. LASC case no. BC 180707. Mr.
Belasco seeks to recover over $178,000 that he claims he is owed for royalties
from the distribution of the book entitled "Flight of the Buffalo: Soaring to
Excellence. Learning to Let Employees Lead." Mr. Belasco also seeks punitive
damages. On November 4, 1997, James Belasco filed an action against the Company
in Los Angeles County Superior Court entitled James A. Belasco v. Dove
Entertainment, Inc. etc. et al. LASC case no. BC 180706. Mr. Belasco alleges
that the Company has interfered with the publication of the work entitled "The
Phoenix Organization." Mr. Belasco seeks punitive damages and over $200,000 in
general damages. Mr. Belasco and the Company have agreed to settle all such
claims for payments over time to Mr. Belasco totaling $150,000 and the grant to
the Company of audio rights to certain current and future books by Mr. Belasco
and payment of certain book commissions by Mr. Belasco to the Company.
In December of 1997, the Company was served with a complaint in an action
entitled Gerald J. Leider V. Dove Entertainment, Inc. f.k.a. Dove Audio, Inc.
(Los Angeles Superior Court Case No. BC 183056). Mr. Leider is a former Chairman
of the Board and consultant to the Company and has sought damages of
approximately $287,000 for breach of contract and $60,000 for unpaid consulting
fees. Mr. Leider also is seeking a declaration that the Company must comply with
certain purported stock option agreements and for an order for inspection and
copying of certain records of the Company and an award of expenses related
thereto. Although the Company believes that it has good and meritorious defenses
and setoffs to such action, there is no assurance that the Company will prevail
in such action. The Company has filed a separate complaint against Mr. Leider
for breach of fiduciary duty, fraud and breach of covenant of good faith and
fair dealing asserting that Mr. Leider entered into purported agreements with
the Company that were unfair to the Company, were not disclosed to the Board or
the Company's shareholders and were never approved by the Board or the Company's
shareholders.
In addition to the above claims, the Company is a party to various other routine
legal proceedings and claims incidental to its business.
F-20
<PAGE> 51
There can be no assurance that the ultimate outcome of these matters will be
resolved in favor of the Company. In addition, even if the ultimate outcome is
resolved in favor of the Company, involvement in any litigation or claims could
entail considerable cost to the Company and the diversion of the attention of
management, either of which could have a material adverse effect on the business
of the Company.
At December 31, 1997, the Company has reserved $975,000 in respect of such
claims served against the Company.
LETTERS OF CREDIT
Pursuant to a Court Attachment Order in respect of the Soloway Action, Chase
Bank has issued a letter of credit on behalf of the Company for $350,000.
OFFICE LEASE
The Company leases office space under a non-cancelable 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 $292,000
and $302,000 in 1997 and 1996, respectively. The minimum future non-cancelable
lease payments are as follows:
<TABLE>
<S> <C>
1998 $ 264,000
1999 22,000
----------
$ 286,000
==========
</TABLE>
In January 1998, the Company sub-leased the above office space for the remainder
of the term of the lease at an annual rental of $194,000 per annum.
NOTE 11 - CAPITAL ACTIVITIES
PREFERRED STOCK
The Company has 2,000,000 shares designated as Preferred Stock. At December 31,
1997, 220,033 of such shares have been issued comprising:
(1) 4,000 shares of Series B Preferred Stock. The Series B Preferred Stock
has a stated value of $1,000.00 per share and a dividend preference at an
annual rate per share equal to 6%. Such dividends are cumulative and, to the
extent in arrears, bear interest at 6% compounded quarterly. The Series B
Preferred Stock bears a liquidation preference in the amount equal to the
stated value plus all accumulation of unpaid dividends and interest thereon.
Each share of Series B Preferred Stock is convertible at the option of the
holder after six months of issuance into 500 shares of common stock, subject
to adjustment. Each of the Series B Preferred Stock is 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 plus all accumulated but
unpaid dividends thereon (plus interest on such accumulations). The holders
of the outstanding shares of Series B Preferred Stock, voting as a separate
class, shall be entitled to elect one-third of the directors of the Company,
so long as the initial holders of the Series B Preferred Stock hold not less
than 750,000 shares of Common Stock (assuming Series B Preferred Stock is
converted into Common Stock).
(2) 1,920 shares of Series C Preferred Stock. The Series C Preferred Stock
has a stated value of $1,000.00 per share and a dividend preference at an
annual rate per share equal to 6%. Such dividends are cumulative and, to the
extent in arrears, bear interest at 6% compounded quarterly. The Series C
Preferred Stock bears a liquidation preference in the amount equal to the
stated value plus all accumulation of unpaid dividends and interest thereon.
Each share of Series C Preferred Stock is convertible at the option of the
holder after six months of issuance into 500 shares of common stock, subject
to adjustment. Each of the Series C Preferred Stock is 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 plus all accumulated but
unpaid dividends thereon (plus interest on such accumulations).
F-21
<PAGE> 52
(3) 214,113 shares of Series D Preferred Stock, formerly designated as
Series A Preferred Stock. The Series D Preferred Stock has a stated value of
$4.00 per share and 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 D Preferred Stock bears a
liquidation preference in the amount equal to the stated value plus all
accumulation of unpaid dividends and interest thereon. Each share of Series
D Preferred Stock is convertible at the option of the holder into 1.20497
shares of common stock, subject to adjustment.
Series B, Series C and Series D Preferred Stock rank pari passu with respect to
liquidation and dividends.
On March 28, 1997, in the first of two closings under a private placement of
preferred stock and warrants to purchase Common Stock (i) MEI purchased 3,000
shares of the Company's 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) the Former Principals purchased 920 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 $920,000 (including the contribution of $676,000 payable by
the Company to the Former Principals). On June 3, 1997, the second closing (the
"Second Closing") was completed whereby (i) MEI purchased 1,000 shares of 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 in cash and (ii) the Former Principals and their assigns
purchased 1,000 shares of 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 the Former
Principals). In connection with this transaction, the Company has allocated the
amounts invested between the Preferred Stock and the warrants and has recorded a
dividend (which was a reallocation of Additional Paid-in Capital between Common
Stock and Preferred Stock) amounting to $2,143,000 for the difference between
the amount allocated to Preferred Stock and the value, as of the issuance date,
of the Common Stock issuable upon conversion of such Preferred Stock. On June
10, 1997, MEI purchased all of the Preferred Stock and warrants held by the
Former Principals along with 500,000 shares of Common Stock (see Related Party
Transactions). In August, 1997, MEI purchased 350 shares of the Company's Series
C Preferred Stock with warrants to purchase 175,000 shares of Common Stock from
the assigns of the Former Principals under the same terms as described above
applying to the Company's Series C Preferred Stock.
COMMON STOCK
In January 1996 the Company received additional net proceeds of approximately
$1,547,000 from a private placement of the Company's equity securities initiated
in December 1995 (the "Placement"). Pursuant to the January 1996 closing 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 (December 1995). In
conjunction with the Placement, 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 shares issued in the acquisition of Four Point Entertainment, Inc. ("Four
Point") 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. In October 1997, the Company agreed
to the release of these shares from escrow.
F-22
<PAGE> 53
In October 1996 Morgan Fuller Capital Group, L.L.C. ("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 March 1997, the Company retired
$500,000 of such loan 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 the Common Stock at $4.50 per share. The balance of
the loan plus accrued interest was repaid in cash.
In April 1997, the Company issued 301,111 shares of Common Stock in satisfaction
of vendor payables amounting to $750,000.
In August 1997, the Company issued 200,000 shares of Common Stock to a
substantial shareholder for the acquisition of further rights to a future title
and certain rights on past titles.
In October 1997, the Company issued 66,667 shares of Common Stock to Shukri
Ghalayini in settlement of all claims by him against the Company.
During the year, the Company issued 250,000 shares of Common Stock in exercise
of options.
STOCK OPTIONS AND WARRANTS
The Plan, adopted by the Board, 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 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
Number of Exercise Exercise
Shares Price Price
------ ----- -----
<S> <C> <C> <C>
Options outstanding at December 31, 1995 309,999 $6.00 - $9.75 $8.12
Options issued 285,000 $ 3.50 $3.50
Options canceled (215,000) $6.75 - $8.50 $8.48
--------
Options outstanding at December 31, 1996 379,999 $2.50 - $9.75 $4.25
Options issued -- --
Options canceled (290,999) $3.50 - $9.75 $4.42
--------
Options outstanding at December 31, 1997 89,000 $2.50 - $6.00 $3.08
========
</TABLE>
At December 31, 1997 and 1996 respectively, options to acquire 78,998 and
177,199 shares of Common Stock under the Plan were exercisable.
F-23
<PAGE> 54
In addition to the above options issued under the Plan, at December 31, 1997,
the following options to acquire shares of Common Stock were outstanding:
(1) 300,000 options at $ 11.00 per share issued in 1996 to one of the
principals of Four Point as part of an employment agreement. None of these
options were exercisable at December 31, 1997. In January 1998, the Company
agreed with the holder of such options to cancel such options and in lieu
thereof issue 150,000 options at $1.50 per share under the Plan fully vested.
(2) 80,000 options issued in 1996 under the Plan, with an exercise price of
$3.50 per share to the Company's public relations firm. The Company has
terminated the agreement with the public relations firm.
During the year ended December 31, 1997, 250,000 options to acquire shares of
Common Stock outside the Plan at an exercise price of $.01 per share were
exercised by the Former Principals.
At December 31, 1997, the weighted average remaining contractual life of all
outstanding options was 8.22 years.
Determining compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss attributable to common
shareholders would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1997 1996
---- ----
<S> <C> <C> <C>
Basic and diluted loss attributable
to Common Shareholders As reported $ (19,018,000) $ (6,742,000)
Pro forma (19,081,000) (7,212,000)
Basic and diluted loss per share As reported (3.27) (1.31)
Pro forma (3.28) (1.42)
</TABLE>
Pro forma net loss reflects only options granted in the years ended December 31,
1995 through December 31, 1997. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net loss 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.
No stock options were granted during the year ended December 31, 1997. The per
share weighted-average fair value of stock options granted during the year ended
December 31, 1996 was $6.63 on the date of grant using the modified
Black-Scholes option-pricing model with the following weighted-average
assumptions: Expected dividend yield 0%, risk-free interest rate of 6.5%,
expected volatility of 70%, and an expected life of 8 years.
Warrant activity was as follows:
<TABLE>
<CAPTION>
Number of Weighted
Number of Equivalent Common Average
Warrants Shares Exercise Price Exercise Price
---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
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 (12,500) (6,250) $ 8.20 $ 8.20
---------- ----------
Warrants outstanding as of
December 31, 1996 1,607,500 1,558,750 $2.00 - $12.00 $ 9.78
Warrants issued 3,105,263 3,105,263 $2.00 - $4.50 $ 2.42
Warrants exercised -- --
---------- ----------
Warrants outstanding as of
December 31, 1997 4,712,763 4,664,013 $2.00 - $12.00 $ 5.06
---------- ----------
</TABLE>
F-24
<PAGE> 55
At December 31, 1997 warrants to acquire 4,664,013 Shares of common stock were
exercisable.
During the year ended December 31, 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.
During the year ended December 31, 1996, the Company issued 220,313 warrants to
acquire 220,313 shares of Common Stock in conjunction with the January 1996
Placement. The broker for the Placement was issued warrants to acquire 95,000
shares of Common Stock at $12.00 per share.
In October 1996 the Company entered into a financial advisory agreement with
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 180,000 warrants to purchase, for a period
of three years from the date thereof, up to 180,000 shares of Common Stock at an
exercise price of $2.75. The Company has recorded 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.
In March 1997, the Company issued the following warrants to Morgan Fuller in
conjunction with the issuance of 210,526 shares of Common Stock:
<TABLE>
<CAPTION>
Number of Number of Shares
Warrants of Common Stock Exercise Price
-------- --------------- --------------
<S> <C> <C>
35,087 35,087 $2.50
35,088 35,088 $3.50
35,088 35,088 $4.50
</TABLE>
In March and June 1997, the Company issued in aggregate, the following warrants
in conjunction with the issuance of Series B Preferred Stock and Series C
Preferred Stock in March and June 1997:
<TABLE>
<CAPTION>
Number of Number of Shares
Warrants of Common Stock Exercise Price
-------- --------------- --------------
<S> <C> <C>
1,000,000 1,000,000 $2.00
1,000,000 1,000,000 $2.50
1,000,000 1,000,000 $3.00
</TABLE>
NOTE 12 - MAJOR CUSTOMERS AND SUPPLIERS
For the years ended December 31, 1997 and 1996, 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>
Years Ended December 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
ABC 16% --
ACI Pearson -- 11%
Buena Vista 26% 3%
CBS -- 18%
MGM 1% 13%
</TABLE>
A significant quantity of audio inventory is supplied by two manufacturers. The
Company believes there are other suppliers and accordingly, the Company is not
dependent on these manufacturers as its sole source of product.
F-25
<PAGE> 56
NOTE 13 - FOUR POINT ACQUISITION
On April 29, 1996 the Company acquired 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 $6,125,000
(including $100,000 incurred during the year ended December 31, 1997 as a result
of settlement of the litigation between one of the former vendors), has been
recorded as goodwill and is being amortized on a straight-line basis over 25
years.
NOTE 14 - RETIREMENT AND SAVINGS PLAN
The Company has a 401(k) defined contribution retirement and savings plan
covering all eligible employees who have completed 60 days of consecutive
employment. Participants may make pre-tax contributions to the plan of up to 15%
of their compensation subject to certain limitations as prescribed by the
Internal Revenue Code. The Company matches the employee contribution up to 3% of
the employee's compensation. The Company matching contribution vests to the
employee on a staggered basis over three years and is fully vested at the end of
the employee's third year of service. The Company matching contribution is
contributed in Company shares of Common Stock.
NOTE 15 - YEAR 2000
Some of the Company's financial business systems were written using two digits,
rather than four, to define the applicable year. As a result, those systems have
date-sensitive software that recognizes a date "00" as the year 1900 rather than
2000. If not modified or updated, this could cause system failure or
miscalculations, potentially resulting in the temporary disruption of operations
due to the inability to process certain transactions.
The Company plans to convert its financial business systems to standardized
package systems that are 2000 compliant within 1998. The only other critical
business system to the Company is the distribution system run by Mercedes
Distribution. Mercedes Distribution have assured the Company that their
distribution system is 2000 compliant.
The Company has initiated communications with significant suppliers and
customers to determine the extent that they may be vulnerable to their own year
2000 issues. Based on the representations on suppliers and customers contacted,
management does not believe the Company's continued operation is at risk due to
key business partners not addressing the year 2000 issue.
NOTE 16 - LIQUIDITY
The Company has historically experienced significant negative cash flows from
operations, including $8,691,000 and $4,208,000 for the years ended December 31,
1997 and December 31, 1996 respectively. In November 1997, the Company entered
into an agreement with Chase Bank providing the Company with an $8,000,000 loan
facility for working capital purposes and the Company had borrowed $5,250,000
against the facility at December 31, 1997. 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 publishing and television 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.
F-26
<PAGE> 57
NOTE 17 - FOURTH QUARTER ADJUSTMENTS
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.
During the fourth quarter of 1997, the Company recorded the following
adjustments: (i) $2,998,000 write-down in film and television libraries
following an evaluation of estimated future revenues associated with such
libraries, (ii) $1,060,000 write-down in audio and book inventories together
with reserves for costs anticipated to be incurred in transferring inventory
from the Company's former exclusive distributor to its new distributor, and
(iii) $1,235,000 in legal, litigation and settlement costs and reserves
associated with claims against the Company arising from events prior to or as a
result of the Termination Agreement.
F-27
<PAGE> 58
SIGNATURE
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 3rd day of April, 1998.
DOVE ENTERTAINMENT, INC.
By: /s/ RONALD LIGHTSTONE
----------------------------------
Ronald Lightstone, 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/ RONALD LIGHTSTONE President, Chief Executive April 3, 1998
--------------------- Officer and Director
Ronald Lightstone
/s/ NEIL TOPHAM Chief Financial Officer and April 3, 1998
--------------------- Chief Accounting Officer
Neil Topham
/s/ TERRENCE ELKES Director April 3, 1998
---------------------
Terrence Elkes
/s/ KEN GORMAN Director April 3, 1998
---------------------
Ken Gorman
--------------------- Director April _, 1998
John Healy
/s/ BRUCE MAGGIN Director April 3, 1998
---------------------
Bruce Maggin
/s/ STEVE MAYER Director April 3, 1998
---------------------
Steven Mayer
/s/ LEE MASTERS Director April 3, 1998
---------------------
Lee Masters
</TABLE>
<PAGE> 59
(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 (filed as Exhibit 3.6 to the
Annual Report on Form 10-KSB for the fiscal year ended 1996)
3.7 Form of Amendment to Bylaws dated as of November 7, 1996
(filed as Exhibit 3.7 to the Annual Report on Form 10-KSB for
the fiscal year ended 1996)
3.8 Amended and Restated Bylaws of the Company
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)
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
<S> <C>
4.7 Placement Agency Agreement dated August 1, 1994 between the
Company and Joseph Stevens & Company, LP (filed as Exhibit 4.7
to Amendment No. 1 )
4.8 Placement Agent Warrant Agreement dated December 24, 1995
between Whale Securities Co., LP 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 (filed
as Exhibit 4.12 to the Annual Report on Form 10-KSB for the
fiscal year ended 1996)
4.13 Certificate of Determination of the Series B Preferred Stock
of the Company (filed as Exhibit 4.13 to the Annual Report on
Form 10-KSB for the fiscal year ended 1996)
4.14 Warrant Agreement dated as of March 27, 1997 between the
Company and Media Equities Intentional, LLC (filed as Exhibit
4.14 to the Annual Report on Form 10-KSB for the fiscal year
ended 1996)
4.15 Certificate of Determination of the Series C Preferred Stock
of the Company (filed as Exhibit 4.15 to the Annual Report on
Form 10-KSB for the fiscal year ended 1996)
4.16 Warrant Agreement dated as of March 27, 1997 between the
Company, Michael Viner and Deborah Raffin Viner (filed as
Exhibit 4.16 to the Annual Report on Form 10-KSB for the
fiscal year ended 1996)
4.17 Certificate of Determination of the Series D Preferred Stock
of the Company (filed as Exhibit 4.17 to the Annual Report on
Form 10-KSB for the fiscal year ended 1996)
4.18 Form of Warrant Agreement dated as of April 1, 1997 (filed as
Exhibit 4.18 to the Annual Report on Form 10-KSB for the
fiscal year ended 1996)
4.19 Certificate of Determination of the Series E Preferred Stock
of the Company (filed as Exhibit 4.19 to the Company's Current
Report on Form 8-K dated June 10, 1997)
4.20 Specimen Series E Preferred Stock Certificate of the Company
(filed as Exhibit 4.20 to the Company's Current Report on Form
8-K dated June 10, 1997)
4.21 Registration Rights Agreement, dated June 10, 1997, by and
among the Company, Michael Viner and Deborah Raffin Viner
(filed as Exhibit 4.21 to the Company's Current Report on Form
8-K dated June 10, 1997)
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
<S> <C>
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)
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)
10.27 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)
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
<S> <C>
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)
10.33 Separation Agreement dated as of May 31, 1996 by and between
the Company and Dimitri T. Skouras (filed as Exhibit 10.33 to
the Annual Report on Form 10-KSB for the fiscal year ended
1996)
10.35 Letter Agreement dated September 12, 1996 between the Company,
Michael Viner and Deborah Raffin (filed as Exhibit 10.35 to
the Annual Report on Form 10-KSB for the fiscal year ended
1996)
10.36 Financial Advisor Agreement dated as of September 30, 1996
between the Company and Morgan Fuller Capital Group, LLC
(filed as Exhibit 10.36 to the Annual Report on Form 10-KSB
for the fiscal year ended 1996)
10.39 Form of First Amendment to the Company's 1994 Stock Incentive
Plan dated November 7, 1996 (filed as Exhibit 10.39 to the
Annual Report on Form 10-KSB for the fiscal year ended 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 (filed as Exhibit 10.40 to the Annual
Report on Form 10-KSB for the fiscal year ended 1996)
10.41 Shareholders Voting Agreement dated as of March 27, 1997 by
and between Media Equities International, LLC, Michael Viner
and Deborah Raffin Viner (filed as Exhibit 10.41 to the Annual
Report on Form 10-KSB for the fiscal year ended 1996)
10.42 Pledge Agreement dated as of March 27, 1997 among Media
Equities International, LLC, Michael Viner and Deborah Raffin
Viner (filed as Exhibit 10.42 to the Annual Report on Form
10-KSB for the fiscal year ended 1996)
10.45 Employment Termination Agreement, dated June 10, 1997, by and
among the Company, Michael Viner and Deborah Raffin (filed as
Exhibit 10.45 to the Company's Current Report on Form 8-K
dated June 10, 1997)
10.46 Securities Purchase Agreement, dated June 10, 1997, by and
among Media Equities International, LLC, Michael Viner and
Deborah Raffin Viner (filed as Exhibit 10.46 to the Company's
Current Report on Form 8-K dated June 10, 1997)
10.47 Loan Agreement, dated as of September 26, 1997, between the
Company and Dove Four Point, Inc. and Media Equities
International, Inc.
10.48 Debt Subordination and Intercreditor Agreement, dated
September 26, 1997, among the Company, Dove Four Point, Inc.,
Media Equities International, Inc. and Sanwa Bank California
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------
<S> <C>
10.49 Security Agreement, dated as of September 26, 1997, between
the Company, Dove Four Point, Inc. and Media Equities
International, Inc.
10.50 Copyright Security Agreement, dated as of September 26, 1997,
by Dove Four Point, Inc. in favor of Media Equities
International, Inc.
10.51 Copyright Security Agreement, dated as of September 26, 1997
by the Company in favor of Media Equities International, Inc.
10.52 Credit, Security, Guaranty and Pledge Agreement dated as of
November 4, 1997, among the Company, Dove Four Point, Inc.,
Dove International, Inc. and The Chase Manhattan Bank, as
Lender (the "Credit Agreement")
10.53 Copyright Security Agreement dated as of November 4, 1997 by
the Company, Dove Four Point, Inc. and Dove International,
Inc. in favor of The Chase Manhattan Bank (the "Copyright
Security Agreement")
10.54 Security Agreement, dated as of November 4, 1997 between the
Company and Media Equities International
10.55 Subordination Agreement, dated as of November 4,1997, among
the Company, Dove International, Inc. and Dove Four Point,
Inc., Terrence A. Elkes, Kenneth F. Gorman, Ronald Lightstone,
John T. Healy, and Bruce Maggin, Media Equities International,
LLC and The Chase Manhattan Bank.
10.56 Contribution Agreement, dated as of November 4, 1997, among,
the Company Dove Four Point, Inc. and Dove International, Inc.
10.57 Fee Agreement, made as of November 4, 1997 between the Company
and Media Equities International, LLC.
10.58 Employment Agreement, dated as of February 4, 1998 between the
Company and Ronald Lightstone
10.59 Supplement No. 1 to the Copyright Security Agreement dated as
of February 20, 1998 by Dove Four Point, Inc. in favor of The
Chase Manhattan Bank
10.60 Amendment No. 1 to the Credit Agreement, dated as of February
27, 1998, between the Company, Dove International, Inc., Dove
Four Point, Inc. and The Chase Manhattan Bank
10.61 Amendment No. 2 to the Credit Agreement, dated as of April 1,
1998, between the Company, Dove International, Inc., Dove Four
Point, Inc.
10.62 Form of Publishing Agreement (1997)
10.63 Form of Artist Agreement (1997)
10.64 Form of Executive Publication Agreement
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 3.8
AMENDED AND RESTATED BYLAWS
OF
DOVE ENTERTAINMENT, INC.
ARTICLE I
OFFICES
Section 1. Principal Executive Office. The principal executive office
of the corporation shall be located at such place as the board of directors
shall from time to time determine.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of California as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of shareholders shall be
held at the principal executive office of the corporation or at any other place
within or without the State of California, which may be designated by the board
of directors and stated in the notice of the meeting.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
held at such time as shall be designated by the board of directors and stated in
the notice of the meeting. At such annual meetings, directors shall be elected
and any other business may be transacted which is within the power of the
shareholders.
Section 3. Special Meetings. Special meetings of the shareholders, for
the purpose of taking any action which is within the power of the shareholders,
may be called at any time by the chairman of the board of directors, or by the
holders of shares entitled to cast not less than ten percent of the votes at the
meeting; provided, however, that if, after the filling of any vacancy by the
directors as provided in Section 5 of Article III hereof, the directors then in
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office who have been elected by the shareholders shall constitute less than a
majority of the directors then in office, then the holders of shares entitled to
cast not less than five percent of the total number of shares at the time
outstanding having the right to vote for those directors may call a special
meeting of the shareholders for the purpose of electing the entire board of
directors, and the term of any director shall terminate upon the election at
such meeting of a successor.
Section 4. Notice of Meetinqs. Written notice of each meeting of
shareholders, whether annual or special, shall be given to each shareholder
entitled to vote thereat, either personally or by first class mail or other
means of written communications, charges prepaid, addressed to such shareholder
at the address of such shareholder appearing on the books of the corporation or
given by such shareholder to the corporation for the purpose of notice. If any
notice addressed to the shareholder at the address of such shareholder appearing
on the books of the corporation is returned to the corporation by the United
States Postal Service marked to indicate that the United States Postal Service
is unable to deliver the notice to the shareholder at such address, all future
notices shall be deemed to have been duly given without further mailing if the
same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice to all other shareholders. If
no address appears on the books of the corporation or is given by the
shareholder to the corporation for the purpose of notice, notice shall be deemed
to have been given to such shareholder if sent by mail or other means of written
communication addressed to the place where the principal executive office of the
corporation is located or if published at least once in a newspaper of general
circulation in the county in which the principal executive office is located.
Upon request in writing that a special meeting of shareholders be
called for any proper purpose, directed to the president, any vice president or
the secretary by any person (other than the board of directors) entitled to call
a special meeting of shareholders, the officer forthwith shall cause notice to
be given to the shareholders entitled to vote that a meeting will be held at a
time requested by the person or persons calling the meeting not less than 35 nor
more than 60 days after receipt of the request.
All such notices shall be given to each shareholder entitled thereto
not less than ten days nor more than 60 days before the meeting. Any such notice
shall be deemed to have been given at the time when delivered personally or
deposited in the mail or sent by other means of written communication. All such
notices shall state
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the place, date and hour of such meeting. In the case of a special meeting, such
notice shall also state the general nature of the business to be transacted at
such meeting, and no other business may be transacted thereat. In the case of an
annual meeting, such notice shall also state those matters which the board of
directors at the time of the mailing of the notice intends to present for action
by the shareholders. Any proper matter may be presented at an annual meeting of
shareholders though not stated in the notice, provided that, unless the general
nature of a proposal relating to the following matters is stated in the notice
or a written waiver of notice, the same shall require unanimous approval of all
shareholders entitled to vote:
(a) a proposal to vote a contract or other transaction between the
corporation and one or more of its directors or any corporation, firm or
association in which one or more of its directors has a material financial
interest or is also a director;
(b) a proposal to amend the articles of incorporation;
(c) a proposal to approve the principal terms of a reorganization as
defined in Section 181 of the General Corporation Law;
(d) a proposal to wind up and dissolve the corporation;
(e) if the corporation has preferred shares outstanding and the
corporation is in the process of winding up, a proposal to adopt a plan of
distribution of shares, obligations or securities of any other corporation
or assets other than money which is not in accordance with the liquidation
rights of preferred shares, if any.
The business transacted at any special meeting of shareholders shall
be limited to the purposes stated in the notice of such meeting.
Section 5. Quorum. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum if any action taken (other than
adjournment)
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is approved by at least a majority of the shares required to constitute a
quorum.
Section 6. Adjourned Meetings and Notice Thereof. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by vote of a majority of the shares the holders of which are
present either in person or by proxy thereat, but in the absence of a quorum, no
other business may be transacted at any such meetinq,
Section 7. Voting. At all meetings of shareholders, every shareholder
entitled to vote shall have the right to vote in person or by proxy the number
of shares standing in the name of such shareholder on the stock records of the
corporation on the record date for such meeting. Shares of this corporation
owned by this corporation or a subsidiary (except shares held in a fiduciary
capacity) shall not be entitled to vote. Unless a record date for voting
purposes is fixed pursuant to Section 1 of Article VI of these bylaws, then only
persons in whose names shares entitled to vote stand on the stock records of the
corporation at the close of business on the business day next preceding the day
on which notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held, shall be
entitled to vote at such meeting, and such day shall be the record date for such
meeting. Votes at a meeting may be given viva voce or by ballot; provided,
however, that all elections for directors must be by ballot upon demand made by
a shareholder at any election and before the voting begins. If a quorum is
present at the beginning of the meeting, except with respect to the election of
directors (and subject to the provisions of Section 5 of this Article II should
shareholders withdraw thereafter) the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter shall be
the act of the shareholders and shall decide any question properly brought
before the meeting, unless the vote of a greater number or voting by classes is
required by the General Corporation Law or the articles of incorporation, in
which case the vote so required shall govern and control the decision of such
question. Subject to the provisions of the next sentence, at all elections of
directors of the corporation, each shareholders shall be entitled to cumulate
his or her votes and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which his or her
shares are normally entitled, or to distribute his or her votes on the same
principle among as many candidates as he or she shall see fit. No shareholder
shall be entitled to cumulate his or her votes unless the name of the candidate
or candidates for whom such votes would be cast has been
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placed in nomination prior to the voting and any shareholder has given notice at
the meeting prior to the voting of such shareholders' intention to cumulate his
or her votes. The candidates receiving the highest number of votes up to the
number of directors to be elected shall be elected.
Section 8. Waiver of Notice and Consent of Absentees. The proceedings
and transactions of any meeting of shareholders, either annual or special,
however called and noticed and wherever held, shall be as valid as though had at
a meeting duly held after regular call and notice if a quorum is present either
in person or by proxy and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of such meeting or an approval of
the minutes thereof. Attendance of a person at a meeting shall constitute a
waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by law or these bylaws to be included in the
notice but which were not so included, if such objection is expressly made at
the meeting; provided, however, that any person making such objection at the
beginning of the meeting or to the consideration of matters required to be but
not included in the notice may orally withdraw such objection at the meeting or
thereafter waive such objection by signing a written waiver thereof or a consent
to the holding of the meeting or the consideration of the matter or an approval
of the minutes of the meeting. Neither the business to be transacted at nor the
purpose of any annual or special meeting of shareholders need be specified in
any written waiver of notice except that the general nature of the proposals
specified in clauses (a) through (e) of Section 4 of this Article shall be so
stated.
Section 9. Action Without a Meeting. Directors may be elected without
a meeting by a consent in writing setting forth the action so taken signed by
all the persons Who would be entitled to vote for the election of directors,
provided, that, without notice except as hereinafter set forth, a director may
be elected at any time to fill a vacancy not filled by the directors by the
written consent of persons holding a majority of the outstanding shares entitled
to vote for the election of that director.
Any other action which under any provision of the General Corporation
Law may be taken at any annual or special meeting of the shareholders may be
taken without a meeting, and without notice
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except as hereinafter set forth, if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Unless tbe consents of all shareholders entitled to vote on any
proposed action have been solicited in writing,
(a) notice of any proposed shareholder approval of a proposal of a
type referred to in clauses (a) through (e) of Section 4 of this Article
without a meeting by less than unanimous written consent shall be given at
least ten days before the consummation of the action authorized by such
approval; and
(b) prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not
consented in writing. Such notice shall be given in the manner and shall be
deemed to have been given as provided in Section 4 of this Article.
Unless, as provided in Section 1 of Article VI of these bylaws, the
board of directors has fixed a record date for the determination of shareholders
entitled to notice of and to give such written consent, the record date for such
determination shall be the day on which the first written consent is given.
Section 10. Proxies. Every person entitled to vote or execute consents
shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by such person or the duly authorized
agent of such person and filed with the secretary or persons appointed as
inspectors of election or such other person as may be designated by the board of
directors or the chief executive officer to receive proxies, provided that no
such proxy shall be valid after the expiration of 11 months from the date of its
execution unless the shareholder executing it specifies therein the length of
time for which such proxy is to continue in force. Every proxy duly executed
continues in full force and effect until revoked by the person executing it
prior to the vote pursuant thereto. Except as otherwise provided by law, such
revocation may be effected by attendance at the meeting and voting in person or
by the person executing the proxy or by a writing stating that the proxy is
revoked or by a proxy bearing a later date executed by the person executing the
proxy and filed with the secretary of the corporation or the persons appointed
as inspectors of election of such other
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persons as may be designated by the board of directors or the chief executive
officer to receive proxies.
Section 11. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons as inspectors of
election to act at such meeting or any adjournment thereof in accordance with
Section 707 of the General Corporation Law.
ARTICLE III
DIRECTORS
Section 1. Powers. The business and affairs of the corporation shall
be managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
Section 2. Number and Oualifications. The number of directors of the
corporation shall be not less than five (5) nor more than nine (9). Effective
upon the commencement of the 1997 Annual Meeting of Shareholders, 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
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 percent 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.
Section 3. Election and Term of Office. The directors shall be elected
at each annual meeting of shareholders, but if any such annual meeting is not
held or the directors are not elected at any annual meeting, the directors may
be elected at any special meeting of shareholders held for that purpose or at
the next annual meeting of shareholders held thereafter. Each director shall
hold office until the next annual meeting of shareholders and until his or her
successor has been elected and qualified or until his or her earlier resignation
or removal.
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Section 4. Resiqnation and Removal of Directors. Any director may
resign effective upon giving written notice to the chairman of the board of
directors, the president, the secretary or the board of directors of the
corporation, unless the notice specifies a later time for the effectiveness of
such resignation, in which case such resignation shall be effective at the time
specified. Unless such resignation specifies otherwise, its acceptance by the
corporation shall not be necessary to make it effective. The board of directors
may declare vacant the office of a director who has been declared of unsound
mind by an order of court or convicted of a felony. Any or all of the directors
may be removed without cause if such removal is approved by the affirmative vote
of a majority of the outstanding shares entitled to vote, provided that no
director may be removed (unless the entire board is removed) when the votes cast
against removal (or, if such action is taken by written consent, the shares held
by persons not consenting in writing to such removal) would be sufficient to
elect such director if voted cumulatively at an election at which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the total time of the director's most recent election were then
being elected and, provided, further, that if, pursuant to the provisions of the
articles of incorporation, the holders of the shares of any class or series,
voting as a class or series, are entitled to elect one or more members of the
board of directors, any director so elected may be removed only by the
applicable vote (or consent) of the holders of the shares of that class or
series.
Section 5. Vacancies. Vacancies on the board of directors (except
vacancies created by the removal of a director) may be filled by approval of the
board, or, if the number of directors then in office is less than a quorum by
(x) the unanimous written consent of the directors then in office, (y) the
affirmative vote of a majority of the directors then in office at a meeting held
pursuant to notice or waivers of notice complying with Section 307 of the
General Corporation Law or (z) a sole remaining director, and each director
elected in this manner shall (subject to Section 3 of Article II hereof) hold
office until the next annual meeting of shareholders and until a successor has
been elected and qualified or until his or her earlier resignation or removal,
provided that if, pursuant to the provisions of the articles of incorporation,
the holders of the shares of any class or series, voting as a class or series,
are entitled to elect one or more directors, only the director or directors
elected by the holders of such class or series may fill a vacancy involving a
director or directors which the holders of such class or series are entitled to
elect. If the resignation of a
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director states that it is to be effective at a future time, a successor may be
elected to take office when the resignation becomes effective.
Section 6. Place of Meetinqs. Regular and special meetings of the
board of directors may be held at any place within or without the State of
California which has been designated in the notice or written waiver of notice
of the meeting, or if not stated in the notice or waiver of notice or if there
is no notice, designated by resolution of the board of directors or, either
before or after the meeting, consented to in writing by all members of the board
of directors who were not present at the meeting. If the place of a regular or
special meeting is not designated in the notice or waiver of notice or fixed by
a resolution of the board or consented to in writing by all members of the board
not present at the meeting, it shall be held at the corporation's principal
executive office.
Section 7. Regular Meetings. Immediately following each annual
shareholders' meeting, the board of directors shall hold a regular meeting to
elect officers and transact other business. Such meeting shall be held at the
same place as the annual meeting or such other place as shall be fixed by the
board of directors. Other regular meetings of the board of directors shall be
held at such times and places as are fixed from time to time by the board of
directors. Call and notice of regular meetings of the board of directors shall
not be required and is hereby dispensed with.
Section 8. Special Meetings. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the chairman
of the board of directors, the president, by the secretary or by any two
directors. Notice of the time and place of special meetings shall be delivered
personally or by telephone or telegraph or sent by mail. In case notice is given
by mail or telegram, it shall be sent, charges prepaid, addressed to the
director at his or her address appearing on the corporation's records, or, if it
is not on these records or is not readily ascertainable, at the place where
meetings of the directors are regularly held. If notice is delivered personally
or given by telephone or telegraph, it shall be given or delivered to the
telegraph office at least 48 hours before the meeting. If notice is mailed, it
shall be deposited in the United States mail at least four days before the
meeting.
Section 9. Quorum. A majority of the authorized number of directors
shall constitute a quorum of the board for the transaction of business. Every
act or decision done or made by a majority of the
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directors present at a meeting duly held at which a quorum is present is the act
of the board of directors. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors,
provided that any action taken is approved by at least a majority of the
required quorum for such meeting.
Section 10. Waiver of Notice of Consent. The transactions of any
meeting of the board of directors, however called and noticed or wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice if a quorum is present and if, either before after the meeting, each of
the directors not present or who, though present, has prior to the meeting or at
its commencement, protested the lack of proper notice to him, signs a written
waiver of the notice, a consent to holding the meeting or an approval of the
minutes of the meeting.
Section 11. Adjournment. A majority of the directors present, whether
or not a quorum is present, may adjourn any meeting to another time and place.
If the meeting is adjourned for more than 24 hours, notice of the adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
Section 12. Meetings by Conference Telephone. Members of the board of
directors may participate in a meeting through use of conference telephone or
similar communications eguipment, so long as all members participating in such
meeting can hear one another. Participation by directors in a meeting in the
fflanner provided in this Section constitutes presence in person at such
meeting.
Section 13. Action Without a Meetinq. Any action required or permitted
to be taken by the board of directors may be taken without a meeting if all
members of the board shall consent in writing to such action. Such written
consents shall be filed with the minutes of the proceedings of the board.
Section 14. Committees. The board of directors may, at its discretion,
by resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each of which shall be composed of two or more
directors,to serve at the please of the board. The board may designate one or
more directors as alternative members of any committee who may replace any
absent member at any meeting of a committee. The board may delegate to any such
committee- to the extent provided in such resolution, any of the
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board's powers and authority in the management of the corporation's business and
affairs, except with respect to:
(a) the approval of any action for which the General Corporation
Law also requires approval by the shareholders;
(b) the filling of vacancies on the board of directors or any
committee thereof;
(c) the fixing of compensation of directors for serving on the
board or on any committee thereof;
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board which
by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by
the board;
(g) the authorization of the issuance of shares; and
(h) the appointment of other committees of the board or the
members thereof.
The board of directors may prescribe appropriate rules, not
inconsistent with these bylaws, by which proceedings of any such committee shall
be conducted. The provisions of these bylaws relating to the calling of meetings
of the board, notice of meetings of the board and waiver of such notice,
adjournments of meetings of the board, written consents to board meetings and
approval of minutes, action by the board by consent in writing without a
meeting, the place of holding such meetings, meetings by conference telephone or
similar communications equipment, the quorum for such meetings, the vote
required at such meetings and the withdrawal of directors after commencement of
a meeting shall apply to committees of the board and action by such committees.
In addition, any member of a committee designated by the board as the chairman
or as secretary of the committee or any two members of a committee may call
meetings of the committee. Regular meetings of any committee may be held without
notice if the time and place of such meetings are fixed by the board of
directors or the committee.
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Section 15. Audit Committee. There shall at all times be an audit
committee of the board of directors which shall be composed of three or more
directors to serve at the pleasure of the board. At all times one director
serving on the audit committee 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 the National Association of Securities Dealers
Automatic Quotation System (NASDAQ) or any national securities market on which
the corporation's common stock is then listed. The audit committee shall be
responsible for approving, from time to time, the chief financial officer of the
corporation, for performing such functions as is required with respect to such
committee for continued listing on NASDAQ or any national securities market on
which the corporation's common stock is then listed and for such other matters
as delegated to such committee by the board of directors by resolution adopted
by a majority of the authorized number of directors, not inconsistent with the
articles of incorporation or by-laws of the corporation. The provisions of these
bylaws relating to the calling of meetings of the board, notice of meetings of
the board and waiver of such notice, adjournments of meetings of the board,
written consents to board meetings and approval of minutes, action by the board
by consent in writing without a meeting, the place of holding such meetings,
meetings by conference telephone or similar communications equipment, the quorum
for such meetings, the vote required at such meetings and the withdrawal of
directors after commencement of a meeting shall apply to the audit committee and
action by the audit committee. In addition, any member of the audit committee
designated by the board as the chairman or as secretary of the audit committee
or any member of the audit committee may call meetings of the audit committee.
Regular meetings of the audit committee may be held without notice if the time
and place of such meetings are fixed by the board of directors or the audit
committee.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the corporation shall be a
president, a secretary and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article. Any two or more offices may be
held by the same person.
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Section 2. Elections. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by the board of directors,
and each such officer shall serve at the pleasure of the board of directors
until the regular meeting of the board of directors following the annual meeting
of shareholders and until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Section 3. Other Officers. The board of directors may appoint such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in these bylaws and as the board of directors may from time to
time determine.
Section 4. Removal and Resignation. Any officer may be removed with or
without cause by the board of directors. Any officer may resign at any time upon
written notice to the corporation. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein. If the
resignation is effective at a future date, a successor may be elected to take
office when the resignation becomes effective. Unless a resignation specifies
otherwise, its acceptance by the corporation shall not be necessary to make it
effective.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the bylaws for regular appointments to the office.
Section 6. Chairman of the Board. The chairman of the board, if there
shall be such an officer, shall, if present, preside at all meetings of the
board of directors and exercise and perform such other powers and duties as may
be from time to time assigned to him by the board of directors or prescribed by
the bylaws.
Section 7. President. Subject to such supervisory powers, if any, as
may be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the corporation's general manager and
chief executive officer and shall, subject to the control of the board of
directors, have general supervision, direction and control of the business,
affairs and officers of the corporation. He shall preside as chairman at all
meetings of shareholders and in the absence of the chairman of the board, or if
there be none, at all meetings of the board of directors. He shall have the
general powers and duties of management
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usually vested in the office of president of a corporation; shall have any other
powers and duties that are prescribed by the board of directors or these bylaws;
and shall be primarily responsible for carrying out all orders and resolutions
of the board of directors.
Section 8. Vice Presidents. In case of the absence or disability of
the chief executive officer, the vice presidents in order of their rank as fixed
by the board of directors, or, if not ranked, the vice president designated by
the chief executive officer, shall perform all the duties of the chief executive
officer and, when so acting, shall have all the powers of, and be subject to all
the restrictions on, the chief executive officer. Each vice president shall have
any of the powers and perform any other duties that from time to time may be
prescribed for him by the board of directors or the bylaws or the chief
executive officer.
Section 9. Secretary. The secretary shall keep or cause to be kept a
book of minutes of all meetings and actions by written consent of all directors,
shareholders and committees of the board of directors. The minutes of each
meeting shall state the time and place that it was held and such other
information as shall be necessary to determine whether the meeting was held in
accordance with law and these bylaws and the actions taken thereat. The
secretary shall keep or cause to be kept at the corporation's principal
executive office, or at the office of its transfer agent or registrar, a record
of the shareholders of the corporation, giving the names and addresses of all
shareholders and the number and class and series of shares held by each. The
secretary shall give, or cause to be given, notice of all meetings of
shareholders, directors and committees required to be given under these bylaws
or by law, shall keep or cause the keeping of the corporate seal in safe custody
and shall have any other powers and perform any other duties that are prescribed
by the board of directors, these bylaws or the chief executive officer. If the
secretary refuses or fails to give notice of any meeting lawfully called, any
other officer of the corporation may give notice of such meeting. The assistant
secretary or, if there be more than one, any assistant secretary may perform any
or all of the duties and exercise any or all of the powers of the secretary
unless prohibited from doing so by the board of directors, the chief executive
officer or the secretary, and shall have such other powers and perform any other
duties as are prescribed for him by the board of directors or the chief
executive officer.
Section 10. Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of account. The chief
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financial officer shall cause all money and other valuables in the name and to
the credit of the corporation to be deposited at the depositories designated by
the board of directors or any person authorized by the board of directors to
designate such depositories. He shall render to the chief executive officer and
board of directors, when either of them request it, an account of all his or her
transactions as chief financial officer and of the financial condition of the
corporation and shall have any other powers and perform any other duties that
are prescribed by the board of directors, these bylaws or the chief executive
officer. The assistant treasurer or, if there be more than one, any assistant
treasurer may perform any or all of the duties and exercise any or all of the
powers of the chief financial officer unless prohibited from doing so by the
board of directors, the chief executive officer or the chief financial officer,
and shall have such other powers and perform any other duties as are prescribed
for him by the board of directors, the chief executive officer or the chief
financial officer.
Section 11. Compensation. The salaries of the officers of the
corporation shall be fixed from time to time by the board of directors. No
officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the corporation.
ARTICLE V
INDEMNIFICATION OF AGENTS
Section 1. Definitions. For the purposes of this Article, "agent"
means any person who is or was a director, officer, employee or other agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was serving as a
director, officer, employee or agent of a foreign or domestic corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 4 of this Article or clause (c) of Section 5 of this Article.
Section 2. Indemnification: Other than Corporate Judgment. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any proceeding (other than an action by or in the right of
the corporation to procure a judgment in
16
<PAGE> 16
its favor) by reason of the fact that such person is or was an agent of the
corporation, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding if such
person acted in good faith and in a manner he or she reasonably believed to be
in the best interests of the corporation, and, in the case of a criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in the best interests of the corporation or
that he or she had reasonable cause to believe that his or her conduct was
unlawful.
Section 3. Indemnification: Corporate Judgment. The corporation shall
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was an agent of the corporation, against expenses actually and
reasonably incurred by such person in connection with the defense of settlement
of such action if such person acted in good faith and in a manner he or she
believed to be in the best interests of the corporation and its shareholders,
except that no indemnification shall be made under this Section:
(a) in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation in the performance
of such person's duty to the corporation and its shareholders, unless, and
only to the extent that, the court in which such proceeding is or was
pending shall determine that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for expenses;
(b) of amounts paid in settling or otherwise disposing of a pending
action without court approval; or
(c) of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Section 4. Expenses. To the extent that an agent has been successful
on the merits in defense of any proceeding referred to in Section 2 or 3 of this
Article or in defense of any claim, issue or matter therein, the agent shall be
indemnified against expenses
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<PAGE> 17
actually and reasonably incurred by the agent in connection therewith.
Section 5. Determination of Indemnification. Except as provided in
Section 4 of this Article, any indemnification under this Article shall be made
by the corporation only if authorized in the specific case upon a determination
that indemnification of the agent is proper in the circumstances because the
agent has met the applicable standard of conduct set forth in Section 2 or 3, as
the case may be, of this Article by:
(a) a majority vote of a quorum consisting of directors who are not
parties to such proceeding;
(b) if such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion;
(c) approval or ratification by the affirmative vote of a majority of
the shares of this corporation entitled to vote represented at a duly held
meeting at which a quorum is present or by the written consent of the
holders of a majority of the outstanding shares entitled to vote (for such
purpose, the shares owned by the person to be indemnified not to be
considered outstanding or entitled to vote thereon); or
(d) the court in which such proceeding is or was pending, upon
application by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not
such application by the agent, attorney of other person is opposed by the
corporation.
Section 6. Advanced Expenses. Expenses incurred in defending any
proceeding may be advanced by the corporation prior to the final disposition of
such proceeding upon receipt of any undertaking by or on behalf of the agent to
repay such amount if it shall be determined ultimately that the agent is not
entitled to be indemnified as authorized in this Article.
Section 7. No Indemnification or Advance. No indemnification or
advance shall be made under this Article, except as provided in Section 4 or
subsection (c) of Section 5 of this Article, in any circumstance where it
appears:
(a) that it would be inconsistent with a provision of the articles of
incorporation, a resolution of the shareholders of an agreement in effect
at the time of the accrual of the alleged
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<PAGE> 18
cause of action asserted in the proceeding in which the expenses were
incurred or other amounts were paid, which prohibits or otherwise limits
indemnification; or
(b) that it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VI
MISCELLANEOUS
Section 1. Record Date. The board of directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders or entitled to give consent
to corporate action in writing without a meeting, to receive any report, to
receive payment of any dividend or other distribution or allotment of any rights
or to exercise rights in respect to any change, conversion or exchange of shares
or any other action for the purposes of which it is fixed.
Section 2. Inspection of Records. The books of account, record of
shareholders and minutes of proceedings of the shareholders and the board of
directors and committees of the board shall be open to inspection upon the
written demand on the corporation of any shareholder or holder of a voting trust
certificate at any time during usual business hours for a purpose reasonably
related to such holder's interests as a shareholder or as the holder of such
voting trust certificate. Such inspection may be made in person or by agent or
attorney and the right of inspection includes the right to copy and make
extracts.
A shareholder or shareholders holding at least five percent in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one percent of such voting shares and has filed a Schedule 14B with the
United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person or by agent or attorney) the
absolute right to inspect and copy the record of shareholders' names and
addresses and shareholding during usual business hours upon five business days'
prior written demand upon the corporation and to obtain from the tranfer agent
for the corporation, upon written demand and upon the tender of its usual
charges, a list of the names and addresses of shareholders who are entitled to
vote for the election of directors as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand. The list shall be made available on or before the later of
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<PAGE> 19
five business days after the demand is received or the date specified therein as
the date as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable time to
inspect and copy or make extracts from all books, records and documents of every
kind and to inspect the physical properties of the corporation and any
subsidiary of the corporation. -Such inspection by a director may be made in
person or by agent or attorney.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the board of directors. The board of directors may authorize one
or more officers of the corporation to designate the person or persons
authorized to sign such documents and the manner in which such documents shall
be signed.
Section 4. Annual and Other Reports. The board of directors shall
cause an annual report to be sent to the shareholders not later than 120 days
after the close of the fiscal year and at least 15 days prior to the annual
meeting of shareholders to be held during the next fiscal year unless the
corporation has outstanding shares held of record by fewer than 100 persons, and
the requirement of the General Corporation Law that such a report be so sent to
shareholders is hereby expressly waived. Such report shall contain a balance
sheet as of the end of such fiscal year and an income statement and statement of
changes in financial position for such fiscal year, accompanied by any report
thereon of independent accountants or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation.
A shareholder or shareholders holding at least five percent of
the outstanding shares of any class of the corporation may request of the
corporation in writing an income statement of the corporation for the three
month, six month or nine month period of the current fiscal year ended more than
30 days prior to the date of the request and a balance sheet of the corporation
as of the end of such period and, in addition, if no annual report for the last
fiscal year has been sent to shareholders, the annual report for the last fiscal
year. The statements shall be delivered or mailed to the person making the
requeSt within 30 days thereafter. A copy of such statements shall be kept on
file in the principal executive office of
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<PAGE> 20
the corporation for 12 months, and they shall be exhibited at all reasonable
times to any shareholder demanding an examination of them or a copy shall be
mailed to such shareholder.
Unless otherwise determined by the board of directors or the chief
executive officer, the chief financial officer and any assistant treasurer are
each authorized officers of the corporation to execute the certificate to the
effect that the income statements, statements of changes in financial position
and balance sheets referred to in this section were prepared without audit from
the books and records of the corporation.
Section 5. Contracts, etc. How Executed. The board of directors may
authorize any officer or officers, agents or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
Section 6. Certificate for Shares. Every holder of shares in the
corporation shall be entitled to have a certificate or certificates signed in
the name of the corporation by the chairman of the board of directors, the
president or a vice president and by the chief financial officer or any
assistant treasurer or the secretary or any assistant secretary, certifying the
number of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
Any such certificate shall also contain such legend or other statement
as may be required by the General Corporation Law, the Corporate Securities Law
of 1968 or any other applicable law or regulation or agreement.
Certificates for shares may be issued prior to full payment therefor
under such restrictions and for such purposes as the board of directors may
provide; provided, however, that any such certificates so issued prior to full
payment shall state the total amount of the consideration to be paid therefor
and the amount paid thereon.
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<PAGE> 21
No new certificates for shares shall be issued in place of any
certificates theretofore issued unless the latter are surrendered and cancelled
at the same time; provided, however, that a new certificate may be issued
without the surrender and cancellation of the old certificate if the certificate
theretofore issued is alleged to have been lost, stolen or destroyed. In case of
any allegedly lost, stolen or destroyed certificate, the corporation may require
the owner thereof or the legal representative of such owner to give the
corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 7. Representation of Shares of Other Corporations. Unless the
board of directors shall otherwise determine, the chairman of the board of
directors, the president, any vice president, the secretary and any assistant
secretary of the corporation are each authorized to vote, represent and exercise
on behalf of the corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of the corporation. The
authority herein granted to such officers to vote or represent on behalf of the
corporation any and all shares held by the corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
person authorized so to do by proxy or power of attorney or other document duly
executed by any such officer.
Section 8. Inspection of Bylaws. The corporation shall keep in its
principal executive office in California, or if its principal executive office
is not in California, at its principal business office in California, the
original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the corporation has no office in California, it shall upon the written request
of any shareholder, furnish him a copy of the bylaws as amended to date.
Section 9. Seal. The corporation shall have a common seal and shall
have inscribed thereon the name of the corporation, the date of its
incorporation and the words "INCORPORATED" and "CALIFORNIA".
Section 10. Construction and Definitions. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the General Corporation Law
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<PAGE> 22
shall govern the construction of these bylaws. Without limiting the generality
of the foregoing, the masculine gender includes the feminine and neuter, the
singular number includes the plural and plural number includes the singular, and
the term "Person" includes a corporation as well as a natural person.
ARTICLE VII
AMENDMENTS
Section 1. Power of Shareholders. New bylaws may be adopted or these
bylaws may be amended or repealed by the affirmative vote of a majority of the
outstanding shares entitled to vote, or by the written assent of shareholders
entitled to vote such shares, except as otherwise provided by law or by the
articles of incorporation.
Section 2. Power of Directors. Subject to the right of shareholders as
provided in Section 1 of this Article to adopt, amend or repeal bylaws, bylaws
other than a bylaw or amendment thereof changing the authorized number of
directors, may be adopted, amended or repealed by the affirmative vote of a
majority of the board of directors.
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<PAGE> 1
EXHIBIT 10.47
$450,000
LOAN AGREEMENT
Dated as of September 26th, 1997
between
DOVE ENTERTAINMENT, INC.
DOVE FOUR POINT, INC.
AND
MEDIA EQUITIES INTERNATIONAL, LLC
=================================
<PAGE> 2
LOAN AGREEMENT dated as of September 26th, 1997 ("the "Agreement")
between DOVE ENTERTAINMENT, INC., a California corporation, having its principal
place of business at 8955 Beverly Boulevard, Los Angeles, California 90048
("Dove"), DOVE FOUR POINT, INC., a Florida corporation, having its principal
place of business at 8955 Beverly Boulevard, Los Angeles, California 90048
("Four Point"; Dove and Four Point, individually and collectively, "Borrower"),
and MEDIA EQUITIES INTERNATIONAL, LLC, a New York limited liability company,
having its principal place of business at c/o Morrison Cohen Singer & Weinstein,
LLP, 750 Lexington Avenue, New York, New York 10022 (the "Lender").
WHEREAS, Four Point is a wholly-owned subsidiary of Dove;
WHEREAS, the Borrower has requested the Lender to extend credit to it
not in excess of $450,000 in the aggregate at any time outstanding, the proceeds
of which shall be used by the Borrower to finance working capital needs. The
Lender is willing to extend such credit to the Borrower, subject to the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing the parties hereto
agree to the following
I. DEFINITIONS
SECTION 1.1. DEFINITIONS. As used herein, the following words and terms
shall have the following meanings:
"Accounts Receivable" shall mean any and all rights of the Borrower to
payment for goods sold or leased or for services rendered, including accounts,
contract rights, general intangibles and any such right evidenced by chattel
paper, purchase orders, instruments or documents, whether due or to become due
and whether or not it has been earned by performance, and whether now or
hereafter acquired or arising in the future and any proceeds arising therefrom
or relating thereto.
"Affiliate" shall mean any corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization which, directly or
indirectly, controls or is controlled by or is under common control with the
Borrower.
"Business Day" shall mean any day not a Saturday, Sunday or legal
holiday, on which the Lender is open for business in New York City, provided,
however, that when used in connection with determining the Eurodollar Rate, the
term "Business Day" shall also exclude any day on which the Lender is not open
for dealings in dollar deposits in an Interbank Market.
"Closing Date" shall mean September 26th, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
<PAGE> 3
"Collateral" shall mean and include all Accounts, Inventory, Documents
and Fixtures of the Borrower (as those term(s) are defined in the Security
Agreement) and any other items of real or personal property in which the
Borrower has granted or may in the future grant a security interest in favor of
the Lender.
"Contractual Obligation" shall mean as to any Person, any provision of
any security issued by such Person or any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default" shall mean any of the events specified in Article VII hereof,
whether or not any requirement for the giving of notice or the lapse of time or
both or any other condition has been satisfied.
"Default Interest Rate" shall have the meaning set forth in Section 2.6
hereof.
"Environmental Laws" shall mean any and all Federal, State, local or
municipal laws, rules orders, regulations, statutes, ordinances, codes, decrees
or requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning environmental protection
matters, including, without limitation, Hazardous Materials, as now or may
hereafter be in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Companies or a Subsidiary would be deemed to be a
member of the same "controlled group" within the meaning of Section 414(b), (c),
(m) and (o) of the Code.
"Event of Default" shall mean any Event of Default set forth in Article
VII.
"Hazardous Materials" includes, without limit, any flammable explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, defined in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Sections 9601, et seq.), and in the regulations adopted and publications
promulgated pursuant thereto, or any other laws.
"Indebtedness" shall have the meaning set forth in Section 6.2 hereof.
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<PAGE> 4
"Insolvency" shall mean with respect to any Multiemployer Plan, the
condition that such plan is insolvent within the meaning of such term used in
Section 4245 of ERISA.
"Insolvent" shall mean the condition of Insolvency.
"Interest Payment Date" shall mean as to any Loan, the last day of each
calendar month during the term thereof commencing with the calendar month
immediately following the date of such Loan.
"Loan(s)" shall mean a loan by the Lender to the Borrower pursuant to
Article II hereof.
"Loan Commitment" shall have the meaning set forth in Section 2.1
hereof.
"Loan Documents" shall mean collectively, this Agreement, the Note, the
Security Agreement, any agreements or documents referred to in Article IV hereof
and all other documents, certificates and instruments executed in connection
therewith.
"Loan Maturity Date" shall mean the earlier of (a) the date which is 180
days following the date of this Agreement or (b) the date on which Borrower
refinances its existing Indebtedness to Sanwa Bank in the original principal
amount of $1,365,447.27, incurred on August 16, 1996.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, operations, property, condition (financial or otherwise) or
prospects of the Borrower and its subsidiaries taken as a whole, (b) the ability
of the Borrower to perform its obligations under the Loan Documents, or (c) the
validity or enforceability of any of the Loan Documents or the rights or
remedies of the Lender hereunder or thereunder.
"Obligations" shall mean all obligations, liabilities and indebtedness
of every nature of the Borrower from time to time owed to the Lender under this
Agreement or any of the Loan Documents including the principal amount of all
debts, claims and indebtedness, accrued and unpaid interest and all fees, costs
and expenses, whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing, due or
payable whether before or after the filing of a proceeding under the United
States Bankruptcy Code by or against the Borrower.
"Permitted Encumbrances" shall have the meaning assigned to such term in
Section 6.1 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title 1 of ERISA or any successor thereto.
"Person" shall mean any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.
3
<PAGE> 5
"Plan" shall mean, at any particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or an ERISA
Affiliate is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Reportable Event" shall mean any of the events described in Section
4043(b) of ERISA other than those events as to which the twenty day notice
period is waived under Subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615.
"Subsidiaries" shall mean any corporation, association or other business
entity more than 50% of the voting stock of which is at the time owned or
controlled, directly or indirectly, by the Borrower or one or more of its
Subsidiaries or a combination thereof.
"Unfunded Current Liability" of any Plan means the amount, if any, by
which the present value of the accrued benefits under the Plan as of the close
of its most recent plan year exceeds the fair market value of the assets
allocable thereto, determined in accordance with Section 412 of the Code.
SECTION 1.2. ACCOUNTING TERMS. Except as otherwise herein specifically
provided, each accounting term used herein shall have the meaning given to it
under Generally Accepted Accounting Principles. "Generally Accepted Accounting
Principles" shall mean those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through the Financial Accounting Standards Board
("FASB") or through other appropriate boards or committees thereof and which are
consistently applied for all periods so as to properly reflect the financial
condition, and the results of operations and changes in financial position, of
the Borrower, except that any accounting principle or practice required to be
changed by the FASB (or other appropriate board or committee of the FASB) in
order to continue as a generally accepted accounting principle or practice may
be so changed. Any dispute or disagreement between the Borrower and the Lender
relating to the determination of Generally Accepted Accounting Principles shall,
in the absence of manifest error, be conclusively resolved for all purposes
hereof by the written opinion with respect thereto, delivered to the Lender, of
independent accountants selected by the Borrower and approved by the Lender.
II. LOANS
SECTION 2.1. LOANS. Subject to the following terms and conditions, and
relying upon the representations and warranties set forth herein, the Lender
agrees to make "Loans" to the Borrower at any time or from time to time on or
after the date hereof and until the Loan Maturity Date, in an aggregate
principal amount not in excess of $450,000 at any time outstanding (the "Loan
Commitment"). Subject to the terms and conditions of this Agreement, $150,000
shall be advanced to the Borrower on the date hereof, and $300,000 shall be
advanced to the Borrower on five (5) Business Days' notice given to the Lender
at any time prior to the Loan Maturity Date. Dove and
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<PAGE> 6
Four Point confirm and agree that all obligations hereunder shall be joint and
several and Four Point confirms that any and all amounts loaned hereunder may be
loaned to Dove for the benefit of Dove and Four Point.
SECTION 2.2. NOTE.
(a) The Loans by the Lender shall be evidenced by a promissory
note (the "Note"), substantially in the form attached hereto as Exhibit A,
appropriately completed, duly executed and delivered on behalf of the Borrower
and payable to the order of the Lender in the principal amount equal to the Loan
Commitment. The date and amount of each Loan and the date and amount of each
payment or prepayment of principal of any Loan shall be recorded on the books
and records of Lender or on a grid schedule annexed to the Note and the Borrower
authorizes the Lender to make such recordation. The Note and such books and
records or grid schedule shall be presumptive evidence of the Loans, absent
manifest error. Promptly following the Borrower's request, the Lender shall
provide the Borrower with a copy of the applicable portion of the books and
records of Lender or of such grid schedule. The aggregate unpaid amount of the
Loans at any time shall be the principal amount owing on the Note at such time.
The aggregate principal amount outstanding on the Note shall be payable on the
Loan Maturity Date and all accrued and unpaid interest thereon shall be payable
on each Interest Payment Date and on the Loan Maturity Date; provided, however,
that if any such day is not a Business Day, such principal and accrued interest,
if any, shall be payable on the next succeeding Business Day with additional
accrued interest until paid.
(b) All said notations and endorsements on the books and records
of Lender or on the grid schedule annexed to the Note shall, in the absence of
manifest error, be conclusive as to such notations and endorsements, provided,
however, that the failure to make said notation or endorsement with respect to
any Loan or any payment thereunder shall not limit or otherwise affect the
obligation of the Borrower under the Agreement or the Note.
SECTION 2.3. INTEREST ON LOANS. Each Loan shall bear interest on its
principal amount outstanding from time to time at a rate (computed on the basis
of the actual number of days elapsed over a year of 360 days) equal to ten
percent (10%) per annum.
SECTION 2.4. PAYMENT AND PREPAYMENT OF LOANS.
(a) The Borrower shall repay the principal amount of the Loan
plus all accrued and unpaid interest on the Loan Maturity Date.
(b) The Borrower may, upon at least five (5) Business Days'
notice to the Lender, prepay the outstanding amount of any Loan in whole or in
part with accrued interest to the date of such prepayment on the amount prepaid
without premium or penalty; provided, however, that each partial prepayment of a
Loan shall be in a minimum amount of $25,000.
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<PAGE> 7
(c) Each partial prepayment of the Loan shall be permanent.
SECTION 2.5. OVERDUE INTEREST; ALTERNATE RATE OF INTEREST. Any amount of
principal, interest or any other amounts due hereunder which is not paid when
due ("Overdue Payment"), whether at stated maturity, by acceleration or
otherwise, shall, to the extent permitted by law, bear interest from such due
date until the Overdue Payment is paid in full, which interest shall be payable
on demand, at a fluctuating interest rate per annum equal to four percent (4%)
in excess of the rate of interest in effect from time to time on the Loan (the
"Default Interest Rate").
SECTION 2.6. COMPUTATIONS. All computations of the interest rate and of
Fees hereunder shall be made by the Lender on the basis of a year of 360 days,
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest is payable.
III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender, that:
SECTION 3.1. ORGANIZATION, CORPORATE POWERS, ETC. The Borrower (i) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California, and (ii) has the power and authority to own its
properties and to carry on its business as now being conducted, (iii) is duly
qualified to do business in every jurisdiction wherein the conduct of its
business or the ownership of its properties is such as to require such
qualification and (iv) has the corporate power to execute, deliver and perform
the Loan Documents.
SECTION 3.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION.
The execution, delivery and performance by the Borrower of the Loan Documents
and the borrowings by the Borrower hereunder (a) have been duly authorized, (b)
will not violate (i) any provision of law or any governmental rule or regulation
applicable to the Borrower or, (ii) any order of any court or other agency of
government binding on the Borrower or any indenture, agreement or other
instrument to which the Borrower is a party, or by which the Borrower or any of
its property is bound, and (c) will not be in conflict with, result in a breach
of or constitute (with due notice and/or lapse of time) 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 their property or assets other than as contemplated by the Loan Documents.
Each person executing the Loan Documents has full authority to execute and
deliver same for and on behalf of the Borrower.
SECTION 3.3. SEC DOCUMENTS. The Borrower has furnished the following
information to the Lender: (a) the Report of Form 10-K of the Borrower and it
wholly-owned subsidiaries for the year ended December 31, 1996, (b) the
Borrower's Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1997 and June 30, 1997, and (c) all other documents that the Borrower was
required to file, which it represents and warrants it did timely file with SEC
under Section 13 or
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14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
since June 30, 1997 (collectively, the "SEC Documents"). As of their respective
filing dates, the SEC Documents complied in all material respects with the
requires of the Exchange Act or the Securities Act of 1933, as amended (the
"Securities Act"), as applicable. The SEC Documents as of their respective dates
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Borrower included in the SEC
Documents (the "Financial Statements") comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto. Except as may be indicated in
the notes to the Financial Statements or, in the case of unaudited statements,
as permitted by Form 10-Q, the Financial Statements have been prepared in
accordance with Generally Accepted Accounting Principles consistently applied
and fairly present the consolidated financial position of the Borrower and any
subsidiaries at the dates thereof and the consolidated result of their
operations and consolidated cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal, recurring adjustments). The SEC
Documents, this Agreement, the exhibits and schedules hereto, and any
certificates or documents to be delivered to the Lender pursuant to this
Agreement, when taken together, do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which statements were made, not misleading.
SECTION 3.4. ABSENCE OF CHANGES. Since June 30, 1997, there has not
been:
(a) any changes in the assets, liabilities, financial condition
or operations of the Borrower from that reflected in the Financial Statements
except changes in the ordinary course of business which have not been, either in
any individual case or in the aggregate, materially adverse, other than as shown
in Schedule 3.4;
(b) any material change, except in the ordinary course of
business, in the aggregate contingent obligations of the Borrower, whether by
way of guarantee, endorsement, indemnity, warrant or otherwise, other than as
shown in Schedule 3.4;
(c) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Borrower;
(d) any declaration or payment of any dividend or other
distribution of the assets of the Borrower, or any stock split, stock dividend,
reclassification, reorganization, combination or the like;
(e) any labor organization activity;
(f) any transfer or grant of a right other than in the ordinary
course of business or any material change in the patents, patent applications,
copyrights, trade secrets, trademarks,
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proprietary information, proprietary rights, and processes necessary for the
Borrower's business as currently conducted without any conflict with or
infringement of the rights of others;
(g) any notification or communication received by the Borrower
alleging that the Borrower, by conducting its business as currently conducted,
would violate any of the patents, trademarks, service marks, trade names,
copyrights, or trade secrets or other proprietary rights of any other person or
entity;
(h) any notification or communication received by the Borrower
that any of its employees or consultants is obligated under any contract
(including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that is violated by or would materially interfere with
the current or prospective services provided to the Borrower by the employee or
consultant or the use of his best efforts to promote the interests of the
Borrower or that would materially conflict with the Borrower's business as
currently conducted and proposed to be conducted;
(i) any claim or legal action or other proceeding threatened or
brought before any court, any arbitrator of any kind or any administrative
agency, or any governmental investigation, which could have a Material Adverse
Effect; or
(j) any other event or condition of any character which has
materially and adversely affected the Borrower's assets, liabilities, financial
condition or operations or prospects.
SECTION 3.5. TAXES. All assessed deficiencies resulting from Internal
Revenue Service examinations of the Federal income tax returns of the Borrower
have been discharged or reserved against. The Borrower has filed or caused to be
filed all Federal, state and local tax returns which are required to be filed,
and has paid or has caused to be paid all taxes as shown on said returns or on
any assessment received by it, to the extent that such taxes have become due,
except any such taxes that are immaterial in amount or are being contested in
good faith with appropriate reserves set aside therefor.
SECTION 3.6. TITLE TO PROPERTIES. The Borrower has good and marketable
title to its properties and assets reflected in the Financial Statements
referred to in Section 3.3 hereof, except for equipment leases in the ordinary
course of business and such properties and assets as have been disposed of since
the date of such balance sheet as no longer used or useful in the conduct of its
business or as have been disposed of in the ordinary course of business, and all
such properties and assets are free and clear of mortgages, pledges, liens,
charges and other encumbrances, except as required or permitted by the
provisions hereof or as disclosed in the Financial Statements referred to in
Section 3.3 hereof.
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SECTION 3.7. LITIGATION.
(a) There are no actions, suits or proceedings (whether or not
purportedly on behalf of the Borrower) pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any material property
of the Borrower, at law or in equity or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which involve any of the transactions
contemplated herein or which, if adversely determined against the Borrower,
would in the opinion of management have a Material Adverse Effect, other than as
shown in Schedule 3.4;
(b) The Borrower is not in default with respect to any judgment,
writ, injunction, decree, rule or regulation of any court or Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would have a Material Adverse
Effect.
SECTION 3.8. AGREEMENTS; NO DEFAULT. The Borrower is not a party to any
agreement or instrument or subject to any charter or other corporate restriction
or any judgment, order, writ, injunction, decree or regulation materially and
adversely affecting its business, properties or assets, operations or condition
(financial or otherwise). The Borrower is not in default in any manner which
would have a Material Adverse Effect or materially and adversely affect the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any other agreement or instrument to which it is a
party.
SECTION 3.9. ERISA. No Reportable Event has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Plan, and each Plan has complied in all material
respects with the applicable provisions of ERISA and the Code. The Borrower's
Plan has been approved for termination by the Internal Revenue Service and will
be so terminated as of the Closing Date and the assets of the Plan at least
equal all liabilities of the Plan.
SECTION 3.10. PROCEEDS OF THE LOAN. The proceeds of the Loan shall be
used by the Borrower only for the purposes described in the preamble hereto.
SECTION 3.11. FEDERAL RESERVE REGULATIONS.
(a) The Borrower is not engaged principally in, nor has as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying any "margin stock" (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System of the United States, as
amended to the date hereof). No part of the proceeds of the Borrowing hereunder
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any such margin stock. No part of the
proceeds of the borrowing hereunder will be used for any purpose which violates
or which is inconsistent with the provisions of Regulation X of said Board of
Governors. If requested by the Lender, the Borrower will furnish to the Lender a
statement on Federal Reserve Form U-1.
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(b) No part of the proceeds of the Loans will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or to carry margin stock or to extend credit to others for the
purpose of purchasing or carrying margin stock, or to refund indebtedness
originally incurred for such purpose, or (ii) for any purpose which violates or
is inconsistent with the provisions of the Regulations G, T, U, or X of the
Board of Governors of the Federal Reserve System.
SECTION 3.12. SUBSIDIARIES. The Borrower has no Subsidiaries other than
those set forth on Schedule 3.12 attached hereto.
SECTION 3.13. ENVIRONMENTAL MATTERS. The Borrower and its Subsidiaries
are in compliance with all Environmental Laws and regulations including those
governing Hazardous Wastes, asbestos and any other environmental issues that the
Lender and its counsel deem to be appropriate.
SECTION 3.14. NOT AN INVESTMENT COMPANY. The Borrower is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended. The Borrower is not subject to regulation under any Federal or State
statute or regulation which limits its ability to incur Indebtedness.
SECTION 3.15. GOVERNMENTAL APPROVAL. No registration with or consent or
approval of, or other action by, any Federal, state or other governmental
authority or regulatory body is required in connection with the execution,
delivery and performance of the Loan Documents or the borrowings hereunder.
SECTION 3.16. FULL DISCLOSURE. All written information heretofore
furnished by the Borrower to the Lender for purposes of or in connection with
this Agreement is, and all such information hereafter furnished by the Borrower
to the Lender will be, true and accurate in all material respects on the date as
of which such information is stated or certified. The Borrower has disclosed to
the Lender in writing any and all facts which, in the reasonable judgment of the
Borrower have or would be reasonably likely to cause a Material Adverse Effect.
SECTION 3.17. BINDING EFFECT. This Agreement and each other Loan
Document to which the Borrower is a party constitute the legal, valid and
binding obligations of the Borrower, enforceable against such the Borrower in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles
relating to enforceability.
SECTION 3.18. SECURITY AGREEMENT. The Security Agreement attached hereto
as Exhibit B creates a valid, binding and enforceable perfected security
interest in and lien on all of the Borrower's assets described therein.
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IV. CONDITIONS OF LENDING
The obligation of the Lender to lend hereunder is subject to the
following conditions precedent:
SECTION 4.1. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. At the time of
each borrowing hereunder: (i) the representations and warranties set forth in
Article III hereof shall be true and correct in all material respects on and as
of such time with the same effect as though such representations and warranties
had been made on and as of such time; (ii) the Borrower shall be in compliance
with all the terms and provisions set forth herein and no Default or Event of
Default shall have occurred and be continuing at the time of each borrowing
hereunder; and (iii) in the judgment of Lender, no Material Adverse Effect shall
have occurred and be continuing and the prospect of repayment shall not have
been impaired.
SECTION 4.2. SECURITY AGREEMENT. On or prior to the Closing Date, the
Lender shall have received the Security Agreement from the Borrower
substantially in the form attached hereto as Exhibit B.
SECTION 4.3. UCC FINANCING STATEMENTS. On or prior to the Closing Date,
the Lender shall have received UCC-1 financing statements executed by the
Borrower with respect to the Collateral, in form satisfactory to the Lender and
which shall be recorded by the Lender at the expense of the Borrower.
SECTION 4.4. NO DEFAULT CERTIFICATE; DEEMED REPRESENTATION. On the
Closing Date, the Borrower shall deliver to the Lender a certificate, dated such
date and signed by the Chief Financial Officer of the Borrower confirming
compliance with the conditions precedent set forth in clauses (i) and (ii) of
Section 4.1 hereof. Each request for a subsequent borrowing hereunder shall be
deemed a representation and warranty by the Borrower that the conditions
precedent set forth in Section 4.1 hereof are true and correct with the same
effect as though such representations and warranties had been made on and as of
the date of such borrowing.
SECTION 4.5. COLLATERAL UNENCUMBERED. On or prior to the Closing Date,
the Lender shall have received satisfactory proof that the Collateral is free
and clear of all liens, claims, security interests and other encumbrances, other
than Permitted Encumbrances.
SECTION 4.6. FEES AND EXPENSES. Borrower shall have paid to Lender all
Fees payable on the Closing Date and shall have paid to Lender's counsel its
fees and disbursements incurred in connection with the preparation, negotiation
and execution of the Loan Documents.
SECTION 4.7. OTHER INFORMATION, DOCUMENTATION. The Lender shall receive
such other and further information and documentation as it may reasonably
require.
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V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with the Lender that, so long as this
Agreement shall remain in effect or any of the principal of or interest on the
Note or any Fees remain unpaid, it will:
SECTION 5.1. CORPORATE EXISTENCE, PROPERTIES, INSURANCE, ETC. Except as
permitted in Section 5.2, do or cause to be done all things necessary to
preserve and keep in full force and effect its existence as a corporation, its
rights and franchises and comply, in all material respects, with all laws
applicable to it; at all times maintain, preserve and protect all franchises,
trade names licenses, patents, trademarks and copyrights and preserve all
material property used or useful in the conduct of its business and keep the
same in good repair, working order and condition, reasonable wear and tear
excluded, and from time to time make, or cause to be made, all needful and
proper repairs, renewals, replacements, betterments and improvements thereto so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; at all times keep its insurable
properties adequately insured and maintain (i) insurance to such extent and
against such risks, including fire, public liability and business interruption,
as is customary with companies in the same or similar business, (ii) workmen's
compensation insurance in the amount required by applicable law, (iii)
professional liability insurance in the amount customary with companies in the
same or similar business and (iv) such other insurance as may be required by law
or as may be reasonably required in writing by the Lender. In addition, the
Borrower shall deliver to the Lender written notice of any cancellation of any
of the insurance policies required by this Section 5.1 within seven (7) Business
Days after the Borrower receives notification of such cancellation.
SECTION 5.2. PAYMENT OF INDEBTEDNESS, TAXES, ETC.
(a) Pay, and cause each of its Subsidiaries to pay, all
indebtedness and obligations in the manner consistent with its operations over
the past 6 months; and
(b) Pay and discharge or cause to be paid and discharged promptly
all taxes, assessments and governmental charges or levies imposed upon it or any
of its Subsidiaries or upon their income and profits, or upon any of their
property, real, personal or mixed, or upon any part thereof, before the same
shall become in default, as well as all lawful claims for labor, materials and
supplies or otherwise which, if unpaid, might become a lien or charge upon such
properties or any part thereof; provided, however, that neither the Borrower nor
any of its Subsidiaries shall be required to pay and discharge or cause to be
paid and discharged any such tax, assessment, charge, levy or claim so long as
the validity thereof shall be contested in good faith by appropriate
proceedings, and the Borrower or its Subsidiaries, as the case may be, shall
have set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested; and further provided that,
subject to the foregoing provision, the Borrower or its Subsidiaries, as the
case may be, will pay or cause to be paid all such taxes, assessments, charges,
levies or claims upon the commencement of proceedings to foreclose any lien
which has attached as security therefor.
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SECTION 5.3. ACCESS TO PREMISES AND RECORDS. Maintain financial records
in accordance with Generally Accepted Accounting Principles and permit
representatives of the Lender to have access to such financial records, the
Collateral and the premises of the Borrower upon five (5) Business Days notice,
and to make such excerpts from such records or to conduct such audits and field
examinations as such representatives deem reasonably necessary, the costs
thereof to be borne by the Borrower.
SECTION 5.4. NOTICE OF ADVERSE CHANGE. Promptly, but not later than ten
(10) Business Days after any change or information shall have come to the
attention of any executive officer of the Borrower, notify the Lender in writing
of (a) any change in the business or the operations which, in the good faith
judgment of such Person, would be reasonably likely to have a Material Adverse
Effect, and (b) any information which indicates that any financial statements
which are the subject of any representation contained in this Agreement, or
which are furnished to the Lender pursuant to this Agreement, fail, to any
material extent, to present fairly the financial condition and results of
operations purported to be presented therein, disclosing the nature thereof.
SECTION 5.5. NOTICE OF DEFAULT. Promptly, in the event any executive
officer of the Borrower knows of any Default or Event of Default, or knows of an
event of default under any other of the Loan Documents, furnish to the Lender a
written statement as to such occurrence, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with respect
thereto.
SECTION 5.6. LITIGATION NOTICE. Give the Lender prompt written notice of
any action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency which, if adversely determined
against the Borrower or, the Subsidiaries on the basis of the allegations and
information set forth in the complaint or other notice of such action, suit or
proceedings, would be reasonably likely to have a Material Adverse Effect.
SECTION 5.7. ERISA.
(a) Comply and cause each of its Subsidiaries to comply, in all
material respects with the provisions of ERISA applicable to any Plan maintained
by the Borrower or any of its Subsidiaries;
(b) as soon as possible and, in any event, within 10 days after
the Borrower knows any of the following, deliver to the Lender a certificate of
the Chief Financial Officer setting forth details as to such occurrence and such
action, if any, which the Borrower or a ERISA Affiliate is required or proposes
to take, together with any notices required or proposed to be given to or filed
with or by the Borrower, ERISA Affiliate, the PBGC, a Plan participant or the
Plan Administrator with respect thereto: that a Reportable Event has occurred or
is expected to occur, that an accumulated funding deficiency has been incurred
or an application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard (including
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<PAGE> 15
any required installment payments) or an extension of any amortization period
under Section 412 of the Code with respect to a Plan, that a Plan has been or
may be terminated, reorganized, partitioned or declared insolvent under Title IV
of ERISA, that a Plan has an Unfunded Current Liability giving rise to a lien
under ERISA, that proceedings may be or have been instituted to terminate a
Plan, that a proceeding has been instituted pursuant to Section 515 of ERISA to
collect a delinquent contribution to a Plan, or that the Borrower, any
Subsidiary or any ERISA Affiliate will or may incur any liability (including any
contingent or secondary liability) to or on account of the termination of or
withdrawal from a Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA. In
addition to any certificates or notices delivered to the Lender pursuant to the
second sentence hereof, copies of annual reports and any other notices received
by the Borrower, required to be delivered to the Lender hereunder shall be
delivered to the Lender no later than 30 days after the later of the date such
report or notice has been filed with the Internal Revenue Service or the PBGC,
given to Plan participants or received by the Borrower.
SECTION 5.8. COMPLIANCE WITH CONTRACTUAL OBLIGATIONS AND REQUIREMENTS
AND REQUIREMENTS OF LAW; APPLICABLE LAWS. Comply, in all material respects, with
all Contractual Obligations and all applicable requirements of law, the breach
of which would be reasonably likely to have a Material Adverse Effect.
SECTION 5.9. SUBSIDIARIES. Give the Lender prompt written notice of the
creation, establishment or acquisition, in any manner, of any Subsidiary not
existing on the date hereof and listed on Schedule 3.12 attached hereto and
cause each such Subsidiary to become a guarantor hereunder within thirty (30)
Business Days of such due organization.
VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with the Lender that, so long as this
Agreement shall remain in effect or any of the principal of or interest on the
Note or any Fees remain unpaid, it will not, directly or indirectly, and it will
not, directly or indirectly cause or permit any Subsidiary to:
SECTION 6.1. LIENS. Incur, create, assume or suffer to exist any
mortgage, pledge, lien, charge or other encumbrance or restriction of any nature
whatsoever (including conditional sales or other title retention agreements) on
any of their assets now or hereafter owned, other than the following "Permitted
Encumbrances":
(a) liens existing on the date hereof as set forth on Schedule
6.1 attached hereto;
(b) deposits under workmen's compensation, unemployment insurance
and social security laws, or to secure the performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases or to
secure statutory obligations or surety, appeal bonds or discharge of lien bonds,
or to secure indemnity, performance or other similar bonds in the ordinary
course of business;
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(c) statutory liens of landlords and other liens imposed by law,
such as carriers', warehousemen's or mechanic's liens, incurred in good faith in
the ordinary course of business (provided that the Borrower will pay or cause to
be paid or bonded any such liens in an amount greater than or equal to $25,000)
and deposits made or bonds filed in the ordinary course of business to obtain
the release of such liens.
SECTION 6.2. INDEBTEDNESS. Incur, create, assume or permit to exist or
otherwise become liable in respect of any indebtedness or liability for borrowed
money evidenced by notes, bonds, debentures, or similar obligations, or accept
any deposits, advances or progress payments under contracts (excluding unearned
retainers and advances) ("Indebtedness"), other than:
(a) Indebtedness outstanding as of the Closing Date which is set
forth on Schedule 6.2;
(b) Indebtedness to the Lender outstanding as of the Closing Date
or hereafter incurred; or
(c) Short-term unsecured Indebtedness incurred in the ordinary
course of business, not in excess of $150,000 in the aggregate outstanding at
any time;
(d) New mortgage on 8955 Beverly Boulevard for up to $3.5
million.
SECTION 6.3. GUARANTEES. Guarantee, endorse, become surety for, or
otherwise in any way become or be responsible for any obligations incurred by
its Subsidiaries, or obligations of any other Person in excess of $50,000 in the
aggregate, provided, however, that the Borrower may endorse negotiable
instruments in the ordinary course of business and make guarantees to the
Lender.
SECTION 6.4. SALE OF ASSETS, CONSOLIDATION OR MERGER, SALE AND
LEASEBACK.
(a) Sell, lease transfer or otherwise dispose of all or a
substantial portion of its properties, capital stock and assets or
(b) consolidate with or merge into any other corporation, or
permit another corporation to merge into it, or acquire all or substantially all
of the property or assets of any Person, unless the Borrower is the surviving
entity and there exists no Default or Event of Default hereunder, both before
and after such merger or acquisition or
(c) enter into any arrangement, directly or indirectly, with any
Person whereby the Borrower shall sell or transfer property, real or personal,
whether now owned or hereafter acquired, if the Borrower, at the time of such
sale or disposition, intends to lease or otherwise acquire the right to use or
possess (except by purchase) such property or like property for a substantially
similar purpose.
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SECTION 6.5. SALE OF NOTES. Sell, transfer, discount or otherwise
dispose of notes, accounts receivable or other rights to receive payment with or
without recourse, except for the purpose of collection in the ordinary course of
business.
SECTION 6.6. CHANGE IN BUSINESS. Materially change or alter the nature
of its business from the business currently engaged in.
SECTION 6.7. DISTRIBUTIONS. Declare or pay any dividends or distribution
to the shareholders of the Borrower other than for accrual of dividends on
Preferred Stock.
SECTION 6.8. OTHER PREPAYMENTS. Make any payment of principal of any
Indebtedness, with a maturity of more than one year, for borrowed money (except
the Note) or for the deferred purchase price of property or services, except at
the stated maturity of such Indebtedness or as required by applicable mandatory
prepayment provisions (subject to any applicable subordination provisions) other
than for refinancing the mortgage with Asahi Bank.
SECTION 6.9. AMENDMENT TO CERTIFICATE OF INCORPORATION OR BY-LAWS. Amend
its Certificate of Incorporation or By-Laws in a material manner without the
prior written consent of the Lender.
VII. EVENTS OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. In the case of the happening of any of
the following events ("Events of Default"):
(a) default shall occur (i) in the payment of the principal or
interest on the Note when due or (ii) in the payment of any Fees or other
amounts due hereunder;
(b) any representation or warranty herein or in any of the Loan
Documents, in any certificate or report furnished in connection herewith or in
any amendment to this Agreement, shall prove to be false or misleading in any
material respect when made or given or deemed made or given;
(c) default shall be made in respect of any agreement or
obligation relating to any obligation of the Borrower in excess of $100,000 for
borrowed money (other than the Note), if the effect of such default or the
result of any action by the obligee is to accelerate the maturity of such
obligation or to permit the holder or obligee thereof (or a trustee on behalf of
such holder or obligee) to cause such obligation to become due prior to the
stated maturity thereof or which, with the passage of time, the giving of notice
or both would constitute an event of default under any agreement, or any such
obligation shall not be paid when due after giving effect to any applicable
grace period;
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(d) default shall be made in the due observance or performance of
any covenant, condition or agreement to be performed pursuant to this Agreement
or any of the Loan Documents and, in the case of Affirmative Covenants in
Article V hereof, such default continues for at least thirty (30) days, except
for breach of financial covenants at September 30, 1997 under the Sanwa Bank
California Loan Agreement with Borrower;
(e) the Borrower (i) voluntarily commences any case, proceeding
or other action or file any petition seeking relief under Title 11 of the United
States Code or any other existing or future Federal domestic or foreign
Bankruptcy, insolvency or similar law, (ii) consents to the institution of, or
fails to controvert in a timely and appropriate manner, any such proceeding or
the filing of any such petition, (iii) applies for or consents to the employment
of a receiver, trustee, custodian, sequestrator or similar official for the
Borrower or any Guarantor or for a substantial part of their property, (iv)
files an answer admitting the material allegations of a petition filed against
it in any such proceeding, (v) makes a general assignment for the benefit of
creditors, (vi) becomes unable, admits in writing its inability or fails
generally to pay its debts as they become due or (vii) takes corporate action
for the purpose of effecting any of the foregoing;
(f) an involuntary case, proceeding or other action shall be
commenced or an involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or of a substantial
part of property, under Title 11 of the United States Code or any other existing
or future Federal, domestic or foreign bankruptcy, insolvency or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator or similar
official for the Borrower or for a substantial part of its property, or (iii)
the winding-up or liquidation of the Borrower; and such proceeding or petition
shall continue undismissed for sixty (60) days or an order or decree approving
or ordering any of the foregoing shall continue unstayed and in effect for sixty
(60) days;
(g) there shall be commenced against the Borrower, any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged or stayed or bonded pending appeal
within sixty (60) days from the entry thereof;
(h) final judgments or orders for the payment of money in excess
of $50,000 in the aggregate shall be rendered against the Borrower, and the same
shall remain undischarged, unsatisfied or unbonded for a period of thirty (30)
days during which execution shall not be effectively stayed;
(i) dissolution of the Borrower (without automatic
reconstitution) and no successor acceptable to the Lender shall have acquired
substantially all the assets and assumed substantially all the liabilities of
the Borrower including, without limitation, the Obligations;
(j) termination, expiration or cancellation of, or re-entry of
dispossession by summary proceedings or otherwise by the landlord with respect
to any lease material to the business
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of Borrower the Lease unless, at such time, the Borrower is in possession of
alternate leased premises reasonably approved by the Lender;
then, at any time thereafter during the continuance of any such event, the
Lender may, by written notice to the Borrower (i) terminate the Loan Commitment,
(ii) declare the Note to be forthwith due and payable, both as to principal and
interest, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived, anything contained herein or in the Note
to the contrary notwithstanding, and (iii) charge the Default Interest Rate for
the days that the Event of Default continues provided, however, that if an event
specified in Section 7.1(e),(f) of(g) hereof shall have occurred, the Loan
Commitment and the Loan shall automatically terminate and the Note shall
immediately become due and payable, and the Lender in each instance shall have
the right to exercise its rights under the Loan Document as permitted by law.
VIII. MISCELLANEOUS
SECTION 8.1. NOTICES. All notices, requests and other communications
provided for hereunder shall be in writing and shall be deemed to have been duly
given or made when delivered by certified mail with a return receipt requested,
three days after the day on which mailed, or, in the case of overnight courier
service, one business day after delivery to such courier service, addressed as
set forth below, or to such other address as may be hereafter notified by the
respective parties hereto:
(a) if to the Lender,
at Media Equities International, LLC
c/o Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue New York, New York 10022
Attention: Peter D. Weinstein, Esq.
if to the Borrower, at
Dove Entertainment Inc.
8955 Beverly Boulevard
Los Angeles, California 90048
Attention: Mr. R. Lightstone
SECTION 8.2. SURVIVAL OF AGREEMENT; SUCCESSORS AND ASSIGNS.
(a) All covenants, agreements, representations and warranties
made herein and in the certificates delivered pursuant hereto shall survive the
making by the Lender of the Loans herein contemplated and the execution and
delivery to the Lender of the Note evidencing such Loans
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and shall continue in full force and effect so long as the Note is outstanding
and unpaid or the Loan Commitment is outstanding.
(b) Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include (i) the successors and
assigns of such party; (ii) all covenants, promises and agreements by or on
behalf of the Borrower and the Guarantors which are contained in this Agreement
shall bind and inure to the benefit of the respective successors and assigns of
the Lender and (iii) no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with this Agreement or any of the other Loan Documents. The Lender
shall not have any obligation to any Person not a party to this Agreement or
other Loan Documents.
SECTION 8.3. EXPENSES OF THE LENDER; INDEMNIFICATION.
(a) The Borrower will pay all reasonable out-of-pocket costs and
expenses incurred by the Lender in connection with the preparation, development
and execution of the Loan Documents and any amendment, supplement or
modification to this Agreement, the Note and the other Loan Documents including,
without limitation, the fees and disbursements of counsel to the Lender
(including, without limitation, allocation of the cost of in-house counsel to
the Lender) incurred in connection with the preparation, negotiation, execution,
waiver, modification and enforcement of this Agreement or any of the Loan
Documents.
(b) The Borrower agrees to indemnify the Lender and its
respective directors, officers, employees and agents against, and to hold the
Lender and each such person harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees and
expenses, incurred by or asserted against the Lender or any such person arising
out of, in any way connected with, or as a result of (i) the use of any of the
proceeds of the Loans, (ii) this Agreement or other Loan Documents, (iii) the
performance by the parties hereto and thereto of their respective obligations
hereunder and thereunder (including but not limited to the making of the
Commitment) and consummation of the transactions contemplated hereby and
thereby, (iv) breach of any representation or warranty or (v) any claim,
litigation, investigation or proceedings relating to any of the foregoing,
whether or not the Lender or any such person is a party thereto; provided,
however, that such indemnity shall not, as to the Lender, apply to any such
losses, claims, damages, liabilities or related expenses to the extend that they
result from the gross negligence or willful misconduct of the Lender.
(c) The Borrower agrees to indemnify, defend and hold harmless
the Lender and its respective officers, directors, shareholder, agents and
employees (collectively, the "Indemnitees") from and against any loss, cost,
damage, liability, lien, deficiency, fine, penalty or expense (including,
without limitation, reasonable attorney's fees and reasonable expenses for
investigation, removal, cleanup and remedial costs and modification costs
incurred to permit continue or resume normal operations of any property or
assets or business of the firm) arising from a violation of, or failure to
comply with any Environmental Laws and to remove any lien arising therefrom
except to
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the extent caused by the gross negligence or willful misconduct of any
Indemnitee, which any of the Indemnitees may incur of which may be claimed or
recorded against any of the Indemnitees by any Person.
(d) The provisions of this Section 8.3 shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any of the Loan Documents, or any investigation
made by or on behalf of the Lender. All amounts due under this Section 8.3 shall
be payable on written demand therefor.
SECTION 8.4. APPLICABLE LAW. This Agreement, the Note and the other Loan
Documents (other than those containing a contrary express choice of law) shall
be governed and construed by and interpreted in accordance with the laws of the
State of New York.
SECTION 8.5. WAIVER OF RIGHTS BY THE LENDER; WAIVER OF JURY TRIAL, ETC.
(a) Neither any failure nor any delay on the part of the Lender
in exercising any right, power or privilege hereunder or under the Loan
Documents shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any other right,
power or privilege. Except as prohibited by law, each party hereto hereby waives
any right it may have to claim or recover in any litigation referred to in this
Section any special, exemplary, punitive or consequential damages or any damages
other than, or in addition to, actual damages. Each party hereto (i) certifies
that neither any representative, agent or attorney of the Lender has
represented, expressly or otherwise, that the Lender would not, in the event of
litigation, seek to enforce the foregoing waivers and (ii) acknowledges that it
has been induced to enter into this Agreement or the Loan Documents, as
applicable, by, among other things, the mutual waivers and certifications
herein.
(b) THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
RESPECT OF ANY ISSUE, CLAIM OR ACTION IN ANY WAY, INVOLVING OR ARISING, DIRECTLY
OR INDIRECTLY, OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
SECTION 8.6. ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement, the Note and the other Loan Documents;
(b) no joint venture exists among the Borrower and the Lender.
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SECTION 8.7. CONSENT TO JURISDICTION.
(a) The Borrower hereby irrevocably submits to the non-exclusive
jurisdiction of any United States federal or New York state court sitting in New
York City in any action or proceedings arising out of or relating to any Loan
Documents and the Borrower hereby irrevocably agrees that all claims in respect
of such action or proceeding may be heard and determined in any such court and
irrevocably waives any objection it may now or hereafter have as to the venue of
any such action or proceeding brought in such a court or the fact that such
court is an inconvenient forum.
(b) The Borrower irrevocably and unconditionally consents to the
service or process in any such action or proceeding in any of the aforesaid
courts by the mailing of copies of such process to them by certified or
registered mail at its address specified in Subsection 8.1.
SECTION 8.8. EXTENSION OF MATURITY. Except as otherwise expressly
provided herein, whenever a payment to be made hereunder shall fall due and
payable on any day other than a Business Day, such payment may be made on the
next succeeding Business Day, and such extension of time shall be included in
computing interest.
SECTION 8.9. MODIFICATION OF AGREEMENT. No modification, amendment or
waiver of any provision of this Agreement or the Note, nor consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be in writing and signed by the Lender and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on the Borrower the Guarantors in any case
shall entitle the Borrower to any other or further notice or demand in the same,
similar or other circumstance.
SECTION 8.10. PARTICIPATIONS AND ASSIGNMENTS.
(a) The Borrower may not assign or transfer any of their
interests under this Agreement, the Note or the Loan Documents without the prior
written consent of the Lender.
(b) The Lender reserves the right to grant participations in or
to sell and assign its rights, duties or obligations with respect to the Loan or
the Commitment to such lending institutions or other parties as it may choose,
without the consent of the Borrower, which consent is deemed to be granted.
SECTION 8.11. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement or in the Note should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.
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SECTION 8.12. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.
SECTION 8.13. ENTIRE AGREEMENT; CUMULATIVE REMEDIES.
(a) This Agreement and the other Loan Documents constitute the
entire agreement among the parties hereto and thereto as to the subject matter
hereof and thereof and supersede any previous agreement, oral or written, as to
such subject matter.
(b) The rights and remedies herein provided are cumulative and
not exclusive of any rights or remedies provided by law.
SECTION 8.14. HEADINGS. Section headings used herein are for convenience
of reference only and are not to affect the construction of or be taken into
consideration in interpreting this Agreement.
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<PAGE> 24
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be duly executed by their duly authorized officers, all of the day
and year first above written.
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
--------------------------------------
Name: Neil Topham
Title: Chief Financial Officer
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
--------------------------------------
Name: Neil Topham
Title: Chief Financial Officer
MEDIA EQUITIES INTERNATIONAL, LLC
By: /s/ RON LIGHTSTONE
--------------------------------------
Name: Ron Lightstone
Title: Partner
23
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Schedule 3.4
Potential Materially Adverse Effect Transactions:
Class Action Suit
Viner "Morning Glory" Arbitration
Viner Employee Separation Agreement Arbitration
Termination of Penguin Distribution Agreement
The Company projects that it may incur a loss for the quarter ending
September 30, 1997
Certain Company payables are overdue
Lawsuit with Steven Soloway
Threatened lawsuit with Jerry Leider
24
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Schedule 3.12 - Subsidiaries
Dove Four Point, Inc.
Dove International, Inc.
Dove Retail, Inc.
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Schedule 6.1 - Existing Liens
Asahi Bank, 1st mortgage on 8955 Beverly Boulevard, Los Angeles
Sanwa Bank, Senior Debt Loan with security interest in the assets of the Company
(other than 8955 Beverly Boulevard, Los Angeles).
Mercedes Benz Credit Corporation, Security Interest in Mercedes Benz 500 SL.
Lien in favor of Guinness Mahon in connection with the film "Wilde".
Operating Leases:
Fletcher Jones Motorcars, Inc. - Mercedes 94 C280W
Miller Infinity - Infinity QX4 Truck
Various operating leases for Apple Computers, photocopies and telephone
systems.
26
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EXHIBIT A
$450,000 New York, New York
September ____, 1997
FOR VALUE RECEIVED, the undersigned, DOVE ENTERTAINMENT, INC., a
California corporation and DOVE FOUR POINT, INC., a Florida corporation, DO
HEREBY JOINTLY AND SEVERALLY PROMISE to pay to the order of MEDIA EQUITIES
INTERNATIONAL, LLC (the "Lender"), at the office of the Lender c/o Morrison
Cohen Singer & Weinstein, LLP, 750 Lexington Avenue, New York, New York 10022,
on the Loan Maturity Date, (as such term and all other capitalized terms in this
Note are defined in the and Loan Agreement (the "Agreement") dated as of
September _____, 1997 between the Borrower and the Lender) in lawful money of
the United States of America, in immediately available funds, (i) the principal
amount of the lesser of (a) Four Hundred and Fifty Thousand Dollars ($450,000),
or (b) the aggregate unpaid principal amount of all Loans made by the Lender to
the Borrower pursuant to the Agreement as shown on the books and records of
Lender or on a grid schedule annexed hereto, and (ii) interest from the date
hereof on the unpaid principal amount hereof, in like money, at said office, on
the dates and at the rate provided in accordance with Article II of the
Agreement and, upon default, on demand from time to time, on any overdue
principal and on any overdue charge or fee, and, to the extent permitted by law,
on any overdue interest, for each day from the due date thereof (by acceleration
or otherwise) until such sum is paid in full, at a rate of four percent (4%) per
annum in excess of the rate in effect from time to time on the Loan.
This Note is the Note referred to in Section 2.2 of the Agreement, and
is subject to prepayment and acceleration of maturity as set forth in the
Agreement.
This Note shall be governed by and construed in accordance with the laws
of the State of New York and any applicable laws of the United States of
America.
DOVE ENTERTAINMENT, INC.
By:________________________________________
Name:
Title:
DOVE FOUR POINT, INC.
By:________________________________________
Name:
Title:
27
<PAGE> 1
EXHIBIT 10.48
DEBT SUBORDINATION AND INTERCREDITOR AGREEMENT
THIS AGREEMENT is made this 26th day of September, 1997 by and among
DOVE ENTERTAINMENT, INC., a California corporation, having its principal place
of business at 8955 Beverly Boulevard, Los Angeles, California 90048 ("Dove"),
DOVE FOUR POINT, INC., a Florida corporation, having its principal place of
business at 8955 Beverly Boulevard, Los Angeles, California 90048 ("Four Point";
Dove and Four Point, individually and collectively, "Borrower"), MEDIA EQUITIES
INTERNATIONAL, LLC a New York limited liability company having its principal
place of business at c/o Morrison Cohen Singer & Weinstein, LLP, 750 Lexington
Avenue, New York , New York, ("Creditor") and SANWA BANK CALIFORNIA having a
place of business at 601 South Figueroa Street, Los Angeles, California 90017
("Lender").
1. Definitions.
(a) "Junior Debt" means all indebtedness, liabilities and
obligations of Borrower to Creditor of every kind and description, absolute or
contingent, due or to become due, now existing or hereafter arising, and all
increases, extensions and renewals thereof, together with all interest, fees,
charges, expenses and costs for which Borrower is now or hereafter becomes
liable to pay to Creditor, arising out of: (a) a $450,000 promissory note dated
September 26th, 1997; and (b) obligations and liabilities of the Borrower to the
Creditor contained in that certain Loan Agreement dated September 26th, 1997
between Borrower and Creditor and all amendments thereto or modifications
thereof (the "Loan Agreement").
(b) "Lender's Loan Documents" means the Term Loan Agreement dated
as of August 16, 1996 in the original principal amount of $1,365,447.27 between
Dove and Lender, the Continuing Guaranty dated August 16, 1996 executed by Four
Point and all other agreements, documents, contracts and instruments, executed
and delivered at any time by the Borrower in favor of the Lender in connection
with the loan described therein (the "Loan"), including without limitation the
Supplemental Loan Agreement and Supplemental Security Agreement, each dated on
or about April 30, 1997 and the Forbearance Agreement, Amendment, Waiver and
Release dated as of August 28, 1997 among Borrower and Lender.
(c) "Superior Debt" means all indebtedness, liabilities and
obligations of Borrower to Lender of every kind and description, whenever and
however arising, absolute or contingent, due or to become due, now existing or
hereafter arising, under the Lender's Loan Documents, and all increases,
extensions and renewals thereof, together with all interest, fees, charges,
expenses and costs for which Borrower is now or hereafter becomes liable to pay
to Lender; but not exceeding a total principal balance at any one time
outstanding of One Million Three Hundred Thousand Dollars ($1,300,000).
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2. Subordination. Creditor hereby postpones and subordinates, to the
extent and in the manner provided in this Agreement, all of the Junior Debt to
the full and final payment of all of the Superior Debt and the termination of
any obligation of Lender to extend further Superior Debt. Except as permitted in
Section 2(a) hereof, no payments shall be made on account of the Junior Debt so
long as any Superior Debt is outstanding. If Borrower issues or has issued any
instrument or document evidencing the Junior Debt, each such instrument and
document shall bear a conspicuous legend that it is subordinated to the Superior
Debt. Borrower's books shall be marked to evidence the subordination of all of
the Junior Debt to the Superior Debt. Lender is authorized to examine such books
from time to time and to make any notations required by this Agreement.
(a) Until such time as the Lender gives the creditor notice that
there has occurred a monetary default under the Lender's Loan Documents, the
Borrower shall be permitted to make, and the Creditor is permitted to receive
and retain monthly installments of interest under the Junior Debt at the rate of
ten percent (10%) per annum.
3. Security Interest Priorities. Notwithstanding (a) the time, date,
manner, method or order of the attachment and/or perfection of any mortgages,
pledges, security interests or liens granted in favor of the Creditor or the
Lender, in or on any collateral securing the Superior Debt, (b) the time or
manner of the filing of the Lender's respective financing statements or
mortgages, (c) the provisions of the UCC or any other applicable laws or court
decisions, (d) the dating, executing or delivery of any document granting
Creditor or Lender security interest and/or liens in or on any collateral, (e)
the provisions of any contract or document in effect between the Creditor or
Lender, on the one hand, and Borrower or any affiliate thereof, on the other,
(f) the giving or failure to give notice of the acquisition or expected
acquisition of any purchase money or other security interests and (g) whether
the Creditor or the Lender or any agent or bailee thereof holds possession of
any part or all of any collateral the following, as among the Creditor and the
Lender, shall be the relative priority of the security interests and liens of
the Creditor and the Lender in the collateral securing the Superior Debt:
(a) The liens, mortgages, pledges, security interests and rights
that the Lender has or may have in the collateral securing the Superior Debt
shall at all times be superior and prior to any lien or security interest of the
Creditor therein.
(b) All realizations upon the collateral securing the Superior
Debt shall be first applied to the satisfaction of the Superior Debt,
irrespective of whether at any time any part or all of the Superior Debt is due
and payable, until the Superior Debt shall be fully, finally and indefeasibly
paid in cash.
(c) If any of the collateral securing the Superior Debt is
received by the Creditor in violation of the terms of this Agreement, such
collateral shall be promptly delivered by the Creditor to the Lender in the form
received, except for the addition of any endorsement or assignment necessary to
effect a transfer of all rights to the Lender, without the necessity of demand
or request by the Lender. The Lender is irrevocably authorized to supply any
required endorsement
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<PAGE> 3
or assignment that may have been omitted. Until so delivered, any such
collateral shall be held by the Creditor in trust for the Lender and shall not
be commingles with other funds or property of the Creditor.
(d) Lender may, at its option, during any period of default
relating to the Superior Debt, take such enforcement action it deems appropriate
with respect to the collateral for the Superior Debt without any requirement
that it obtain the prior consent of Creditor. Until the Superior Debt has been
fully, finally and indefeasibly paid in cash, and all of the financing
arrangements and commitments between Borrower and Lender have been terminated,
Creditor shall not take any enforcement action against any of the collateral
securing the Superior Debt without first obtaining the prior written consent of
Lender, which consent may be withheld for any reason whatsoever, in the sole
discretion of Lender.
(e) After all of the Superior Debt has been fully, finally and
indefeasibly paid in cash, and all of the financing arrangements and commitments
between Borrower and Lender have been terminated, the balance of realizations
upon the collateral securing the Superior Debt, if any, shall be paid in
accordance with Section 9-504 of the UCC.
4. Warranties and Representations of Borrower and Creditor. Borrower
and Creditor each hereby represent and warrant that: (a) Creditor has not relied
and will not rely on any representation or information of any nature made by or
received from Lender relative to Borrower in deciding to execute this Agreement
or to permit it to continue in effect; (b) as of the date hereof, the total
maximum aggregate principal amount of the Junior Debt is $450,000; (c) no part
of the Junior Debt is evidenced by any instrument, security or other writing
which has not previously been or is not simultaneously herewith being delivered
to Lender, (d) Creditor is the lawful owner of the Junior Debt and no part
thereof is subject to any defense, offset or counterclaim; (e) Creditor has not
heretofore assigned or transferred any of the Junior Debt or any interest
therein; (f) Creditor has not heretofore given any subordination with respect to
the Junior Debt which is currently effective; and (g) the only collateral or
security for the Junior Debt is a blanket lien or security interest in all of
the assets of the Borrower subordinate to the lien(s) or security interest(s) of
the Lender.
5. Negative Covenants. Until all of the Superior Debt has been fully
and indefeasibly paid and any obligations of Lender to extend further Superior
Debt is terminated: (a) Borrower shall not, directly or indirectly, make any
payment on account of the Junior Debt, except as permitted in Section 2(a)
hereof, and shall not grant any security interest in, mortgage, pledge, assign
or transfer, any of its assets to secure or satisfy all or any part of the
Junior Debt, except as stated in Section 4(g) hereof; (b) Except as provided in
Sections 2(a) or 4(g) hereof, and subject to Section 3 hereof, Creditor shall
not demand or accept from Borrower or any other person any payment of, or
collateral for the Junior Debt, nor shall Creditor enforce any part of the
Junior Debt; (c) Creditor shall not hereafter give any subordination with
respect to the Junior Debt, or transfer or assign any of the Junior Debt to any
person other than Lender; (d) Borrower will not hereafter issue any instrument,
security or other writing evidencing any part of the Junior Debt, and Creditor
will not receive any such writing, except upon the prior written approval of
Lender or at the request of and in the manner
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<PAGE> 4
requested by Lender, (e) Creditor will not commence or join with any other
creditors of Borrower in commencing any bankruptcy, reorganization, receivership
or insolvency proceeding against Borrower, and (f) Borrower nor Creditor shall
otherwise take or permit any action prejudicial to or inconsistent with the
provisions of this Agreement.
6. Authority to Act for Creditor. For so long as any of the Superior
Debt shall remain unpaid, Lender shall have the right to act as Creditor's
attorney-in-fact for the purposes specified herein and Creditor hereby
irrevocably appoints Lender its true and lawful attorney, with full power of
substitution, in the name of Creditor or in the name of Lender, for the use and
benefit of Lender, without notice to Creditor or any of his representatives,
heirs or administrators, to perform the following acts, at Lender's option, at
any meeting of creditors of Borrower or in connection with any case or
proceeding, whether voluntary or involuntary, for the distribution, division or
application of the assets of Borrower or the proceeds thereof, regardless of
whether such case or proceeding is for the liquidation, dissolution, winding up
of affairs, reorganization or arrangement of Borrower, or for the composition of
the creditors of Borrower, in bankruptcy or in connection with a receivership,
or under an assignment for the benefit of creditors of Borrower or otherwise:
(a) To enforce claims comprising the Junior Debt, either in its
own name or in the name of Creditor, by proof of debt, proof of claim, suit or
otherwise;
(b) To collect any assets of Borrower distributed, divided or
applied by way of dividend or payment on account of the Junior Debt, or any
securities issued on account of the Junior Debt and to apply the same, or the
proceeds of any realization upon the same that Lender in its discretion elects
to effect, to the Superior Debt until all of the Superior Debt (including
without limitation, all interest accruing on the Superior Debt after the
commencement of any bankruptcy case) has been paid in full, rendering any
surplus to Creditor if and to the extent permitted by law;
(c) To vote claims comprising the Junior Debt to accept or reject
any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension; and
(d) To take generally any action in connection with any such
meeting, case or proceeding that Creditor would be authorized to take but for
this Agreement.
In no event shall Lender be liable to Creditor for any failure to prove
the Junior Debt, to exercise any right with respect thereto or to collect any
sums payable thereon, except in the event of Lender's gross negligence (provided
Lender has received Creditor's full cooperation) or willful misconduct
7. Waivers. Borrower and Creditor each hereby waives any defense
based on the adequacy of a remedy at law which might be asserted as a bar to the
remedy of specific performance of this Agreement in any action brought therefor
by Lender. To the fullest extent permitted by law, Borrower and Creditor each
hereby further waives: presentment, demand, protest, notice of protest, notice
of default or dishonor, notice of payment or nonpayment and any and all other
notices and
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<PAGE> 5
demands of any kind in connection with instruments, documents and agreements
evidencing, securing or relating in any way to all or any portion of the
Superior Debt or the Junior Debt to which Borrower or Creditor may be a party;
notice of the acceptance of this Agreement by Lender; notice of any loans made,
extensions granted or other action taken by Lender in reliance hereon, including
without limitation: (a) granting time or other indulgences to Borrower, (b)
renewing, extending, modifying or compromising any of the Superior Debt, (c)
possessing, substituting, modifying, waiving or releasing any guaranty or
collateral held as security for any of the Superior Debt, or (d) adding or
releasing any person primarily or secondarily liable thereon; and all other
demands and notices of every kind in connection with this Agreement, the
Superior Debt or Junior Debt, and no such action taken by Lender shall affect
the subordination or other provisions herein in any manner.
8. Indulgences Not Waivers. Neither the failure nor any delay on the
part of Lender to exercise any right, remedy, power or privilege hereunder or
under any instruments, documents or agreements evidencing or relating to the
Superior Debt shall operate as a waiver thereof or give rise to an estoppel, nor
be construed as an agreement to modify the terms of this Agreement, nor shall
any single or partial exercise of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No consent or waiver by a
party hereunder shall be effective unless it is in writing and signed by the
party making such consent or waiver, and then only to the extent specifically
stated in such writing.
9. Duration and Termination. This Agreement shall constitute a
continuing agreement of subordination and shall terminate only upon the full and
final payment of the Superior Debt and termination of any obligation of Lender
to extend any further Superior Debt. Neither the dissolution nor the bankruptcy
of any Creditor shall effect a termination hereof.
10. Administration by Lender. In the administration of the Superior
Debt, either before or after a demand or default, Creditor acknowledges and
agrees that Lender may proceed in its sole discretion, including without
limitation, raising or lowering loan advances, interest rates or fees, charging
additional fees, declining to make further advances, extending additional loans
or other financing accommodations to Borrower, increasing the dollar amounts of
Borrower's credit limits, extending credit terms and maturities, compromising
claims and exchanging and releasing collateral or obligors; all with no duty to
Creditor, and no such action shall affect the subordination or other provisions
herein in any manner.
11. New Superior Debt. If any of the Superior Debt consists of
revolving loans and such loans are at any time or times thereafter paid or
performed in full and thereafter Borrows again becomes indebted or otherwise
obligated to Lender for revolving loans, the provisions of this Agreement shall
apply to said new indebtedness, which, for purposes of this Agreement, shall be
deemed Superior Debt.
12. Subrogation. Following the final and indefeasible payment in full
of all Superior Debt, the holders of Junior Debt shall be subrogated to the
rights of the holdoffs of Superior Debt
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to receive payments or distributions of assets of the Borrows until all Junior
Debt shall be paid in full; and for the purposes of such subrogation, no
payments or distributions to the holdoffs of such Superior Debt of any cash,
property or securities to which the holdoffs of Junior Debt would otherwise be
entitled except for the provisions of this Agreement, and no payment over
pursuant to the provisions of this Agreement to the holdoffs of such Superior
Debt by the holdoffs of Junior Debt, shall, as among the Borrower and its
creditors other than the holdoffs of such Superior Debt and the holders of
Junior Debt, be deemed to be a payment by the Borrower to or on account of such
Superior Debt, it being understood that the provisions of this Agreement are
solely for the purposes of defining the relative rights of the holdoffs of such
Superior Debt, on the one hand, and the holders of the Junior Debt, on the other
hand.
13. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement or by law shall be in writing and
shall be deemed to have been duly given, made and received only when delivered
against receipt or when deposited in the United States mails, certified mail,
return receipt requested, postage prepaid, or when delivered by next day express
delivery service, addressed as set forth in the first paragraph of this
Agreement. Any addressee may alter the address to which communications are to be
sent by giving notice of such change of address in conformity with the
provisions of this Paragraph 13 for the giving of notice.
14. Lender's Duties Limited. The rights granted to Lender in this
Agreement are solely for its protection and nothing herein contained imposes on
Lender any duties with respect to any property either of Borrower or of Creditor
heretofore or hereafter received by Lender. Lender has no duty to preserve
rights against prior parties on any instrument or chattel paper received from
Borrower as collateral security for the Superior Debt or any portion thereof
15. Effect on Borrower. This Agreement is being entered into solely
for the benefit of Lender and is not intended to give any rights, benefits or
privileges to Borrower or Creditor. Except as expressly et forth herein, this
Agreement shall not otherwise (i) impair or affect, as among the Borrower or its
creditors (other than the Lender) and the holdoffs of the Junior Debt, the
obligation of the Borrower, which is absolute and unconditional, to pay the
holders of Junior Debt the principal of and interest on the Junior Debt, or (ii)
affect the relative rights against the Borrower of the holder of the Junior Debt
and the creditors of the Borrower (other than the Lender), or (iii) prevent any
holder of any Junior Debt from exercising all remedies otherwise permitted by
applicable law upon default under the instrument or instruments governing the
Junior Debt.
16. Authority. Borrower and Creditor represent and warrant that they
have the legal power and authority to enter into this Agreement and that the
persons signing for each party are authorized and directed to do so.
17. Entire Agreement. Amendment. This Agreement constitutes and
expresses the entire understanding between the parties hereto with respect to
the subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions, whether express or
implied, oral or written. Neither this Agreement nor any portion or provision
hereof may
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be amended orally or in any manner other than by an agreement in writing signed
by Lender, Borrower and Creditor.
18. Additional Documentation. Borrower and Creditor shall execute and
deliver to Lender such further instruments and shall take such further action as
Lender may at any time or times request in order to carry out the provisions and
intent of this Agreement.
19. Jury Waiver. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY
COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH
OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A
PART AND/OR THE DEFENSE OR ENFORCEMENT OF ANY OF LENDER'S RIGHTS AND REMEDIES,
INCLUDING WITHOUT LIMITATION, TORT CLAIMS. CREDITOR ACKNOWLEDGES THAT IT MAKES
THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH HIS ATTORNEY.
20. Successors and Assigns. This Agreement shall inure to the benefit
of Lender, its successors and assigns, and shall be binding upon both Borrower
and Creditor and their respective heirs, personal representatives, successors
and assigns.
21. Defects Waived. This Agreement is effective notwithstanding any
defect in the validity or enforceability of any instrument or document
evidencing the Superior Debt.
22. Governing Law. The validity, construction and enforcement of this
Agreement shall be governed by the internal laws of the State of California.
23. Severability. The provisions of this Agreement are independent of
and separable from each other. If any provision hereof shall for any reason be
held invalid or unenforceable, it is the intent of the parties that such
invalidity or unenforceability shall not affect the validity or enforceability
of any other provision hereof, and that this Agreement shall be construed as if
such invalid or unenforceable provision had never been contained herein.
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24. Counterparts. This Agreement may be executed in separate
counterparts and by each party on a separate counterpart, each of which, when
executed and delivered, shall be deemed to be an original. Such counterparts
shall together constitute one and the same instrument
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered. this 26th day of September, 1997.
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
------------------------------------
Name: Neil Topham
Title: Chief Financial Officer
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
------------------------------------
Name: Neil Topham
Title: Chief Financial Officer
MEDIA EQUITIES INTERNATIONAL, LLC
By: /s/ RON LIGHTSTONE
------------------------------------
Name:
Title:
SANWA BANK CALIFORNIA
By: /s/ E. LEIGH IRWIN
------------------------------------
Name: E. Leigh Irwin
Title: Vice President
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<PAGE> 1
EXHIBIT 10.49
SECURITY AGREEMENT
AGREEMENT dated as of September 26, 1997 between DOVE ENTERTAINMENT,
INC., a California corporation ("Dove"), DOVE FOUR POINT, INC., a Florida
corporation ("Four Point; Dove and Four Point, individually and collectively,
"Borrower"), and MEDIA EQUITIES INTERNATIONAL, LLC, a New York limited liability
company ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender are parties to a Loan Agreement dated as of
September 26th, 1997 (as the same may be amended and in effect from time to
time, the "Loan Agreement"), providing for extensions of credit to be made to
Borrower by Lender; and
WHEREAS, it is a condition precedent to the making of Loans under the
Loan Agreement that Borrower shall have granted the security interests
contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce
Lender to make Loans under the Loan Agreement, Borrower hereby agrees with
Lender as follows:
SECTION I. Definitions
A. Certain Defined Terms. Terms defined in the Loan Agreement and
not otherwise defined herein have the respective meanings provided for in the
Loan Agreement. The following terms, as used herein, have the meanings set forth
below:
"Accounts" means all "accounts" (as defined in the UCC) now owned or
hereafter created or acquired by Borrower including, without limitation, all of
the following now owned or hereafter created or acquired by Borrower: (a)
accounts receivable, contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to Borrower arising from the sale, lease or
exchange of goods or other property and/or the performance of services; (b)
Borrower's rights in, to and under all purchase orders for goods, services or
other property; (c) Borrower's rights to any goods, services or other property
represented by any of the foregoing (including returned or repossessed goods and
unpaid sellers' rights of rescission, replevin, reclamation and rights to
stoppage in transit); (d) monies due to or to become due to Borrower under all
contracts for the sale, lease or exchange of goods or other property and/or the
performance of services (whether or not yet earned by performance on the part of
Borrower); (e) uncertificated securities; and (f) Proceeds of any of the
foregoing and all
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collateral security and guaranties of any kind given by any Person with respect
to any of the foregoing.
"Collateral" has the meaning assigned to that term in Section 2.
"Copyright License" means any written agreement now or hereafter in
existence granting to Borrower any right to use any Copyright including, without
limitation, the agreements described in Schedule 1 of the Copyright Security
Agreement.
"Copyrights" means collectively all of the following: (a) all
copyrights, rights and interests in copyrights, works protectable by copyright,
copyright registrations and copyright applications now owned or hereafter
created or acquired by Borrower, including, without limitation, those listed on
Schedule 1 of the Copyright Security Agreement; (b) all renewals of any of the
foregoing; (c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the foregoing;
(d) the right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing throughout the
world; and (f) all goodwill associated with and symbolized by any of the
foregoing.
"Copyright Security Agreement" means the copyright security agreement to
be executed and delivered by Borrower to Lender, substantially in the form of
Exhibit A, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"Documents" means all "documents" (as defined in the UCC) or other
receipts covering, evidencing or representing goods now owned or hereafter
acquired by Borrower.
"Equipment" means all "equipment" (as defined in the UCC) now owned or
hereafter acquired by Borrower including, without limitation, all machinery,
motor vehicles, trucks, trailers, vessels, aircraft and rolling stock and all
parts thereof and all additions and accessions thereto and replacements
therefor.
"Fixtures" means all of the following now owned or hereafter acquired by
Borrower: plant fixtures; business fixtures; other fixtures and storage office
facilities, wherever located; and all additions and accessions thereto and
replacements therefor.
"General Intangibles" means all "general intangibles" (as defined in the
UCC) now owned or hereafter acquired by Borrower including, without limitation,
all right, title and interest of Borrower in and to: (a) all obligations or
indebtedness owing to Borrower (other than Accounts) from whatever source
arising; (b) all tax refunds; (c) Intellectual Property; and (d) all trade
secrets and other confidential information relating to the business of Borrower
including by way of illustration and not limitation: systems and techniques for
the analysis, diagnosis and correction of malfunctions of products used by
Borrower's customers; the names and addresses of, and credit and other business
information concerning, Borrower's past, present or future customers; the prices
which
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Borrower obtains for its services or at which it sells merchandise; estimating
and cost procedures; profit margins; policies and procedures pertaining to the
sale and design of equipment, components, devices and services furnished by
Borrower; information concerning suppliers of Borrower; and information
concerning the manner of operation, business plans, pledges, projections, and
all other information of any kind or character, whether or not reduced to
writing, with respect to the conduct by Borrower of its business not generally
known by the public.
"Instruments" means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC) including, but not limited to, promissory
notes, drafts, bills of exchange and trade acceptances, now owned or hereafter
acquired by Borrower.
"Intellectual Property" shall mean collectively all of the following:
Copyrights and Copyright Licenses.
"Inventory" means all "inventory" (as defined in the UCC), now owned or
hereafter acquired by Borrower, wherever located including, without limitation,
finished goods, raw materials, work in process and other materials and supplies
(including packaging and shipping materials) used or consumed in the manufacture
or production thereof and goods which are returned to or repossessed by
Borrower.
"Proceeds" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims of Borrower against third
parties for loss of, damage to or destruction of, or for proceeds payable under,
or unearned premiums with respect to, policies of insurance with respect to any
Collateral, and any condemnation or requisition payments with respect to any
Collateral, in each case whether now existing or hereafter arising.
"Secured Obligations" has the meaning assigned to that term in Section
3.
"Security Interests" means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of New York, provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
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B. Other Definition Provisions. References to "Subsections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. All references to statutes and related regulations shall
include (unless otherwise specifically provided herein) any amendments of same
and any successor statutes and regulations.
SECTION II. Grant of Security Interests
In order to secure the payment and performance of the Secured
Obligations in accordance with the terms thereof, each of Dove and Four Point
hereby grants to Lender a continuing security interest, subordinated as provided
in the Debt Subordination and Intercreditor Agreement among Borrower, Lender and
Sanwa Bank California dated September 26, 1997, in and to all of its right,
title and interest in the following property, whether now owned or existing or
hereafter acquired or arising and regardless of where located (all being
collectively referred to as the "Collateral"):
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
(iv) Documents;
(v) Instruments;
(vi) Equipment;
(vii) Fixtures;
(viii) All deposit accounts of Borrower maintained with any bank
or financial institution;
(ix) All books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing
software that at any time evidence or contain information
relating to any of the property described in subparts (i) -
(viii) above or are otherwise necessary or helpful in the
collection thereof or realization thereon; and
(x) Proceeds of all or any of the property described in
subparts (i) - (ix) above.
Notwithstanding the foregoing, so long as no Event of Default has occurred and
is continuing, Borrower shall have the exclusive, non-transferable right and
license to use the Intellectual Property
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and the exclusive right to grant to other Persons licenses and sublicenses with
respect to Intellectual Property.
SECTION III. Security for Obligations
This Agreement secures the payment and performance of the Obligations
(as defined in the Loan Agreement) and all obligations of Borrower now or
hereafter existing under this Agreement and all renewals, extensions,
restructurings and refinancings of any of the above (all such debts, obligations
and liabilities of Borrower being collectively called the "Secured
Obligations").
SECTION IV. Borrower Remains Liable
Anything herein to the contrary notwithstanding: (a) Borrower shall
remain liable under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed; (b)
the exercise by Lender of any of the rights hereunder shall not release Borrower
from any of its duties or obligations under the contracts and agreements
included in the Collateral; and (c) Lender shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Lender be obligated to perform any of the
obligations or duties of Borrower thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
SECTION V. Representations and Warranties
Borrower represents and warrants as follows:
A. Binding Obligation. This Agreement is the legally valid and
binding obligation of Borrower, enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws or equitable principles relating to
or limiting creditor's rights generally.
B. Location of Equipment and Inventory. All of the Equipment and
Inventory is located at the places specified on Schedule I.
C. Ownership of Collateral; Bailees. Except for matters disclosed on
Schedule II, other Permitted Encumbrances and the Security Interests, Borrower
owns the Collateral free and clear of any Lien. No effective financing statement
or other form of lien notice covering all or any part of the Collateral is on
file in any recording office, except for those in favor of Lender and as
disclosed on Schedule II. Except as disclosed on Schedule II, none of the
Collateral is in the possession of any bailee, warehouseman, Lender or
processor.
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D. Office Locations; Fictitious Names. The chief place of business,
the chief executive office and the office where Borrower keeps its books and
records are located at the places specified on Schedule I. Borrower does not do
business and has not done business during the past five years under any
trade-name or fictitious business name except as disclosed on Schedule III.
E. Perfection. This Agreement creates a valid, perfected and, except
for the Permitted Encumbrances, first priority security interest in the
Collateral, securing the payment of the Secured Obligations, and all filings and
other actions necessary or desirable to perfect and protect such security
interest have been duly taken.
F. Governmental Authorizations; Consents. No authorization, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or consent of any other Person (including without limitation
any Licensor of Intellectual Property or party to any Assigned Agreement) is
required either (a) for the grant by Borrower of the security interest granted
hereby or for the execution, delivery or performance of this Agreement by
Borrower or (b) for the perfection of or the exercise by Lender of its rights
and remedies hereunder (except as may have been taken by or at the direction of
Borrower or Lender).
G. Accounts. Each Account constitutes the legally valid and binding
obligation of the customer obligated to pay the same. The amount represented by
Borrower to Lender as owing by each customer is the correct amount actually and
unconditionally owing, except for normal cash discounts and allowances where
applicable. No customer has any defense, set-off, claim or counterclaim against
Borrower that can be asserted against Lender, whether in any proceeding to
enforce Lender's rights in the Collateral or otherwise except defenses,
set-offs, claims or counterclaims that are not, in the aggregate, material to
the value of the Accounts. None of the Accounts is evidenced by a promissory
note or other instrument other than a check.
H. Intellectual Property. The Copyrights and Copyright Licenses
constitute all of the Intellectual Property owned by Borrower.
I. Accurate Information. All information heretofore, herein or
hereafter supplied to Lender by or on behalf of Borrower with respect to the
Collateral is and will be accurate and complete in all material respects.
J. Loan Agreement Warranties. Each representation and warranty set
forth in the Loan Agreement is true and correct in all material respects and
such representations and warranties are hereby incorporated herein by this
reference with the same effect as though set forth in their entirety herein.
SECTION VI. Further Assurances; Covenants
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A. Other Documents and Actions. Borrower will, from time to time, at
its expense, promptly execute and deliver all further instruments and documents
and take all further action that may be necessary or desirable, or that Lender
may request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Lender to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, Borrower will: (a) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as Lender may
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby; (b) at any reasonable time, upon demand by
Lender exhibit the Collateral to allow inspection of the Collateral by Lender or
persons designated by Lender; and (c) upon Lender's request, appear in and
defend any action or proceeding that may affect Borrower's title to or Lender's
security interest in the Collateral.
B. Lender Authorized. Borrower hereby authorizes Lender to file one
or more financing or continuation statements, and amendments thereto, relating
to all or any part of the Collateral without the signature of Borrower where
permitted by law.
C. Corporate or Name Change. Borrower will notify Lender promptly in
writing prior to any change in Borrower's name, identity or corporate structure.
D. Business Locations. Borrower will keep the Collateral at the
locations specified on Schedule I. Borrower will give Lender thirty (30) days
prior written notice of any change in Borrower's chief place of business or of
any new location of business or any new location for any of the Collateral. With
respect to any new location (which in any event shall be within the continental
United States), Borrower will execute such documents and take such actions as
Lender deems necessary to perfect and protect the Security Interests.
E. Bailees. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of Borrower's Lenders or processors,
Borrower shall, upon the request of Lender, notify such warehouseman, bailee,
Lender or processor of the Security Interests created hereby and shall instruct
such Person to hold all such Collateral for Lender's account subject to Lender's
instructions.
F. Instruments. Borrower will deliver and pledge to Lender all
Instruments duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Lender.
Borrower will mark conspicuously all chattel paper with a legend, in form and
substance satisfactory to Lender, indicating that such chattel paper is subject
to the Security Interests.
G. Certificates of Title. Borrower shall promptly deliver to Lender
any and all certificates of title, applications for title or similar evidence of
ownership of all Equipment and shall cause Lender to be named as lienholder on
any such certificate of title or other evidence of ownership. Borrower shall
promptly inform Lender of any additions to or deletions from the
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Equipment and shall not permit any such items to become fixtures to real estate
other than real estate described in the Mortgages.
H. Account Covenants. Except as otherwise provided in this
subsection 6.8, Borrower shall continue to collect, at its own expense, all
amounts due or to become due Borrower under the Accounts. In connection with
such collections, Borrower may take (and, at Lender's direction, shall take)
such action as Borrower or Lender may deem necessary or advisable to enforce
collection of the Accounts; provided, that Lender shall have the right at any
time after the occurrence of a Default or an Event of Default to: (a) notify the
customers or obligors under any Accounts of the assignment of such Accounts to
Lender (on behalf of Lenders) and to direct such customers or obligors to make
payment of all amounts due or to become due directly to Lender; (b) enforce
collection of any such Accounts; and (c) adjust, settle or compromise the amount
or payment of such Accounts. After the occurrence of a Default or an Event of
Default, Borrower shall not adjust, settle or compromise the amount or payment
of any Account, or release wholly or partly any customer or obligor thereof, or
allow any credit or discount thereon without the prior consent of Lender.
I. Intellectual Property Covenants. Borrower shall concurrently
herewith deliver to Lender the Copyright Security Agreement, and all other
documents, instruments and other items as may be necessary for Lender to file
such agreements with the United States Copyright Office, United States Patent
and Trademark Office and any similar domestic or foreign office, department or
agency. If, before the Secured Obligations are paid in full, Borrower obtains
any new Intellectual Property or rights thereto or becomes entitled to the
benefit of any Intellectual Property not listed on the respective schedules to
each security agreement, Borrower shall give to Lender prompt written notice
thereof, and shall amend the respective security agreement to include any such
new Intellectual Property. Borrower shall: (a) prosecute diligently any
copyright, patent, trademark or license application at any time pending; (b)
make application on all new copyrights, patents and trademarks as reasonably
deemed appropriate by Borrower; (c) preserve and maintain all rights in the
Intellectual Property; and (d) use its best efforts to obtain any consents,
waivers or agreements necessary to enable Lender to exercise its remedies with
respect to the Intellectual Property. Borrower shall not abandon any right to
file a copyright application nor shall Borrower abandon any pending copyright
application, or Copyright or Copyright License, without the prior written
consent of Lender. Borrower represents and warrants to Lender that the
execution, delivery and performance of this Agreement by Borrower will not
violate or cause a default under any of the Intellectual Property or any
agreement in connection therewith.
J. Equipment Covenants. Borrower shall cause the Equipment to be
maintained and preserved in the same condition, repair and working order as when
new, ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall promptly make or cause to be made all repairs, replacements,
and other improvements in connection therewith that are necessary or desirable
to such end.
K. Insurance. Borrower shall maintain insurance with respect to the
Collateral in accordance with the terms of the Loan Agreement.
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L. Taxes and Claims. Borrower will pay promptly when due all
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims against, the Collateral (including claims for labor,
materials and supplies), except to the extent the validity thereof is being
contested in good faith.
M. Collateral Description. Borrower will furnish to Lender, from
time to time, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Lender
may reasonably request, all in reasonable detail.
N. Use of Collateral. Borrower will not use or permit any Collateral
to be used unlawfully or in violation of any provision of this Agreement or any
applicable statue, regulation or ordinance or any policy of insurance covering
any of the Collateral.
O. Records of Collateral. Borrower shall keep full and accurate
books and records relating to the Collateral and shall stamp or otherwise mark
such books and records in such manner as Lender may reasonably request
indicating that the Collateral is subject to the Security Interests.
P. Other Information. Borrower will, promptly upon request, provide
to Lender all information and evidence it may reasonably request concerning the
Collateral, and in particular the Accounts, to enable Lender to enforce the
provisions of this Agreement.
SECTION VII. Lender Appointed Attorney-in-Fact
Borrower hereby irrevocably appoints Lender as Borrower's
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower, Lender or otherwise, from time to time in Lender's
discretion to take any action and to execute any instrument that Lender may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:
1. to obtain and adjust insurance required to be paid to
Lender;
2. to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
3. to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clauses (a)
and (b) above;
4. to file any claims or take any action or institute any
proceedings that Lender may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of Lender with respect to any of the Collateral;
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5. to pay or discharge taxes or Liens, levied or placed upon
or threatened against the Collateral, the legality or validity thereof
and the amounts necessary to discharge the same to be determined by
Lender in its sole discretion, and such payments made by Lender to
become obligations of Borrower to Lender, due and payable immediately
without demand;
6. to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, assignments,
verifications and notices in connection with Accounts and other
documents (including without limitation financing statements,
continuation statements and other documents necessary or advisable to
perfect the Security Interests) relating to the Collateral; and
7. generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option and Borrower's expense, at any
time or from time to time, all acts and things that Lender deems
necessary to protect, preserve or realize upon the Collateral.
Borrower hereby ratifies and approves all acts of Lender made or taken pursuant
to this Section 8. Neither Lender nor any person designated by Lender shall be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law. This power, being coupled with an interest, is irrevocable so long as
this Agreement shall remain in force.
SECTION VIII. Transfers and Other Liens
Except as otherwise permitted by the Loan Agreement, Borrower shall not:
1. Sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, except that Borrower may sell Inventory in the ordinary
course of business.
2. Create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the
Collateral to secure indebtedness of any Person except for the security
interest created by this Agreement or permitted under the Loan
Agreement, except with written permission of Lender.
SECTION IX. Remedies
If any Event of Default shall have occurred and be continuing, Lender
may exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the UCC (whether or not the UCC
applies to the affected Collateral) and also may: (a) require Borrower to, and
Borrower
10
<PAGE> 11
hereby agrees that it will, at its expense and upon request of Lender forthwith,
assemble all or part of the Collateral as directed by Lender and make it
available to Lender at a place to be designated by Lender which is reasonably
convenient to both parties; (b) without notice or demand or legal process, enter
upon any premises of Borrower and take possession of the Collateral; and (c)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Lender's
offices or elsewhere, at such time or times, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as Lender may
deem commercially reasonable. Borrower agrees that, to the extent notice of sale
shall be required by law, at least ten days notice to Borrower of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. At any sale of the Collateral, if
permitted by law, Lender may bid (which bid may be, in whole or in part, in the
form of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Lender (on behalf of Lenders). Lender shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Lender may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. To the extent permitted by law, Borrower hereby specifically waives
all rights of redemption, stay or appraisal which it has or may have under any
law now existing or hereafter enacted.
SECTION X. License of Intellectual Property
Borrower hereby assigns, transfers and conveys to Lender, effective upon
the occurrence of any Event of Default hereunder, the nonexclusive right and
license to use all Intellectual Property owned or used by Borrower together with
any goodwill associated therewith, all to the extent necessary to enable Lender
to realize on the Collateral and any successor or assign to enjoy the benefits
of the Collateral. This right and license shall inure to the benefit of all
successors, assigns and transferees of Lender and its successors, assigns and
transferees, whether by voluntary conveyance, operation of law, assignment,
transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and
license is granted free of charge, without requirement that any monetary payment
whatsoever be made to Borrower by Lender.
SECTION XI. Limitation on Duty of Lender with Respect to Collateral
Beyond the safe custody thereof, Lender shall have no duty with respect
to any Collateral in its possession or control (or in the possession or control
of any Lender or bailee) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Lender shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own
property. Lender shall not be liable or responsible for any loss or damage to
any of the Collateral, or for any diminution in the value thereof, by reason of
the act or omission
11
<PAGE> 12
of any warehouseman, carrier, forwarding agency, consignee or other Lender or
bailee selected by Lender in good faith.
SECTION XII. Application of Proceeds
Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral and any cash held in the Collateral Account shall be applied: first,
to all fees, costs and expenses incurred by Lender or any Lender with respect to
the Loan Agreement, the other Loan Documents or the Collateral including,
without limitation, those described in subsection 8.3 of the Loan Agreement and
in Section 13 hereof; second, to all fees due and owing to Lender or any Lender;
third, to accrued and unpaid interest on the Obligations (including any interest
which but for the provisions of the Bankruptcy Code, would have accrued on such
amounts); fourth, to the principal amounts of the Obligations outstanding; and
fifth, to any other indebtedness or obligations of Borrower owing to Lender.
SECTION XIII. Expenses
Borrower shall pay all insurance expenses and all expenses of
protecting, storing, warehousing, appraising, insuring, handling, maintaining
and shipping the Collateral, all costs, fees and expenses of perfecting and
maintaining the Security Interests, and any and all excise, property, sales and
use taxes imposed by any state, federal or local authority on any of the
Collateral, or with respect to periodic appraisals and inspections of the
Collateral, or with respect to the sale or other disposition thereof. If
Borrower fails promptly to pay any portion of the above expenses when due or to
perform any other obligation of Borrower under this Agreement, Lender or any
other Lender may, at its option, but shall not be required to, pay or perform
the same and charge Borrower's account for all costs and expenses incurred
therefor, and Borrower agrees to reimburse Lender or such Lender therefor on
demand. All sums so paid or incurred by Lender or any other Lender for any of
the foregoing, any and all other sums for which Borrower may become liable
hereunder and all costs and expenses (including attorneys' fees, legal expenses
and court costs) incurred by Lender or any other Lender in enforcing or
protecting the Security Interests or any of their rights or remedies under this
Agreement shall be payable on demand, shall constitute Obligations, shall bear
interest until paid at the highest rate provided in the Loan Agreement and shall
be secured by the Collateral.
SECTION XIV. Termination of Security Interests; Release of Collateral
Upon payment in full of all Secured Obligations and the termination of
all Loan Commitments, the Security Interests shall terminate and all rights to
the Collateral shall revert to Borrower. Upon such termination of the Security
Interests or release of any Collateral, Lender will, at the expense of Borrower,
execute and deliver to Borrower such documents as Borrower shall
12
<PAGE> 13
reasonably request to evidence the termination of the Security Interests or the
release of such Collateral, as the case may be.
SECTION XV. Notices
All notices, approvals, requests, demands and other communications
hereunder shall be given in accordance with the notice provision of the Loan
Agreement.
SECTION XVI. Waivers, Non-Exclusive Remedies
No failure on the part of Lender to exercise, and no delay in exercising
and no course of dealing with respect to, any right under the Loan Agreement or
this Agreement shall operate as a waiver thereof; nor shall any single or
partial exercise by Lender of any right under the Loan Agreement or this
Agreement preclude any other or further exercise thereof or the exercise of any
other right. The rights in this Agreement and the Loan Agreement are cumulative
and are not exclusive of any other remedies provided by law.
SECTION XVII. Successors and Assigns
This Agreement is for the benefit of Lender and its successors and
assigns, and in the event of an assignment of all or any of the Secured
Obligations, the rights hereunder, to the extent applicable to the Secured
Obligations so assigned, may be transferred with such Secured Obligations. This
Agreement shall be binding on Borrower and its successors and assigns.
SECTION XVIII. Changes in Writing
No amendment, modification, termination or waiver of any provision of
this Agreement or consent to any departure by Borrower therefrom, shall in any
event be effective without the written concurrence of Lender.
SECTION XIX. Applicable Law
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
SECTION XX. Failure or Indulgence Not Waiver; Remedies Cumulative
13
<PAGE> 14
No failure or delay on the part of Lender in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or any other right, power or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION XXI. Headings
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION XXII. Counterparts
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the day first above written.
DOVE ENTERTAINMENT, INC. MEDIA EQUITIES INTERNATIONAL, LLC
By: /s/ NEIL TOPHAM By: /s/ RON LIGHTSTONE
------------------------------- -------------------------------
Title: Chief Financial Officer Title: Partner
---------------------------- ----------------------------
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
-------------------------------
Title: Chief Financial Officer
----------------------------
14
<PAGE> 15
SCHEDULE I
Locations of Equipment, Inventory, Books and
Records, Chief Executive Office, Other Locations
8955 Beverly Boulevard, Los Angeles*
301 North Cannon Street, Beverly Hills
Penguin Distribution Center
100 Fabrite Road
Newbern, TN 38059-1334
*Chief Executive Office
15
<PAGE> 16
SCHEDULE II
Other Liens, Security Interests and
Financing Statements; Bailees
Asahi Bank, 1st mortgage on 8955 Beverly Boulevard, Los Angeles
Sanwa Bank, Senior Debt Loan with security interest in the assets of the Company
(other than 8955 Beverly Boulevard, Los Angeles).
Mercedes Benz Credit Corporation, Security Interest in Mercedes Benz 500 SL.
Lien in favor of Guinness Mahon in connection with the film "Wilde".
Operating Leases:
Fletcher Jones Motorcars, Inc. - Mercedes 94 C280W
Miller Infinity - Infinity QX4 Truck
Various operating leases for Apple Computers, photocopies and telephone
systems.
16
<PAGE> 17
SCHEDULE III
Trade-names and Fictitious Names
(Present and Past Five Years)
None
17
<PAGE> 18
EXHIBIT A
COPYRIGHT SECURITY AGREEMENT
WHEREAS, ___________________, a ______________ corporation ("Grantor")
owns the Copyright registrations and Copyright applications listed on Schedule 1
annexed hereto, and
WHEREAS, Grantor, an affiliate of Grantor and Media Equities
International, LLC, a New York limited liability company ("Lender") are parties
to a Loan Agreement dated September ___, 1997 (as the same may be amended and in
effect from time to time, the "Loan Agreement"), providing for extensions of
credit to be made to Grantor by Lender; and
WHEREAS, pursuant to the terms of the Security Agreement dated as of
September 26th, 1997 (as said Agreement may be amended and in effect from time
to time, the "Security Agreement"), between Grantor, an affiliate of Grantor and
Lender, Grantor has granted to Lender a security interest in substantially all
the assets of Grantor including all right, title and interest of Grantor in, to
and under all now owned and hereafter acquired Copyrights (as defined in the
Security Agreement), Copyright registrations, Copyright applications and
Copyright Licenses (as defined in the Security Agreement), together with the
goodwill of the business symbolized by Grantor's Copyrights and all proceeds
thereof, to secure the payment of all amounts owing by Grantor under the Loan
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Lender a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Copyright Collateral"),
whether presently existing or hereafter created or acquired:
(1) each Copyright, Copyright application and Copyright registration,
together with any reissues, extensions or renewals thereof, including,
without limitation, the Copyright, Copyright registrations and Copyright
applications referred to in Schedule 1 annexed hereto, and all of the
goodwill of the business connected with the use of, and symbolized by,
each Copyright, Copyright registration and Copyright application;
(2) each Copyright License and all of the goodwill of the business
connected with the use of, and symbolized by, each Copyright License;
and
(3) all products and proceeds of the foregoing, including, without
limitation, any claim by Grantor against third parties for past, present
or future (a) infringement or dilution of any Copyright or Copyright
registration including, without limitation, the Copyright and Copyright
registrations referred to in Schedule 1 annexed hereto, the Copyright
registrations
18
<PAGE> 19
issued with respect to the Copyright applications referred in Schedule 1
and the Copyright licensed under the Copyright License, or (b) injury to
the goodwill associated with any Copyright, Copyright registration or
Copyright licensed under any Copyright License.
This security interest is granted in conjunction with the security interests
granted to Lender pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Copyright Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement
to be duly executed by its duly authorized officer as of the ______ day of
___________, 19___.
---------------------------------
By:
------------------------------
Title:
---------------------------
19
<PAGE> 20
ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On the ____ day of ____________, 19__ before me personally appeared
______________, to me personally known or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
foregoing instrument as _____________ of _______________ who being by me duly
sworn, did depose and say that he is ______________ of ________________, the
corporation described in and which executed the foregoing instrument; that the
said instrument was duly signed on behalf of said corporation; and that he
acknowledged said instrument to be the free act and deed of said corporation.
_____________________________
Notary Public
{Seal}
My commission expires:
____________________________
20
<PAGE> 21
Schedule 1
to Copyright
Security Agreement
COPYRIGHT REGISTRATIONS
REG. NO. DATE
COPYRIGHT LICENSES
Name of Agreement Parties Date of Agreement
NONE
21
<PAGE> 1
EXHIBIT 10.50
COPYRIGHT SECURITY AGREEMENT
WHEREAS, Dove Four Point, Inc. a California corporation ("Grantor") owns
the Copyright registrations and Copyright applications listed on Schedule 1
annexed hereto, and
WHEREAS, Grantor, an affiliate of Grantor and Media Equities
International, LLC, a New York limited liability company ("Lender") are parties
to a Loan Agreement dated September 26th, 1997 (as the same may be amended and
in effect from time to time, the "Loan Agreement"), providing for extensions of
credit to be made to Grantor by Lender; and
WHEREAS, pursuant to the terms of the Security Agreement dated as of
September 26th, 1997 (as said Agreement may be amended and in effect from time
to time, the "Security Agreement"), between Grantor, an affiliate of Grantor and
Lender, Grantor has granted to Lender a security interest in substantially all
the assets of Grantor including all right, title and interest of Grantor, in to
and under all now owned and hereafter acquired Copyrights (as defined in the
Security Agreement), copyright registrations, Copyright applications and
Copyright Licenses (as defined in the Security Agreement), together with the
goodwill of the business symbolized by Grantor's Copyrights and all proceeds
thereof, to secure the payment of all amounts owing by Grantor under the Loan
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
lender a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Copyright Collateral"),
whether presently existing or hereafter created or acquired:
(1) each Copyright, Copyright application and Copyright registration,
together with any reissues, extensions or renewals thereof, including,
without limitation, the Copyright, Copyright registrations and Copyright
applications referred to in Schedule 1 annexed hereto, and all of the
goodwill of the business connected with the use of, and symbolized by,
each Copyright, Copyright registration and Copyright application;
(2) each Copyright License and all of the goodwill of the business
connected with the use of, and symbolized by, each Copyright License;
and
(3) all products and proceeds of the foregoing, including, without
imitation, any claim by Grantor against third parties for past, present
or future (a) infringement or dilution of any Copyright or Copyright
registration including, without limitation, the Copyright and Copyright
registrations referred to in Schedule 1 annexed hereto, the Copyright
registrations
1
<PAGE> 2
issued with respect to the Copyright applications referred to in
Schedule 1 and the Copyright licensed under the Copyright License, or
(b) injury to the goodwill associated with any Copyright, Copyright
registration or Copyright licensed under any Copyright License.
This security interest is granted in conjunction with the security interests
granted to Lender pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Copyright Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement
to be duly executed by its duly authorized officer as of the 26th day of
September, 1997.
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
-----------------------------------
Title: /s/ Chief Financial Officer
--------------------------------
2
<PAGE> 3
ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On the 26th day of September, 1997 before me personally appeared Neil
Topham, to me personally known or proved to me on the basis of satisfactory
evidence to be the person described in and who executed the foregoing instrument
as CFO of Dove Entertainment, Inc. who being by me duly sworn, did depose and
say that he is CFO of Dove Entertainment, Inc. the corporation described in and
which executed the foregoing instrument; that the said instrument was duly
signed on behalf of said corporation; and that he acknowledged said instrument
to be the free act and deed of said corporation.
/s/ VICTORIA KAY
--------------------------
{Seal}
My commission expires:
JANUARY 20, 2001
- --------------------------
3
<PAGE> 4
DOVE FOUR POINT, INC.
SCHEDULE 1 TO COPYRIGHT
SECURITY AGREEMENT
Copyright Registrations
Saved By The Light/Motion Picture Teleplay PA
Saved By The Light/Motion Picture Telefilm PA
Unwed Father/Motion Picture Teleplay (Pending) PA
Unwed Father/Motion Picture Telefilm (Pending) PA
Copyright Licenses
None
<PAGE> 1
EXHIBIT 10.51
COPYRIGHT SECURITY AGREEMENT
WHEREAS, Dove Four Point, Inc. a California corporation ("Grantor") owns
the Copyright registrations and Copyright applications listed on Schedule 1
annexed hereto, and
WHEREAS, Grantor, an affiliate of Grantor and Media Equities
International, LLC, a New York limited liability company ("Lender") are parties
to a Loan Agreement dated September 26th, 1997 (as the same may be amended and
in effect from time to time, the "Loan Agreement"), providing for extensions of
credit to be made to Grantor by Lender; and
WHEREAS, pursuant to the terms of the Security Agreement dated as of
September 26th, 1997 (as said Agreement may be amended and in effect from time
to time, the "Security Agreement"), between Grantor, an affiliate of Grantor and
Lender, Grantor has granted to Lender a security interest in substantially all
the assets of Grantor including all right, title and interest of Grantor, in to
and under all now owned and hereafter acquired Copyrights (as defined in the
Security Agreement), copyright registrations, Copyright applications and
Copyright Licenses (as defined in the Security Agreement), together with the
goodwill of the business symbolized by Grantor's Copyrights and all proceeds
thereof, to secure the payment of all amounts owing by Grantor under the Loan
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
lender a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Copyright Collateral"),
whether presently existing or hereafter created or acquired:
(1) each Copyright, Copyright application and Copyright registration,
together with any reissues, extensions or renewals thereof, including,
without limitation, the Copyright, Copyright registrations and Copyright
applications referred to in Schedule 1 annexed hereto, and all of the
goodwill of the business connected with the use of, and symbolized by,
each Copyright, Copyright registration and Copyright application;
(2) each Copyright License and all of the goodwill of the business
connected with the use of, and symbolized by, each Copyright License;
and
(3) all products and proceeds of the foregoing, including, without
imitation, any claim by Grantor against third parties for past, present
or future (a) infringement or dilution of any Copyright or Copyright
registration including, without limitation, the Copyright and Copyright
registrations referred to in Schedule 1 annexed hereto, the Copyright
registrations
1
<PAGE> 2
issued with respect to the Copyright applications referred to in
Schedule 1 and the Copyright licensed under the Copyright License, or
(b) injury to the goodwill associated with any Copyright, Copyright
registration or Copyright licensed under any Copyright License.
This security interest is granted in conjunction with the security interests
granted to Lender pursuant to the Security Agreement. Grantor hereby
acknowledges and affirms that the rights and remedies of Grantee with respect to
the security interest in the Copyright Collateral made and granted hereby are
more fully set forth in the Security Agreement, the terms and provisions of
which are incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Grantor has caused this Copyright Security Agreement
to be duly executed by its duly authorized officer as of the 26th day of
September, 1997.
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
---------------------------------
Title: /s/ Chief Financial Officer
------------------------------
2
<PAGE> 3
ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On the 26th day of September, 1997 before me personally appeared Neil
Topham, to me personally known or proved to me on the basis of satisfactory
evidence to be the person described in and who executed the foregoing instrument
as CFO of Dove Entertainment, Inc. who being by me duly sworn, did depose and
say that he is CFO of Dove Entertainment, Inc. the corporation described in and
which executed the foregoing instrument; that the said instrument was duly
signed on behalf of said corporation; and that he acknowledged said instrument
to be the free act and deed of said corporation.
/s/ VICTORIA KAYE
-----------------------------
{Seal}
My commission expires:
January 20, 2001
- -----------------------------
3
<PAGE> 1
EXHIBIT 10.52
================================================================================
CREDIT, SECURITY, GUARANTY AND PLEDGE AGREEMENT
DATED AS OF NOVEMBER 4, 1997
AMONG
DOVE ENTERTAINMENT, INC.
AS BORROWER,
THE GUARANTORS NAMED HEREIN
AND
THE CHASE MANHATTAN BANK, AS LENDER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS..............................................................................2
2. THE LOANS...............................................................................24
SECTION 2.1. Loans.....................................................................24
SECTION 2.2. Making of Loans...........................................................25
SECTION 2.4. Interest on Note..........................................................26
SECTION 2.5. Commitment Fees and Other Fees............................................27
SECTION 2.6. Optional and Mandatory Termination or Reduction of Commitment............27
SECTION 2.7. Default Interest; Alternate Rate of Interest..............................28
SECTION 2.8. Continuation and Conversion of Loans......................................28
SECTION 2.9. Prepayment of Loans; Reimbursement of Lender..............................29
SECTION 2.10. Change in Circumstances..................................................31
SECTION 2.11. Change in Legality.......................................................34
SECTION 2.12. Manner of Payments.......................................................34
SECTION 2.13. Interest Adjustments.....................................................34
SECTION 2.14. Letters of Credit........................................................35
3. REPRESENTATIONS AND WARRANTIES OF CREDIT PARTIES........................................38
SECTION 3.1. Corporate Existence and Power.............................................39
SECTION 3.2. Corporate Authority and No Violation. (a) ..............................39
SECTION 3.3. Governmental Approval.....................................................40
SECTION 3.4. Binding Agreements........................................................40
SECTION 3.5. Financial Statements......................................................40
SECTION 3.6. No Material Adverse Change (a) .........................................40
SECTION 3.7. Ownership of Pledged Securities, etc......................................41
SECTION 3.8. Copyrights and Other Rights...............................................41
SECTION 3.9. Fictitious Names..........................................................42
SECTION 3.10. Title to Properties......................................................42
SECTION 3.11. Places of Business.......................................................42
SECTION 3.12. Litigation...............................................................42
SECTION 3.13. Federal Reserve Regulations..............................................43
SECTION 3.14. Investment Company Act...................................................43
SECTION 3.15. Taxes....................................................................43
SECTION 3.16. Compliance with ERISA....................................................43
SECTION 3.17. Agreements...............................................................44
SECTION 3.18. Security Interest; Other Security........................................44
SECTION 3.19. Disclosure...............................................................44
SECTION 3.20. Distribution Rights......................................................45
SECTION 3.21. Environmental Liabilities................................................45
SECTION 3.22. Pledged Securities.......................................................46
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.23. Compliance with Laws.....................................................46
SECTION 3.24. Projected Financial Information..........................................46
4. CONDITIONS OF LENDING...................................................................46
SECTION 4.1. Conditions Precedent to Initial Loans or Letter of Credit.................46
SECTION 4.2. Conditions Precedent to Each Loan and Letter of Credit....................51
5. AFFIRMATIVE COVENANTS...................................................................51
SECTION 5.1. Financial Statements and Reports..........................................51
SECTION 5.2. Corporate Existence.......................................................54
SECTION 5.3. Maintenance of Properties.................................................54
SECTION 5.4. Notice of Material Events.................................................54
SECTION 5.5. Insurance.................................................................55
SECTION 5.6. Production................................................................56
SECTION 5.7. Music.....................................................................56
SECTION 5.8. Copyright.................................................................56
SECTION 5.9. Books and Records. ......................................................57
SECTION 5.10. Third Party Audit Rights.................................................57
SECTION 5.11. Observance of Agreements.................................................58
SECTION 5.12. Film Properties and Rights; Credit Parties to Act as Pledgeholder........58
SECTION 5.13. Laboratories; No Removal.................................................58
SECTION 5.14. Taxes and Charges; Indebtedness in Ordinary Course of Business...........58
SECTION 5.15. Liens....................................................................59
SECTION 5.16. Further Assurances; Security Interests...................................59
SECTION 5.17. ERISA Compliance and Reports.............................................59
SECTION 5.18. Environmental Laws.......................................................60
SECTION 5.19. Use of Proceeds..........................................................61
SECTION 5.20. Security Agreements with the Guilds......................................61
SECTION 5.21. Uncompleted Product......................................................61
6. NEGATIVE COVENANTS......................................................................62
SECTION 6.1. Limitations on Indebtedness...............................................62
SECTION 6.2. Limitations on Liens......................................................63
SECTION 6.3. Limitation on Guarantees..................................................65
SECTION 6.4. Limitations on Investments................................................65
SECTION 6.5. Restricted Payments.......................................................65
SECTION 6.6. Limitations on Leases.....................................................65
SECTION 6.7. Consolidation, Merger, Sale or Purchase of Assets, etc....................65
SECTION 6.8. Receivables...............................................................66
SECTION 6.9. Sale and Leaseback........................................................66
SECTION 6.10. Places of Business; Change of Name.......................................66
SECTION 6.11. Limitations on Capital Expenditures......................................66
SECTION 6.12. Transactions with Affiliates. ..........................................66
SECTION 6.13. Prohibition of Amendments or Waivers.....................................66
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 6.14. Development Costs........................................................67
SECTION 6.15. Overhead Expense.........................................................67
SECTION 6.16. Consolidated Capital Base................................................67
SECTION 6.17. EBIT Ratio...............................................................67
SECTION 6.18. Liquidity Ratio.........................................................67
SECTION 6.19. No Change in Business....................................................68
SECTION 6.20. ERISA Compliance.........................................................68
SECTION 6.21. Additional Limitations on Production and Acquisition of Product..........68
SECTION 6.22. Subsidiaries.............................................................69
SECTION 6.23. Bank Accounts............................................................69
SECTION 6.24. Hazardous Materials......................................................69
SECTION 6.25. Use of Proceeds of Loans and Requests for Letters of Credit..............69
SECTION 6.26. Interest Rate Protection Agreements, etc.................................69
SECTION 6.27. Amortization Method......................................................69
7. EVENTS OF DEFAULT.......................................................................69
8. GRANT OF SECURITY INTEREST; REMEDIES....................................................72
SECTION 8.1. Security Interests. .....................................................72
SECTION 8.2. Use of Collateral.........................................................72
SECTION 8.3. Collection Accounts.......................................................72
SECTION 8.4. Credit Parties to Hold in Trust...........................................75
SECTION 8.5. Collections, etc. .......................................................75
SECTION 8.6. Possession, Sale of Collateral, etc.......................................76
SECTION 8.7. Application of Proceeds on Default........................................77
SECTION 8.8. Power of Attorney.........................................................77
SECTION 8.9. Financing Statements, Direct Payments.....................................78
SECTION 8.10. Further Assurances.......................................................78
SECTION 8.11. Termination..............................................................78
SECTION 8.12. Remedies Not Exclusive...................................................78
SECTION 8.13. Quiet Enjoyment..........................................................78
SECTION 8.14. Continuation and Reinstatement...........................................79
9. GUARANTY................................................................................79
SECTION 9.1. Guaranty..................................................................79
SECTION 9.2. No Impairment of Guaranty, etc............................................80
SECTION 9.3. Continuation and Reinstatement, etc.......................................81
SECTION 9.4. Limitation on Guaranteed Amount etc.......................................81
10. PLEDGE..................................................................................81
SECTION 10.1. Pledge....................................................................82
SECTION 10.2. Covenant.................................................................82
SECTION 10.3. Registration in Nominee Name; Denominations..............................82
SECTION 10.4. Voting Rights; Dividends; etc............................................82
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
SECTION 10.5. Remedies Upon Default....................................................83
SECTION 10.6. Application of Proceeds of Sale and Cash.................................84
SECTION 10.7. Securities Act, etc.......................................................85
SECTION 10.8. Continuation and Reinstatement...........................................85
SECTION 10.9. Termination..............................................................85
11. [RESERVED]..............................................................................86
12. MISCELLANEOUS...........................................................................86
SECTION 12.1. Notices..................................................................86
SECTION 12.2. Survival of Agreement, Representations and Warranties, etc...............86
SECTION 12.3. Successors and Assigns; Loan Sales; Participations.....................86
SECTION 12.4. Expenses; Documentary Taxes..............................................88
SECTION 12.5. Indemnification of the Lender............................................89
SECTION 12.6. CHOICE OF LAW............................................................90
SECTION 12.7. WAIVER OF JURY TRIAL.....................................................90
SECTION 12.8. No Waiver................................................................90
SECTION 12.9. Extension of Payment Date................................................90
SECTION 12.10. Amendments, etc.........................................................91
SECTION 12.11. Severability............................................................91
SECTION 12.12. SERVICE OF PROCESS......................................................91
SECTION 12.13. Headings................................................................92
SECTION 12.14. Execution in Counterparts...............................................92
SECTION 12.15. Subordination of Intercompany Advances..................................92
SECTION 12.16. Confidentiality.........................................................93
SECTION 12.17. Entire Agreement........................................................93
</TABLE>
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<PAGE> 6
Schedules
1 MEI Ownership Interest
3.7(a) Corporate Guarantors/Pledged Securities
3.7(b) Beneficial Interests
3.8 Items of Product; Copyrights
3.9 Fictitious Names
3.11 Principal Executive Office/Location of Collateral/Filing Offices
3.12 Litigation
3.17 Existing Indebtedness/Material Agreements
3.21 Environmental Liabilities
3.22 Outstanding Rights Re Pledged Securities
6.2 Existing Liens
6.3 Guarantees
6.4 Scheduled Investments
6.23 Bank Accounts
Exhibits
A Form of Note
B-1 Form of Opinion of Hughes Hubbard & Reed, special counsel to the Credit
Parties
B-2 Form of Opinion of Robert C. Murray, general counsel of the Borrower
C Form of Borrowing Base Certificate
D-1 Form of Pledgeholder Agreement (Uncompleted Product)
D-2 Form of Pledgeholder Agreement (Completed Product)
E-1 Form of Copyright Security Agreement
E-2 Form of Copyright Security Agreement Supplement
F Form of Laboratory Access Letter
G Form of Notice of Assignment and Irrevocable Instructions
H Form of Borrowing Certificate
I Form of Instrument of Assumption and Joinder
J Form of Contribution Agreement
K-1 Form of Individual Guaranty Agreement by Terrence A. Elkes
K-2 Form of Individual Guaranty Agreement by Kenneth F. Gorman
K-3 Form of Individual Guaranty Agreement by Bruce Maggin
K-4 Form of Individual Guaranty Agreement by John T. Healy
K-5 Form of Individual Guaranty Agreement by Ronald Lightstone
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<PAGE> 7
CREDIT, SECURITY, GUARANTY AND PLEDGE AGREEMENT, dated as of
November 4, 1997 (as amended, supplemented or otherwise
modified, renewed or replaced from time to time, the "Credit
Agreement") among DOVE ENTERTAINMENT, INC., a California
corporation (the "Borrower"), the Corporate Guarantors named
herein and THE CHASE MANHATTAN BANK, a New York banking
corporation, as Lender (together with any permitted assignees of
all or part of the Commitment in accordance with the terms
hereof, the "Lender").
INTRODUCTORY STATEMENT
All terms not otherwise defined above or in this Introductory Statement
are as defined in Article 1 hereof, or as defined elsewhere herein.
The Borrower has requested that the Lender make available an $8,000,000
three-year secured revolving credit facility which will be used (i) to refinance
outstanding obligations as of the Closing Date under the Sanwa Credit Agreement
and the MEI Line of Credit; (ii) to finance the development, production,
distribution or acquisition of audio books, books and television product and
film product (other than the production and distribution of motion pictures in
theaters) and the production and distribution expenses of the motion picture
entitled "Wilde" and (iii) for other general corporate purposes.
To provide assurance for the repayment of the Loans and other
Obligations of the Borrower and the Corporate Guarantors hereunder, the Borrower
and the Corporate Guarantors will provide or will cause to be provided to the
Lender, the following (each as more fully described herein):
(i) a security interest in the Collateral pursuant to Article 8
hereof;
(ii) a guaranty of the Obligations pursuant to Article 9 hereof; and
(iii) a pledge of the Pledged Securities pursuant to Article 10
hereof.
A principal shareholder of the Borrower is Media Equities International,
L.L.C. ("MEI") which is directly and indirectly owned by Terrence A. Elkes,
Kenneth F. Gorman, Ronald Lightstone, John T. Healy and Bruce Maggin
(collectively referred to herein as the "Individual Guarantors"). To provide
further assurance and in order to induce the Lender to enter into this Credit
Agreement, as security for the repayment of the Loans and the other Obligations
of the Borrower hereunder, the Individual Guarantors will provide to the Lender,
pursuant to the Guaranty Agreement, an unconditional guaranty of payment of the
Obligations in an amount equal to the lesser of (x) $2,000,000 and (y) the
amount by which the actual borrowings by the Borrower in accordance with the
terms of this Credit Agreement and Guaranty Agreement exceeds the Borrowing
Base, subject to the limitations set forth therein (the "Maximum Guaranty
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<PAGE> 8
Amount"); provided, that in the case of any Individual Guarantor, such
guarantor's guaranty obligation shall not exceed the product of 110% of such
Individual Guarantor's ownership interest in MEI as of the date hereof (as
indicated in Schedule 1 hereto) mutliplied by the Maximum Guaranty Amount (such
amount to be reduced in accordance with the terms thereof).
Subject to the terms and conditions set forth herein, the Lender is
willing to make Loans to the Borrower and issue Letters of Credit in amounts in
the aggregate at any one time outstanding not in excess of its Commitment
hereunder.
Accordingly, the parties hereto hereby agree as follows:
1. DEFINITIONS
For the purposes hereof unless the context otherwise requires, all
Section references herein shall be deemed to correspond with Sections herein,
the following terms shall have the meanings indicated, all accounting terms not
otherwise defined herein shall have the respective meanings accorded to them
under GAAP and all terms defined in the UCC and not otherwise defined herein
shall have the respective meanings accorded to them therein. Unless the context
otherwise requires, any of the following terms may be used in the singular or
the plural, depending on the reference:
"Acceptable L/C" shall mean an irrevocable letter of credit which (i) is
in form and on terms reasonably acceptable to the Lender, (ii) is payable in
Dollars at an office of the issuing or confirming bank in New York City (or
another city acceptable to the Lender in its sole discretion), (iii) is issued
or confirmed by (a) the Lender; (b) any commercial bank that has (or which is
the principal operating subsidiary of a holding company which has) as of the
time such letter of credit is issued, public debt outstanding with a rating of
at least "A" (or the equivalent of an "A") from one of the nationally recognized
debt rating agencies; or (c) by any other bank which the Lender may in its sole
discretion determine to be of acceptable credit quality and (iv) with respect to
letters of credit delivered in connection with an uncompleted item of Product
for which a Completion Guarantee is required pursuant to the terms hereof, has
an expiration date no earlier than three (3) months after the "Outside Delivery
Date" for an item of Product (as set forth in the Completion Guarantee for such
item of Product) to which the letter of credit relates.
"Affiliate" shall mean any Person which, directly or indirectly, is in
control of, is controlled by or is under common control with, another Person.
For purposes of this definition, a Person shall be deemed to be "controlled by"
another Person if such latter Person possesses, directly or indirectly, power
either to (i) vote 20% or more of the securities having ordinary voting power
for election of directors of such Person or (ii) direct or cause the direction
of the management and policies of such controlled Person whether by contract or
otherwise.
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such
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<PAGE> 9
day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal
Funds Effective Rate in effect for such day plus 1/2 of 1%. For purposes hereof,
"Prime Rate" shall mean the rate of interest per annum publicly announced from
time to time by the Lender as its prime rate in effect at its principal office
in New York City. "Base CD Rate" shall mean the sum of (a) the product of (i)
the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate. "Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under current practices of
the Board, be published in Federal Reserve Statistical Release H.15(519) during
the week following such day), or, if such rate shall not be so reported on such
day or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Lender from three New York City negotiable certificate of
deposit dealers of recognized standing selected by it. "Statutory Reserves"
shall mean a fraction (expressed as a decimal), the numerator of which is the
number one and the denominator of which is the number one minus the aggregate of
the maximum reserve percentages (including any marginal, special, emergency or
supplemental reserves) expressed as a decimal established by the Board and any
other banking authority to which the Lender is subject for new negotiable
nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage. "Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the Lender from
three Federal funds brokers of recognized standing selected by it. If for any
reason the Lender shall have determined (which determination shall be conclusive
absent manifest error) that it is unable to ascertain the Base CD Rate or the
Federal Funds Effective Rate or both for any reason, including the inability or
failure of the Lender to obtain sufficient quotations in accordance with the
terms hereof, the Alternate Base Rate shall be determined without regard to
clause (b) or (c), or both, of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime Rate,
the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be
effective on the effective date of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively.
"Alternate Base Rate Loan" shall mean a Loan based on the Alternate Base
Rate in accordance with the provisions of Article 2 hereof.
"Applicable Law" shall mean all provisions of statutes, rules,
regulations and orders of the United States or foreign governmental bodies or
regulatory agencies applicable to the Person
3
<PAGE> 10
in question, and all orders and decrees of all U.S. federal or state courts and
arbitrators in proceedings or actions in which the Person in question is a
party.
"Applicable Margin" shall mean in the case of Alternate Base Rate Loans,
2% per annum, or in the case of Eurodollar Loans, 3% per annum.
"Approved Completion Guarantor" shall mean a financially sound and
reputable completion guarantor approved by the Lender. The Lender hereby
pre-approves as a completion guarantor (i) Fireman's Fund Insurance Company,
acting through its agent, International Film Guarantors L.P. (the general
partner of which is International Film Guarantors, Inc.), (ii) Cinema
Completions International Inc./Continental Casualty Company, (iii) The Motion
Picture Bond Company Inc. (to the extent a completion guarantee is accompanied
by a London Guarantee Insurance Company "cut-through") and (iv) Film Finances,
Inc. and its Affiliates that are insured under the same Lloyds of London
insurance policies as Film Finances, Inc. (only for items of Product with a
Budgeted Negative Cost of $7,500,000 or less and only to the extent the
completion guarantee is accompanied by a Lloyd's of London "cut-through");
provided, however, that any such pre-approval may be revoked by the Lender if
deemed appropriate in its sole discretion at any time upon 5 days prior written
notice to the Borrower; but further, provided, that such pre-approval may not be
revoked with regard to an item of Product if a Completion Guarantee has already
been issued for such item of Product.
"Assessment Rate" shall mean, for any day, the net annual assessment
rate (rounded upwards, if necessary, to the next higher 1/100 of 1%) as most
recently estimated by the Lender for determining the then current annual
assessment payable by the Lender to the Federal Deposit Insurance Corporation
(or any successor) for insurance by such Corporation (or such successor) of time
deposits made in Dollars at the Lender's domestic offices.
"Authorized Officer" shall mean, with respect to any Credit Party, such
Credit Party's Chief Executive Officer or Chief Financial Officer.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, as
heretofore and hereafter amended, as codified at 11 U.S.C. Section 101 et seq.
"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States of America.
"Borrowing" shall mean a group of Loans of a single interest rate type
and as to which a single Interest Period is in effect on a single day.
"Borrowing Base" shall mean, at any date for which the amount thereof is
to be determined, an amount equal to the aggregate (without double counting) of
the following:
(i) one hundred percent (100%) of Eligible L/C Receivables; plus
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<PAGE> 11
(ii) eighty-five percent (85%) of Eligible Receivables; plus
(iii) thirty-five percent (35%) of Eligible Library Amount; plus
(iv) thirty percent (30%) of the book value of physical audio
cassettes and printed books; minus
(v) to the extent not already deducted in computing the Borrowing
Base, all amounts payable to third parties from or with regard
to the amounts otherwise included in the Borrowing Base (not to
exceed with respect to any item of Product, the amount included
in the Borrowing Base attributable to such item of Product),
including without limitation remaining acquisition payments, set
offs, current profit participations, deferments, residuals,
commissions and royalties not yet paid; minus
(vi) to the extent not otherwise deducted in computing the Borrowing
Base, the aggregate amount of all accrued but unpaid residuals
(not to exceed with respect to any item of Product, the amount
included in the Borrowing Base attributable to such item of
Product) owed to any trade guild, to the extent that the
obligation of any Credit Party to pay such residuals is secured
by a security interest in any Eligible Receivable included in
the Borrowing Base, which security interest is not subordinated
to the security interests of the Lender;
provided, however, that credit in the Borrowing Base attributable to any
Eligible Receivable may not exceed 20% of the total Borrowing Base, except as
may be approved in writing by the Lender.
"Borrowing Base Certificate" shall have the meaning given such term in
Section 5.1(e) hereof.
"Borrowing Certificate" shall mean a borrowing certificate,
substantially in the form of Exhibit H hereto, to be delivered by the Borrower
to the Lender in connection with each Borrowing.
"Budgeted Negative Cost" shall mean, with respect to any item of
Product, the amount of the cash budget (stated in Dollars) for such item of
Product including all costs customarily included in connection with the
acquisition of all underlying literary and musical rights with respect to such
item of Product and in connection with the preparation, production and
completion of such item of Product, including costs of materials, equipment,
physical properties, personnel and services utilized in connection with such
item of Product, both "above-the-line" and "below-the-line", any Completion
Guarantee fee (if applicable), and all other items customarily included in
negative costs, including finance charges and interest expense, but excluding
production fees and overhead charges payable to a Credit Party.
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<PAGE> 12
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which banks are required or permitted to close in the States of
California and New York; provided, however, that when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in Dollar deposits on the London Interbank
Market.
"Capital Expenditures" shall mean, with respect to any Person for any
period, the sum of (i) the aggregate of all expenditures (whether paid in cash
or accrued as a liability) by such Person during that period which, in
accordance with GAAP, are or should be included in "additions to property, plant
or equipment" or similar items included in cash flows (including Capital Leases)
and (ii) to the extent not covered by clause (i) hereof, the aggregate of all
expenditures properly capitalized in accordance with GAAP by such Person to
acquire, by purchase or otherwise, in whole or in part, the business, property
or fixed assets of, or stock or other evidence of beneficial ownership of any
other Person (other than the portion of such expenditures allocable in
accordance with GAAP to net current assets).
"Capital Lease" shall mean any lease of any property (whether real,
personal or mixed) by that Person as lessee which, in accordance with GAAP, is
or should be accounted for as a capital lease on the balance sheet of that
Person.
"Cash Equivalents" shall mean (i) marketable securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than twelve months from the date of acquisition, (ii) time deposits,
certificates of deposit, acceptances or prime commercial paper or repurchase
obligations for underlying securities of the types described in clause (i)
entered into with the Lender or any commercial bank having a short-term deposit
rating of at least A-2 or the equivalent thereof by Standard & Poor's
Corporation or at least P-2 or the equivalent thereof by Moody's Investors
Service, Inc. or (iii) commercial paper with a rating of A-1 or A-2 or the
equivalent thereof by Standard & Poor's Corporation or P-1 or P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within twelve months after the date of acquisition.
"Change in Control" shall mean either (i) any Person or group (such term
being used as defined in Section 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended) acquires ownership or control of voting stock of the
Borrower having voting power greater than the voting power at the time
controlled by MEI or (ii) if at any time, individuals who at the Closing Date
constituted the Board of Directors of the Borrower (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Borrower was approved by a vote of the
majority of the directors then still in office who were either directors at the
Closing Date or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Borrower.
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<PAGE> 13
"Change in Management" shall mean that either Ronald Lightstone or Neil
Topham shall cease to perform executive functions for the Borrower; provided
that a Change in Management shall not be deemed to have occurred if such Person
has been replaced by a Person reasonably acceptable to the Lender within 180
days of such discontinuance.
"Closing Date" shall mean the earliest date on which all conditions
precedent to the making of the initial Loans as set forth in Section 4.1 have
been satisfied or waived. The closing shall take place in New York, New York.
"Code" shall mean the Internal Revenue Code of 1986 and the rules and
regulations issued thereunder, as heretofore amended, as codified at 26 U.S.C.
Section 1 et seq or any successor provision thereto.
"Collateral" shall mean with respect to each Credit Party, all of such
Credit Party's right, title and interest in personal property, tangible and
intangible, wherever located or situated and whether now owned or hereafter
acquired or created, including but not limited to goods, accounts, intercompany
obligations, partnership and joint venture interests, contract rights,
documents, chattel paper, general intangibles, goodwill, equipment, inventory,
investment property, instruments, copyrights, trademarks, trade names, insurance
proceeds, cash and deposit accounts and any proceeds thereon, products thereof
or income therefrom, further including but not limited to all of such Credit
Party's right, title and interest in and to each and every item and type of
Product and Recorded Product, the scenario, screenplay or script upon which an
item of Product is based, all of the properties thereof, tangible and
intangible, and all domestic and foreign copyrights and all other rights therein
and thereto, of every kind and character, whether now in existence or hereafter
to be made or produced, and whether or not in possession of such Credit Party,
including with respect to each and every item of Product and/or Recorded Product
and without limiting the foregoing language, each and all of the following
particular rights and properties (to the extent they are owned or hereafter
created or acquired by such Credit Party):
(i) all scenarios, screenplays and/or scripts at every stage
thereof;
(ii) all common law and/or statutory copyright and other rights in
all literary and other properties (hereinafter called "said
literary properties") which form the basis of each item of
Product and/or Recorded Product and/or which are and/or will be
incorporated into each item of Product and/or Recorded Product,
all component parts of each item of Product and/or Recorded
Product consisting of said literary properties, all rights in
and to the story, all treatments of said story and said literary
properties, together with all preliminary and final screenplays
used and to be used in connection with the item of Product
and/or Recorded Product, and all other literary material upon
which the item of Product and/or Recorded Product is based or
from which it is adapted;
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<PAGE> 14
(iii) all rights in and to all music and musical compositions used and
to be used in each item of Product and/or Recorded Product,
including, each without limitation, all rights to record,
rerecord, produce, reproduce or synchronize all of said music
and musical compositions in and in connection therewith;
(iv) all tangible personal property relating to each item of Product
and/or Recorded Product, including, without limitation, all
exposed film, developed film, positives, negatives, prints,
positive prints, answer prints, special effects, preparing
materials (including interpositives, duplicate negatives,
internegatives, color reversals, intermediates, lavenders, fine
grain master prints and matrices, and all other forms of
pre-print elements), sound tracks, cutouts, trims and any and
all other physical properties of every kind and nature relating
to such item of Product and/or Recorded Product, whether in
completed form or in some state of completion, and all masters,
duplicates, drafts, versions, variations and copies of each
thereof, in all formats whether on film, videotape, disk or
otherwise and all music sheets and promotional materials
relating to such item of Product and/or Recorded Product
(collectively, the "Physical Materials");
(v) all collateral, allied, subsidiary and merchandising rights
appurtenant or related to each item of Product and/or Recorded
Product including, without limitation, the following rights: all
rights to produce remakes or sequels or prequels to each item of
Product and/or Recorded Product based upon each item of Product
and/or Recorded Product, said literary properties or the theme
of each item of Product and/or Recorded Product and/or the text
or any part of said literary properties; all rights throughout
the world to broadcast, transmit and/or reproduce by means of
television (including commercially sponsored, sustaining and
subscription or "pay" television) or by any process analogous
thereto, now known or hereafter devised, each item of Product
and/or Recorded Product or any remake or sequel or prequel to
the item of Product and/or Recorded Product; all rights to
produce primarily for television or similar use a motion picture
or series of motion pictures, by use of film or any other
recording device or medium now known or hereafter devised, based
upon each item of Product and/or Recorded Product, said literary
properties or any part thereof, including, without limitation,
based upon any script, scenario or the like used in each item of
Product and/or Recorded Product; all merchandising rights
including, without limitation, all rights to use, exploit and
license others to use and exploit any and all commercial tie-
ups of any kind arising out of or connected with said literary
properties, each item of Product and/or Recorded Product, the
title or titles of each item of Product and/or Recorded Product,
the characters of each item of
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<PAGE> 15
Product and/or Recorded Product or said literary properties
and/or the names or characteristics of said characters and
including further, without limitation, any and all commercial
exploitation in connection with or related to each item of
Product and/or Recorded Product, any remake or sequel thereof
and/or said literary properties;
(vi) all statutory copyrights, domestic and foreign, obtained or to
be obtained on each item of Product and/or Recorded Product,
together with any and all copyrights obtained or to be obtained
in connection with each item of Product and/or Recorded Product
or any underlying or component elements of each item of Product
and/or Recorded Product, including, in each case without
limitation, all copyrights on the property described in
subparagraphs (i) through (v) inclusive, of this paragraph,
together with the right to copyright (and all rights to renew or
extend such copyrights) and the right to sue in the name of any
of the Credit Parties for past, present and future infringements
of copyright;
(vii) all insurance policies and completion bonds connected with each
item of Product and/or Recorded Product and all proceeds which
may be derived therefrom;
(viii) all rights to distribute, sell, rent, license the exhibition of
and otherwise exploit and turn to account each item of Product
and/or Recorded Product, the Physical Materials and rights in
and to said story, other literary material upon which each item
of Product and/or Recorded Product is based or from which it is
adapted, and said music and musical compositions used or to be
used in each item of Product and/or Recorded Product;
(ix) any and all sums, proceeds, money, products, profits or
increases, including money profits or increases (as those terms
are used in the UCC or otherwise) or other property obtained or
to be obtained from the distribution, exhibition, sale or other
uses or dispositions of each item of Product and/or Recorded
Product or any part of each item of Product and/or Recorded
Product, including, without limitation, all proceeds, profits,
products and increases, whether in money or otherwise, from the
sale, rental or licensing of each item of Product and/or
Recorded Product and/or any of the elements of each item of
Product and/or Recorded Product including from collateral,
allied, subsidiary and merchandising rights;
(x) the dramatic, nondramatic, stage, television, radio and
publishing rights, title and interest in and to each item of
Product and/or Recorded Product, and the right to obtain
copyrights and renewals of copyrights therein;
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<PAGE> 16
(xi) the name or title of each item of Product and/or Recorded
Product and all rights of such Credit Party to the use thereof,
including, without limitation, rights protected pursuant to
trademark, service mark, unfair competition and/or the rules and
principles of law and of any other applicable statutory, common
law, or other applicable statutes, common law, or other rule or
principle of law;
(xii) any and all contract rights and/or chattel paper which may arise
in connection with each item of Product and/or Recorded Product;
(xiii) all accounts and/or other rights to payment which such Credit
Party presently owns or which may arise in favor of such Credit
Party in the future, including, without limitation, any refund
under a completion guaranty, all accounts and/or rights to
payment due from exhibitors in connection with the distribution
of each item of Product and/or Recorded Product, and from
exploitation of any and all of the collateral, allied,
subsidiary, merchandising and other rights in connection with
each item of Product and/or Recorded Product;
(xiv) any and all "general intangibles" (as that term is defined in
the UCC) not elsewhere included in this definition, including,
without limitation, any and all general intangibles consisting
of any right to payment which may arise in the distribution or
exploitation of any of the rights set out herein, and any and
all general intangible rights in favor of such Credit Party for
services or other performances by any third parties, including
actors, writers, directors, individual producers and/or any and
all other performing or nonperforming artists in any way
connected with each item of Product and/or Recorded Product, any
and all general intangible rights in favor of such Credit Party
relating to licenses of sound or other equipment, licenses for
any photograph or photographic process, and all general
intangibles related to the distribution or exploitation of each
item of Product and/or Recorded Product including general
intangibles related to or which grow out of the exhibition of
each item of Product and/or Recorded Product and the
exploitation of any and all other rights in each item of Product
and/or Recorded Product set out in this definition;
(xv) any and all goods including inventory (as that term is defined
in the UCC) which may arise in connection with the creation,
production or delivery of each item of Product and/or Recorded
Product and which goods pursuant to any production or
distribution agreement or otherwise are owned by such Credit
Party;
(xvi) all and each of the rights, regardless of denomination, which
arise in connection with the creation, production, completion of
production,
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delivery, distribution, or other exploitation of each item of
Product and/or Recorded Product, including, without limitation,
any and all rights in favor of such Credit Party, the ownership
or control of which are or may become necessary or desirable, in
the opinion of the Lender, in order to complete production of
each item of Product and/or Recorded Product in the event that
the Lender exercises any rights it may have to take over and
complete production of each item of Product and/or Recorded
Product;
(xvii) any and all documents issued by any pledgeholder or bailee with
respect to the item of Product and/or Recorded Product or any
Physical Materials (whether or not in completed form) with
respect thereto;
(xviii) any and all production accounts or other bank accounts
established by such Credit Party with respect to such item of
Product and/or Recorded Product;
(xix) any and all rights of such Credit Party under contracts relating
to the production or acquisition of such item of Product and/or
Recorded Product; and
(xx) any and all rights of such Credit Party under Distribution
Agreements relating to each item of Product and/or Recorded
Product;
provided, that, notwithstanding anything to the contrary contained above,
"Collateral" shall not include the "Real Property" described in the Deed of
Trust dated April 24, 1996 among the Borrower, Asahi Bank of California and
North American Title Company, as trustee, and the "Rents" described in the
Assignment of Rents dated April 24, 1996 between the Borrower and Asahi Bank of
California.
"Collection Account" shall have the meaning of given such term in
Section 8.3 hereof.
"Commitment" shall mean the commitment of the Lender to make Loans to
the Borrower and issue Letters of Credit from the Closing Date through the
Commitment Termination Date up to an aggregate principal amount, at any one
time, not in excess of $8,000,000, as such amount may be reduced from time to
time in accordance with the terms of this Credit Agreement.
"Commitment Fee" shall have the meaning given such term in Section 2.5
hereof.
"Commitment Termination Date" shall mean the earlier to occur of (i)
November 4, 2000 or (ii) such earlier date on which the Commitments shall
terminate in accordance with Section 2.6 or Article 7 hereof.
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<PAGE> 18
"Completed" and "Completion" shall mean with respect to any item of
Product that (A) either (i) sufficient elements have been delivered by the
Borrower to, and accepted by, a Person (other than the Borrower or Affiliate
thereof) to permit such Person to exhibit the item of Product in the medium for
which the item of Product is intended for initial exploitation in the United
States or (ii) the Borrower has certified to the Lender that an independent
laboratory has in its possession a complete final 35 mm or 70 mm (or other size
which has become standard in the industry) composite positive print, video
master or other equivalent master copy of the item of Product as finally cut,
main and end titled, edited, scored and assembled with sound track printed
thereon in perfect synchronization with the photographic action and fit and
ready for exhibition and distribution in the medium for which the item of
Product is intended for initial exploitation, provided that if such
certification shall not be verified to the Lender by such independent laboratory
within 20 business days thereafter, such item of Product shall revert to being
uncompleted until the Lender receives such verification, and (B) if such item of
Product was acquired from a third party, the entire acquisition price or minimum
advance shall have been paid to the extent then due and there is no condition or
event (other than the payment of money not yet due) the occurrence of which
might result in the Borrower losing any of its rights in such item of Product.
"Completion Guarantee" shall mean a completion guarantee, in the
customary form accepted by the Lender or otherwise in form and substance
satisfactory to the Lender, issued by an Approved Completion Guarantor which
names the Lender as a beneficiary thereof to the extent of the applicable Credit
Party's financial interest in an item of Product.
"Consolidated Capital Base" shall mean the sum of the principal amount
of Subordinated Debt outstanding (net of unamortized debt discount) plus the
amount of Shareholders' Equity of the Borrower and its Consolidated
Subsidiaries, all determined in accordance with GAAP.
"Consolidated Net Income" shall mean, for any period for which such
amount is being determined, the net income (or loss) of the Borrower and its
Consolidated Subsidiaries during such period, determined on a consolidated basis
for such period taken as a single accounting period in accordance with GAAP,
provided that there shall be excluded (i) income (or loss) of any Person (other
than a Consolidated Subsidiary) in which the Borrower or any of its Consolidated
Subsidiaries has an equity investment or comparable interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Borrower or any of its Consolidated Subsidiaries by such Person during such
period, (ii) the income (or loss) of any Person accrued prior to the date it
becomes a Consolidated Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or any of its Consolidated Subsidiaries or the
Person's assets are acquired by the Borrower or any of its Consolidated
Subsidiaries and (iii) the income of any Consolidated Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by that
Consolidated Subsidiary of its income is not at the time permitted by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Consolidated
Subsidiary.
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<PAGE> 19
"Consolidated Subsidiaries" shall mean all Subsidiaries of a Person
which are required or permitted to be Consolidated with such Person for
financial reporting purposes in accordance with GAAP.
"Contribution Agreement" shall mean a Contribution Agreement executed by
the Credit Parties substantially in the form of Exhibit J hereto, as the same
may be amended, supplemented or otherwise modified from time to time.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with any Credit Party, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code.
"Copyright Security Agreement" shall mean the Copyright Security
Agreement, substantially in the form of Exhibit E-1 hereto as the same may be
amended or supplemented from time to time by delivery of a Copyright Security
Agreement Supplement or otherwise.
"Copyright Security Agreement Supplement" shall mean a Supplement to the
Copyright Security Agreement substantially in the form of Exhibit E-2 hereto.
"Corporate Guarantors" shall mean all of the direct and indirect
Subsidiaries of the Borrower, now existing or hereafter acquired or created.
"Credit Party" shall mean the Borrower or any of the Corporate
Guarantors.
"Currency Agreement" shall mean any foreign exchange contract, currency
swap agreement, futures contract, option contract or other similar agreement
designed to protect any Credit Party against fluctuations in currency values.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Distribution Agreements" shall mean (i) any and all agreements entered
into by a Credit Party pursuant to which such Credit Party has sold, leased,
licensed or assigned distribution rights or other exploitation rights to any
item of Product to an un-Affiliated Person and (ii) any agreement hereafter
entered into by a Credit Party pursuant to which such Credit Party sells,
leases, licenses or assigns distribution rights to an item of Product to an
un-Affiliated Person.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBIT" shall mean, for any period, for the Borrower and its Subsidiaries
on a Consolidated basis, the sum for such period of (i) Consolidated Net Income,
(ii) Total Interest,
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<PAGE> 20
and (iii) provision for income taxes during such period, all as determined for
such period in conformity with GAAP.
"Eligible L/C Receivable" shall have the same definition as an Eligible
Receivable except that an Acceptable L/C shall have been delivered to the Lender
for the full amount of the receivable.
"Eligible Library Amount" shall initially be equal to $10,000,000 and
shall be redetermined on a bi-annual basis by Richard L. Medress or an
independent consultant selected by the Lender in its reasonable discretion
exercised in good faith using methodology consistent with the initial valuation
without double counting for items of Product that are receiving the credit in
the Borrowing Base; provided, however, that there will be interim reductions to
the Eligible Library Amount to reflect decreases, if any, in the remaining value
of unsold library rights resulting from major library deals (e.g., any single
agreement or series of related agreements pertaining to the licensing,
distribution or sale of library product providing for aggregate payments
(including reasonably estimated contingent payments) to a Credit Party in excess
of $250,000) during such interim period.
"Eligible Receivables" shall mean, at any date at which the amount
thereof is to be determined, an amount equal to the sum of the present values
(discounted, in the case of amounts which are not due and payable within 12
months following the date of determination, on a quarterly basis by a rate of
interest equal to the interest rate in effect on the Note on the date of
computation) of (a) all net amounts which pursuant to a binding agreement are
contractually obligated to be paid to any Credit Party either unconditionally or
subject only to normal delivery requirements, and which are reasonably expected
by the Borrower to be payable and collected from obligors (including, without
limitation, amounts which a distributor has reported to a Credit Party in
writing (and such report has been forwarded to the Lender) will be paid to such
Credit Party following receipt by the distributor of sums contractually required
to be paid to the distributor from third parties) minus (b) the sum, without
double counting and computed on a receivable by receivable basis and never in
excess of the amount of the corresponding receivable, of (i) in the case of
audio and book receivables, a reserve in respect of estimated returns for items
of Product sold on a returnable basis, allowances and doubtful payments of
accounts for each such receivable, in an amount which shall not be less than 30%
of the amount of the corresponding receivable, (ii) the following items (based
on the Borrower's then best estimates): third party profit participations,
residuals, collection/ distribution expenses, commissions, video fulfillment
costs, foreign withholding, remittance and similar taxes chargeable in respect
of such accounts receivable, and any other projected expenses of such Credit
Party arising in connection with such amounts and (iii) the outstanding amount
of unrecouped advances made by a distributor to the extent subject to repayment
by a Credit Party or adjustment pursuant to approved Distribution Agreements,
but Eligible Receivables shall not include amounts:
(i) which in the reasonable discretion of the Lender (acting in good
faith) are subject to material conditions precedent to payment
(including a material performance obligation or a material
executory aspect on the part of the
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<PAGE> 21
Credit Parties or any other party or obligations contingent upon
future events not within a Credit Party's direct control within
the ordinary course of business);
(ii) to the extent such receivables are more than 90 days past due;
(iii) in excess of $50,000 that are to be paid in a currency other
than Dollars unless hedged in a manner satisfactory to the
Lender;
(iv) to the extent included in the Borrower's estimated bad debts;
(v) due from any obligor which has 20% or more of the total
receivable amount from such obligor 120 or more days past due
(exclusive of amounts that are being disputed or contested in
good faith);
(vi) for which there is a bona fide request for a material credit,
adjustment, compromise, offset, counterclaim or dispute;
provided, however, that only the amount in question shall be
excluded from such receivable;
(vii) which are attributable to an item of Product in which a Credit
Party cannot warrant sufficient title to the underlying rights
to justify such receivable;
(viii) in which the Lender does not have a first perfected security
interest under the UCC and applicable copyright law; provided
that, such receivable may be subject to permitted liens
subordinate to the security interest of the Lender;
(ix) which are determined by the Lender in its reasonable discretion,
acting in good faith, upon written notice from the Lender to the
Borrower and effective 10 days subsequent to the Borrower's
receipt of such notice, to be unacceptable (it being understood
that certain unacceptable receivables may be made acceptable and
may be included in the Borrowing Base if secured by an
Acceptable L/C);
(x) which relate to items of Product as to which the Lender has not
received a fully executed Laboratory Access Letter or
Pledgeholder Agreement for each laboratory holding Physical
Materials sufficient to fully exploit the rights held by the
Borrower in such item of Product;
(xi) which will be subject to reduction or repayment to the extent
not earned by performance;
(xii) which are attributable to items of Product as described in
Section 5.21 unless the Borrower is in compliance with Section
5.21;
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<PAGE> 22
(xiii) which are attributable to items of Product which have not been
Completed (except that (1) if a Letter of Credit is issued in
order to support the Borrower's minimum payment obligation to
acquire distribution rights in such item of Product, amounts
attributable to such rights may be treated as Eligible
Receivables (even though the item of Product has not yet been
Completed), provided that (A) proof of Completion of such item
of Product must be presented in order to draw under the Letter
of Credit, (B) the portion of the Borrowing Base attributable to
such Eligible Receivables for such item of Product does not
exceed the amount of such Letter of Credit for such item of
Product, and (C) such amounts otherwise meet all of the
applicable criteria for inclusion as Eligible Receivables except
clause (x); or (2) if a Completion Guarantee has been issued for
such item of Product or the Borrower is otherwise in compliance
with Section 5.21, amounts attributable to such item of Product
may be treated as Eligible Receivables (even though the item of
Product has not yet been Completed), provided that (A) the
portion of the Borrowing Base attributable to such Eligible
Receivables for such item of Product shall not exceed the
amounts which would be paid to the Borrower or a Corporate
Guarantor under such Completion Guarantee if such item of
Product were abandoned as of the date of computation of the
Borrowing Base and (B) such amounts otherwise meet all of the
applicable criteria for inclusion as Eligible Receivables except
clause (x); or
(xiv) which will not become due and payable until one year or more
after the scheduled final maturity of the Credit Agreement.
The Lender from time to time by written notice to the Borrower (which
notice shall be prospective only, i.e., to the extent that giving effect to such
notice would otherwise result in a mandatory prepayment by the Borrower under
Section 2.9, such notice shall not be given effect for purposes of such
mandatory prepayment, but shall nevertheless be effective for all other purposes
under this Credit Agreement immediately upon the Borrower's receipt of such
notice) may determine that any amounts due under any Distribution Agreement are
unacceptable and shall no longer constitute an Eligible Receivable as it may,
acting in good faith, in its discretion deem appropriate.
"Environmental Laws" shall mean any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Material or
environmental protection or health and safety, as now or may at any time
hereafter be in effect, including without limitation, the Clean Water Act also
known as the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. Section
1251 et seq., the Clean Air Act ("CAA"), 42 U.S.C. Sections 7401 et seq., the
Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7 U.S.C. Sections
136 et seq., the Surface Mining Control and Reclamation Act ("SMCRA"), 30 U.S.C.
Sections 1201 et seq., the Comprehensive Environmental
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Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et
seq., the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), Public
Law 99-499, 100 Stat. 1613, the Emergency Planning and Community Right to Know
Act ("ECPCRKA"), 42 U.S.C. Section 11001 et seq., the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq., the Occupational Safety
and Health Act as amended ("OSHA"), 29 U.S.C. Section 655 and Section 657,
together, in each case, with any amendment thereto, and the regulations adopted
pursuant thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as heretofore and hereafter amended, as codified at 29 U.S.C. Section 1001 et
seq. and the regulations promulgated thereunder.
"Eurodollar Loan" shall mean a Loan based on the LIBO Rate in accordance
with the provisions of Article 2 hereof.
"Event of Default" shall have the meaning given such term in Article 7
hereof.
"Fundamental Documents" shall mean this Credit Agreement, the Note, the
Guaranty Agreement, the Pledgeholder Agreements, the Laboratory Access Letters,
the Copyright Security Agreement, the Copyright Security Agreement Supplements,
the Instruments of Assumption and Joinder, the Notices of Assignment and
Irrevocable Instruction, UCC financing statements, and any other ancillary
documentation which is required to be or is otherwise executed by any of the
Credit Parties and delivered to the Lender in connection with this Credit
Agreement or any other Fundamental Document.
"GAAP" shall mean generally accepted accounting principles in the United
States of America consistently applied (except for accounting changes in
response to FASB releases, or other authoritative pronouncements).
"Governmental Authority" shall mean any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States or a
foreign jurisdiction.
"Guaranty" shall mean, as to any Person, any direct or indirect
obligation of such Person guaranteeing or intended to guaranty any Indebtedness,
Capital Lease, dividend or other monetary obligation ("primary obligation") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (a) for the purchase or payment of any such primary obligation or
(b) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, or (iii)
to purchase property, securities or services, in each case, primarily for the
purpose of assuring the performance of the obligor of any such primary
obligation; provided, however, that the term Guaranty shall not include
endorsements for collection or collections for deposit, in either case in the
ordinary course of business. The amount of any Guaranty shall be deemed to
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<PAGE> 24
be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder).
"Guaranty Agreement" shall mean, collectively, the Individual Guaranty
Agreements dated the date hereof, each between an Individual Guarantor and the
Lender substantially in the form of Exhibits K-1 through K-5 hereto, as the same
may be amended, supplemented or otherwise modified from time to time.
"Hazardous Materials" shall mean any flammable materials, explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, or similar materials defined in any Environmental Law.
"Indebtedness" shall mean (without double counting), at any time and
with respect to any Person, (i) indebtedness of such Person for borrowed money
(whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables (payable within 90 days) arising in the ordinary
course of business); (ii) obligations of such Person in respect of letters of
credit, acceptance facilities, or drafts or similar instruments issued or
accepted by banks and other financial institutions for the account of such
Person; (iii) obligations of such Person under Capital Leases; (iv) deferred
payment obligations of such Person resulting from the adjudication or settlement
of any claim or litigation and (v) Indebtedness of others of the type described
in clauses (i), (ii), (iii) and (iv) hereof which such Person has (a) directly
or indirectly assumed or guaranteed in connection with a Guaranty or (b) secured
by a Lien on the assets of such Person, whether or not such Person has assumed
such indebtedness. Indebtedness shall not include non-refundable advances made
by a third-party distributor to "cash-flow" the production of an item of
Product.
"Individual Guarantors" shall be as defined in the Introductory
Statement hereof.
"Instruments of Assumption and Joinder" shall mean the Instruments of
Assumption and Joinder substantially in the form of Exhibit I pursuant to which
Subsidiaries of the Borrower become parties to this Credit Agreement as
contemplated by Section 6.22.
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan having
an Interest Period of one, two or three months, the last day of such Interest
Period, (ii) as to any Eurodollar Loan having an Interest Period of more than
three months, the last day of such Interest Period and, in addition, each date
during such Interest Period that would be the last day of an Interest Period
commencing on the same day as the first day of such Interest Period but having a
duration of three months or any integral multiple thereof and (iii) with respect
to Alternate Base Rate Loans, the last Business Day of each March, June,
September and December (commencing the last Business Day of December 1997).
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"Interest Period" shall mean as to any Eurodollar Loan, the period
commencing on the date such Loan is made, continued or converted or the last day
of the preceding Interest Period and ending on the numerically corresponding day
(or if there is no corresponding day, the last day) in the calendar month that
is one, two, three or six months thereafter as the Borrower may elect; provided,
however, that (i) if any Interest Period would end on a day which shall not be a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day, unless such next succeeding Business Day would fall in the next
calendar month, in which case, such Interest Period shall end on the next
preceding Business Day and (ii) no Interest Period may be selected which would
end later than the Commitment Termination Date.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, synthetic caps, collars and floors or
other financial agreement or arrangement designed to protect any Credit Party
against fluctuations in interest rates.
"Investment" shall mean any stock, evidence of indebtedness or other
securities of any Person, any loan, advance, contribution of capital, extension
of credit or commitment therefor, including without limitation the guarantee of
loans made to others (except for current trade and customer accounts receivable
for goods or services provided or rendered in the ordinary course of business
and payable in accordance with customary trading terms in the ordinary course of
business), and any purchase of (i) any securities of another Person or (ii) any
business or undertaking of any Person or any commitment or option to make any
such purchase.
"L/C Exposure" shall mean, at any time, the amount expressed in Dollars
of the aggregate face amount of all drafts which may then or thereafter be
presented by beneficiaries under all Letters of Credit then outstanding plus
(without duplication) the face amount of all drafts which have been presented or
accepted under all Letters of Credit but have not yet been paid or have been
paid but not reimbursed.
"Laboratory" shall mean any laboratory reasonably acceptable to the
Lender which is located in the United States and is a party to a Pledgeholder
Agreement or a Laboratory Access Letter.
"Laboratory Access Letter" shall mean a letter agreement among (i) a
Laboratory holding any elements of any item of Product to which a Credit Party
has the right of access, (ii) such Credit Party and (iii) the Lender,
substantially in the form of Exhibit F hereto or a form otherwise acceptable to
the Lender.
"Lender" shall be as defined in the Introductory Statement hereof.
"Lending Office" shall mean, with respect to the Lender, the branch or
branches (or affiliate or affiliates) from which the Lender's Eurodollar Loans
or Alternate Base Rate Loans, as the case may be, are made or maintained and for
the account of which all payments of
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principal of, and interest on, the Lender's Eurodollar Loans or Alternate Base
Rate Loans are made.
"Letter of Credit" shall mean a letter of credit issued by the Lender
pursuant to Section 2.14.
"LIBO Rate" shall mean, with respect to the Interest Period for a
Eurodollar Loan, an interest rate per annum equal to the quotient (rounded
upwards to the next 1/100 of 1%) of (A) the average of the rates at which Dollar
deposits approximately equal in principal amount to such Eurodollar Loan and for
a maturity equal to the applicable Interest Period are offered to the Lending
Office of the Lender in immediately available funds in the London Interbank
Market for Eurodollars at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period divided by (B) one minus
the applicable statutory reserve requirements of the Lender, expressed as a
decimal (including without duplication or limitation, basic, supplemental,
marginal and emergency reserves), from time to time in effect under Regulation D
or similar regulations of the Board. It is agreed that for purposes of this
definition, Eurodollar Loans made hereunder shall be deemed to constitute
Eurocurrency Liabilities as defined in Regulation D and to be subject to the
reserve requirements of Regulation D.
"Lien" shall mean any mortgage, copyright mortgage, pledge, security
interest, encumbrance, lien or charge of any kind whatsoever (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction or the agreement to grant a
security interest at a future date).
"Loans" shall mean the loans made hereunder in accordance with the
provisions of Section 2.2, whether made as a Eurodollar Loan or an Alternate
Base Rate Loan, as permitted hereby.
"Margin Stock" shall be as defined in Regulation U of the Board.
"Material Agreement" shall mean any agreement set forth on Schedule 3.17
hereto.
"Maximum Guaranty Amount" shall be as defined in the Introductory
Statement hereof.
"MEI Line of Credit" shall mean the loan made to the Borrower and
certain of the Corporate Guarantors by MEI on September 26, 1997 in the
principal amount of $550,000.
"Multiemployer Plan" shall mean a plan described in Section 4001(a)(3)
of ERISA.
"Notice of Assignment and Irrevocable Instructions" shall mean the
Notice of Assignment and Irrevocable Instructions substantially in the form of
Exhibit G or in such other
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form as shall be acceptable to the Lender, including without limitation the
inclusion of such notice and instructions in a Distribution Agreement.
"Obligations" shall mean the obligation of the Borrower to make due and
punctual payment of principal of and interest on the Loans, the Commitment Fee,
reimbursement obligations in respect of Letters of Credit and all other monetary
obligations of the Borrower owed to the Lender under this Credit Agreement, the
Note, the Commitment Letter or any other Fundamental Document and all amounts
payable by the Borrower to the Lender under any Interest Rate Protection
Agreement or Currency Agreement, provided that the Lender shall have received
written notice within 10 days after execution of each such Interest Rate
Protection Agreement or Currency Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Permitted Encumbrances" shall mean Liens permitted under Section 6.2
hereof.
"Person" shall mean any natural person, corporation, partnership, trust,
joint venture, association, company, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Materials" shall have the meaning given such term in the
definition of "Collateral" herein.
"Plan" shall mean an employee benefit plan within the meaning of Section
3(2) of ERISA, other than a Multiemployer Plan, maintained by the Borrower or
any member of the Controlled Group, or to which the Borrower or any member of
the Controlled Group contributes or is required to contribute or any other plan
covered by Title IV of ERISA that cover any employees of the Borrower or any
member of the Controlled Group.
"Pledged Securities" shall mean 100% of the issued and outstanding
capital stock of each of the Corporate Guarantors.
"Pledgeholder Agreement" shall mean a Laboratory Pledgeholder Agreement
among a Credit Party, the Lender, a third party completion guarantor (if there
is one), and one or more Laboratories, substantially in the form of Exhibit D-1
or Exhibit D-2 hereto, or in such other form as shall be acceptable to the
Lender.
"Pledgors" shall mean those Credit Parties identified as such on
Schedule 3.7(a).
"Product" shall mean any motion picture, film or video tape produced for
television release or for release in any other medium, in each case whether
recorded on film, videotape, cassette, cartridge, disc or on or by any other
means, method, process or device whether now known or hereafter developed, with
respect to which a Credit Party (i) is the initial
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copyright owner or (ii) acquires an equity interest or distribution rights. The
term "item of Product" shall include, without limitation, the scenario,
screenplay or script upon which such Product is based, all of the properties
thereof, tangible and intangible, and whether now in existence or hereafter to
be made or produced, whether or not in possession of the Credit Parties, and all
rights therein and thereto, of every kind and character.
"Production Account(s)" shall mean individually or collectively, as the
context so requires, each demand deposit account(s) established by a Credit
Party at a commercial bank located in the United States or otherwise acceptable
to the Lender, for the sole purpose of paying the production costs of a
particular item of Product and, if a Completion Guaranty is required for such
item of Product pursuant to the terms hereof, as to which the Approved
Completion Guarantor for such item of Product has agreed in writing that amounts
deposited in such account shall be deemed available for production of such item
of Product for purposes of the Completion Guarantee for such item of Product.
"Production Exposure" for an item of Product shall mean the Budgeted
Negative Cost or acquisition price paid or to be paid by a Credit Party (net of
amounts being cash-flowed by a third party unrelated to a Credit Party pursuant
to contractual arrangements reasonably acceptable to the Lender).
"Recorded Product" shall mean any audio embodiment or musical, spoken or
other sound based upon literary or other works regardless of the nature of the
material object, such as discs, tapes or other phonorecords, in which such
sounds are embodied, including without limitation audio books.
"Reportable Event" shall mean any reportable event as defined in Section
4043(c) of ERISA, other than a reportable event as to which provision for 30-day
notice to the PBGC would be waived under applicable regulations had the
regulations in effect on the Closing Date been in effect on the date of
occurrence of such reportable event.
"Restricted Payment" shall mean (i) any distribution, dividend or other
direct or indirect payment on account of shares of any class of stock of,
partnership interest in, or any other equity interest of, a Credit Party, other
than a dividend, distribution or other payment payable solely in shares of
common stock, (ii) any redemption or other acquisition, re-acquisition or
retirement by a Credit Party of any class of its own stock or other equity
interest of a Credit Party or an Affiliate, now or hereafter outstanding, (iii)
any payment made to retire, or obtain the surrender of any outstanding warrants,
puts or options or other rights to purchase or acquire shares of any class of
stock of, or any equity interest in, a Credit Party, now or hereafter
outstanding and (iv) any payment by a Credit Party of principal of, premium, if
any, or interest on, or any redemption, purchase, retirement, defeasance,
sinking fund or similar payment with respect to, any Subordinated Debt now or
hereafter outstanding.
"Sanwa Credit Agreement" shall mean the Term Loan Agreement dated as of
August 16, 1996, between Sanwa Bank California and the Borrower.
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"Shareholders' Equity" shall mean the consolidated capital, surplus and
retained earnings and deficits of the Borrower and its Subsidiaries, subject to
intercompany eliminations and reduced by the outstanding amount of any note held
by the Borrower in payment for capital stock, all as determined in accordance
with GAAP.
"Strike Price" shall mean, with respect to any item of Product, the
amount of funds required to be provided under the relevant Completion Guarantee,
if applicable.
"Subordinated Debt" shall mean all Indebtedness of any of the Credit
Parties that is subordinated to the Obligations pursuant to written agreements,
containing interest rates, payment terms, maturities, amortization schedules,
covenants, defaults, remedies, subordination provisions and other material terms
in form and substance satisfactory to the Lender.
"Subsidiary" shall mean with respect to any Person, any corporation,
association, joint venture, partnership or other business entity (whether now
existing or hereafter organized) of which at least a majority of the Voting
Stock or other ownership interests having ordinary voting power for the election
of directors (or the equivalent) is, at the time as of which any determination
is being made, owned or controlled by such Person or one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person.
"Total Interest" shall mean the sum of (i) all cash interest expenses
(net of interest income) calculated on an accrual basis of the Borrower and its
Consolidated Subsidiaries computed in accordance with GAAP (whether indicated on
the consolidated statement of earnings under the caption "Interest Expense" or
netted out under the amount appearing under the caption "Interest and Investment
Income") plus (ii) any cash interest expense calculated on an accrual basis that
has been capitalized (other than as part of film costs) during the relevant
period.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of New York on the date of execution of this Credit Agreement.
"Voting Stock" shall mean the capital stock of an entity having ordinary
voting power under ordinary circumstances to vote in the election of directors
of such entity.
"Weighted Average Life to Maturity" shall mean, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding principal amount of such Indebtedness into (b) the sum of the
products obtained by (x) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal, including payment
at final maturity, in respect thereof by (y) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
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2. THE LOANS
SECTION 2.1. Loans. (a) The Lender agrees, upon the terms and subject to
the conditions hereof, to make loans to the Borrower, on any Business Day and
from time to time from the Closing Date to but excluding the Commitment
Termination Date, each in an aggregate principal amount which when added to the
aggregate principal amount of all Loans then outstanding to the Borrower from
the Lender plus the then current L/C Exposure, does not exceed the Lender's
Commitment (after giving effect to all Loans repaid and all reimbursements of
Letters of Credit made concurrently with the making of any Loans).
(b) Subject to Section 2.2, the Loans shall be made at such times as
the Borrower shall request.
(c) Subject to the terms and conditions of this Credit Agreement,
the Borrower may borrow, repay and re-borrow amounts constituting the
Commitment.
(d) Notwithstanding anything to the contrary above, the Lender shall
not be obligated to make Loans or to incur any incremental L/C Exposure if, as a
result thereof, the aggregate principal amount of all Loans then outstanding
plus the then current L/C Exposure exceeds the lesser of (x) the sum of (A) the
Maximum Guaranty Amount plus (B) amounts currently held in the Collection
Account plus (C) the Borrowing Base or (y) the Commitment.
SECTION 2.2. Making of Loans. (a) Each Loan shall be an Alternate Base
Rate Loan or a Eurodollar Loan as the Borrower may request subject to and in
accordance with this Section 2.2.
(b) The Borrower shall give the Lender at least three Business Days'
prior written, facsimile or telephonic (promptly confirmed in writing) notice of
each Borrowing which is to consist of Eurodollar Loans, and at least one
Business Day's prior written, facsimile or telephonic (promptly confirmed in
writing) notice of each Borrowing which is to consist of Alternate Base Rate
Loans. Each such notice in order to be effective must be received by the Lender
not later than 2:00 p.m., New York City time, on the day required and shall
specify the date (which shall be a Business Day) on which such Loan is to be
made, the aggregate principal amount of the requested Loan. Each such notice
shall be irrevocable and shall specify whether the Borrowing then being
requested is to consist of Alternate Base Rate Loans or Eurodollar Loans and in
the case of Eurodollar Loans, the Interest Period or Interest Periods with
respect thereto; provided, that in the event the Lender shall have determined
that Eurodollar Loans are not available pursuant to Section 2.7(b), the Borrower
may rescind such Borrowing request by providing the Lender notice thereof no
later than 5:00 p.m. (New York City time) on the day the Borrower received
notice of such unavailability. If no election of an Interest Period is specified
in such notice in the case of a Borrowing consisting of Eurodollar Loans, such
notice shall be deemed to be a request for an Interest Period of one month. If
no election is made as to the type of Loan, such notice shall be deemed a
request for a Borrowing consisting of Alternate Base Rate Loans. No Borrowing
shall consist of Eurodollar Loans if after giving effect thereto an aggregate
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of more than six (6) separate Eurodollar Loans would be outstanding hereunder
(determined in accordance with Section 2.9(c) hereof).
(c) Each Loan requested by the Borrower shall be as specified on the
applicable Borrowing Certificate delivered to the Lender in connection with such
Loan; provided, that with respect to any request for a Loan in excess of the
Borrowing Base (which amount shall be subject to the guaranty obligations of the
Individual Guarantors under the Guaranty Agreement), the Borrower shall obtain
the written approval of MEI in accordance with the terms of the Guaranty
Agreement. The Lender shall disburse such funds by depositing the requested
amounts into an account designated by the Borrower.
(d) The Lender may at its option fulfill its obligation to make
Eurodollar Loans by causing a foreign branch or affiliate to fund such
Eurodollar Loans, provided that any exercise of such option shall not affect the
obligation of the Borrower to repay Loans in accordance with the terms hereof.
Subject to the other provisions of this Section 2.2, Loans of more than one
interest rate type may be outstanding at the same time.
(e) The amount of any Borrowing of new funds shall be in an
aggregate principal amount of $125,000 (or such lesser amount as shall equal the
available but unused portion of the Commitment) or such greater amount which is
an integral multiple of $100,000; provided, however that the amount of any
Borrowing of new funds which shall be a Eurodollar Loan shall be in an aggregate
principal amount of $500,000 or such greater amount which is an integral
multiple of $100,000.
(f) Notwithstanding the provisions of clause (b) above and/or the
absence of a request from the Borrower that the Lender make a Loan, the Lender
may make Loans and apply the proceeds thereof as follows:
(i) if the Approved Completion Guarantor for an item of
Product being produced by the Borrower or for which
receivables are included in the Borrowing Base shall
take over production of such item of Product pursuant to
the Completion Guarantee with respect to such item of
Product, to make Loans up to the Strike Price with
respect to the production of such item of Product and
pay the proceeds thereof directly to the Approved
Completion Guarantor to be used to finance the
production and delivery of such item of Product pursuant
to the terms of the Completion Guarantee; and
(ii) if an Event of Default shall have occurred and be
continuing, to make Loans with respect to any item of
Product being produced by the Borrower or for which
receivables are included in the Borrowing Base and pay
the proceeds thereof directly to Persons providing
services in connection with the production, delivery and
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distribution of such Product so as to ensure Completion
of such item of Product and/or the collection of
Eligible Receivables.
SECTION 2.3. Note. (a) The Loans made by the Lender hereunder shall be
evidenced by a single promissory note substantially in the form of Exhibit A
hereto (the "Note") in the face amount of the Lender's Commitment, payable to
the order of the Lender, duly executed by the Borrower and dated the date
hereof.
(b) The Note shall bear interest on the outstanding principal
balance thereof as set forth in Section 2.4 hereof. The Lender is hereby
authorized by the Borrower, but not obligated, to enter the amount of each Loan
and the amount of each payment or prepayment of principal or interest thereon in
the appropriate spaces on the reverse of or on an attachment to the Note;
provided, however, that the failure of the Lender to set forth such Loans,
principal payments or other information shall not in any manner affect the
obligations of the Borrower to repay such Loans.
SECTION 2.4. Interest on Note. (a) In the case of a Eurodollar Loan,
interest shall be payable at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the LIBO Rate
plus the Applicable Margin. Interest shall be payable on each Eurodollar Loan on
each applicable Interest Payment Date, at maturity and on the date of a
conversion of such Eurodollar Loan to an Alternate Base Rate Loan. The Lender
shall determine the applicable LIBO Rate for each Interest Period as soon as
practicable on the date when such determination is to be made in respect of such
Interest Period and shall notify the Borrower of the applicable interest rate so
determined. Such determination shall be conclusive absent manifest error.
(b) In the case of an Alternate Base Rate Loan, interest shall be
payable at a rate per annum (computed on the basis of the actual number of days
elapsed over a year of 365/366 days, as the case may be, during such times as
the Alternate Base Rate is based upon the Prime Rate, and over a year of 360
days at all other times) equal to the Alternate Base Rate plus the Applicable
Margin. Interest shall be payable on each Alternate Base Rate Loan on each
applicable Interest Payment Date and at maturity.
(c) Anything in this Credit Agreement or the Note to the contrary
notwithstanding, the interest rate on the Loans shall in no event be in excess
of the maximum permitted by Applicable Law.
SECTION 2.5. Commitment Fees and Other Fees. (a) The Borrower agrees to
pay to the Lender on the last Business Day of each March, June, September and
December in each year (commencing on the last Business Day of December 1997)
prior to the Commitment Termination Date and on the Commitment Termination Date,
an aggregate fee (the "Commitment Fee") of 1/2 of 1% per annum, computed on the
basis of the actual number of days elapsed during the preceding period or
quarter over a year of 360 days, on the average daily amount by which the
Lender's Commitment, as such Commitment may be reduced in accordance
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with the provisions of this Credit Agreement, exceeds the sum of the principal
balance of the Lender's outstanding Loans plus its L/C Exposure during the
preceding period or quarter.
(b) The Commitment Fee shall commence to accrue from the Closing
Date.
(c) In addition, the Borrower agrees to pay to the Lender on the
Closing Date a one-time fee in an amount equal to 2% of the Lender's Commitment.
SECTION 2.6. Optional and Mandatory Termination or Reduction of
Commitment. (a) Upon at least three Business Days' prior written, facsimile or
telephonic notice (provided that such telephonic notice is immediately followed
by written confirmation) to the Lender, the Borrower may at any time in whole
permanently terminate, or from time to time in part permanently reduce, the
Commitment. In the case of a partial reduction, each such reduction of the
Commitment shall be in a minimum aggregate principal amount of $500,000 or an
integral multiple thereof; provided, however, that the Commitment may not be
reduced by more than the amount of the then unused Commitment and may not be
reduced to an amount less than the aggregate principal amount of the Loans
outstanding, plus the then current L/C Exposure.
(b) Simultaneously with each such termination or reduction of the
Commitment, the Borrower shall pay to the Lender all accrued and unpaid
Commitment Fees on the amount of the Commitment so terminated or reduced through
the date of such termination or reduction.
SECTION 2.7. Default Interest; Alternate Rate of Interest. (a) If the
Borrower shall default in the payment of the principal of, or interest on any
Loan becoming due hereunder, whether at stated maturity, by acceleration or
otherwise, or the payment of any other amount becoming due hereunder after
written notification from the Lender to the Borrower of such amount, the
Borrower shall on demand from time to time pay interest, to the extent permitted
by law, on all Loans and overdue amounts outstanding up to the date of actual
payment of such defaulted amount (after as well as before judgment) (i) for the
remainder of the then current Interest Period for each Eurodollar Loan, at 2% in
excess of the rate then in effect for each such Eurodollar Loan and (ii) for all
periods subsequent to the then current Interest Period for each Eurodollar Loan,
for all Alternate Base Rate Loans and for all other overdue amounts hereunder,
at 2% in excess of the rate then in effect for Alternate Base Rate Loans.
(b) In the event, and on each occasion, that on the day two Business
Days prior to the commencement of any Interest Period for a Eurodollar Loan, (i)
the Lender shall have determined (which determination, absent manifest error,
shall be conclusive) that Dollar deposits in the amount of the principal amount
of such Eurodollar Loan are not generally available in the London Interbank
Market or that the rate at which such Dollar deposits are being offered will not
adequately and fairly reflect the cost to the Lender of making or maintaining
the principal amount of such Eurodollar Loan during such Interest Period or (ii)
the Lender shall have determined that reasonable means do not exist for
ascertaining the applicable LIBO Rate, the Lender shall, as
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soon as practicable thereafter, give written or facsimile notice of such
determination to the Borrower, and any request by the Borrower for a Eurodollar
Loan (or conversion to or continuation as a Eurodollar Loan pursuant to Section
2.8 hereof), made after receipt of such notice, shall be deemed a request for an
Alternate Base Rate Loan (unless such borrowing request has been rescinded
pursuant to Section 2.2 (b)). After such notice shall have been given and until
the circumstances giving rise to such notice no longer exist, each request (or
portion thereof, as the case may be) for a Eurodollar Loan shall be deemed to be
a request for an Alternate Base Rate Loan.
SECTION 2.8. Continuation and Conversion of Loans. The Borrower shall
have the right, at any time, (i) to convert any Eurodollar Loan or portion
thereof to an Alternate Base Rate Loan or to continue such Eurodollar Loan or a
portion thereof for a successive Interest Period, or (ii) to convert any
Alternate Base Rate Loan or a portion thereof to a Eurodollar Loan, subject to
the following:
(a) the Borrower shall give the Lender prior written, facsimile or
telephonic (promptly confirmed in writing) notice of each continuation or
conversion hereunder of at least three Business Days for continuation as or
conversion to a Eurodollar Loan; such notice shall be irrevocable and to be
effective, must be received by the Lender on the day required not later than
2:00 p.m., New York City time;
(b) no Event of Default or Default shall have occurred and be
continuing at the time of any conversion to a Eurodollar Loan or continuation of
any such Eurodollar Loan into a subsequent Interest Period;
(c) no Alternate Base Rate Loan may be converted to a Eurodollar
Loan and no Eurodollar Loan may be continued as a Eurodollar Loan if, after such
conversion or continuance, and after giving effect to any concurrent prepayment
of Loans, an aggregate of more than six separate Eurodollar Loans would be
outstanding hereunder (for purposes of determining the number of such Loans
outstanding, Loans with different Interest Periods shall be counted as different
Loans even if made on the same date);
(d) the aggregate principal amount of Loans continued as or
converted to Eurodollar Loans as part of the same Borrowing shall be $500,000 or
such greater amount which is an integral multiple of $100,000;
(e) accrued interest on the Eurodollar Loans (or portion thereof)
being continued shall be paid by the Borrower at the time of continuation;
(f) the Interest Period with respect to a new Eurodollar Loan
effected by a continuation or conversion shall commence on the date of such
continuation or conversion;
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(g) if a Eurodollar Loan is converted to another type of Loan prior
to the last day of the Interest Period with respect thereto, the amounts
required by Section 2.9(b) shall be paid upon such conversion; and
(h) each request for a continuation as or conversion to a Eurodollar
Loan which fails to state an applicable Interest Period shall be deemed to be a
request for an Interest Period of one month.
In the event that the Borrower shall not give notice to continue or convert any
Eurodollar Loan as provided above, such Loan (unless repaid) shall automatically
be continued as a Eurodollar Loan having an Interest Period of one month at the
expiration of the then current Interest Period.
SECTION 2.9. Prepayment of Loans; Reimbursement of Lender. (a) Subject
to the terms of paragraph (b) of this Section 2.9, the Borrower shall have the
right at its option at any time and from time to time to prepay (i) any
Alternate Base Rate Loan, in whole or in part, upon at least one Business Day's
prior written, telephonic (promptly confirmed in writing) or facsimile notice to
the Lender, in the principal amount of $125,000 or such greater amount which is
an integral multiple of $100,000 or the remaining balance of such Loan if
prepaid in full and (ii) any Eurodollar Loan, in whole or in part, upon at least
three Business Days' prior written, telephonic (promptly confirmed in writing)
or facsimile notice, in the principal amount of $500,000 or such greater amount
which is an integral multiple of $100,000 if prepaid in part, or the remaining
balance of such Loan if prepaid in full. Each notice of prepayment shall specify
the prepayment date, each Loan to be prepaid and the principal amount thereof,
shall be irrevocable and shall commit the Borrower to prepay such Loan in the
amount and on the date stated therein. All prepayments under this Section 2.9(a)
shall be accompanied by accrued but unpaid interest on the principal amount
being prepaid to (but not including) the date of prepayment.
(b) The Borrower shall reimburse the Lender on demand for any loss
incurred or to be incurred by the Lender in the reemployment of the funds
released (i) by any prepayment (for any reason) of any Eurodollar Loan if such
Loan is repaid other than on the last day of the Interest Period for such Loan
or (ii) in the event that after the Borrower delivers a notice of borrowing
under Section 2.2(b) or Section 2.8(a) in respect of Eurodollar Loans, such Loan
is not made, converted to or continued as a Eurodollar Loan on the first day of
the Interest Period specified in such notice of borrowing for any reason other
than (A) a suspension or limitation under Section 2.7(b) of the right of the
Borrower to select a Eurodollar Loan, (B) a breach by the Lender of its
obligation to fund such borrowing when it is otherwise required to do so
hereunder or (C) a repayment resulting from a conversion required by the Lender
pursuant to Section 2.11(a). Such loss shall be the amount as reasonably
determined by the Lender as the excess, if any, of (I) the amount of interest
which would have accrued to the Lender on the amount so paid or not borrowed,
continued or converted at a rate of interest equal to the interest rate
applicable to such Loan pursuant to Section 2.4 hereof, for the period from the
date of such payment or failure to borrow, continue or convert to the last day
(x) in the case of a payment prior to the last day of the Interest Period for
such Loan, of the then current Interest Period for such Loan or (y) in
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the case of such failure to borrow, continue or convert, of the Interest Period
for such Loan which would have commenced on the date of such failure to borrow,
continue or convert, over (II) the amount realized or to be realized by the
Lender in reemploying the funds not advanced or the funds received in prepayment
or realized from the Loan not so continued or converted during the period
referred to above. The Lender shall deliver to the Borrower from time to time
one or more certificates setting forth the amount of such loss (and in
reasonable detail the manner of computation thereof) as determined by the
Lender, which certificates shall be conclusive absent manifest error. The
Borrower shall pay the Lender the amounts shown on such certificate within ten
days of the Borrower's receipt of such certificate.
(c) In the event the Borrower fails to prepay any Loan on the date
specified in any prepayment notice delivered pursuant to Section 2.9(a), the
Borrower shall pay to the Lender any amounts required to compensate the Lender
for any actual loss incurred by the Lender as a result of such failure to
prepay, including, without limitation, any loss, cost or expenses incurred by
reason of the acquisition of deposits or other funds by the Lender to fulfill
deposit obligations incurred in anticipation of such prepayment. The Lender
shall deliver to the Borrower from time to time one or more certificates setting
forth the amount of such loss (and in reasonable detail the manner of
computation thereof) as determined by the Lender, which certificates shall be
conclusive absent manifest error. The Borrower shall pay the Lender the amounts
shown on such certificate within ten days of the Borrower's receipt of such
certificate.
(d) If at any time the sum of the Loans outstanding plus the L/C
Exposure exceeds the sum of (x) the Maximum Guaranty Amount, (y) the Borrowing
Base and (z) the amounts currently held in the Collection Account, as set forth
on the most recent Borrowing Base Certificate, the Borrower shall immediately
pay down the Loans outstanding or otherwise eliminate such excess.
(e) Simultaneously with each termination and/or mandatory or
optional reduction of the Commitment pursuant to Section 2.6, the Borrower shall
pay to the Lender an amount equal to the excess of the sum of aggregate
outstanding principal amount of the Loans plus the L/C Exposure, over the
reduced Commitment.
(f) Unless otherwise designated in writing by the Borrower, all
prepayments shall be applied to the applicable principal payment set forth in
this Section 2.9, first to that amount of such applicable principal payment then
maintained as Alternate Base Rate Loans by the Borrower, and then, to that
amount of such applicable principal payment maintained as Eurodollar Loans by
the Borrower in order of the scheduled expiry of Interest Periods with respect
thereto.
(g) All prepayments shall be accompanied by accrued but unpaid
interest on the principal amount being prepaid to but not including the date of
prepayment.
SECTION 2.10. Change in Circumstances. (a) In the event that after the
Closing Date any change in Applicable Law or in the official interpretation or
administration thereof
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(including, without limitation, any request, guideline or policy not having the
force of law) by any Governmental Authority charged with the administration or
interpretation thereof or, with respect to clause (ii), (iii) or (iv) below any
change in conditions, shall occur which shall:
(i) subject the Lender to, or increase the net tax, levy,
impost, duty, charge, fee, deduction or withholding with
respect to any Eurodollar Loan (other than withholding
tax imposed by the United States of America or any
political subdivision or taxing authority thereof or any
other tax, levy, impost, duty, charge, fee, deduction or
withholding (A) that is measured with respect to the
overall net income of the Lender or of a Lending Office
of the Lender, and that is imposed by the United States
of America, or by the jurisdiction in which the Lender
or Lending Office is incorporated, in which the Lending
Office is located, managed or controlled or in which the
Lender has its principal office (or any political
subdivision or taxing authority thereof or therein), or
(B) that is imposed solely by reason of the Lender
failing to make a declaration of, or otherwise to
establish, non-residence, or to make any other claim for
exemption, or otherwise to comply with any
certification, identification, information,
documentation or reporting requirements prescribed under
the laws of the relevant jurisdiction, in those cases
where the Lender may properly make such declaration or
claim or so establish non-residence or otherwise
comply); or
(ii) change the basis of taxation of any payment to the
Lender of principal or any interest on any Eurodollar
Loan or other fees and amounts payable to the Lender
hereunder, or any combination of the foregoing; other
than withholding tax imposed by the United States of
America or any political subdivision or taxing authority
thereof or any other tax, levy, impost, duty, charge,
fee, deduction or withholding that is measured with
respect to the overall net income of the Lender or of a
Lending Office of the Lender, and that is imposed by the
United States of America, or by the jurisdiction in
which the Lender or Lending Office is incorporated, in
which such Lending Office is located, managed or
controlled or in which the Lender has its principal
office (or any political subdivision or taxing authority
thereof or therein); or
(iii) impose, modify or deem applicable any reserve, deposit
or similar requirement against any assets held by,
deposits with or for the account of or loans or
commitments by an office of the Lender with respect to
any Eurodollar Loan; or
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(iv) impose upon the Lender or the London Interbank Market
any other condition with respect to the Eurodollar Loans
or this Credit Agreement;
and the result of any of the foregoing shall be to increase the actual cost to
the Lender of making or maintaining any Eurodollar Loan hereunder or to reduce
the amount of any payment (whether of principal, interest or otherwise) received
or receivable by the Lender in connection with any Eurodollar Loan hereunder, or
to require the Lender to make any payment in connection with any Eurodollar Loan
hereunder, in each case by or in an amount which the Lender in its sole judgment
shall deem material, then and in each case the Borrower shall pay to the Lender,
as provided in paragraph (c) below, such amounts as shall be necessary to
compensate the Lender for such cost, reduction or payment.
(b) If at any time and from time to time after the Closing Date the
Lender shall have determined that the applicability of any law, rule, regulation
or guideline adopted after the Closing Date regarding capital adequacy, or any
change in any of the foregoing or in the interpretation or administration of any
of the foregoing by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Lender (or any Lending Office of the Lender) or the Lender's holding
company with any request or directive regarding capital adequacy (whether or not
having the force of law) of the authority, central bank or comparable agency,
would actually reduce the rate of return on the Lender's capital or on the
capital of the Lender's holding company, if any, as a consequence of this Credit
Agreement or the Loans made or Letters of Credit issued by the Lender pursuant
hereto to a level below that which the Lender or the Lender's holding company
could have achieved but for such applicability, adoption, change or compliance
(taking into consideration the Lender's policies and the policies of the
Lender's holding company with respect to capital adequacy) by an amount deemed
by the Lender to be material, then from time to time the Borrower shall pay to
the Lender such additional amount or amounts as will compensate the Lender or
the Lender's holding company for any such actual reduction suffered with respect
to Loans made by the Lender hereunder.
(c) The Lender shall deliver to the Borrower from time to time, one
or more certificates setting forth the amounts due to the Lender under
paragraphs (a) and (b) above within six months after incurring such additional
costs or suffering such reductions, the changes as a result of which such
amounts are due, the manner of computing such amounts and the manner of
computing the amounts allocable to Loans hereunder pursuant to paragraphs (a)
and (b) above. Each such certificate shall be conclusive in the absence of
manifest error. The Borrower shall pay to the Lender the amounts shown as due on
any such certificate within ten Business Days after its receipt of the same. No
failure on the part of the Lender to demand compensation under paragraph (a) or
(b) above on any one occasion shall constitute a waiver of its rights to demand
compensation on any other occasion. The protection of this Section 2.10(c) shall
be available to the Lender regardless of any possible contention of the
invalidity or inapplicability of any law, regulation or other condition which
shall give rise to any demand by the Lender for compensation thereunder.
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(d) The Lender agrees that after it becomes aware of the occurrence
of an event or the existence of a condition that (i) would cause it to incur any
increased cost hereunder or render it unable to perform its agreements hereunder
for the reasons specifically set forth in Section 2.7(b), this Section 2.10 or
Section 2.14(g) or (ii) would require the Borrower to pay an increased amount
under Section 2.7(b), this Section 2.10 or Section 2.14(g), it will use
reasonable efforts to notify the Borrower of such event or condition and, to the
extent not inconsistent with the Lender's internal policies, will use its
reasonable efforts to make, fund or maintain the affected Loans of the Lender,
or, if applicable, to issue Letters of Credit as required under Section 2.14,
through another Lending Office of the Lender if as a result thereof the
additional monies which would otherwise be required to be paid or the reduction
of amounts receivable by the Lender thereunder in respect of such Loans would be
materially reduced, or such inability to perform would cease to exist, or the
increased costs which would otherwise be required to be paid in respect of such
Loans pursuant to Section 2.7(b), this Section 2.10 or Section 2.14(f) would be
materially reduced or the taxes or other amounts otherwise payable under Section
2.7(b), this Section 2.10 or Section 2.14(f) would be materially reduced, and
if, as determined by the Lender, in its discretion, the making, funding or
maintaining of such Loans through such other Lending Office would not otherwise
materially adversely affect such Loans or the Lender.
SECTION 2.11. Change in Legality. (a) Notwithstanding anything to the
contrary contained elsewhere in this Credit Agreement, if any change after the
Closing Date in Applicable Law, guideline or order, or in the interpretation
thereof by any Governmental Authority charged with the administration thereof,
shall make it unlawful for the Lender to make or maintain any Eurodollar Loan or
to give effect to its obligations as contemplated hereby with respect to a
Eurodollar Loan, then, by written notice to the Borrower, the Lender may (i)
declare that Eurodollar Loans will not thereafter be made by the Lender
hereunder and/or (ii) require that, subject to Section 2.9(b), all outstanding
Eurodollar Loans made by it be converted to Alternate Base Rate Loans, whereupon
all of such Eurodollar Loans shall automatically be converted to Alternate Base
Rate Loans, as of the effective date of such notice as provided in paragraph (b)
below. Any subsequent Eurodollar Loan shall, instead, be an Alternate Base Rate
Loan unless such declaration is subsequently withdrawn.
(b) A notice to the Borrower by the Lender pursuant to paragraph (a)
above shall be effective for purposes of clause (ii) thereof, if lawful, on the
last day of the current Interest Period for each outstanding Eurodollar Loan;
and in all other cases, on the date of receipt of such notice by the Borrower.
SECTION 2.12. Manner of Payments. All payments by the Borrower hereunder
and under the Note shall be made in Dollars in Federal or other immediately
available funds at the office of The Chase Manhattan Bank, Loan and Agency
Services Group, 270 Park Avenue, New York, NY 10017,for credit to the "Dove
Entertainment Inc. Collection Account," Account No. 323-516-440, no later than
2:00 p.m., New York City time, on the date on which such payment shall be due.
Interest in respect of any Loan hereunder shall accrue from and including
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the date of such Loan to but excluding the date on which such Loan is paid or
converted to a Loan of a different type.
SECTION 2.13. Interest Adjustments. (a) If the provisions of this Credit
Agreement or Note would at any time require payment by the Borrower to the
Lender of any amount of interest in excess of the maximum amount then permitted
by the law applicable to any Loan, the interest payments to the Lender shall be
reduced to the extent necessary so that the Lender shall not receive interest in
excess of such maximum amount. If, as a result of the foregoing, the Lender
shall receive interest payments hereunder or under the Note in an amount less
than the amount otherwise provided hereunder, such deficit (hereinafter called
the "Interest Deficit") will, to the fullest extent permitted by Applicable Law,
cumulate and will be carried forward (without interest) until the termination of
this Credit Agreement. Interest otherwise payable to the Lender hereunder and
under the Note for any subsequent period shall be increased by the maximum
amount of the Interest Deficit that may be so added without causing the Lender
to receive interest in excess of the maximum amount then permitted by the law
applicable to the Loans.
(b) The amount of any Interest Deficit relating to a particular Loan
and the Note shall be treated as a prepayment penalty and shall, to the fullest
extent permitted by Applicable Law, be paid in full at the time of any optional
prepayment by the Borrower to the Lender of all the Loans at that time
outstanding pursuant to Section 2.9(a) hereof and upon termination or reduction
of the Commitment pursuant to Section 2.6 hereof. The amount of any Interest
Deficit relating to a particular Loan and the Note at the time of any complete
payment of the Loans at that time outstanding (other than an optional prepayment
thereof pursuant to Section 2.9(a) hereof) shall be canceled and not paid.
SECTION 2.14. Letters of Credit. (a) (i) Subject to the terms and
conditions hereof and of Applicable Law, the Lender agrees to issue Letters of
Credit payable in Dollars from time to time after the Closing Date and prior to
the Commitment Termination Date upon the request of the Borrower, provided,
however, that (A) the Borrower shall not request that any Letter of Credit be
issued if, after giving effect thereto, the sum of the then current L/C
Exposure, plus the aggregate Loans then outstanding, would exceed the lesser of
(x) the sum of (I) the Maximum Guaranty Amount, (II) the then current amount of
the Borrowing Base and (III) the then current amount held in the Collection
Account or (y) the Commitment and (B) in no event shall the Lender issue any
Letter of Credit having an expiration date after the Commitment Termination Date
or pursuant to which drafts drawn thereunder would be payable after the
Commitment Termination Date.
(ii) Each Letter of Credit may, at the option of the Lender,
provide that the Lender may (but shall not be required to) pay all or any part
of the maximum amount which may at any time be available for drawing thereunder
to the beneficiary thereof upon the occurrence and continuation of an Event of
Default and the acceleration of the maturity of the Loans, provided that, if
payment is not then due to the beneficiary, the Lender may deposit the funds in
question in a segregated account with the Lender to secure payment to the
beneficiary
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and any funds so deposited shall be paid to the beneficiary of the Letter of
Credit if conditions to such payment are satisfied or returned to the Lender
(or, if all Obligations shall have been paid in full in cash, to the Borrower)
if no payment to the beneficiary has been made and the final date available for
drawings under the Letter of Credit has passed. Each payment or deposit of funds
by the Lender as provided in this paragraph shall be treated for all purposes of
this Credit Agreement as a drawing duly honored by the Lender under the related
Letter of Credit.
(b) Whenever the Borrower desires the issuance of a Letter of
Credit, it shall deliver to the Lender a written notice no later than 2:00 p.m.,
New York City time, at least five Business Days prior to the proposed date of
issuance. Such notice shall specify (i) the proposed date of issuance (which
shall be a Business Day), (ii) the face amount of the Letter of Credit, (iii)
the expiration date of the Letter of Credit and (iv) the name and address of the
beneficiary. Such notice shall be accompanied by a brief description of the
underlying transaction and upon request of the Lender, the Borrower shall
provide additional details regarding the underlying transaction. Concurrently
with the giving of written notice of a request for the issuance of a Letter of
Credit, the Borrower shall specify a precise description of the documents and
the verbatim text of any certificate to be presented by the beneficiary of such
Letter of Credit which, if presented by such beneficiary prior to the expiration
date of the Letter of Credit, would require the Lender to make payment under the
Letter of Credit; provided, however, that the Lender, in its reasonable
discretion, may require customary changes in any such documents and
certificates.
(c) The payment of drafts under any Letter of Credit shall be made
in accordance with the terms of such Letter of Credit and the Uniform Customs
and Practice for documentary Credits of the International Chamber of Commerce
No. 500, as adopted or amended from time to time. The Lender shall be entitled
to honor any drafts and accept any documents presented to it by the beneficiary
of such Letter of Credit in accordance with the terms of such Letter of Credit
and believed by the Lender in good faith to be genuine. The Lender shall not
have any duty to inquire as to the accuracy or authenticity of any draft or
other drawing documents which may be presented to it, but shall be responsible
only to determine in accordance with customary commercial practices that the
documents which are required to be presented before payment or acceptance of a
draft under any Letter of Credit have been delivered and that they comply on
their face with the requirements of that Letter of Credit.
(d) Subject to provisions of Section 2.14(c), the Borrower is
absolutely, unconditionally and irrevocably obligated to reimburse all amounts
drawn under each Letter of Credit. If any draft is presented under a Letter of
Credit, payment of which is required to be made after the Commitment Termination
Date (it being understood that no Letter of Credit shall be issued which would
expire after the Commitment Termination Date), then the Borrower will, upon
demand by the Lender, pay to the Lender, in immediately available funds, the
full amount of such draft.
(e) (i) The Borrower agrees to pay to the Lender with respect to
Letters of Credit issued by it hereunder in connection with the issuance,
amendment, transfer or any other transaction related to each Letter of Credit
and each drawing made thereunder, documentary and
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processing charges in accordance with the Lender's standard schedule for such
charges in effect at the time of such issuance, amendment, transfer or drawing,
as the case may be.
(ii) The Borrower agrees to pay to the Lender a commission
calculated at a rate per annum equal to the Applicable Margin for Eurodollar
Loans (calculated in the same manner as interest) of the daily average L/C
Exposure. Such commission shall be payable in arrears on and through the last
Business Day of each fiscal quarter prior to the Commitment Termination Date and
on the Commitment Termination Date.
(f) If by reason of (i) any change in Applicable Law after the
Closing Date, or in the interpretation or administration thereof (including,
without limitation, any request, guide line or policy not having the force of
law) by any Governmental Authority charged with the administration or
interpretation thereof, or (ii) compliance by the Lender with any direction,
request or requirement (whether or not having the force of law) issued after the
Closing Date by any Governmental Authority or monetary authority (including any
change whether or not proposed or published prior to the Closing Date),
including, without limitation, any modifications to Regulation D occurring after
the Closing Date:
(A) the Lender shall be subject to an increase in any tax,
levy, impost, duty, charge, fee, deduction or withholding with respect
to any Letter of Credit (other than withholding tax imposed by the
United States of America or any political subdivision or taxing
authority thereof or any other tax, levy, impost, duty, charge, fee,
deduction or withholding (I) that is measured with respect to the
overall net income of the Lender or of a Lending Office of the Lender,
and that is imposed by the United States of America, or by the
jurisdiction in which the Lender or Lending Office is incorporated, or
in which such Lending Office is located, managed or controlled or in
which the Lender has its principal office (or any political subdivision
or taxing authority thereof or therein) or (II) that is imposed solely
by reason of the Lender failing to make a declaration of, or otherwise
to establish, non-residence or to make any other claim for exemption, or
otherwise to comply with any certification, identification, information,
documentation or reporting requirements prescribed under the laws of the
relevant jurisdiction, in those cases where the Lender may properly make
such declaration or claim or so establish non-residence or otherwise
comply);
(B) the basis of taxation of any fee or amount payable
hereunder with respect to any Letter of Credit shall be changed (except
as described in clause (A) above);
(C) any reserve, deposit or similar requirement is or shall
be applicable, imposed or modified in respect of any Letter of Credit
issued by the Lender; or
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(D) there shall be imposed on the Lender any other condition
regarding this Section 2.14 or any Letter of Credit;
and the result of the foregoing is to increase from the conditions that exist on
the Closing Date the actual cost to the Lender of issuing, making or maintaining
any Letter of Credit or to reduce the amount receivable in respect thereof by
the Lender, in each case by or in an amount which the Lender shall reasonably
deem material, then and in any such case the Lender may, at any time, notify the
Borrower, and the Borrower shall pay on demand such amounts as the Lender may
specify to be necessary to compensate the Lender for such additional cost or
reduced receipt. Section 2.10(b), (c), (d) and Section 2.11 shall in all
instances apply to the Lender with respect to Letters of Credit issued
hereunder. The determination by the Lender of any amount due pursuant to this
Section 2.14 as set forth in a certificate setting forth the calculation thereof
in reasonable detail shall, in the absence of manifest error, be final,
conclusive and binding on all of the parties hereto.
(g) If at any time when an Event of Default shall have occurred and
be continuing, any Letters of Credit shall remain outstanding, then the Lender
may, at its option, require the Borrower to deliver to the Lender cash or Cash
Equivalents in an amount equal to the full amount of the L/C Exposure or to
furnish other security acceptable to the Lender. Any amounts so delivered
pursuant to the preceding sentence shall be applied to reimburse the Lender for
the amount of any drawings honored under Letters of Credit; provided, however,
that if prior to the Commitment Termination Date, no Default or Event of Default
is then continuing, the Lender shall return all of such collateral relating to
such deposit to the Borrower upon request.
(h) If at any time that any Letter of Credit is outstanding, the L/C
Exposure, plus Loans outstanding, exceeds the sum of (i) the Maximum Guaranty
Amount, plus (ii) the Borrowing Base, plus (iii) the amount of cash and Cash
Equivalents currently held in the Collection Account, then the Lender may, at
its option, require (x) a prepayment of the Loans in accordance with Section
2.9(d) or (y) the Borrower to deliver cash or Cash Equivalents to the Lender in
an amount sufficient to eliminate such excess or to furnish other security for
such excess acceptable to the Lender. Any amounts so delivered pursuant to the
preceding sentence shall be applied to reimburse the Lender for the amount of
any drawings honored under Letters of Credit; provided, however, that if
subsequent to any such deposit such excess is reduced to an amount less than the
amount of such deposited amounts and no Default or Event of Default is then
continuing, the Borrower shall be entitled to receive such excess collateral if
requested by it.
(i) Notwithstanding the termination of the Commitment and the
payment of the Loans, the obligations of the Borrower under this Section 2.14
shall remain in full force and effect until the Lender shall have been
irrevocably released from its obligations with regard to any and all Letters of
Credit.
(j) On the Closing Date, the parties hereto agree that that certain
Irrevocable Letter of Credit, L/C No. P-397200, issued by the Lender on
September 24, 1997 at the request of the Borrower for the benefit of Amwest
Surety Insurance Company, shall be deemed to have
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been issued under this Credit Agreement, and such Letter of Credit shall, as of
the Closing Date, be subject to and governed by the terms and conditions set
forth herein.
3. REPRESENTATIONS AND WARRANTIES OF CREDIT PARTIES
In order to induce the Lender to enter into this Credit Agreement and to
make the Loans and issue Letters of Credit provided for herein, the Credit
Parties, jointly and severally, make the following representations and
warranties to, and agreements with, the Lender, all of which shall survive the
execution and delivery of this Credit Agreement, the issuance of the Note, the
making of the Loans and the issuance of the Letters of Credit:
SECTION 3.1. Corporate Existence and Power. Each of the Credit Parties
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, is in good standing as a foreign
corporation in all jurisdictions where the failure to be in good standing as a
foreign corporation would render Eligible Receivables which are included in the
Borrowing Base unenforceable or would give rise to a material liability of any
Credit Party. Each of the Credit Parties has the corporate power and authority
to own its respective properties and carry on its respective businesses as now
being conducted, to execute, deliver and perform, as applicable, its obligations
under this Credit Agreement, the Note and the other Fundamental Documents and
other documents contemplated hereby to which it is or will be a party as
provided herein and to grant to the Lender a security interest in the Collateral
as contemplated by Article 8 hereof and in the Pledged Securities as
contemplated by Article 10 hereof and in the case of each Corporate Guarantor to
guaranty the Obligations as contemplated by Article 9 hereof.
SECTION 3.2. Corporate Authority and No Violation. (a) The execution,
delivery and performance of this Credit Agreement and the other Fundamental
Documents to which it is a party, by each Credit Party and, in the case of the
Borrower, the Borrowings hereunder and the execution and delivery of the Note
and, in the case of each Credit Party, the grant to the Lender of the security
interest in the Collateral and the Pledged Securities as contemplated herein and
by the other Fundamental Documents and, in the case of each Corporate Guarantor,
the guaranty of the Obligations as contemplated in Article 9 hereof (i) have
been duly authorized by all necessary corporate action on the part of each such
Credit Party, (ii) will not constitute a violation by such Credit Party in any
material respect of any provision of Applicable Law or any order of any court or
other agency of the United States or any state thereof applicable to such Credit
Party or any of its properties or assets, (iii) will not violate any provision
of the Certificate or Articles of Incorporation or By-Laws of such Credit Party,
or any material provision of any Material Agreement or any other material
indenture, agreement, bond, note or other similar instrument to which such
Credit Party is a party or by which such Credit Party or its properties or
assets are bound, (iv) will not be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under or create
any right to terminate any Material Agreement, or any other material indenture,
agreement, bond, note or other instrument, and (v) will not result in the
creation or imposition of any Lien, charge or encumbrance of any
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nature whatsoever upon any of the properties or assets of any of the Credit
Parties other than pursuant to this Credit Agreement or the other Fundamental
Documents to which it is a party.
(b) There are no restrictions on the transfer of any of the Pledged
Securities other than as a result of this Credit Agreement or applicable
securities laws and the regulations promulgated thereunder.
SECTION 3.3. Governmental Approval. All authorizations, approvals,
registrations or filings with any governmental or public regulatory body or
authority of the United States or any state thereof (other than UCC financing
statements and the Copyright Security Agreement which will be delivered to the
Lender prior to the making of the initial Loan hereunder, in form suitable for
recording or filing with the appropriate filing office) required for the
execution, delivery and performance by any Credit Party of this Credit Agreement
and the other Fundamental Documents to which it is a party, and the execution
and delivery by the Borrower of the Note, have been duly obtained or made, or
duly applied for and are in full force and effect.
SECTION 3.4. Binding Agreements. This Credit Agreement and the other
Fundamental Documents when executed will constitute the legal, valid and binding
obligations of the respective Credit Parties, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights and general principles of equity.
SECTION 3.5. Financial Statements. The audited consolidated balance
sheets of the Borrower and its Consolidated Subsidiaries at December 31, 1996,
and the unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries at June 30, 1997, together with the related statements
of income, cash flows and Shareholders' Equity and the related notes and
supplemental information for the reviewed statements, in the forms which have
previously been provided to the Lender, have been prepared in accordance with
GAAP, except as otherwise indicated in the notes to such financial statements.
All of such financial statements fairly present the consolidated financial
condition or the results of operations of the Borrower and its Consolidated
Subsidiaries at the dates or for the periods indicated, subject (in the case of
unaudited statements) to changes resulting from normal year-end and audit
adjustments, and, in the case of balance sheets (including the notes thereto),
reflect all known liabilities, contingent or otherwise, as of such dates
required in accordance with GAAP to be shown or reserved against, or disclosed
in the notes to the financial statements.
SECTION 3.6. No Material Adverse Change (a) There has been no material
adverse change with respect to the business, operations, performance, assets,
properties, condition or prospects (financial or otherwise) of the Credit
Parties taken as a whole from June 30, 1997, except for changes due to
seasonality that are consistent with the corresponding periods in prior years.
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(b) No Credit Party has entered or is entering into the arrangements
contemplated hereby and by the other Fundamental Documents, or intends to make
any transfer or incur any obligations hereunder or thereunder, with actual
intent to hinder, delay or defraud either present or future creditors. On and as
of the Closing Date, on a pro forma basis after giving effect to all
Indebtedness (including the Loans) (i) each Credit Party expects the cash
available to such Credit Party, after taking into account all other anticipated
uses of the cash of such Credit Party (including the payments on or in respect
of debt referred to in clause (iii) of this Section 3.6(b)), will be sufficient
to satisfy all final judgments for money damages which have been docketed
against such Credit Party or which may be rendered against such Credit Party in
any action in which such Credit Party is a defendant (taking into account the
reasonably anticipated maximum amount of any such judgment and the earliest time
at which such judgment might be entered); (ii) the sum of the present fair
saleable value of the assets of each Credit Party will exceed the probable
liability of such Credit Party on its debts (including its Guaranties); (iii) no
Credit Party will have incurred or intends to, or believes that it will, incur
debts beyond its ability to pay such debts as such debts mature (taking into
account the timing and amounts of cash to be received by such Credit Party from
any source, and of amounts to be payable on or in respect of debts of such
Credit Party and the amounts referred to in clause (ii)); and (iv) each Credit
Party believes it will have sufficient capital with which to conduct its present
and proposed business and the property of such Credit Party does not constitute
unreasonably small capital with which to conduct its present or proposed
business. For purposes of this Section 3.6, "debt" means any liability or a
claim, and "claim" means (x) any right to payment whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (y)
any right to an equitable remedy for breach of performance if such breach gives
rise to a payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured.
SECTION 3.7. Ownership of Pledged Securities, etc. (a) Annexed hereto as
Schedule 3.7(a) is a correct and complete list as of the date hereof, of each
corporate Subsidiary of the Borrower showing, as to each such Subsidiary, its
name, the jurisdiction of incorporation, its authorized capitalization, the
number of shares of its capital stock outstanding and the ownership of the
capital stock of each such Credit Party; and
(b) Except as noted on Schedule 3.7(b), no Credit Party owns any
Voting Stock or beneficial interest, directly or indirectly, in any Person other
than in the Subsidiaries of the Borrower.
(c) All of the outstanding shares of capital stock of each
Subsidiary of the Borrower have been validly issued and are fully paid and
non-assessable and, with respect to shares which are owned by a Credit Party
(set forth on Schedule 3.7(a)), are free and clear of all liens, charges or
encumbrances except as contemplated herein.
SECTION 3.8. Copyrights and Other Rights. On the date hereof, the items
of Product listed on Schedule 3.8 comprise all of the Product in which any
Credit Party has any
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right, title or interest (either directly or through a joint venture or
partnership). The copyright registration number and the character of the
interests held by the Credit Party for such items of Product for which filing in
the United States Copyright Office is applicable are set forth across from the
description of such item of Product and as to each item listed on Schedule 3.8
hereto and, to the extent applicable, the Credit Party holding such interests
has duly recorded its interests in the United States Copyright Office and has
delivered copies of all such recordation to the Lender. Schedule 3.8 shall
identify the location of the best available Physical Materials related to each
item of Product owned by the Credit Parties. To the best of each Credit Party's
knowledge, all items of Product and all component parts thereof do not and will
not violate or infringe upon any copyright, right of privacy, trademark, patent,
trade name, performing right or any literary, dramatic, musical, artistic,
personal, private, contract or copyright right or any other similar right of any
Person or contain any libelous or slanderous material other than to an extent
which is either not material or for which coverage is provided in existing
insurance policies. Except as set forth on Schedule 3.12, there is no claim,
suit, action or, to the best of each Credit Party's knowledge, proceeding
pending or threatened against any Credit Party that involves a claim of
infringement of any copyright with respect to any item of Product listed on
Schedule 3.8 and no Credit Party has knowledge of any existing infringement by
any other Person of any copyright held by any Credit Party with respect to any
item of Product listed on Schedule 3.8.
SECTION 3.9. Fictitious Names. Except as disclosed on Schedule 3.9, none
of the Credit Parties are doing business or intend to do business other than
under its full corporate name, including, without limitation, under any trade
name or other doing business name.
SECTION 3.10. Title to Properties. As of the Closing Date, the Credit
Parties have good title to each of the properties and assets reflected on the
latest balance sheets referred to in Section 3.5 (other than such properties or
assets disposed of in the ordinary course of business since the date of such
balance sheets) and all such properties and assets are free and clear of Liens,
except Permitted Encumbrances.
SECTION 3.11. Places of Business. The chief executive office of each
Credit Party is, on the Closing Date, as set forth on Schedule 3.11 hereto,
which offices in the United States are the places where each Credit Party is
"located" for the purpose of the UCC and the Uniform Commercial Code in effect
in any state in which any Credit Party is so located. All of the places where
each Credit Party keeps the records concerning the Collateral on the date hereof
or regularly keeps any goods included in the Collateral on the date hereof are
also listed on Schedule 3.11 hereto.
SECTION 3.12. Litigation. Except as set forth on Schedule 3.12 hereto,
there are no actions, suits or other proceedings at law or in equity by or
before any arbitrator or arbitration panel, or any Governmental Authority
(including, but not limited to, matters relating to environmental liability) or,
to the knowledge of any Credit Party, any investigation by any Governmental
Authority of the affairs of, or threatened action, suit or other proceedings
against or affecting, any Credit Party or of any of their respective properties
or rights which either (A) would have a significant likelihood of materially and
adversely affecting (i) the ability of any
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Credit Party to perform its obligations under the Fundamental Documents to which
it is a party, (ii) the ability of any Credit Party to carry on its business,
(iii) the security interests granted to the Lender under the Fundamental
Documents, (iv) the financial condition or business of the Credit Parties taken
as a whole or (v) the Collateral, or (B) involve this Credit Agreement or any of
the transactions contemplated hereby. No Credit Party is in default with respect
to any order, writ, injunction, decree, rule or regulation of any Governmental
Authority binding upon such Person, which default would have a material adverse
effect upon the financial condition or the business of the Credit Parties taken
as a whole.
SECTION 3.13. Federal Reserve Regulations. No Credit Party is engaged
principally or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. No part of
the proceeds of the Loans will be used, directly or indirectly, whether
immediately, incidentally or ultimately (i) to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock, or (ii) for any other purpose, in each case, violative of or
inconsistent with any of the provisions of any regulation of the Board,
including, without limitation, Regulations G, T, U and X thereto.
SECTION 3.14. Investment Company Act. No Credit Party is, or will during
the term of this Credit Agreement be, (i) an "investment company", within the
meaning of the Investment Company Act of 1940, as amended, or (ii) subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act or, to the best of each Credit Party's knowledge, any foreign, federal
or local statute or any other Applicable Law of the United States of America or,
to the best of each Credit Party's knowledge, any other jurisdiction, in each
case limiting its ability to incur indebtedness for money borrowed as
contemplated hereby or by any other Fundamental Document.
SECTION 3.15. Taxes. Each Credit Party has filed or caused to be filed
all federal, state, local and foreign tax returns which are required to be filed
with any Governmental Authority after giving effect to applicable extensions,
and has paid or has caused to be paid all taxes as shown on said returns or on
any assessment received by them in writing, to the extent that such taxes have
become due, except as permitted by Section 5.14 hereof. No Credit Party knows of
any material additional assessments or any basis therefor. The Credit Parties
reasonably believe that the charges, accrual and reserves on its books in
respect of taxes or other governmental charges are adequate.
SECTION 3.16. Compliance with ERISA. Each Credit Party is in compliance
in all material respects with the provisions of ERISA and the Code applicable to
Plans, and the regulations and published interpretations thereunder, if any,
which are applicable to it. As of the date hereof, no Credit Party has, with
respect to any Plan established or maintained by it, engaged in a prohibited
transaction which would subject it to a material tax or penalty on prohibited
transactions imposed by ERISA or Section 4975 of the Code. No material liability
to the PBGC has been or is expected to be incurred with respect to the Plans
(other than for premiums not yet due) and there has been no Reportable Event and
no other event or condition that presents a
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material risk of termination of a Plan by the PBGC. No Credit Party has engaged
in a transaction which would result in the incurrence by such Credit Party of
any liability under Section 4069 of ERISA. No Credit Party has taken any action
and no event has occurred with respect to any Multiemployer Plan which would
subject any Credit Party to material liability under either Section 4201 or 4204
of ERISA.
SECTION 3.17. Agreements. (a) No Credit Party is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any Material Agreement or any other material indenture,
agreement, bond, note or other instrument to which it is a party which would
reasonably be expected to result in any material adverse change in the business,
properties, assets, operations or condition (financial or otherwise) of the
Credit Parties taken as a whole.
(b) Schedule 3.17 is a true and complete listing as of the date on
which this Credit Agreement is executed by the Borrower of (i) all credit
agreements, indentures, and other agreements related to any Indebtedness for
borrowed money of the Credit Parties, (ii) all material joint venture agreements
to which the Credit Parties are a party (iii) all material Distribution
Agreements and (iv) all other contractual arrangements which are material to any
Credit Party, including but not limited to, guarantees and employment
agreements. The Credit Parties have delivered or made available to the Lender a
true and complete copy of each agreement described on Schedule 3.17, including
all exhibits and schedules. For purposes of this Section 3.17, a Distribution
Agreement or other contract or agreement shall be deemed "material" if the
Credit Parties reasonably expect that any Credit Party would, pursuant to the
terms thereof, (A) recognize future revenues in excess of $500,000, (B) incur
liabilities or obligations in excess of $500,000 or (C) suffer damages or losses
in excess of $250,000 by reason of the breach or termination thereof.
SECTION 3.18. Security Interest; Other Security. This Credit Agreement
and the other Fundamental Documents, when executed and delivered and, upon the
making of the initial Loan hereunder and upon (i) the filing of the appropriate
UCC-1 financing statements, with the Secretary of State of the States of
California, Florida and Tennessee, (ii) the filing of the Copyright Security
Agreement with the U.S. Copyright Office and (iii) the delivery of the Pledged
Securities, together with appropriate stock powers, to the Lender, will create
and grant to the Lender a valid and first priority perfected security interests
in the Collateral and the Pledged Securities in existence on the Closing Date as
to which security interests may be perfected by such filings or delivery,
subject only to Permitted Encumbrances.
SECTION 3.19. Disclosure. Neither this Credit Agreement nor any other
Fundamental Document nor any agreement, document, certificate or statement
furnished to the Lender by any Credit Party in connection with the transactions
contemplated hereby, at the time it was furnished or delivered contained any
untrue statement of a material fact regarding the Credit Parties or, when taken
together with such other agreements, documents, certificates and statements
omitted to state a material fact necessary under the circumstances under which
it was made in order to make the statements contained herein or therein not
misleading. There is no
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fact known to any Credit Party not constituting general industry conditions or
not disclosed in such agreements, documents, certificates and statements which
materially and adversely affects, or could reasonably be expected in the future
to materially and adversely affect, the business, assets or condition, financial
or otherwise of the Credit Parties taken as a whole.
SECTION 3.20. Distribution Rights. Each Credit Party has sufficient
right, title and interest in each item of Product to enable it (i) to enter into
and perform all of the material Distribution Agreements to which it is a party
and other agreements generating Eligible Receivables and accounts receivable
reflected on the most recent balance sheet and the most recent Borrowing Base
Certificate delivered to the Lender pursuant hereto, and (ii) to charge, earn,
realize and retain all fees and profits to which such Credit Party is entitled
thereunder, and is not in breach of any of its obligations under such
agreements, nor does any Credit Party have any knowledge of any breach or
anticipated breach by any other parties thereto, which breach in either case
either individually or when aggregated with all other such breaches would have a
material adverse effect on the Credit Parties taken as a whole.
SECTION 3.21. Environmental Liabilities. (a) Except as set forth on
Schedule 3.21 hereto, no Credit Party has used, stored, treated, transported,
manufactured, refined, handled, produced or disposed of any Hazardous Materials
on, under, at or from any of its properties or assets owned or leased by a
Credit Party, in any manner which at the time of the action in question violated
any Environmental Law governing the use, storage, treatment, transportation,
manufacture, refinement, handling, production or disposal of Hazardous Materials
and which violation would have a material adverse effect on the business or
financial condition of the Credit Parties taken as a whole and to the best of
the Credit Parties' knowledge, no prior owner of such property or asset or any
tenant, subtenant, prior tenant or prior subtenant thereof has used Hazardous
Materials on or affecting such property or asset, or otherwise, in any manner
which at the time of the action in question violated any Environmental Law
governing the use, storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of Hazardous Materials.
(b) To the best of each Credit Party's knowledge (i) no Credit Party
has any obligations or liabilities, known or unknown, matured or not matured,
absolute or contingent, assessed or unassessed, which would reasonably be
expected to have a materially adverse effect on the business or condition
(financial or otherwise) of the Credit Parties taken as a whole and (ii) no
claims have been made against any of the Credit Parties during the past five
years and no presently outstanding citations or notices have been issued against
any of the Credit Parties, which could reasonably be expected to have a
materially adverse effect on the business or condition (financial or otherwise)
of the Credit Parties taken as a whole which in either case have been or are
imposed by reason of or based upon any provision of any Environmental Law,
including, without limitation, any such obligations or liabilities relating to
or arising out of or attributable, in whole or in part, to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation or
handling of any Hazardous Materials by any Credit Party, or any of its employees
or predecessors in interest in connection with or in any way arising from or
relating to any of the Credit Parties or any of their respective owned or leased
properties, or
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relating to or arising from or attributable, in whole or in part, to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of any such substance, by any other Person at or on
or under any of the real properties owned or used by any of the Credit Parties
or any other location where such could have a materially adverse effect on the
business or condition (financial or otherwise) of the Credit Parties taken as a
whole.
SECTION 3.22. Pledged Securities. All of the Pledged Securities are duly
authorized, validly issued, fully paid and non-assessable, and are owned and
held by the Pledgors, free and clear of any liens, encumbrances, or security
interests whatsoever other than those created pursuant to this Credit Agreement
or Permitted Encumbrances and there are no restrictions on the transfer of the
Pledged Securities other than as a result of this Credit Agreement or applicable
securities laws. Except as set forth on Schedule 3.22, there are no outstanding
rights, warrants, options, or agreements to purchase or otherwise acquire any
shares of the stock or securities or obligations of any kind convertible into
any shares of capital stock of the issuers of the Pledged Securities. The
Pledged Securities are owned by the Persons specified on Schedule 3.7(a).
SECTION 3.23. Compliance with Laws. No Credit Party is in violation of
any Applicable Law except for such violations in the aggregate which would not
have a material adverse effect on the business condition (financial or
otherwise) of the Credit Parties taken as a whole. The Borrowings hereunder, the
intended use of the proceeds of the Loans as described in the preamble hereto
and as contemplated by Section 5.19 and any other transactions contemplated
hereby will not violate any Applicable Law.
SECTION 3.24. Projected Financial Information. The Borrower has
delivered to the Lender certain projections relating to the Borrower and its
Consolidated Subsidiaries consisting of statements of income, cash flows,
balance sheets and an initial projected borrowing base. Such projected
statements cover a period commencing on the Closing Date and ending at fiscal
year end 2002 and prepared on a basis consistent with Borrower's past practices.
All of the foregoing shall have been prepared in good faith and shall represent
the good faith opinion of the senior management of the Borrower of the likely
course of its business as of the date of delivery of such projections to the
Lender, it being recognized by the Lender that such projections as to future
events are not to be viewed as facts and that actual results during the period
or periods covered by any such other projections may differ from the projected
results.
4. CONDITIONS OF LENDING
SECTION 4.1. Conditions Precedent to Initial Loans or Letter of Credit.
The obligation of the Lender to issue the initial Letter of Credit and to make
the initial Loan is subject to the following conditions precedent:
(a) Corporate Documents. At the time of the making of the initial
Loan, the Lender shall have received:
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(i) a copy of the articles or certificate of incorporation
of each Credit Party, certified as of a recent date by
the Secretary of State of such Credit Party's
jurisdiction of incorporation or organization, as the
case may be;
(ii) a certificate of such Secretary of State and of the
franchise tax entity of such jurisdiction of
incorporation, if applicable, dated as of a recent date
as to the good standing of and payment of taxes by each
Credit Party which lists the charter documents on file
in the office of such Secretary of State;
(iii) a certificate dated as of a recent date as to the good
standing of each Credit Party issued by the Secretary of
State of each jurisdiction in which each Credit Party is
qualified as a foreign corporation; and
(iv) a certificate of the Secretary of each Credit Party
dated the date of the initial Loan and certifying (A)
that attached thereto is a true and complete copy of the
By-Laws of such party as in effect on the date of such
certification, (B) that attached thereto is a true and
complete copy of resolutions adopted by the Board of
Directors of such party authorizing (to the extent
applicable) the Borrowings hereunder, the execution,
delivery and performance in accordance with its
respective terms of this Credit Agreement, the Note (if
any) to be executed by it, and any other documents
required or contemplated hereunder or thereunder and
that such resolutions have not been amended, rescinded
or supplemented and are currently in effect, (C) that
the certificate of incorporation of such party has not
been amended since the date of the last amendment
thereto indicated on the certificate of the Secretary of
State furnished pursuant to clause (i) above except to
the extent specified in such Secretary's certificate and
(D) as to the incumbency and specimen signature of each
officer of such party executing (as applicable) this
Credit Agreement, the Note or any other document
delivered by it in connection herewith or therewith
(such certificate to contain a certification by another
officer of such party as to the incumbency and signature
of the officer signing the certificate referred to in
this clause (iv)); and
(v) such additional supporting documents as the Lender or
its counsel may reasonably request.
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(b) Credit Agreement; Note. On or before the date of the making of
the initial Loans, the Lender shall have received the Credit Agreement executed
by the Credit Parties and the Note executed by the Borrower.
(c) Opinion of Counsel. The Lender shall have received the written
opinions of Hughes, Hubbard & Reed, special counsel to the Credit Parties, and
Robert Murray, general counsel of the Borrower, each dated the Closing Date and
addressed to the Lender substantially in the form attached hereto as Exhibits
B-1 and B-2 respectively and in form and substance satisfactory to Morgan, Lewis
& Bockius LLP.
(d) No Material Adverse Change. No material adverse change shall
have occurred with respect to the business, operations, performance, assets,
properties, condition (financial or otherwise) or prospects of the Credit
Parties taken as a whole from June 30, 1997.
(e) Insurance. The Borrower shall have furnished the Lender with (i)
a summary of all existing insurance coverage, (ii) evidence acceptable to the
Lender that the insurance policies required by Section 5.5 have been obtained
and are in full force and effect and (iii) Certificates of Insurance with
respect to all existing insurance coverage which certificates shall name The
Chase Manhattan Bank, as the Certificate holder and shall evidence the
Borrower's compliance with Section 5.5(f) with respect to all insurance coverage
existing as of the Closing Date.
(f) Borrowing Base Certificate. The Lender shall have received an
initial Borrowing Base Certificate substantially in the form of Exhibit C
hereto, signed by an Authorized Officer of the Borrower.
(g) Security and Other Documentation. On or prior to the Closing
Date, the Lender shall have received fully executed copies of (i) a Pledgeholder
Agreement for each item of Product for which a Credit Party has control over any
physical elements thereof as listed on Schedule 3.8 hereto; (ii) a Copyright
Security Agreement listing each item of Product in which any Credit Party has a
copyrightable interest (as listed on Schedule 3.8 hereto) executed by such
Credit Parties; (iii) a Laboratory Access Letter addressed to each Laboratory
where a Credit Party has access rights to any physical elements of Product; (iv)
appropriate UCC-1 financing statements relating to the Collateral; and (v) the
Pledged Securities with appropriate undated stock powers executed in blank.
(h) Security Interests in Copyrights and other Collateral. On or
prior to the Closing Date, the Lender shall have received evidence satisfactory
to it that each Credit Party has sufficient right, title and interest in and to
the Collateral and other assets which it purports to own (including appropriate
licenses under copyright), as set forth in its financial statements and in the
other documents presented to the Lender to enable each such Credit Party to
perform the Distribution Agreements to which each such Credit Party is a party
and as to each Credit Party to grant to the Lender the security interests
contemplated by the Fundamental Documents, and that all financing statements,
copyright filings and other filings under Applicable Law necessary to
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provide the Lender with a first priority perfected security interest in the
Pledged Securities and Collateral (subject, as to the Collateral, to Permitted
Encumbrances) have been filed or delivered to the Lender in satisfactory form
for filing.
(i) Payment of Fees. All fees and expenses then due and payable by
any Credit Party in connection with the transactions contemplated hereby shall
have been paid.
(j) Certificate from the Borrower. The Lender shall have received a
certificate, signed by an Authorized Officer on behalf of Borrower, confirming
that the Borrower has determined that the projected availability of the Loans as
determined by the Borrowing Base, together with funds from internally generated
sources and other available sources that are acceptable to the Lender, is
sufficient to finance the Borrower in a manner compatible with the forecasted
financial statements previously delivered to the Lender.
(k) Litigation. Except as set forth on Schedule 3.12, no litigation,
inquiry, injunction or restraining order shall be pending, entered or threatened
which in the Lender's good faith judgment could reasonably be expected to
materially and adversely affect (i) the assets, operations, business, condition
or prospects (financial or otherwise) of the Borrower and its Subsidiaries taken
as a whole, (ii) the ability of the Borrower and its Subsidiaries to perform
their respective Obligations hereunder or (iii) the rights and remedies of the
Lender.
(l) Existing Indebtedness. Simultaneously with the making of the
initial Loans, all Indebtedness of the Borrower under the Sanwa Credit Agreement
and all other Indebtedness identified on Schedule 3.17 as to be paid at Closing
shall have been paid in full, the commitments of the lenders thereunder shall
have been terminated and all security interests, liens and other encumbrances
granted thereunder shall have been released.
(m) UCC Searches. The Lender shall have received UCC searches
satisfactory to it indicating that no other filings (other than in connection
with Permitted Encumbrances) with regard to the Collateral are of record in any
jurisdiction in which it shall be necessary or desirable for the Lender to make
a UCC filing in order to provide the Lender with a perfected security interest
in the Collateral.
(n) Financial Statements. The Lender shall have received and be
satisfied with the true and complete copies of all of the financial statements
referred to in Section 3.5.
(o) ERISA. The Lender shall have received copies of all Plans of the
Credit Parties that are in existence on the Closing Date, and descriptions of
those that are committed to on the Closing Date.
(p) Delivery of Agreements. The Lender shall have received and be
satisfied with the terms and provisions of (i) the Borrower's standard form of
Distribution Agreement and all significant existing Distribution Agreements
listed on Schedule 3.17 which are not on such
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standard form, (ii) all joint venture or partnership agreements to which any
Credit Party is a party and (iii) all other agreements listed on Schedule 3.17
to the extent requested by the Lender.
(q) Contribution Agreement. The Lender shall have received a fully
executed Contribution Agreement duly executed by all parties thereto.
(r) Compliance with Laws. The Lender shall be satisfied that the
transactions contemplated hereby will not violate any provision of Applicable
Law.
(s) Required Consents and Approvals. The Lender shall be satisfied
that all required consents and approvals have been obtained with respect to the
transactions contemplated hereby from all Governmental Authorities with
jurisdiction over the business and activities of any Credit Party as of the date
hereof, and from any other entity, foreign or domestic, whose consent or
approval the Lender in its reasonable discretion deems necessary to effect the
transactions contemplated hereby.
(t) Federal Reserve Regulations. The Lender shall be satisfied that
the provisions of Regulations G, T, U and X of the Board will not be violated by
the transactions contemplated hereby.
(u) Pro-forma Compliance. The Lender shall have received a pro-forma
compliance report dated the Closing Date or on the date on which the most recent
data was available confirming that the Borrower and its Subsidiaries are in
pro-forma compliance with all covenants set forth in Article 5 and Article 6
hereof and in the other Fundamental Documents.
(v) Subordination Agreements. The Lender shall have received from
each Affiliate who has made advances to a Credit Party which will not be
required to be repaid on or before the Closing Date, a subordination agreement
in form and substance acceptable to the Lender, pursuant to which the
obligations of such Credit Party to such Affiliate is subordinated to the
repayment in full of the Obligations.
(w) Guaranty Agreement. The Lender shall have received a copy of the
Guaranty Agreement duly executed by all parties thereto.
(x) Notices of Assignment and Irrevocable Instructions. The Lender
shall have received, with respect to each material Eligible Receivable included
in the initial Borrowing Base Certificate, fully executed copies of the Notice
of Assignment and Irrevocable Instructions.
(y) Approval of Counsel to the Lender. All legal matters incident to
this Credit Agreement and the transactions contemplated hereby shall be
reasonably satisfactory to Morgan, Lewis & Bockius LLP, counsel to the Lender.
(z) Other Documents. The Lender shall have received such other
documentation as the Lender may reasonably request.
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SECTION 4.2. Conditions Precedent to Each Loan and Letter of Credit. The
obligations of the Lender to issue each Letter of Credit and make each Loan
(including the initial Loans and Letter of Credit) are subject to the following
conditions precedent:
(a) Notice. The Lender shall have received a notice with respect to
such Borrowing or with respect to such Letter of Credit as required by Article 2
hereof.
(b) Borrowing Certificate. The Lender shall have received a
Borrowing Certificate with respect to such Borrowing, duly executed by an
Authorized Officer of the Borrower.
(c) Representations and Warranties. The representations and
warranties set forth in Article 3 hereof and in the other Fundamental Documents
shall be true and correct in all material respects on and as of the date of each
Borrowing and issuance of a Letter of Credit hereunder (except to the extent
that such representations and warranties expressly relate to an earlier date)
with the same effect as if made on and as of such date.
(d) No Event of Default. On the date of each Borrowing or the
issuance of each Letter of Credit hereunder, each Credit Party shall be in
compliance with all of the terms and provisions set forth herein to be observed
or performed and no Event of Default or Default shall have occurred and be
continuing.
(e) Additional Documents. The Lender shall have received from the
Borrower on the date of each Borrowing and issuance of each Letter of Credit
such documents and information as they may reasonably request relating to the
satisfaction of the conditions in this Section 4.2.
Each request for a Borrowing or for issuance of a Letter of Credit shall be
deemed to be a representation and warranty by the Borrower on the date of such
Borrowing or issuance of such Letter of Credit as to the matters specified in
paragraphs (c) and (d) of this Section.
5. AFFIRMATIVE COVENANTS
From the Closing Date and for so long as the Commitment shall be in
effect or any amount remains outstanding under the Note or any Letter of Credit
shall remain outstanding or any Obligations remain unpaid or unsatisfied, each
Credit Party agrees that, unless the Lender shall otherwise consent in writing,
each of them will:
SECTION 5.1. Financial Statements and Reports. Furnish or cause to be
furnished to the Lender:
(a) Within 120 days after the end of each fiscal year of the
Borrower, commencing with the fiscal year ending December 31, 1997, the audited
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
at the end of, and the related
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statements of income, Shareholders' Equity and cash flows (along with the
related notes and supplemental information) for such year, and the corresponding
figures as at the end of, and for, the preceding fiscal year, accompanied by an
auditor's report and opinion of KPMG Peat Marwick LLP or such other independent
public accountants of nationally recognized standing as shall be retained by the
Borrower and be reasonably satisfactory to the Lender, which report and opinion
shall be prepared in accordance with generally accepted auditing standards
relating to reporting and which report and opinion shall contain no material
exceptions or qualifications except for qualifications relating to accounting
changes (with which such independent public accountants concur) in response to
FASB releases or other authoritative pronouncements;
(b) Within 60 days after the end of each of the first three fiscal
quarters of each of its fiscal years the unaudited consolidated balance sheets
of the Borrower and its Consolidated Subsidiaries as at the end of, and the
related unaudited consolidated statements of income, cash flow and shareholders'
equity for, such quarter, and the corresponding figures as at the end of, and
for, the corresponding period in the preceding fiscal year, together with a
certificate signed by an Authorized Officer of the Borrower, on behalf of the
Borrower, to the effect that such financial statements, while not examined by
independent public accountants, reflect, in the opinion of the Borrower, all
adjustments necessary to present fairly the financial position of the Borrower
and its Consolidated Subsidiaries as at the end of the fiscal quarter and the
results of its operations for the quarter then ended are in conformity with
GAAP, subject to normal year-end audit adjustments;
(c) Simultaneously with the delivery of the statements referred to
in paragraphs (a) and (b) of this Section 5.1, a certificate of an Authorized
Officer of the Borrower, on behalf of the Borrower, in form and substance
satisfactory to the Lender (i) stating whether or not such Authorized Officer
has knowledge, after due inquiry, of any condition or event which would
constitute an Event of Default or Default has occurred and, if so, specifying
each such condition or event and the nature thereof, (ii) demonstrating in
reasonable detail compliance with the provisions of Sections 6.14 through 6.18
and 6.21 hereof and (iii) certifying that all filings required under Section 5.8
hereof have been made and listing each such filing that has been made since the
date of the last certificate delivered in accordance with this Section 5.1(c);
(d) Together with each set of audited financial statements required
by paragraph (a) above, a report from the independent public accountants
rendering the report thereon (i) stating that such Person has made such
examination or investigation as is necessary to enable it to express an informed
opinion as to the matters referred to in clause (ii) of this Section 5.1(d), it
being understood that no special audit procedures are required hereby and (ii)
stating whether, in connection with their audit examination, any condition or
event, at any time during or at the end of the accounting period covered by such
financial statements, which constitutes an Event of Default under covenants
relating to accounting matters has come to their attention, and if such a
condition or event has come to their attention, specifying the nature and
period, if known, of existence thereof;
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(e) On or prior to the twentieth day of each month, a certificate
("Borrowing Base Certificate") in the form of Exhibit C hereto, setting forth
the amount of each component included in the Borrowing Base as of the last
Business Day of the preceding month, attached to which shall be detailed
information including the calculation of each such component (the Borrower, at
its option, may furnish additional Borrowing Base Certificates setting forth
such information as of such other dates as it may deem appropriate), together
with an aging report of the Eligible Receivables included in the Borrowing Base;
(f) Promptly upon their becoming available, copies of (i) all
management projections, studies or evaluations prepared by consultants for or
presented to any Credit Party's Board of Directors and (ii) all audits, studies,
reports or evaluations prepared for or submitted to any of the Credit Parties by
any outside professional firm or service, including, without limitation, the
final comment letter submitted by the Credit Parties' accountants to the Board
of Directors or the audit committee of the Board of Directors of the Borrower in
connection with their annual audit;
(g) Within 10 days of the Borrower's receipt thereof, copies of all
management letters issued to the Borrower by its auditors;
(h) Promptly upon their becoming available, copies of (i) all
registration statements, proxy statements, and all reports which the Borrower or
any other Credit Party shall file with any securities exchange or with the
Securities and Exchange Commission or any successor agency and (ii) all reports,
financial statements, press releases and other information which the Borrower or
any other Credit Party shall release, send or make available to its common
stockholders generally;
(i) Notice of (i) any substantive action taken by any Credit Party
in connection with the proposed issuance of any additional debt or equity
securities other than the issuance of securities to employees in connection with
the exercise of options and (ii) the date on which such Credit Party expects to
receive the net cash proceeds from the issuance of such additional debt or
equity securities;
(j) Simultaneously with the delivery of the statements referred to
in paragraph (a) of this Section 5.1, the calculation of the Eligible Library
Amount computed as of the last Business Day of the prior fiscal year as
contemplated by the definition of "Eligible Library Amount"; and
(k) From time to time such additional information regarding the
financial condition or business of the Credit Parties or otherwise regarding the
Collateral, as the Lender may reasonably request for the purpose of assuring
itself as to compliance by the Credit Parties with the terms hereof.
SECTION 5.2. Corporate Existence. Do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its corporate
existence, rights, material
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licenses, material permits and material franchises, and comply with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, any Governmental Authority, except as otherwise permitted under
Section 6.7 and except that any Subsidiary of the Borrower may be liquidated or
dissolved if in the reasonable judgment of the Board of Directors of the
Borrower such Subsidiary is no longer necessary for the proper conduct of the
business of the Borrower.
SECTION 5.3. Maintenance of Properties. Keep its tangible properties
which are material to its business in good repair, working order and condition
(ordinary wear and tear excepted) and, from time to time (i) make all necessary
and proper repairs, renewals, replacements, additions and improvements thereto
and (ii) comply at all times with the provisions of all material leases and
other material agreements to which it is a party so as to prevent any loss or
forfeiture thereof or thereunder unless compliance therewith is being currently
contested in good faith by appropriate proceedings; provided, however, that
nothing in this Section 5.3 shall prevent any Credit Party from discontinuing
the use, operation or maintenance of such properties or disposing of them if
such discontinuance or disposal is, in the judgment of its Board of Directors,
desirable in the conduct of the business.
SECTION 5.4. Notice of Material Events. (a) Promptly upon any Authorized
Officer of any Credit Party obtaining knowledge of (i) any Default or Event of
Default, (ii) any material adverse change in the condition or operations of the
Borrower and its Subsidiaries taken as a whole, financial or otherwise, (other
than changes due to seasonality that are consistent with the corresponding
periods in prior years), (iii) any action or event which could reasonably be
expected to materially and adversely affect the performance of the Credit
Parties' obligations under this Credit Agreement, the repayment of the Note, or
the security interests granted to the Lender under this Credit Agreement or any
other Fundamental Document, (iv) the opening of any office of any Credit Party
or the change of the executive office or the principal place of business of any
Credit Party or of the location of any Credit Party's books and records with
respect to the Collateral, (v) any change in the name of any Credit Party, (vi)
any other event which could reasonably be expected to materially and adversely
impact upon the amount or collectibility of accounts receivable of the Credit
Parties or otherwise materially decrease the value of the Collateral or (vii)
any Person giving any notice to any Credit Party or taking any other action to
enforce remedies with respect to a claimed default or event or condition of the
type referred to in paragraph (d) of Article 7, such Credit Party shall promptly
give written notice thereof to the Lender specifying the nature and period of
existence of any such condition or event, or specifying the notice given or
action taken and the nature of such claimed Event of Default or condition and
what action such Credit Party has taken, is taking and proposes to take with
respect thereto.
(b) Promptly upon any Authorized Officer of any Credit Party
obtaining knowledge of (i) the institution of, or threat of, any action, suit,
proceeding, investigation or arbitration by any Governmental Authority or other
Person against or affecting any Credit Party or any of its assets, or (ii) any
material development in any such action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lender), which, in the
case of (i) or (ii), could reasonably be expected to materially and adversely
affect the Borrower and its Subsidiaries taken as a whole, such Credit Party
shall promptly give notice thereof to the Lender
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and provide such other information as may be available to it to enable the
Lender to evaluate such matters; and, in addition to the requirements set forth
in clauses (i) and (ii) of this subsection (b), such Credit Party upon request
shall promptly give notice of the status of any action, suit, proceeding,
investigation or arbitration covered by a report delivered to the Lender
pursuant to clause (i) and (ii) above to the Lender and provide such other
information as may be reasonably available to it to enable the Lender to
evaluate such matters.
SECTION 5.5. Insurance. (a) Keep its assets which are of an insurable
character insured (to the extent and for the time periods consistent with normal
industry practices) by financially sound and reputable insurers against loss or
damage by fire, explosion, theft or other hazards which are included under
extended coverage in amounts not less than the insurable value of the property
insured or such lesser amounts, and with such self-insured retention or
deductible levels, as are consistent with normal industry practices.
(b) Maintain with financially sound and reputable insurers,
insurance against other hazards and risks and liability to Persons and property
to the extent and in the manner customary for companies in similar businesses.
(c) Maintain, or cause to be maintained, in effect during the period
from the commencement of principal photography of each item of Product produced
by any Credit Party, through the third anniversary of the date on which such
item of Product is Completed and/or as otherwise required by applicable
contracts, a so-called "Errors and Omissions" policy with respect to all items
of Product for which principal photography has commenced, and cause such Errors
and Omissions policy to provide coverage to the extent and in such manner as is
customary for items of Product of like type but, at minimum, to the extent and
in such manner as is required under all applicable contracts relating thereto.
(d) Maintain, or cause to be maintained, in effect during the period
from the commencement of principal photography of each item of Product produced
by any Credit Party, or from the date of acquisition of each item of Product
acquired by any Credit Party (i) until such time as the Lender shall have been
provided with satisfactory evidence of the existence of one negative or master
tape in one location and an interpositive or internegative or duplicate master
tape in another location of the final version of the Completed Product,
insurance on the negatives and sound tracks or master tapes of such item of
Product in an amount not less than the cost of re-shooting the principal
photography of the item of Product, and (ii) until principal photography of such
item of Product has been concluded, a cast insurance policy with respect to such
item of Product, which provides coverage to the extent and in such manner as is
customary for a like type of Product, but at minimum, to the extent required
under all applicable contracts relating thereto.
(e) Maintain, or cause to be maintained, in effect distributor's
and/or publisher's "Errors and Omissions" insurance to the extent and in amounts
customary for companies in similar businesses.
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(f) Cause all such above-described insurance (excluding worker's
compensation insurance) to (i) provide for the benefit of the Lender that 30
days' prior written notice of suspension, cancellation, termination,
modification, non-renewal or lapse or material change of coverage shall be given
to the Lender; (ii) name the Lender as the loss payee as its interests may
appear (except for "Errors and Omissions" insurance and other third party
liability insurance), provided, however, that production insurance recoveries
received prior to Completion or abandonment of an item of Product may be
utilized to finance the production of such item of Product and property
insurance proceeds may be used to repair damage in respect of which such
proceeds were received; and (iii) to the extent that the Lender shall not be
liable for premiums or calls, name the Lender as an additional insured
including, without limitation, under any "Errors and Omissions" policy.
(g) Upon the request of the Lender, the Borrower will render to the
Lender a statement in such detail as the Lender may request as to all such
insurance coverage.
SECTION 5.6. Production. Cause each item of Product being produced by
any Credit Party to be produced in all material respects in accordance with the
standards set forth in, and within the time period established in, all
agreements with respect to such item of Product to which such Credit Party is a
party, subject to the terms and conditions of such agreements.
SECTION 5.7. Music. When an item of Product has been scored, if
requested by the Lender, deliver to the Lender within a reasonable period of
time after such request (a) written evidence of the music synchronization rights
obtained from the composer or the licensor of the music and (b) copies of all
music cue sheets with respect to such item of Product.
SECTION 5.8. Copyright. (a) Within 90 days after the initial release or
broadcast of each item of Product, to the extent any Credit Party is or becomes
the copyright proprietor thereof or to the extent such interest is obtained by
any Credit Party, or any Credit Party otherwise acquires a copyrightable
interest, take any and all actions necessary to register the copyright for such
item in the name of such Credit Party (subject to a Lien in favor of the Lender
pursuant to the Copyright Security Agreement) in conformity with the laws of the
United States and such other jurisdictions as the Lender may reasonably specify,
and immediately deliver to the Lender (i) written evidence of the registration
of any and all such copyrights for inclusion in the Collateral under this Credit
Agreement and (ii) a Copyright Security Agreement Supplement relating to such
item executed by such Credit Party.
(b) Obtain instruments of transfer or other documents evidencing the
interest of any Credit Party with respect to the copyright relating to items of
Product in which such Credit Party is not entitled to be the initial copyright
proprietor, and promptly record such instruments of transfer on the United
States Copyright Register and such other jurisdictions as the Lender may
specify.
SECTION 5.9. Books and Records. (a) Maintain or cause to be maintained
at all times true and complete books and records of its financial operations and
provide the Lender and
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its representatives access to such books and records and to any of its
properties or assets upon reasonable notice and during regular business hours in
order that the Lender may make such audits and examinations and make abstracts
from such books, accounts, records and other papers pertaining to the Collateral
(including, but not limited to, Eligible Receivables included in the Borrowing
Base) and upon notification to the Borrower may discuss the affairs, finances
and accounts with, and be advised as to the same by, officers and independent
accountants, all as the Lender may deem appropriate for the purpose of verifying
the accuracy of the Borrowing Base Certificate and the various other reports
delivered by any Credit Party to the Lender pursuant to this Credit Agreement or
for otherwise ascertaining compliance with this Credit Agreement or any other
Fundamental Document.
(b) If, prior to an Event of Default, the Lender wishes to confirm
with account debtors and other payors the amounts and terms of any or all
Eligible Receivables included in the Borrowing Base, the Lender will so notify
the Borrower; provided, that so long as an Event of Default has not occurred and
is continuing, the Lender shall be entitled to exercise such right no more than
once per year. Within 10 days after receipt of such notice from the Lender, the
Borrower may, upon written notice to the Lender, elect to have such confirmation
made through the Credit Parties' auditors. If the Borrower fails to timely make
such election, the Lender may proceed to make such confirmations directly with
account debtors and other payors. Each of the Credit Parties hereby agrees that,
upon the occurrence and during the continuance of an Event of Default, the
Lender shall be entitled to confirm directly with account debtors the amounts
and terms of all accounts receivable.
SECTION 5.10. Third Party Audit Rights. Promptly notify the Lender of,
and allow the Lender access to the results of, all audits conducted by any
Credit Party of any third party licensee, partnership and joint venture under
any agreement with respect to any item of Product included in the Collateral.
The Credit Parties will exercise their audit rights with respect to any third
party licensees, partnerships and joint ventures under any agreement with
respect to an item of Product included in the Collateral upon the reasonable
written request of the Lender, to the extent such rights are available to the
Credit Parties; provided, that so long as an Event of Default has not occurred
and is continuing, the Lender shall be entitled to cause the Credit Parties to
exercise such audit rights no more than once per year. After an Event of Default
has occurred and is continuing, the Lender shall have the right to exercise
through any Credit Party such Credit Party's right to audit any obligor under an
agreement with respect to any item of Product included in the Collateral.
SECTION 5.11. Observance of Agreements. Duly observe and perform all
material terms and conditions of all material agreements with respect to the
exploitation of items of Product and diligently protect and enforce the rights
of the Credit Parties under all such agreements in a manner consistent with
prudent business judgment and subject to the terms and conditions of such
agreements.
SECTION 5.12. Film Properties and Rights; Credit Parties to Act as
Pledgeholder. Act as pledgeholder for the Lender with the same effect as if the
Lender were a
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pledgee in possession of all property relating to items of Product which are now
or hereafter in the (actual or constructive) possession of any Credit Party,
subject to such access as shall be necessary to distribute such items of
Product.
SECTION 5.13. Laboratories; No Removal. (a) To the extent any Credit
Party has control over or rights to receive any of the Physical Materials
relating to any item of Product, deliver or cause to be delivered to a
Laboratory or Laboratories all negative and preprint material, master tapes and
all sound track materials with respect to each such item of Product and deliver
to the Lender a fully executed Pledgeholder Agreement with respect to such
materials. To the extent that any Credit Party has only rights of access to
preprint material or master tapes then the Credit Parties will deliver to the
Lender a fully executed Laboratory Access Letter covering such materials. Prior
to requesting any such Laboratory to deliver such negative or other preprint or
sound track material or master tapes to another laboratory, any such Credit
Party shall provide the Lender with a Pledgeholder Agreement or Laboratory
Access Letter, as appropriate, executed by such other laboratory and all other
parties to such Pledgeholder Agreement (including the Lender). Each Credit Party
hereby agrees not to remove or cause the removal of the original negative and
film or sound materials with respect to any item of Product owned by such Credit
Party or in which such Credit Party has an interest (i) to a location outside
the United States or (ii) to any state or jurisdiction where UCC-1 financing
statements (or in the case of jurisdictions outside the United States,
documentation similar in purpose and effect satisfactory to the Lender) have not
been filed against such Credit Party holding any rights to such item of Product.
(b) During production of any item of Product produced by any Credit
Party, such Credit Party shall promptly deliver the daily rushes for such item
of Product to the appropriate Laboratory.
(c) With respect to items of Product completed after the Closing
Date, as soon as practicable after completion, deliver to the Lender and the
Laboratories which are signatories to Pledgeholder Agreements a revised schedule
of Product on deposit with such Laboratories.
SECTION 5.14. Taxes and Charges; Indebtedness in Ordinary Course of
Business. Duly pay and discharge, or cause to be paid and discharged, before the
same shall become in arrears (after giving effect to applicable extensions), all
taxes, assessments, levies and other governmental charges, imposed upon any
Credit Party or its properties, sales and activities, or any part thereof, or
upon the income or profits therefrom, as well as all claims for labor,
materials, or supplies which if unpaid might by law become a Lien upon any
property of any Credit Party; provided, however, that any such tax, assessment,
charge, levy or claim need not be paid if the validity or amount thereof shall
currently be contested in good faith by appropriate proceedings and if such
Credit Party shall have set aside on its books reserves (the presentation of
which is segregated to the extent required by GAAP) adequate with respect
thereto if reserves shall be deemed necessary; and provided, further, that such
Credit Party will pay all such taxes, assessments, levies or other governmental
charges forthwith upon the commencement of proceedings to foreclose any Lien
which may have attached as security therefor. The Credit Parties will promptly
pay when due, or in conformance with customary trade terms, all other
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indebtedness incident to its operations in a manner consistent with such Credit
Party's past business practices.
SECTION 5.15. Liens. Defend the Collateral against any and all Liens
howsoever arising, other than Permitted Encumbrances, and in any event defend
against any attempted foreclosure.
SECTION 5.16. Further Assurances; Security Interests. (a) Upon the
request of the Lender, duly execute and deliver, or cause to be duly executed
and delivered, at the cost and expense of the Credit Parties, such further
instruments as may be appropriate in the reasonable judgment of the Lender to
carry out the provisions and purposes of this Credit Agreement and the other
Fundamental Documents.
(b) Upon the request of the Lender, promptly execute and deliver or
cause to be executed and delivered, at the cost and expense of the Credit
Parties, such further instruments as may be appropriate in the reasonable
judgment of the Lender, to provide the Lender a first perfected Lien in the
Collateral and any and all documents (including, without limitation, the
execution, amendment or supplementation of any financing statement and
continuation statement or other statement) for filing under the provisions of
the UCC and the rules and regulations thereunder, or any other statute, rule or
regulation of any applicable foreign, federal, state or local jurisdiction, and
perform or cause to be performed such other ministerial acts which are necessary
or advisable, from time to time, in order to grant and maintain in favor of the
Lender the security interest in the Collateral contemplated hereunder and under
the other Fundamental Documents, subject only to Permitted Encumbrances.
(c) Promptly undertake to deliver or cause to be delivered to the
Lender from time to time such other documentation, consents, authorizations and
approvals in form and substance reasonably satisfactory to the Lender, as the
Lender shall deem reasonably necessary or advisable to perfect or maintain the
Liens of the Lender.
SECTION 5.17. ERISA Compliance and Reports. Furnish to the Lender (a) as
soon as possible, and in any event within 30 days after any Credit Party knows
that (i) any Reportable Event with respect to any Plan has occurred, a statement
of an executive officer of the Credit Party, setting forth on behalf of such
Credit Party details as to such Reportable Event and the action which it
proposes to take with respect thereto, together with a copy of the notice, if
any, required to be filed by the applicable Credit Party of such Reportable
Event given to the PBGC or (ii) an accumulated funding deficiency has been
incurred or an application has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard or an extension of any
amortization period under Section 412 of the Code with respect to a Plan, a Plan
or Multiemployer Plan has been or is proposed to be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA, proceedings have been
instituted to terminate a Plan, a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to a Multiemployer
Plan, or the Borrower or such Credit Party will incur any liability (including
any contingent or secondary liability) to or on account of the termination
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of or withdrawal from a Plan or Multiemployer Plan under Sections 4062, 4063,
4201 or 4204 of ERISA, if the occurrence of any of the foregoing events would
result in a liability which is materially adverse to the financial condition of
the Borrower and its Subsidiaries taken as a whole or would materially and
adversely affect the ability of the Borrower to perform its obligations under
this Credit Agreement or the Note, a statement of an executive officer of the
Borrower, setting forth details as to such event and the action the applicable
Credit Party proposes to take with respect thereto, (b) promptly upon reasonable
request of the Lender, copies of each annual and other report with respect to
each Plan and (c) promptly after receipt thereof, a copy of any notice any
Credit Party may receive from the PBGC relating to the PBGC's intention to
terminate any Plan or to appoint a trustee to administer any Plan.
SECTION 5.18. Environmental Laws. (a) Promptly notify the Lender upon
any Credit Party becoming aware of any violation or, to the best of each Credit
Party's knowledge, potential violation, or non-compliance with, or liability or,
to the best of each Credit Party's knowledge, potential liability, under any
Environmental Laws which, when taken together with all other pending violations
would reasonably be expected to have a materially adverse effect on the Borrower
and its Subsidiaries taken as a whole, and promptly furnish to the Lender all
notices of any nature which any Credit Party may receive from any Governmental
Authority or other Person with respect to any violation, or potential violation
or non-compliance with, or liability or potential liability under any
Environmental Laws which, in any case or when taken together with all such other
notices, could reasonably be expected to have a materially adverse effect on the
Borrower and its Subsidiaries taken as a whole.
(b) Comply with and use reasonable efforts to ensure compliance by
all tenants and subtenants with all Environmental Laws, and obtain and comply in
all material respects with and maintain and use reasonable efforts to ensure
that all tenants and subtenants obtain and comply in all material respects with
and maintain any and all licenses, approvals, registrations or permits required
by Environmental Laws, except where failure to do so would not have a materially
adverse effect on the Borrower and its Subsidiaries taken as a whole.
(c) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under all
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities, except where failure to
do so would not have a materially adverse effect on the Borrower and its
Subsidiaries taken as a whole. Any order or directive whose lawfulness is being
contested in good faith by appropriate proceedings shall be considered a lawful
order or directive when such proceedings, including any judicial review of such
proceedings, have been finally concluded by the issuance of a final
non-appealable order; provided, however, that the appropriate Credit Party shall
have set aside on its books reserves (the presentation of which is segregated to
the extent required by GAAP) adequate with respect thereto if reserves shall be
deemed necessary.
(d) Defend, indemnify and hold harmless the Lender and its
employees, agents, officers and directors, from and against any claims, demands,
penalties, fines, liabilities,
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settlements, damages, costs and expenses of whatever kind or nature, known or
unknown, contingent or otherwise, arising out of, or in any way related to the
violation of or noncompliance by any Credit Party with any Environmental Laws,
or any orders, requirements or demands of Governmental Authorities related
thereto, including, without limitation, reasonable attorney and consultant fees,
investigation and laboratory fees, court costs and litigation expenses, but
excluding therefrom all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses arising out of or resulting from (i)
the gross negligence or willful misconduct of any indemnified party or (ii) any
acts or omissions of any indemnified party occurring after any indemnified party
is in possession of, or controls the operation of, any property or asset.
SECTION 5.19. Use of Proceeds. Use the proceeds of the Loans solely for
the Borrower (i) to finance the development, production, distribution or
acquisition of audio books, books, television product and film product (other
than the production and distribution of motion pictures in theaters) and
production and distribution expenses of the motion picture entitled "Wilde";
(ii) to refinance the Sanwa Credit Agreement and the MEI Line of Credit; and
(iii) for other general corporate purposes.
SECTION 5.20. Security Agreements with the Guilds. Furnish to the Lender
duly executed copies of (i) each security agreement relating to an item of
Product entered into by a Credit Party with any guild and (ii) a subordination
agreement (in form and substance satisfactory to the Lender) from the applicable
guild with respect to the security interest and other rights granted to it
pursuant to each such security agreement delivered to the Lender pursuant to
clause (i) above.
SECTION 5.21. Uncompleted Product. With respect to all items of Product
(other than audio books and books) for which any Credit Party is the producer
(but not a producer-for-hire) or has a financial interest which is subject to a
completion risk (i.e. payment by a Credit Party is not conditioned upon
delivery), deliver to the Lender, not later than (A) five (5) days prior to the
commencement of principal photography of such item of Product and (B) five (5)
days prior to payment of the acquisition cost for a negative pick-up, each of
the following to the extent applicable (it being understood that for purposes of
clause B clauses (viii) and (ix) below shall not be applicable), (i) the budget
for such item of Product, (ii) a schedule identifying all agreements executed by
a Credit Party in connection with such item of Product which provide for
deferments of compensation or a gross or net profit participation, (iii) copies
of such of the foregoing agreements as the Lender may reasonably request, (iv)
certificates or binders of insurance with respect to such item of Product (and
policies of insurance if requested by the Lender), including all forms of
insurance coverage required by Section 5.5 hereof, (v) copies of all instruments
of transfer or other instruments (in recordable form) ("Chain of Title"
documents) necessary to establish, to the reasonable satisfaction of the Lender,
in the appropriate Credit Party ownership of sufficient copyright rights in the
literary properties upon which such item of Product is to be based to enable
such Credit Party to produce and/or distribute such item of Product and to grant
the Lender the security interests therein which are contemplated by this Credit
Agreement which documents shall evidence to the Lender's satisfaction the Credit
Party's rights in, and with respect to, such item of Product, (vi) an executed
Copyright Security
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Agreement Supplement with respect to such item of Product, (vii) executed
Pledgeholder Agreements with respect to such item of Product, (viii) a schedule
of sources and uses demonstrating in detail that all cash necessary to complete
and deliver such item of Product will be available as and when needed from
sources acceptable to the Lender, and (ix) a Completion Guarantee with respect
to such item of Product in form and substance satisfactory to the Lender naming
the Lender as a beneficiary thereof; provided, however, that subclause (ix)
shall not be applicable to items of Product for which a major television network
has committed to provide financing in an amount equal to at least 70% of the
Budgeted Negative Cost for such item of Product.
SECTION 5.22. Governmental Approval. If any further authorizations,
approvals, registrations or filings with any governmental or public regulatory
body or authority of the United States or any state thereof required for the
execution, delivery and performance by any Credit Party of this Credit Agreement
and the other Fundamental Documents to which it is a party should hereafter
become necessary, the Credit Parties shall obtain or make all such
authorizations, approvals, registrations or filings.
6. NEGATIVE COVENANTS
From the date hereof and for so long as the Commitment shall be in
effect or any amount remains outstanding under the Note or any Letter of Credit
shall remain outstanding or any Obligations remain unpaid or unsatisfied, each
Credit Party agrees that, unless the Lender shall otherwise consent in writing,
it will not and will not allow any of its Subsidiaries to:
SECTION 6.1. Limitations on Indebtedness. Incur, create, assume or
suffer to exist any preferred stock or Indebtedness or permit any partnership or
joint venture in which any Credit Party is a general partner to incur create,
assume or suffer to exist any Indebtedness other than:
(a) the Indebtedness represented by the Note and the other
Obligations;
(b) Indebtedness in respect of secured purchase money financing,
including Capital Leases, to the extent permitted by Section 6.2(b) and not to
exceed $250,000 in the aggregate at any one time outstanding;
(c) unsecured liabilities for acquisitions of rights or product
incurred in the ordinary course of business and not otherwise prohibited
hereunder;
(d) liabilities relating to net or gross profit participations,
deferments and guild residuals with respect to the production or acquisition of
items of Product;
(e) existing Indebtedness listed on Schedule 3.17 hereto but no
increases, extensions or renewals thereof unless otherwise noted on Schedule
3.17;
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(f) in the case of the Corporate Guarantors, the guarantees of the
Obligations pursuant to Article 9 hereof;
(g) Indebtedness incurred in connection with inter-company advances
permitted under Section 6.4(v) hereof;
(h) Subordinated Debt that does not require any cash payments at any
time prior to six months after the Commitment Termination Date;
(i) Indebtedness incurred in connection with the refinancing of the
Borrower's existing loan in connection with the acquisition of its office
building referenced in Note 6 of the Borrower's quarterly report for the period
ended June 30, 1997, provided that (i) the principal amount then outstanding and
being refinanced is not increased to an amount greater than $3,300,000, (ii) the
Lien(s) provided therefor are not extended to cover any additional property or
assets of the Borrower, and (iii) the Weighted Average Life to Maturity of such
Indebtedness is not decreased;
(j) Indebtedness incurred in connection with the financing of
television programming for which the Lender has previously provided written
consent; and
(k) preferred stock without any mandatory redemption provisions.
SECTION 6.2. Limitations on Liens. Incur, create, assume or suffer to
exist any Lien on its revenue stream, property or assets, whether now owned or
hereafter acquired, except:
(a) Liens pursuant to written security agreements (in form and
substance reasonably acceptable to the Lender) in favor of guilds required
pursuant to terms of collective bargaining agreements; provided, that such
guilds have entered into an intercreditor agreement with the Lender reasonably
satisfactory in all respects to the Lender;
(b) Liens granted to the Person financing the acquisition of
property, plant or equipment if (i) limited to the particular assets acquired;
(ii) the debt secured by the Lien does not exceed the acquisition cost of a
particular asset for which the Lien is granted; (iii) such transaction does not
otherwise violate this Credit Agreement and (iv) the aggregate amount of all
Indebtedness secured by Liens permitted under this paragraph (excluding the
Indebtedness incurred in connection with the refinancing of the Borrower's
office building permitted by Section 6.1(i)) does not exceed $250,000 at any one
time outstanding;
(c) Liens to secure distribution, exhibition and/or exploitation
rights of licensees pursuant to Distribution Agreements on terms satisfactory to
the Lender;
(d) deposits under worker's compensation, unemployment insurance,
old-age pensions and other Social Security laws or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed money) or
leases or to secure statutory obligations or
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surety or appeal bonds or performance or other similar bonds incurred in the
ordinary course of business (other than Completion Guarantees);
(e) Liens for taxes, assessments or other governmental charges or
levies due and payable, the validity or amount of which is currently being
contested in good faith by appropriate proceedings pursuant to the terms of
Section 5.14 hereof;
(f) Liens incurred in the ordinary course of business with regard to
services rendered by laboratories and post-production houses, and suppliers of
materials and equipment which secure trade payables in amounts not exceeding
$500,000 in the aggregate;
(g) Liens arising out of attachments, judgments or awards as to
which an appeal or other appropriate proceedings for contest or review are
promptly commenced (and as to which foreclosure and other enforcement
proceedings shall not have been commenced (unless fully bonded or otherwise
effectively stayed)) and as to which appropriate reserves have been established
in accordance with GAAP;
(h) the Liens of the Lender under this Credit Agreement, the other
Fundamental Documents and other documents contemplated hereby;
(i) existing Liens set forth on Schedule 6.2 hereto;
(j) customary Liens in favor of Approved Completion Guarantors in
connection with Completion Guarantees;
(k) possessory Liens (other than those of Laboratories and
production houses) which (i) occur in the ordinary course of business, (ii)
secure normal trade debt which is not yet due and payable and (iii) do not
secure Indebtedness for borrowed money;
(l) Liens arising by virtue of any statutory or common law provision
relating to banker's liens, rights of setoff or similar rights with respect to
deposit accounts of the Credit Parties;
(m) statutory Liens of landlords and other Liens imposed by law,
such as carriers', warehouseman's or mechanic's Liens, incurred in good faith in
the ordinary course of business and deposits made or bonds filed in the ordinary
course of business to obtain the release of such Liens in amounts not exceeding
$250,000 in the aggregate;
(n) Liens granted to third parties securing Indebtedness permitted
to be incurred under Section 6.1(j); and
(o) Liens in favor of third-party lenders in respect of particular
items of Product pursuant to production financing arrangements approved by the
Lender; provided, that
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each such third-party lender shall have entered into an intercreditor agreement
with the Lender in form and substance satisfactory to the Lender.
SECTION 6.3. Limitation on Guarantees. Provide any Guaranty, either
directly or indirectly, except (i) negative pickup agreements and minimum
guarantees to acquire items of Product in the ordinary course of business to the
extent otherwise permitted under Section 6.21 and the other provisions hereof,
(ii) guarantees to the Lender in accordance with Article 9 hereof and (iii)
existing Guarantees listed on Schedule 6.3 hereto.
SECTION 6.4. Limitations on Investments. Create, make or incur any
Investment other than (i) to acquire Product in the ordinary course of business
to the extent otherwise permitted under Section 6.21 and the other provisions
hereof, (ii) purchase of Cash Equivalents, (iii) inter-company advances among
Credit Parties, (iv) Investments as of the Closing Date set forth on Schedule
6.4, (v) Guarantees permitted pursuant to Section 6.3, (vi) the acquisition or
creation of new Subsidiaries in accordance with Section 6.22 hereof, and (vii)
additional investments in Empire Burbank in an aggregate amount not to exceed
$100,000 per annum.
SECTION 6.5. Restricted Payments. Declare, make or incur any liability
to make any Restricted Payments; provided that the Borrower may declare cash
dividends to its stockholders if, and only if, the EBIT Ratio calculated
pursuant to Section 6.17 is at least 20 to 1.
SECTION 6.6. Limitations on Leases. Create, incur or assume combined
lease expense (but specifically excluding amounts included in the Budgeted
Negative Cost of an item of Product) for any twelve consecutive calendar months
in excess of $100,000.
SECTION 6.7. Consolidation, Merger, Sale or Purchase of Assets, etc.
Whether in one transaction or a series of transactions, (i) wind up, liquidate
or dissolve its affairs, or enter into any transaction of merger or
consolidation, (ii) sell or otherwise dispose of all or substantially all of its
property, stock or assets, (iii) except to the extent permitted by Sections 6.4
and 6.22 hereof, acquire all or substantially all of the stock or assets of any
other Person in amounts exceeding $500,000 in the aggregate, or (iv) agree to do
or suffer any of the foregoing, except that any Subsidiary of the Borrower may
merge with and into, or transfer assets to, another Subsidiary of the Borrower
or with and into, or transfer assets to, the Borrower; provided that if any such
transaction involves the Borrower, then the Borrower must be the surviving
entity in each such transaction.
SECTION 6.8. Receivables. Sell, discount or otherwise dispose of notes,
accounts receivable or other obligations owing to any Credit Party except for
the purpose of collection in the ordinary course of business.
SECTION 6.9. Sale and Leaseback. Enter into any arrangement with any
Person or Persons, whereby in contemporaneous transactions any Credit Party
sells essentially all of its right, title and interest in an item of Product and
acquires or licenses the right to distribute or
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exploit such item of Product in media and markets accounting for substantially
all the value of such item of Product, unless such arrangement does not impair
the collateral position of the Lender and is evidenced by documentation
acceptable to the Lender.
SECTION 6.10. Places of Business; Change of Name. Change the location of
its chief executive office or principal place of business or any of the
locations where it keeps any material portion of the Collateral or its books and
records with respect to the Collateral or change its name without in each case
(i) giving the Lender 30 days' prior written notice of such change and (ii)
filing any additional Uniform Commercial Code financing statements, and such
other documents requested by the Lender or which are otherwise necessary or
desirable to maintain perfection of the security interest of the Lender in the
Collateral.
SECTION 6.11. Limitations on Capital Expenditures. Make or incur on a
consolidated basis any obligation to make Capital Expenditures (other than
amounts included in the Budgeted Negative Cost of an item of Product) for any
fiscal year in excess of $250,000.
SECTION 6.12. Transactions with Affiliates. Effect any transaction with
an Affiliate other than a Credit Party on a basis less favorable to such Credit
Party than would have been the case if such transaction had been effected on an
arms-length basis (and if involving more than $100,000, without a resolution
approving each such transaction from the Board of Directors of each Credit Party
involved).
SECTION 6.13. Prohibition of Amendments or Waivers. Amend, alter,
modify, terminate or waive, or consent to any amendment, alteration,
modification or waiver of (x) any material agreement to which any Credit Party
is a party, including, without limitation, the Material Agreements, or the terms
thereof in any manner which would change, alter or waive any material term
thereof and which could reasonably be expected to (i) materially and adversely
affect the collectibility of accounts receivable that form part of the Borrowing
Base, (ii) materially and adversely affect the financial condition of any Credit
Party, (iii) materially and adversely affect the rights of the Lender under this
Credit Agreement, the other Fundamental Documents and any other agreements
contemplated hereby, (iv) materially decrease the value of the Collateral, or
(v) decrease the amount of the sum of (i) the Borrowing Base plus (ii) the
Maximum Guaranty Amount plus (iii) amounts currently held in the Collection
Account, to less than the sum of then outstanding principal amount of the Loans
and the then current L/C Exposure, or (y) any indenture or note purchase
agreement governing any Subordinated Debt in any manner whatsoever.
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SECTION 6.14. Development Costs. Permit unfunded development costs
(which have not been sold, written off or allocated to an item of Product for
which active preproduction has commenced) to exceed $100,000 for any item of
Product.
SECTION 6.15. Overhead Expense. Permit aggregate allocated and
unallocated overhead expenses to exceed $1,100,000 in the fourth quarter of
fiscal year 1997, $3,750,000 in fiscal 1998 or to exceed in any subsequent
fiscal year 110% of the maximum amount permitted for the immediately preceding
fiscal year.
SECTION 6.16. Consolidated Capital Base. Permit Consolidated Capital
Base at the end of any quarter to be less than the sum of $8,000,000 plus 80% of
all net new equity invested plus 80% of accumulated net earnings, if any, for
each fiscal quarter ending after the Closing Date and prior to the date at which
compliance is being determined.
SECTION 6.17. EBIT Ratio. Permit the ratio of (i) the sum of EBIT on the
last day of each fiscal quarter plus amortization of goodwill and capitalized
financing costs on the last day of each fiscal quarter to (ii) Total Interest on
the last day of each fiscal quarter to be less than 1.5 to 1 as of fiscal year
end 1998 and 2.0 to 1 for for any rolling four quarter period thereafter.
SECTION 6.18. Liquidity Ratio. Permit the ratio of (i) all projected
known cash sources (including cash on hand, borrowing under the Credit Agreement
(taking into account projected Borrowing Base availability plus the Maximum
Guaranty Amount), cash receipts from operations, overhead reimbursements, and
cash received from permitted Subordinated Debt and third party investors) to
(ii) all projected known cash uses (including debt service, amounts to be spent
to acquire film inventory, overhead, and all other cash expenditures), all as
determined as of each quarter end and as projected in good faith by the Borrower
for the ensuing 24 months, to be less than 1.0 to 1.
SECTION 6.19. No Change in Business. Engage in any business activities
other than production, distribution and other exploitation of audio books,
books, television product and film product (other than the production and
distribution of motion pictures in theaters) and the production and distribution
of the motion picture entitled "Wilde", in each case including ancillary rights
(e.g., music publishing, soundtrack album, merchandising and publishing).
SECTION 6.20. ERISA Compliance. Engage in a "prohibited transaction", as
defined in Section 406 of ERISA or Section 4975 of the Code, with respect to any
Plan or Multiemployer Plan or knowingly consent to any other "party in interest"
or any "disqualified person", as such terms are defined in Section 3(14) or
ERISA and Section 4975(e)(2) of the Code, respectively, engaging in any
"prohibited transaction", with respect to any Plan or
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Multiemployer Plan maintained or contributed to by any Credit Party; or permit
any Plan maintained by any Credit Party to incur any "accumulated funding
deficiency", as defined in Section 302 of ERISA or Section 412 of the Code,
unless such incurrence shall have been waived in advance by the Internal Revenue
Service; or terminate any Plan in a manner which could result in the imposition
of a Lien on any property of any Credit Party pursuant to Section 4068 of ERISA;
or breach or knowingly permit any employee or officer or any trustee or
administrator of any Plan maintained by any Credit Party to breach any fiduciary
responsibility imposed under Title I of ERISA with respect to any Plan; engage
in any transaction which would result in the incurrence of a liability under
Section 4069 of ERISA; or fail to make contributions to a Plan or Multiemployer
Plan which results in the imposition of a Lien on any property of any Credit
Party pursuant to Section 302(f) of ERISA or Section 412(n) of the Code, if the
occurrence of any of the foregoing events (alone or in the aggregate) would
result in a liability which is materially adverse to the financial condition of
the Credit Parties taken as a whole or would materially and adversely affect the
ability of the Borrower to perform its obligations under this Credit Agreement
or the Note.
SECTION 6.21. Additional Limitations on Production and Acquisition of
Product. (a) Permit production and acquisition deficits (net of pre-sale
guarantees and completed pre-sales payable within 1 year after delivery) to
exceed: $5,000,000 in the aggregate at any time outstanding for all (i)
television series in production or acquired, which shall not exceed $300,000 for
any single episode of any television series; and (ii) for all movies-of-the-
week or mini-series, which shall not exceed $600,000 for any single
movie-of-the-week and $1,200,000 for any mini-series.
(b) Begin production on (i) any television series with a pattern
budget in excess of $1,200,000 per episode; (ii) any movie-of-the-week having a
budget in excess of $3,500,000; provided, however, that with respect to
movies-of-the-week, no more than $10,500,000 in the aggregate shall be
outstanding at any one time; or (iii) any television miniseries which would
result in the aggregate amount outstanding at any one time in respect of all
mini-series currently in production to exceed $7,000,000; in each case where a
Credit Party is the producer or has a financial interest which is subject to a
completion risk (i.e. payment by a Credit Party is not conditioned upon
delivery).
SECTION 6.22. Subsidiaries. Acquire or create any new direct or indirect
Subsidiary; provided however that a Credit Party may acquire or create
additional Subsidiaries if (i) each such Subsidiary executes an Instrument of
Assumption and Joinder in the form attached hereto as Exhibit I whereby such
Subsidiary becomes a Credit Party hereunder and the certificates representing
100% of the shares of capital stock of such Subsidiary held by such Credit Party
becomes part of the Pledged Securities hereunder and are delivered to the Lender
together with stock powers for each such certificate executed in blank, and/or
(ii) such Credit Party takes such other action in connection with the stock of
such Subsidiary as is deemed appropriate by the Lender to protect the Lender's
security interest therein.
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SECTION 6.23. Bank Accounts. After the date hereof, open or maintain any
bank account other than (a) at the office of the Lender as contemplated by
Section 8.3 hereof, (b) those accounts listed on Schedule 6.23 or as to which
the Lender shall have received notice, or (c) one or more Production Accounts,
as to which the Lender shall have received notice.
SECTION 6.24. Hazardous Materials. Except as set forth on Schedule 3.21,
cause or permit any of its properties or assets to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer, produce
or process Hazardous Materials, except in compliance in all material respects
with all applicable Environmental Laws, nor release, discharge, dispose or of
permit or suffer any release or disposal as a result of any intentional act or
omission on its part of Hazardous Materials onto any such property or asset in
material violation of any Environmental Law.
SECTION 6.25. Use of Proceeds of Loans and Requests for Letters of
Credit. Use the proceeds of Loans or request any Letter of Credit hereunder
other than for the purposes set forth in, and as required by, Section 5.19
hereof.
SECTION 6.26. Interest Rate Protection Agreements, etc. Enter into any
Interest Rate Protection Agreement or Currency Agreement for other than bona
fide hedging purposes.
SECTION 6.27. Amortization Method. Change the method of amortization of
film/television inventory used by any of the Credit Parties, unless required to
do so under GAAP.
7. EVENTS OF DEFAULT
In the case of the happening and during the continuance of any of the
following events (herein called "Events of Default"):
(a) any representation or warranty made by any Credit Party in this
Credit Agreement or any other Fundamental Document or in connection with this
Credit Agreement or with the execution and delivery of the Note or the
Borrowings hereunder, or any statement or representation made in any report,
financial statement, certificate or other document furnished by or on behalf of
any Credit Party to the Lender under or in connection with this Credit Agreement
or any Fundamental Document shall prove to have been false or misleading in any
material respect when made, deemed to be made or delivered;
(b) default shall be made in the payment of any principal of or
interest on the Note or of any fees or other amounts payable by the Borrower
hereunder, when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise and, in the case of payments of any amounts other than
principal, such default shall continue unremedied for three (3) Business Days
after receipt by the Borrower of an invoice therefor;
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(c) default shall be made by any Credit Party in the due observance
or performance of any covenant, condition or agreement contained in Section 5.4
or Article 6 of this Credit Agreement;
(d) default shall be made with respect to any payment of any
Indebtedness of any Credit Party in excess of $250,000 when due or the
performance of any other obligation incurred in connection with any such
Indebtedness, if the effect of such default is to accelerate the maturity of
such Indebtedness or to permit the holder thereof to cause such Indebtedness to
become due prior to its stated maturity and such default shall not be remedied,
cured, waived or consented to within the period of grace with respect thereto;
(e) any Credit Party shall generally not pay its debts as they
become due or shall admit in writing its inability to pay its debts, or shall
make a general assignment for the benefit of creditors; or any Credit Party
shall commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property or shall file an answer or
other pleading in any such case, proceeding or other action admitting the
material allegations of any petition, complaint or similar pleading filed
against it or consenting to the relief sought therein; or any Credit Party shall
take any action to authorize any of the foregoing;
(f) any involuntary case, proceeding or other action against any
Credit Party shall be commenced seeking to have an order for relief entered
against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, and such case, proceeding or other action (i)
results in the entry of any order for relief against it or (ii) shall remain
undismissed for a period of thirty (30) days;
(g) final judgment(s) for the payment of money in excess of $250,000
shall be rendered against any Credit Party which within thirty (30) days from
the entry of such judgment shall not have been discharged or stayed pending
appeal or which shall not have been discharged or bonded in full within thirty
(30) days from the entry of a final order of affirmance on appeal;
(h) failure to deliver a Borrowing Base Certificate to the Lender
within 10 Business Days of the date such Certificate was due pursuant to Section
5.1(e) hereof, provided, however, that any failure to deliver a Borrowing Base
Certificate shall not give rise to an Event of Default under this clause (h) in
the event there are no outstanding Loans and Letters of Credit;
(i) a Change in Control or a Change in Management shall occur;
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(j) the Guaranty Agreement shall for any reason, not be or shall
cease to be in full force and effect, or shall be declared null and void, or
become unenforceable, or it shall be terminated, or disaffirmed by any
Individual Guarantor thereunder;
(k) default shall be made by any Credit Party in the due observance
or performance of any other covenant, condition or agreement to be observed or
performed pursuant to the terms of this Credit Agreement, or any other
Fundamental Document, and such default shall continue unremedied for thirty (30)
consecutive days after any Credit Party obtains knowledge of such occurrence;
(l) a Reportable Event relating to a failure to meet minimum funding
standards or an inability to pay benefits when due shall have occurred with
respect to any Plan under the control of any Credit Party and shall not have
been remedied within thirty (30) days after the occurrence of such Reportable
Event; or a trustee shall be appointed by a United States District Court to
administer such Plan, or the PBGC shall institute proceedings to terminate such
Plan, and the Lender shall have notified the Borrower that the Lender has
determined that on the basis of such Reportable Event, appointment of trustee or
commencement of proceedings, there are reasonable grounds to believe that such
occurrence would have a material adverse effect to the financial condition of
the Credit Parties taken as a whole or would materially and adversely affect the
ability of the Borrower to perform its obligations under this Credit Agreement
or the Note; or
(m) any Fundamental Document shall, for any reason, not be or shall
cease to be in full force and effect except as provided herein or therein or
shall be declared null and void or any of the Fundamental Documents shall not
give or shall cease to give the Lender the Liens, rights, powers and privileges
purported to be created thereby in favor of the Lender superior to and prior to
the rights of all third Persons (except to the extent expressly permitted herein
or therein) and subject to no other Liens (except to the extent expressly
permitted herein or therein) other than by actions of the Lender, provided that
no such defect in the Fundamental Documents shall give rise to an Event of
Default under this paragraph (m) unless such defect or such failure shall affect
Collateral that is or should be subject to a Lien in favor of the Lender having
an aggregate value in excess of $250,000;
then, in every such event and at any time thereafter during the continuance of
such event, the Lender may take either or both of the following actions, at the
same or different times: terminate forthwith the Commitment and/or declare the
principal of and the interest on the Loans and the Note and all other amounts
payable hereunder or thereunder to be forthwith due and payable, whereupon the
same shall become and be forthwith due and payable, without presentment, demand,
protest, or other notice of any kind, all of which are hereby expressly waived,
anything in this Credit Agreement or in the Note to the contrary
notwithstanding. If an Event of Default specified in paragraphs (e) or (f) above
shall have occurred, the Commitment shall automatically terminate and the Loans
and the Note shall automatically become due and payable, both as to interest and
principal, without presentment, demand, protest, or other notice of any kind,
all of which are hereby expressly waived, anything in this Credit Agreement or
the Note to the contrary
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notwithstanding. Such remedies shall be in addition to any other remedy
available to the Lender pursuant to Applicable Law or otherwise.
8. GRANT OF SECURITY INTEREST; REMEDIES
SECTION 8.1. Security Interests. The Borrower, as security for the due
and punctual payment of the Obligations, and the Corporate Guarantors, as
security for their obligations under Article 9 hereof, hereby mortgage, pledge,
assign, transfer, set over, convey and deliver to the Lender and grant to the
Lender a security interest in the Collateral.
SECTION 8.2. Use of Collateral. So long as no Event of Default shall
have occurred and be continuing, and subject to the various provisions of this
Credit Agreement and the other Fundamental Documents, a Credit Party may use the
Collateral in any lawful manner permitted hereunder.
SECTION 8.3. Collection Accounts. (a) The Borrower will establish a
lockbox arrangement and related collection bank accounts (each, a "Collection
Account") and will direct all Persons who become licensees, buyers or account
debtors under receivables with respect to any item included in the Collateral
(other than de minimis amounts and proceeds of particular items of Product which
are assigned by a Credit Party to third-party lenders as collateral for its
obligations to make certain payments upon Completion and delivery of such items
of Product pursuant to production financing arrangements permitted hereunder;
provided that such third-party lender shall have entered into an intercreditor
agreement with the Lender in form and in substance satisfactory to the Lender;
and provided further that the Borrower may only assign proceeds of Distribution
Agreements which relate solely to the particular item of Product whose
production is being financed by such third-party lender) to make payments under
or in connection with the license agreements, sales agreements or receivables
directly to the appropriate lockbox or Collection Account. To the extent
practicable, the Credit Parties, will amend existing agreements to direct all
Persons who are licensees, buyers or account debtors under receivables with
respect to any item included in the Collateral, to make payments under or in
connection with the license agreements, sales agreements or receivables directly
to the appropriate lockbox or Collection Account.
(b) The Credit Parties will execute such documentation as may be
reasonably required by the Lender in order to provide for the deposit into the
Collection Accounts of all items received in the lockbox and to otherwise
effectuate the provisions of this Section 8.3.
(c) In the event a Credit Party receives payment from any Person or
proceeds under an Acceptable L/C, which payment should have been remitted
directly to a Collection Account, such Credit Party shall promptly remit such
payment or proceeds to a Collection Account to be applied in accordance with the
terms of this Credit Agreement.
(d) All such lockboxes and Collection Accounts shall be maintained
with the Lender or with such other financial institutions as may be approved by
the Lender, subject to the
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right of the Lender to at any time withdraw such approval and transfer any such
lockboxes and/or Collection Account(s) to the Lender or another approved
financial institution.
(e) The Lender is hereby authorized and directed to invest and
reinvest the funds from time to time deposited in the Collection Accounts, so
long as no Event of Default has occurred and is continuing, on the instructions
of the Borrower (provided that such notice may be given verbally to be confirmed
promptly in writing) or, if the Borrower shall fail to give such instruction
upon delivery of any such funds, in the sole discretion of the Lender, provided
that in no event may the Borrower give instructions to the Lender to, or may the
Lender in its discretion, invest or reinvest funds in the Collection Accounts in
other than Cash Equivalents described in clause (i) of the definition of Cash
Equivalents, or described in clauses (ii) and (iii) of the definition of Cash
Equivalents to the extent issued by The Chase Manhattan Bank.
(f) Any net income or gain on the investment of funds from time to
time held in the Collection Accounts, shall be promptly reinvested by the Lender
at the direction of the Borrower as a part of the Collection Accounts and any
net loss on any such investment shall be charged against the Collection
Accounts.
(g) The Lender shall not be a trustee for the Credit Parties, or
shall have any obligations or responsibilities, or shall be liable for anything
done or not done, in connection with the Collection Accounts, except as
expressly provided herein and except that the Lender shall have the obligations
of a secured party under the UCC. The Lender shall not have any obligation or
responsibilities and shall not be liable in any way for any investment decision
made pursuant to this Section 8.3(g) or for any decrease in the value of the
investments held in the Collection Accounts except for the gross negligence or
wilful misconduct of Lender in carrying out the written instructions of
Borrower.
(h) For value received and to induce the Lender to issue Letters of
Credit and to make Loans from time to time to the Borrower as provided for in
this Credit Agreement, as security for the payment of all of the Obligations,
the Credit Parties hereby assign to the Lender and grant to the Lender, a first
and prior Lien upon all the Credit Parties' rights in and to the Collection
Accounts, all cash, documents, instruments and securities from time to time held
therein, and all rights pertaining to investments of funds in the Collection
Accounts and all products and proceeds of any of the foregoing. All cash,
documents, instruments and securities from time to time on deposit in the
Collection Accounts, and all rights pertaining to investments of funds in the
Collection Accounts shall immediately and without any need for any further
action on the part of any of the Credit Parties or the Lender, become subject to
the Lien set forth in this Section 8.3(h), be deemed Collateral for all purposes
hereof and be subject to the provisions of this Credit Agreement.
(i) At any time after the Loans have been accelerated in accordance
with Article 7 hereof, the Lender may sell any documents, instruments and
securities held in the Collection Accounts and may immediately apply the
proceeds thereof and any other cash held in the Collection Accounts in
accordance with Section 10.5 hereof.
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SECTION 8.4. Credit Parties to Hold in Trust. Upon the occurrence and
during the continuance of an Event of Default, the Credit Parties will, upon
receipt by them of any revenue, income, profits or other sums in which a
security interest is granted by this Article 8, payable pursuant to any
agreement or otherwise, or of any check, draft, note, trade acceptance or other
instrument evidencing an obligation to pay any such sum, hold the sum in trust
for the Lender, and forthwith, without any notice or demand whatsoever (all
notices, demands, or other actions on the part of the Lender being expressly
waived), endorse, transfer and deliver any such sums or instruments or both, to
the Lender to be applied to the repayment of the Obligations in accordance with
the provisions of Section 8.7 hereof.
SECTION 8.5. Collections, etc. Upon the occurrence and during the
continuance of an Event of Default, the Lender may, in its sole discretion, in
its name or in the name of any Credit Party or otherwise, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of or in exchange for, or make any compromise or settlement deemed
desirable with respect to, any of the Collateral, but shall be under no
obligation so to do, or the Lender may extend the time of payment, arrange for
payment in installments, or otherwise modify the terms of, or release, any of
the Collateral, without thereby incurring responsibility to, or discharging or
otherwise affecting any liability of, any Credit Party. The Lender will not be
required to take any steps to preserve any rights against prior parties to the
Collateral. If any Credit Party fails to make any payment or take any action
required hereunder, the Lender may make such payments and take all such actions
as the Lender reasonably deems necessary to protect the Lender's security
interests in the Collateral and/or the value thereof, and the Lender is hereby
authorized (without limiting the general nature of the authority herein above
conferred) to pay, purchase, contest or compromise any Liens that in the
judgment of the Lender appear to be equal to, prior to or superior to the
security interests of the Lender in the Collateral and any Liens not expressly
permitted by this Credit Agreement.
SECTION 8.6. Possession, Sale of Collateral, etc. Upon the acceleration
of the Loans in accordance with Article 7 hereof, the Lender may enter upon the
premises of any Credit Party or wherever the Collateral may be, and take
possession of the Collateral, and may demand and receive such possession from
any Person who has possession thereof, and the Lender may take such measures as
it may deem necessary or proper for the care or protection thereof, including
the right to remove all or any portion of the Collateral, and with or without
taking such possession may sell or cause to be sold, whenever the Lender shall
decide, in one or more sales or parcels, at such prices as the Lender may deem
best, and for cash or on credit or for future delivery, without assumption of
any credit risk, all or any portion of the Collateral, at any broker's board or
at public or private sale, without demand of performance or notice of intention
to sell or of time or place of sale (except the Lender shall provide 15 days'
written notice to the Credit Parties of the time and place of any such public
sale or sales and such other notices as may be required by Applicable Law and
cannot be waived), and the Lender or any other Person may be the purchaser of
all or any portion of the Collateral so sold and thereafter hold the same
absolutely, free (to the fullest extent permitted by Applicable Law) from any
claim or right of whatever kind, including any equity of redemption, of any
Credit Party, any such demand, notice, claim, right or equity being hereby
expressly waived and released. At any sale or sales made
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pursuant to this Article 8, the Lender may bid for or purchase, free (to the
fullest extent permitted by Applicable Law) from any claim or right of whatever
kind, including any equity of redemption, of any Credit Party, any such demand,
notice, claim, right or equity being hereby expressly waived and released, any
part of or all of the Collateral offered for sale, and may make any payment on
account thereof by using any claim for moneys then due and payable to the Lender
by any Credit Party hereunder as a credit against the purchase price. The Lender
shall in any such sale make no representations or warranties with respect to the
Collateral or any part thereof, and the Lender shall not be chargeable with any
of the obligations or liabilities of any Credit Party. Each Credit Party hereby
agrees (i) that it will indemnify and hold the Lender harmless from and against
any and all claims with respect to the Collateral asserted before the taking of
actual possession or control of the relevant Collateral by the Lender pursuant
to this Article 8, or arising out of any act of, or omission to act on the part
of, any party (other than the Lender) prior to such taking of actual possession
or control by the Lender (whether asserted before or after such taking of
possession or control), or arising out of any act on the part of any Credit
Party, or its agents before or after the commencement of such actual possession
or control by the Lender except for claims arising out of Lender's gross
negligence or willful misconduct; and (ii) the Lender shall not have liability
or obligation to any Credit Party arising out of any such claim except for acts
of willful misconduct or gross negligence or not taken in good faith. Subject
only to the lawful rights of third parties, any Laboratory which has possession
of any of the Collateral is hereby constituted and appointed by the Credit
Parties as pledgeholder for the Lender and, upon the acceleration of the Loans
in accordance with Article 7 hereof, each such pledgeholder is hereby authorized
(to the fullest extent permitted by Applicable Law) to sell all or any portion
of the Collateral upon the order and direction of the Lender, and each Credit
Party hereby waives any and all claims, for damages or otherwise, for any action
taken by such pledgeholder in accordance with the terms of the UCC not otherwise
waived hereunder. In any action hereunder, the Lender shall be entitled if
permitted by Applicable Law to the appointment of a receiver without notice, to
take possession of all or any portion of the Collateral and to exercise such
powers as the court shall confer upon the receiver. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, and during the
continuation of such Event of Default, the Lender shall be entitled to apply,
without prior notice to the Credit Parties, any cash or cash items constituting
Collateral in the possession of the Lender to payment of the Obligations.
SECTION 8.7. Application of Proceeds on Default. During the continuance
of an Event of Default, the balances in the Collection Account(s), or in any
account of any Credit Party with the Lender, all other income on the Collateral,
and all proceeds from any sale of the Collateral pursuant hereto shall be
applied first toward payment of the reasonable out-of-pocket costs and expenses
paid or incurred by the Lender in enforcing this Credit Agreement, in realizing
on or protecting any Collateral and in enforcing or collecting any Obligations
or any Guaranty thereof, including, without limitation, court costs and the
reasonable attorney's fees and expenses incurred by the Lender, and then to the
payment in full of the Obligations in such order as determined by the Lender,
provided, however, that, the Lender may in its discretion apply funds comprising
the Collateral to pay the cost (i) of completing any item of Product owned in
whole or in part by any Credit Party in any stage of production and (ii) of
making delivery to the
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distributors of such item of Product. Any amounts remaining after such
indefeasible payment in full shall be remitted to the appropriate Credit Party
or as a court of competent jurisdiction may otherwise direct.
SECTION 8.8. Power of Attorney. Each Credit Party does hereby
irrevocably make, constitute and appoint the Lender or any of its officers or
designees its true and lawful attorney-in-fact with full power in the name of
the Lender or any Credit Party, (a) after the acceleration of the Loans in
accordance with Article 7 hereof, to receive, open and dispose of all mail
addressed to any Credit Party, and to endorse any notes, checks, drafts, money
orders or other evidences of payment relating to the Collateral that may come
into the possession of the Lender with full power and right to cause the mail of
such Persons to be transferred to the Lender's own offices or otherwise, and to
do any and all other acts necessary or proper to carry out the intent of this
Credit Agreement and the grant of the security interests hereunder and under the
Fundamental Documents, and each Credit Party hereby ratifies and confirms all
that the Lender or its substitutes shall properly do by virtue hereof; (b) upon
the occurrence of an Event of Default which is not waived in writing by the
Lender, (i) to enforce all of each Credit Party's rights under and pursuant to
all agreements with respect to the Collateral, all for the sole benefit of the
Lender and to enter into such other agreements as may be necessary or
appropriate in the judgment of the Lender to complete the production,
distribution or exploitation of any item of Product which is included in the
Collateral, (ii) to enter into and perform such agreements as may be necessary
in order to carry out the terms, covenants and conditions of the Fundamental
Documents that are required to be observed or performed by any Credit Party,
(iii) to execute such other and further mortgages, pledges and assignments of
the Collateral, and related instruments or agreements, as the Lender may
reasonably require for the purpose of perfecting, protecting, maintaining or
enforcing the security interests granted to the Lender hereunder, and (iv) to do
any and all other things necessary or proper to carry out the intention of this
Credit Agreement and the grant of the security interests hereunder and under the
other Fundamental Documents. The Credit Parties hereby ratify and confirm in
advance all that the Lender as such attorney-in-fact or its substitutes shall
properly do by virtue of this power of attorney. In the event the Lender
exercises the power of attorney granted herein, the Lender shall, concurrently
with such exercise, provide written notice to the Borrower and the Lender in
accordance with Section 12.1.
SECTION 8.9. Financing Statements, Direct Payments. Each Credit Party
hereby authorizes the Lender to file UCC financing statements and any amendments
thereto or continuations thereof, any Copyright Security Agreement, any
Copyright Security Agreement Supplement, and any other appropriate security
documents or instruments and to give any notices necessary or desirable to
perfect the Lien of the Lender on the Collateral, in all cases without the
signatures of any Credit Party or to execute such items as attorney-in-fact for
any Credit Party. Each Credit Party further authorizes the Lender upon the
occurrence of an Event of Default, and during the continuation of such Event of
Default, to notify any account debtors that all sums payable to any Credit Party
relating to the Collateral shall be paid directly to the Lender.
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SECTION 8.10. Further Assurances. Upon the reasonable request of the
Lender, each Credit Party hereby agrees to duly and promptly execute and
deliver, or cause to be duly executed and delivered, at the cost and expense of
the Credit Parties, such further instruments as may be necessary or proper, in
the judgment of the Lender, to carry out the provisions and purposes of this
Article 8, necessary, in the judgment of the Lender, to perfect and preserve the
Liens of the Lender hereunder and under the Fundamental Documents, and in the
Collateral or any portion thereof.
SECTION 8.11. Termination. The security interests granted under this
Article 8 shall terminate when all the Obligations have been paid in full and
performed and the Commitment shall have terminated and all Letters of Credit
shall have expired or been terminated or canceled. Upon request by the Credit
Parties (and at the sole expense of the Credit Parties) after such termination,
the Lender will take all reasonable action and do all things reasonably
necessary, including executing UCC terminations, Pledgeholder Agreement
terminations, termination letters to account debtors and copyright
reassignments, to release the security interest granted to it hereunder.
SECTION 8.12. Remedies Not Exclusive. The remedies conferred upon or
reserved to the Lender in this Article 8 are intended to be in addition to, and
not in limitation of, any other remedy or remedies available to the Lender.
Without limiting the generality of the foregoing, the Lender shall have all
rights and remedies of a secured creditor under Article 9 of the UCC.
SECTION 8.13. Quiet Enjoyment. The Lender acknowledges that its security
interest hereunder is subject to the rights of Quiet Enjoyment of parties to
Distribution Agreements, license agreements and other similar agreements,
whether existing on the date hereof or hereafter executed. For the purpose
hereof, "Quiet Enjoyment" shall mean in connection with the rights of licensees
under license agreements and distributors under Distribution Agreements, the
Lender's agreement that its rights under this Credit Agreement and the
Fundamental Documents and in the Collateral are subject to the rights of such
parties to distribute, exhibit and/or to exploit the item of Product licensed to
them, and to receive prints or tapes or have access to preprint material or
master tapes in connection therewith and that even if the Lender shall become
the owner of the Collateral in case of an Event of Default, the Lender's
ownership rights shall be subject to the rights of said parties under such
agreements, provided, however, that such licensee or such distributor shall not
be in default under the relevant license agreement or Distribution Agreement
and, provided, further that the Lender shall not be responsible for any
liability or obligation of any Credit Party under any license agreement.
SECTION 8.14. Continuation and Reinstatement. Each Credit Party further
agrees that the security interest granted hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment or any
part thereof, of principal or interest on any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or reorganization of any
Credit Party or otherwise.
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9. GUARANTY
SECTION 9.1. Guaranty. (a) Each Corporate Guarantor unconditionally and
irrevocably guarantees to the Lender the due and punctual payment by, and
performance of, the Obligations (including interest accruing on and after the
filing of any petition in bankruptcy or of reorganization of the obligor whether
or not post filing interest is allowed in such proceeding). Each Corporate
Guarantor further agrees that the Obligations may be extended or renewed, in
whole or in part, without notice or further assent from it (except as may be
otherwise required herein), and it will remain bound upon this guaranty
notwithstanding any extension or renewal of any Obligation.
(b) Each Corporate Guarantor waives presentation to, demand for
payment from and protest to, as the case may be, the Credit Parties or any other
Corporate Guarantor of any of the Obligations, and also waives notice of protest
for nonpayment. The obligations of each Corporate Guarantor hereunder shall not
be affected by (i) the failure of the Lender to assert any claim or demand or to
enforce any right or remedy against the Borrower, Corporate Guarantor, any
Individual Guarantor or any other guarantor under the provisions of this Credit
Agreement or any other agreement or otherwise; (ii) any extension or renewal of
any provision hereof or thereof; (iii) the failure of the Lender to obtain the
consent of the Corporate Guarantor with respect to any rescission, waiver,
compromise, acceleration, amendment or modification of any of the terms or
provisions of this Credit Agreement, the Note or of any other agreement; (iv)
the release, exchange, waiver or foreclosure of any security held by the Lender
for the Obligations or any of them; (v) the failure of the Lender to exercise
any right or remedy against any other Corporate Guarantor, any Individual
Guarantor or any other guarantor of the Obligations; or (vi) the release or
substitution of any Corporate Guarantor, any Individual Guarantor or other
guarantor of the Obligations. Without limiting the generality of the foregoing
or any other provision hereof, to the extent permitted by applicable law, each
Corporate Guarantor hereby expressly waives any and all benefits which might
otherwise be available to it under California Civil Code Sections 2799, 2809,
2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845, 2848, 2849, 2850, 2899 and
3433.
(c) Each Corporate Guarantor further agrees that this Guaranty
constitutes a guaranty of performance and of payment when due and not just of
collection, and waives any right to require that any resort be had by the Lender
to any security held for payment of the Obligations or to any balance of any
deposit, account or credit on the books of the Lender in favor of the Borrower,
any other Corporate Guarantor, any Individual Guarantor or to any other Person.
(d) Each Corporate Guarantor hereby expressly assumes all
responsibilities to remain informed of the financial condition of the Borrower,
the Corporate Guarantors, the Individual Guarantors and any other guarantors and
any circumstances affecting the ability of the Borrower to perform under this
Credit Agreement.
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(e) Each Corporate Guarantor's obligations under the guaranty shall
not be affected by the genuineness, validity, regularity or enforceability of
the Obligations, the Note or any other instrument evidencing any Obligations, or
by the existence, validity, enforceability, perfection, or extent of any
collateral therefor or by any other circumstance relating to the Obligations
which might otherwise constitute a defense to this Guaranty. The Lender makes no
representation or warranty with respect to any such circumstances and has no
duty or responsibility whatsoever to each Corporate Guarantor in respect to the
management and maintenance of the Obligations or any collateral security for the
Obligations.
SECTION 9.2. No Impairment of Guaranty, etc. The obligations of each
Corporate Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (except payment of the Obligations),
including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations. Without limiting the
generality of the foregoing, the obligations of each Corporate Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Lender to assert any claim or demand or to enforce any remedy
under this Credit Agreement or any other agreement, by any waiver or
modification of any provision thereof, by any default, failure or delay, willful
or otherwise, in the performance of the Obligations, or by any other act or
thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of such Corporate Guarantor or would
otherwise operate as a discharge of such Corporate Guarantor as a matter of law,
unless and until the Obligations are paid in full, the Commitments have
terminated and each outstanding Letter of Credit has expired or otherwise been
terminated.
SECTION 9.3. Continuation and Reinstatement, etc. (a) Each Corporate
Guarantor further agrees that its guaranty hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any Obligation is rescinded or must otherwise be restored by
the Lender upon the bankruptcy or reorganization of Borrower or a Corporate
Guarantor, or otherwise. In furtherance of the provisions of this Article 9, and
not in limitation of any other right which the Lender may have at law or in
equity against the Borrower or a Corporate Guarantor by virtue hereof, upon
failure of the Borrower to pay any Obligation when and as the same shall become
due, whether at maturity, by acceleration, after notice or otherwise, each
Corporate Guarantor hereby promises to and will, upon receipt of written demand
by the Lender, forthwith pay or cause to be paid to the Lender in cash an amount
equal to the unpaid amount of all the Obligations with interest thereon at a
rate of interest equal to the rate specified in Section 2.7(a) hereof, and
thereupon the Lender shall assign such Obligation, together with all security
interests, if any, then held by the Lender in respect of such Obligation, to the
Corporate Guarantors making such payment; such assignment to be subordinate and
junior to the rights of the Lender with regard to amounts payable by the
Borrower in connection with the remaining unpaid Obligations and to be pro tanto
to the extent to which the Obligation in question was discharged by the
Corporate Guarantor or Corporate Guarantors making such payments.
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(b) All rights of the Corporate Guarantors against the Borrower,
arising as a result of the payment by any Corporate Guarantor of any sums to the
Lender or directly to the Lender hereunder by way of right of subrogation or
otherwise shall in all respects be subordinated and junior in right of payment
to, and shall not be exercised by such Corporate Guarantor until and unless, the
prior final and indefeasible payment in full of all the Obligations. If any
amount shall be paid to such Corporate Guarantor for the account of the
Borrower, such amount shall be held in trust for the benefit of the Lender,
segregated from such Corporate Guarantor's own assets, and shall forthwith be
paid to the Lender to be credited and applied to the Obligations, whether
matured or unmatured.
SECTION 9.4. Limitation on Guaranteed Amount etc. Notwithstanding any
other provision of this Article 9, the amount guaranteed by each Corporate
Guarantor hereunder shall be limited to the extent, if any, required so that its
obligations under this Article 9 shall not be subject to avoidance under Section
548 of the Bankruptcy Code or to being set aside or annulled under any
applicable state law relating to fraud on creditors. In determining the
limitations, if any, on the amount of any Corporate Guarantor's obligations
hereunder pursuant to the preceding sentence, it is the intention of the parties
hereto that any rights of subrogation or contribution which such Corporate
Guarantor may have under this Article 9 (or as a result of the operation of
Article 8 with regard to assets of other Credit Parties) or any other agreement
or under Applicable Law shall be taken into account.
10. PLEDGE
SECTION 10.1. Pledge. As security for the Obligations, each Pledgor
hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto
the Lender, a security interest in all Pledged Securities now owned or hereafter
acquired by it. On the Closing Date, the Pledgors shall deliver to the Lender
the definitive instruments representing all Pledged Securities, accompanied by
executed undated stock powers, duly endorsed or executed in blank by the
appropriate Pledgor, and such other instruments or documents as the Lender or
its counsel shall reasonably request.
SECTION 10.2. Covenant. Each Pledgor covenants that as stockholder of
each of its respective Subsidiaries it will not take any action to allow any
additional shares of common stock, preferred stock or other equity securities of
any of its respective Subsidiaries or any securities convertible or exchangeable
into common or preferred stock of such Subsidiaries to be issued, or grant any
options or warrants, unless such securities are pledged to the Lender as
security for the Obligations.
SECTION 10.3. Registration in Nominee Name; Denominations. Upon the
occurrence and during the continuation of an Event of Default, the Lender shall
have the right (in its sole and absolute discretion) to hold the certificates
representing any Pledged Securities (a) in its own name or in the name of its
nominee or (b) in the name of the appropriate Pledgor, endorsed or assigned in
blank or in favor of the Lender. The Lender shall have the right to
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exchange the certificates representing Pledged Securities for certificates of
smaller or larger denominations for any purpose consistent with this Credit
Agreement.
SECTION 10.4. Voting Rights; Dividends; etc. (a) The appropriate Pledgor
shall be entitled to exercise any and all voting and/or consensual rights and
powers accruing to owners of the Pledged Securities or any part thereof for any
purpose not inconsistent with the terms hereof, at all times, except as
expressly provided in (c) below.
(b) Any dividends or distributions of any kind whatsoever (other, so
long as an Event of Default is not continuing, than cash) received by a Pledgor,
whether resulting from a subdivision, combination, or reclassification of the
outstanding capital stock of the issuer or received in exchange for Pledged
Securities or any part thereof or as a result of any merger, consolidation,
acquisition, or other exchange of assets to which the issuer may be a party, or
otherwise, shall be and become part of the Pledged Securities pledged hereunder
and shall immediately be delivered to the Lender to be held subject to the terms
hereof.
(c) Upon the occurrence and during the continuance of an Event of
Default and notice from the Lender of the transfer of such rights to the Lender,
all rights of the Pledgors to exercise the voting and/or consensual rights and
powers and to receive dividends or distributions which it is entitled to
pursuant to this Section 10.4 shall cease, and all such rights shall thereupon
become vested in the Lender, which shall have the sole and exclusive right and
authority to exercise such voting and/or consensual rights and/or receive such
dividends or distributions until such time as such Event of Default has been
cured. All dividends and distributions which are received contrary to the
provisions of this subsection (c) shall be received in trust for the benefit of
the Lender and shall be delivered.
(d) If the Lender shall receive any cash pursuant to Section 10.4(c)
which but for the occurrence of an Event of Default the relevant Pledgor would
be entitled to retain for its own account under Section 10.4(b), then after and
so long as all Events of Default have been cured and only if the Obligations
have not been accelerated, the Lender shall pay over to such Pledgor any such
cash retained by it during the continuance of such Event of Default which has
not been applied to the Obligations pursuant to the terms hereof.
SECTION 10.5. Remedies Upon Default. If the Loans shall have been
accelerated in accordance with Article 7 hereof, the Lender may sell the Pledged
Securities, 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 Lender shall deem appropriate subject to the terms hereof or as
otherwise provided in the UCC. The Lender shall be authorized at any such sale
(if it deems it advisable to do so) to restrict to the full extent permitted by
Applicable 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 Lender shall have the right
to assign, transfer, and deliver to the purchaser or purchasers thereof the
Pledged Securities so sold. Each such purchaser at any such sale shall hold the
property sold absolutely, free from
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any claim or right on the part of the Pledgors. The Lender shall give ten (10)
days' written notice of its intention to make any such public or private sale,
or sale at any broker's board or on any such securities exchange, or of any
other disposition of the Pledged Securities. Such notice, in the case of public
sale, shall state the time and place for such sale and, in the case of sale at a
broker's board or on a securities exchange, shall state the board or exchange at
which such sale is to be made and the day on which the Pledged Securities, or
portion thereof, will first be offered for sale at such board or exchange. Any
such public sale shall be held at such time or times within ordinary business
hours and at such place or places as the Lender may fix and shall state in the
notice of such sale. At any such sale, the Pledged Securities, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Lender may (in its sole and absolute discretion) determine. The
Lender shall not be obligated to make any sale of the Pledged Securities if it
shall determine not to do so, regardless of the fact that notice of sale of the
Pledged Securities may have been given. The Lender may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case the sale of all or any part of the
Pledged Securities is made on credit or for future delivery, the Pledged
Securities so sold shall be retained by the Lender until the sale price is paid
by the purchaser or purchasers thereof, but the Lender shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Pledged Securities so sold and, in case of any such failure, such
Pledged Securities may be sold again upon like notice. At any sale or sales made
pursuant to this Section 10.5, the Lender may bid for or purchase, free from any
claim or right of whatever kind, including any equity of redemption, of the
Pledgors, any such demand, notice, claim, right or equity being hereby expressly
waived and released, any or all of the Pledged Securities offered for sale, and
may make any payment on the account thereof by using any claim for moneys then
due and payable to the Lender by any Credit Party as a credit against the
purchase price; and the Lender, upon compliance with the terms of sale, may
hold, retain and dispose of the Pledged Securities without further
accountability therefor to the Pledgors or any third party (other than the
Lender). The Lender shall in any such sale make no representations or warranties
with respect to the Pledged Securities or any part thereof, and shall not be
chargeable with any of the obligations or liabilities of the Pledgors with
respect thereto. Each Pledgor hereby agrees (i) it will indemnify and hold the
Lender harmless from and against any and all claims with respect to the Pledged
Securities asserted before the taking of actual possession or control of the
Pledged Securities by the Lender pursuant to this Credit Agreement or arising
out of any act of, or omission to act on the part of, any party prior to such
taking of actual possession or control by the Lender (whether asserted before or
after such taking of possession or control), or arising out of any act on the
part of any Pledgor or Affiliates before or after the commencement of such
actual possession or control by the Lender unless due to Lender's gross
negligence or wilful misconduct and (ii) the Lender shall have no liability or
obligation arising out of any such claim unless due to Lender's gross negligence
or wilful misconduct. As an alternative to exercising the power of sale herein
conferred upon it, the Lender may proceed by a suit or suits at law or in equity
to foreclose upon the Collateral and Pledged Securities under this Credit
Agreement and to sell the Pledged Securities, or any portion thereof, pursuant
to a judgment or decree of a court or courts having competent jurisdiction.
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SECTION 10.6. Application of Proceeds of Sale and Cash. The proceeds of
sale of the Pledged Securities sold pursuant to Section 10.5 hereof shall be
applied by the Lender as follows:
(i) to the payment of all reasonable out-of-pocket costs and
expenses paid or incurred by the Lender in connection with such sale, including,
without limitation, all court costs and the reasonable fees and expenses of
counsel for the Lender in connection therewith, and the payment of all
reasonable out-of-pocket costs and expenses paid or incurred by the Lender in
enforcing this Credit Agreement, in realizing or protecting any Collateral and
in enforcing or collecting any Obligations or any Guaranty thereof, including,
without limitation, court costs and the reasonable attorney's fees and expenses
incurred by the Lender in connection therewith; and
(ii) to the payment in full of the Obligations in such order
as determined by the Lender;
provided, however, that the Lender may in its discretion apply funds comprising
the Collateral to pay the cost (i) of completing any item of Product owned in
whole or in part by any Credit Party in any stage of production and (ii) of
making delivery to the distributors of such item of Product. Any amounts
remaining after such indefeasible payment in full shall be remitted to the
appropriate Pledgor, or as a court of competent jurisdiction may otherwise
direct.
SECTION 10.7. Securities Act, etc. In view of the position of each
Pledgor in relation to the Pledged Securities pledged by it, or because of other
present or future circumstances, a question may arise under the Securities Act
of 1933, as amended, as now or hereafter in effect, or any similar statute
hereafter enacted analogous in purpose or effect (such Act and any such similar
statute as from time to time in effect being hereinafter called the "Federal
Securities Laws"), with respect to any disposition of the Pledged Securities
permitted hereunder, each Pledgor understands that compliance with the Federal
Securities Laws may very strictly limit the course of conduct of the Lender if
the Lender were to attempt to dispose of all or any part of the Pledged
Securities, and may also limit the extent to which or the manner in which any
subsequent transferee of any Pledged Securities may dispose of the same.
Similarly, there may be other legal restrictions or limitations affecting the
Lender in any attempt to dispose of all or any part of the Pledged Securities
under applicable Blue Sky or other state securities laws, or similar laws
analogous in purpose or effect. Under Applicable Law, in the absence of an
Agreement to the contrary, the Lender may perhaps be held to have certain
general duties and obligations to the Pledgors to make some effort towards
obtaining a fair price even though the Obligations may be discharged or reduced
by the proceeds of a sale at a lesser price. Each Pledgor waives to the fullest
extent permitted by Applicable Law any such general duty or obligation to it,
and the Pledgors and/or the Credit Parties will not attempt to hold the Lender
responsible for selling all or any part of the Pledged Securities at an
inadequate price; provided that the Lender, in good faith, shall have obtained
three bids for the purchase of all or part of the Pledged Securities and the
Lender shall have accepted the highest offer of such three bids.
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SECTION 10.8. Continuation and Reinstatement. Each Pledgor further
agrees that its pledge hereunder shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
principal of or interest on any Obligation is rescinded or must otherwise be
restored by the Lender upon the bankruptcy or reorganization of any Pledgor or
otherwise.
SECTION 10.9. Termination. The pledge referenced herein shall terminate
when all of the Obligations shall have been paid in full and the Commitment
shall have terminated, and all Letters of Credit shall have expired or been
terminated or cancelled, at which time the Lender shall assign and deliver to
the appropriate Pledgor, or to such Person or Persons as such Pledgor shall
designate, against receipt, such of the Pledged Securities (if any) as shall not
have been sold or otherwise applied by the Lender pursuant to the terms hereof
and shall still be held by it hereunder, together with appropriate instruments
of reassignment and release. Any such reassignment shall be free and clear of
all Liens, arising by, under or through the Lender but shall otherwise be
without recourse upon or warranty by the Lender and at the expense of the
Pledgors.
11. [RESERVED]
12. MISCELLANEOUS
SECTION 12.1. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered or mailed (or in the case of
facsimile communication, if by telegram, delivered to the telegraph company and,
if by telex, graphic scanning or other telegraphic or facsimile communications
equipment of the sending party hereto, delivered by such equipment) addressed,
if to the Lender to it at 270 Park Avenue, 37th Floor, New York, New York 10017,
Attn: John J. Huber III, Facsimile No.: (212) 270-4584, with a copy to Chase
Securities Inc., 1800 Century Park East, Suite 400, Los Angeles, California
90067, Attn: Kenneth R. Wilson, Facsimile No.: (310) 788-5628 or if to any
Credit Party at 8955 Beverly Boulevard, Beverly Hills, California 90048, Attn:
Robert Murray, Esq. and Ronald Lighstone, Facsimile No.: (310) 724-7146 or such
other address as such party may from time to time designate by giving written
notice to the other parties hereunder. Any failure of the Lender giving notice
pursuant to this Section 12.1, to provide a courtesy copy to a party as provided
herein, shall not affect the validity of such notice. All notices and other
communications given to any party hereto in accordance with the provisions of
this Credit Agreement shall be deemed to have been given on the fifth Business
Day after the date when sent by registered or certified mail, postage prepaid,
return receipt requested, if by mail, or when delivered to the telegraph
company, charges prepaid, if by telegram, or upon receipt by such party, if by
any telegraphic or facsimile communications equipment, in each case addressed to
such party as provided in this Section 12.1 or in accordance with the latest
unrevoked written direction from such party.
SECTION 12.2. Survival of Agreement, Representations and Warranties,
etc. All warranties, representations and covenants made by any of the Credit
Parties herein or in any certificate or other instrument delivered by it or on
its behalf in connection with this Credit
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<PAGE> 90
Agreement shall be considered to have been relied upon by the Lender and, except
for any terminations, amendments, modifications or waivers thereof in accordance
with the terms hereof, shall survive the making of the Loans and issuance of the
Letters of Credit herein contemplated and the execution and delivery to the
Lender of the Note regardless of any investigation made by the Lender and shall
continue in full force and effect so long as any amount due or to become due
hereunder is outstanding and unpaid and so long as any Letter of Credit remains
outstanding and so long as the Commitment has not been terminated. All
statements in any such certificate or other instrument shall constitute
representations and warranties by the Credit Parties hereunder.
SECTION 12.3. Successors and Assigns; Loan Sales; Participations. (a)
Whenever in this Credit Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns of such party;
provided, however, that the Borrower may not assign its rights hereunder without
the prior written consent of the Lender, and all covenants, promises and
agreements by or on behalf of the Borrower which are contained in this Credit
Agreement shall bind and inure to the benefit of the successors and assigns of
all such parties.
(b) The Lender may, with the consent of the Borrower (such consent
not to be unreasonably withheld), assign to one or more banks or other entities,
all or a portion of its interests, rights and obligations under this Credit
Agreement (including, without limitation, all or a portion of its Commitment and
the same portion of the Loans at the time owing to it and the Note held by it).
The Lender and such assignee shall execute appropriate documentation (i)
evidencing such assignment, which documentation shall set forth the respective
rights and obligations of the Lender and such assignee and (ii) to the extent
The Chase Manhattan Bank shall retain a portion of the Commitment, appointing
The Chase Manhattan Bank as agent for the Lender and such assignee(s). Upon the
effectiveness of such assignment, the assignee thereunder shall become a party
to this Credit Agreement.
(c) Once there has been an assignment by the Lender pursuant to this
Section 12.3, the Lender shall maintain at its address at which notices are to
be given to it pursuant to Section 12.1 hereof, a register for the recordation
of the names and addresses of the assignees of the Lender hereunder and the
commitments of, and principal amount of the Loans owing to, each such assignee
from time to time (the "Register"). The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower and any such
assignee may treat each Person whose name is recorded in the Register as an
assignee of the Lender hereunder for all purposes of the Fundamental Documents.
The Register shall be available for inspection by the Borrower or any such
assignee at any reasonable time and from time to time upon reasonable prior
notice.
(d) The Lender shall give prompt written notice to the Borrower of
each assignment made hereunder. Within five (5) Business Days after receipt of
any such notice, the Borrower, at its own expense, shall execute and deliver to
the Lender in exchange for the Note surrendered by the Lender to the Borrower,
new Notes to the order of the assignee of the Lender and the Lender in amounts
equal to the respective Commitments held by each of them after giving effect to
the applicable assignment. Such new Notes shall be in an aggregate principal
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<PAGE> 91
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the date of the surrendered Notes and shall otherwise be in
substantially the form of Exhibit A hereto. In addition the Borrower will
promptly, at its own expense, execute such amendments to the Fundamental
Documents to which it is a party and such additional documents, and take such
other actions as the Lender or the assignee of the Lender may reasonably request
in order to give such assignee of the Lender the full benefit of the Liens
contemplated by the Fundamental Documents.
(e) The Lender may, without the consent of the Borrower, sell
participations to one or more banks or other entities in all or a portion of its
rights and obligations under this Credit Agreement (including, without
limitation, all or a portion of its Commitment, the Loans owing to it and the
Note held by it); provided, however, that (i) the Lender's obligations under
this Credit Agreement shall remain unchanged, (ii) such participant shall not be
granted any voting rights under this Credit Agreement, except with respect to
proposed changes to interest rates, amounts of Commitments, maturity of any
Loans, release of all or substantially all the Collateral and fees (as
applicable to such participant), (iii) the Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iv) the participating banks or other entities shall be entitled to the cost
protection provisions contained in Sections 2.9(b), 2.10 and 2.14 hereof;
provided, that the aggregate amount that the Borrower shall be obligated to pay
to the Lender (for the benefit of itself and any participants) pursuant to such
provisions shall be limited to the amount to which the Lender shall be entitled
to receive pursuant to such provisions and (v) the Borrower shall continue to
deal solely and directly with the Lender in connection with the Lender's rights
and obligations under this Credit Agreement.
(f) The Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
12.3, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to the Lender by
or on behalf of the Borrower; provided that prior to any such disclosure, each
such assignee or participant or proposed assignee or participant shall agree (by
executing a confidentiality letter) to preserve the confidentiality of any
confidential information relating to the Borrower received from the Lender to
the same extent as the Lender as set forth in Section 12.16 hereof.
(g) The Borrower consents that the Lender may at any time and from
time to time pledge or otherwise grant a security interest in any Loan or in any
Note evidencing any Loan (or any part thereof) to any Federal Reserve Bank.
SECTION 12.4. Expenses; Documentary Taxes. Whether or not the
transactions hereby contemplated shall be consummated, the Borrower agrees to
pay all reasonable out-of-pocket expenses incurred by the Lender in connection
with performance of due diligence by the Lender in connection with the
transactions hereby contemplated and the preparation, execution, delivery,
waiver or modification and administration of this Credit Agreement and any other
documentation contemplated hereby, the Note and the making of the Loans and the
Letters of Credit, including but not limited to any internally allocated audit
costs, the reasonable fees and
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disbursements of Morgan, Lewis & Bockius LLP, counsel for the Lender and any
other counsel that the Lender shall retain, reasonable fees and expenses of
technical or other consultants engaged by the Lender. Such payments shall be
made on the date of execution of this Credit Agreement and thereafter on demand.
In addition, the Borrower agrees to pay all reasonable out-of-pocket expenses
incurred by the Lender in the enforcement or protection of the rights of the
Lender in connection with this Credit Agreement, the Note or the Letters of
Credit, and with respect to any action which may be instituted by any Person
other than the Credit Parties against the Lender in respect of the foregoing, or
as a result of any transaction, action or non-action arising from the foregoing,
including but not limited to the reasonable fees and disbursements of any
counsel for the Lender (but excluding any such expenses to the extent incurred
by reason of the gross negligence or wilful misconduct of the Lender). Such
payments shall be made on demand after the date of execution of this Credit
Agreement. The Borrower agrees that it shall indemnify the Lender from and hold
it harmless against any documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of this Credit
Agreement, the Note or the issuance of Letters of Credit. The obligations of the
Borrower under this Section 12.4 shall survive the termination of this Credit
Agreement and/or the payment of the Loans and/or the expiration of the Letters
of Credit.
SECTION 12.5. Indemnification of the Lender. The Borrower agrees (a) to
indemnify and hold harmless the Lender and its directors, officers, employees,
trustees and agents (to the full extent permitted by law) from and against any
and all claims, demands, losses, judgments and liabilities (including
liabilities for penalties) of whatsoever nature, and (b) to pay to the Lender an
amount equal to the amount of all costs and expenses, including reasonable legal
fees and disbursements, in each case arising out of or resulting from any
litigation, investigation or other proceedings relating to the Collateral, this
Credit Agreement, the Copyright Security Agreement, the Pledgeholder Agreements
and the Letters of Credit, the making of the Loans, any attempt to audit,
inspect, protect or sell the Collateral, or the administration and enforcement
or exercise of any right or remedy granted to the Lender hereunder or thereunder
but excluding therefrom all claims, demands, losses, judgments, liabilities,
costs and expenses arising out of or resulting from (i) the gross negligence or
willful misconduct of the Lender and (ii) litigation between the Borrower and
the Lender in connection with the Fundamental Documents or in any way relating
to the transactions contemplated hereby if, after final non-appealable judgment,
the Lender is not the prevailing party in such litigation. The foregoing
indemnity agreement includes any reasonable costs incurred by the Lender in
connection with any action or proceeding which may be instituted in respect of
the foregoing by the Lender or by any other Person either against the Lender or
in connection with which any officer, director, agent or employee of the Lender
is called as a witness or deponent, including, but not limited to, the
reasonable fees and disbursements of Morgan, Lewis & Bockius LLP, counsel to the
Lender and any out-of-pocket costs incurred by the Lender in appearing as a
witness or in otherwise complying with legal process served upon them. In no
event shall the Lender be liable to the Borrower for any matter or thing in
connection with this Credit Agreement other than to make Loans and account for
moneys actually received by them in accordance with the terms hereof.
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Whenever the provisions of this Credit Agreement or any other
Fundamental Document provide that, if any Credit Party shall fail to do any act
or thing which it has covenanted to do hereunder or any representation or
warranty of any of the Credit Parties shall be breached, the Lender may (but
shall not be obligated to) do the same or cause it to be done or remedy any such
breach and if the Lender does the same or causes it to be done, there shall be
added to the Obligations hereunder the cost or expense incurred by the Lender in
so doing, and any and all amounts expended by the Lender in taking any such
action shall be repayable to it upon its demand therefor and shall bear interest
at 2% in excess of the Alternate Base Rate from time to time in effect from the
date advanced to the date of repayment.
All indemnities contained in this Section 12.5 shall survive the
expiration or earlier termination of this Credit Agreement and shall inure to
the benefit of any Person who was a Lender notwithstanding such Person's
assignment of all its Loans and Commitment.
SECTION 12.6. CHOICE OF LAW. THIS CREDIT AGREEMENT AND THE NOTES SHALL
IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK WHICH ARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
WHOLLY WITHIN SUCH STATE AND, IN THE CASE OF PROVISIONS RELATING TO INTEREST
RATES, ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. EACH LETTER OF CREDIT
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR
RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS
(1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE
"UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE
LAWS OF THE STATE OF NEW YORK.
SECTION 12.7. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH CREDIT PARTY HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
CREDIT AGREEMENT OR THE SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR
TORT OR OTHERWISE. EACH CREDIT PARTY ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY
THE LENDER THAT THE PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT
UPON WHICH THE LENDER HAS RELIED, IS RELYING AND WILL RELY IN ENTERING INTO THIS
CREDIT AGREEMENT AND ANY OTHER FUNDAMENTAL DOCUMENT. THE LENDER MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 12.7 WITH ANY
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COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE CREDIT PARTIES TO THE WAIVER OF
THEIR RIGHTS TO TRIAL BY JURY.
SECTION 12.8. No Waiver. No failure on the part of the Lender to
exercise, and no delay in exercising, any right, power or remedy hereunder,
under the Note or any other Fundamental Document or with regards to Letters of
Credit shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder are cumulative and are not exclusive of any other remedies
provided by law.
SECTION 12.9. Extension of Payment Date. Should any payment of principal
of or interest on the Note or any other amount due hereunder become due and
payable on a day other than a Business Day, the due date of such payment thereof
shall be extended to the next succeeding Business Day and, in the case of
principal, interest shall be payable thereon at the rate herein specified during
such extension.
SECTION 12.10. Amendments, etc. No modification, amendment or waiver of
any provision of this Credit Agreement, and no consent to any departure by the
Credit Parties herefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any of the Credit Parties shall entitle such Credit Party
to any other or further notice or demand in the same, similar or other
circumstances. Each holder of a Note shall be bound by any amendment,
modification, waiver or consent authorized as provided herein, whether or not a
Note shall have been marked to indicate such amendment, modification, waiver or
consent and any consent by any holder of a Note shall bind any Person
subsequently acquiring a Note, whether or not a Note is so marked.
SECTION 12.11. Severability. Any provision of this Credit Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 12.12. SERVICE OF PROCESS. EACH CREDIT PARTY (EACH A "SUBMITTING
PARTY") HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF
THE STATE OF NEW YORK AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS CREDIT AGREEMENT
(INCLUDING, BUT NOT LIMITED TO THE LETTERS OF CREDIT) OR THE SUBJECT MATTER
HEREOF BROUGHT BY THE LENDER OR ANY OF ITS SUCCESSORS OR ASSIGNS IN EITHER OF
THE ABOVE-REFERENCED FORUMS AT THE SOLE OPTION OF THE LENDER. EACH SUBMITTING
PARTY TO THE EXTENT PERMITTED BY APPLICABLE LAW (A)
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HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR
OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS, ANY
CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED
COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT
THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE
VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS CREDIT
AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT,
(B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING
INSTITUTED BY THE LENDER IN STATE COURT TO FEDERAL COURT AND (C) HEREBY WAIVES
THE RIGHT TO ASSERT IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR
COUNTERCLAIMS EXCEPT COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM
THE SAME SUBJECT MATTER. THE SUBMITTING PARTY HEREBY CONSENTS TO SERVICE OF
PROCESS BY MAIL AT ITS ADDRESS TO WHICH NOTICES ARE TO BE GIVEN PURSUANT TO
SECTION 12.1 HEREOF. THE SUBMITTING PARTY AGREES THAT ITS SUBMISSION TO
JURISDICTION AND CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS
BENEFIT OF THE LENDER. FINAL JUDGMENT AGAINST THE SUBMITTING PARTY IN ANY SUCH
ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION (A) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A CERTIFIED OR
TRUE COPY OF WHICH SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF
INDEBTEDNESS OR LIABILITY OF THE SUBMITTING PARTY THEREIN DESCRIBED OR (B) IN
ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION,
PROVIDED, HOWEVER, THAT THE LENDER MAY AT ITS OPTION BRING SUIT, OR INSTITUTE
OTHER JUDICIAL PROCEEDINGS AGAINST THE SUBMITTING PARTY OR ANY OF ITS ASSETS IN
ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE
THE SUBMITTING PARTY OR SUCH ASSETS MAY BE FOUND.
SECTION 12.13. Headings. Section headings used herein and the Table of
Contents are for convenience only and are not to affect the construction of or
be taken into consideration in interpreting this Credit Agreement.
SECTION 12.14. Execution in Counterparts. This Credit Agreement may be
executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument.
SECTION 12.15. Subordination of Intercompany Advances. (a) Each Credit
Party hereby agrees that any Indebtedness or other intercompany receivables or
advances of any other Credit Party, directly or indirectly, in favor of such
Credit Party of whatever nature at any time outstanding shall be completely
subordinate in right of payment to the prior payment in full
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of the Obligations, and that no payment on any such Indebtedness shall be made
(i) except intercompany receivables and advances permitted pursuant to the terms
hereof may be repaid in the ordinary course of business so long as no Default or
Event of Default, shall have occurred and be continuing and (ii) except as
specifically consented to by the Lender in writing, until the prior payment in
full all Obligations and termination of the Commitment.
(b) In the event that any payment on any such Indebtedness shall be
received by such Credit Party other than as permitted by Section 12.15(a) before
payment in full of all Obligations and termination of the Commitment, such
Credit Party shall receive such payments and hold the same in trust for,
segregate the same from its own assets and shall immediately pay over to, the
Lender all such sums to the extent necessary so that the Lender shall have been
paid all Obligations owed or which may become owing.
SECTION 12.16. Confidentiality. The Lender understands that certain
information furnished to it pursuant to this Agreement will be received by it
prior to the time that such information shall have been made public, and the
Lender hereby agrees that it will keep, and will direct its officers and
employees to keep, all the information provided to it pursuant to this Credit
Agreement confidential prior to its becoming public except that the Lender shall
be permitted to disclose such information (i) to officers, directors, employees,
representatives, agents, auditors, accountants, consultants, advisors, lawyers
and affiliates of the Lender necessary for the administration of this Credit
Agreement, in the ordinary course of business who have been made aware of the
confidential nature of the information; (ii) to prospective assignees or
participants and their respective officers, directors, employees, agents and
representatives in accordance with Section 12.3(h) herein; (iii) as required by
Applicable Law, or pursuant to subpoenas or other legal process, or as requested
by governmental agencies and examiners; (iv) in proceedings to enforce the
Lender's rights and remedies hereunder or under any other Fundamental Document
or in any proceeding against the Lender in connection with this Credit Agreement
or under any other Fundamental Document or the transactions contemplated
hereunder; (v) to the extent such information (A) becomes publicly available
other than as a result of a breach of this Credit Agreement or (B) becomes
available to the Lender or a participant on a non-confidential basis, not in
breach of any agreement or other obligation to Borrower, from a source other
than Borrower; or (vi) to the extent Borrower shall have consented to such
disclosure in writing.
SECTION 12.17. Entire Agreement. This Credit Agreement represents the
entire agreement of the parties with regard to the subject matter hereof, and
the terms of any letters and other documentation entered into between any of the
parties hereto (other than the Commitment Letter) prior to the execution of this
Credit Agreement which relate to Loans to be made hereunder shall be replaced by
the terms of this Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
to be duly executed as of the day and the year first written.
BORROWER:
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name: Neil Topham
Title: Vice President & Chief
Financial Officer
CORPORATE GUARANTORS:
DOVE INTERNATIONAL, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name: Neil Topham
Title: Vice President & Treasurer
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name: Neil Topham
Title: Vice President
LENDER:
THE CHASE MANHATTAN BANK
By: /s/ MITCHELL J. GERVIS
-------------------------------------
Name: Mitchell J. Gervis
Title: Vice President
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SCHEDULE 1
MEI OWNERSHIP INTEREST
<TABLE>
<CAPTION>
Individual Guarantor Interest
- -------------------- --------
<S> <C>
Terrence Elkes 33.57%
Kenneth Gorman 33.57%
Bruce Maggin 14.11%
John Healy 7.05%
Ronald Lightstone 11.70%
</TABLE>
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SCHEDULE 3.7(a)
CORPORATE GUARANTORS/PLEDGED SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
JURISDICTION OF AUTHORIZED OUTSTANDING
NAME INCORPORATION CAPITALIZATION CAPITAL STOCK OWNERSHIP OF CAPITAL STOCK
- ---- --------------- -------------- ------------- --------------------------
<S> <C> <C> <C> <C>
Dove Four Point, Inc. Florida 10,000 shares 100 shares 100% by Dove Entertainment, Inc.
common stock common stock
10,000 shares
preferred stock
Dove International, Inc. Calfornia 1,000 shares 100 shares 100% by Dove Entertainment, Inc.
common stock common stock
</TABLE>
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SCHEDULE 3.7(b)
BENEFICIAL INTERESTS
<TABLE>
<CAPTION>
NAME OWNERSHIP BY CREDIT PARTY
- ---- -------------------------
<S> <C>
Empire Burbank Studios, Inc. 33% by Dove Four Point, Inc.
</TABLE>
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SCHEDULE 3.9
FICTITIOUS NAMES
Dove*
Dove Entertainment*
Dove Four Point*
Dove International*
Four Point
Dove Books*
Dove Audio*
Dove Television*
Dove Frontlist
Audio Select
Dove Books on Tape
Dove Kids
Olive Branch
Dove Pictures, Inc.
*Names with an asterisk are names currently used by the Credit Parties.
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SCHEDULE 3.11
PRINCIPAL EXECUTIVE OFFICE/
LOCATION OF COLLATERAL/FILING OFFICES
Chief Executive Office and office 8955 Beverly Boulevard
where "located" for purposes of UCC: Los Angeles, CA 90048
Dove Four Point, Inc. 8955 Beverly Boulevard
Los Angeles, CA 90048
Dove International, Inc. 8955 Beverly Boulevard
Los Angeles, CA 90048
Places where records of Collateral 8955 Beverly Boulevard
are regularly kept: Los Angeles, CA 90048
Places where goods included in the 8955 Beverly Boulevard
Collateral are regularly kept: Los Angeles, CA 90048
301 North Canon Drive, Suite 203
Beverly Hills, California 90210
International Cine Service, Inc.
920 Allen Avenue
Glendale, California 91201
Bonded Archives
3205 Burton Avenue
Burbank, California 91504
Penguin USA Returns
100 Fabrite Road
Newbern, TN 38059-1334
Laser Pacific Media Corp.
809 N. Cahuenga Blvd.
Hollywood, CA 90038
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American Direct Mail
3688 Beverly Boulvard
Los Angeles, CA 90069
GES Exposition Services
13861 Rosencrans Avenue
Santa Fe Springs, CA 90670
Gilbert Productions Services, Inc.
4571 Electonics Place
Los Angeles, CA 90039
Keep It Self Storage
6827 Woodley Avenue
Van Nuys, CA 91406
Select Storage
135 West Avenue 34
Los Angeles, CA 90031
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SCHEDULE 3.12
LITIGATION
1. In August 1993, the trial court confirmed an arbitration award in favor of
the Borrower, 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 Borrower 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 Borrower comprises approximately 80%, and the Borrower, Mr. Viner and
Mr. Leider are separately pursuing their own adversary proceeding for
conspiracy against Mr. Stern and others in the bankruptcy case. The
Borrower is also objecting to Mr. Stern's discharge in bankruptcy.
2. In February 1993, Mr. Stern filed a complaint against the Borrower, Mr.
Viner and Mr. Leider entitled Steven A. Stern and Steven A. Stern as
assignee of the claims of Sharmhill Productions (B.C.), Inc., a bankrupt
company v. Dove Audio, Inc. et al. (British Columbia Supreme Court,
Vancouver Registry No. C930935) (the "Canadian Stern Action") claiming
that he had been fraudulently induced to enter into the agreement
underlying the arbitration award and seeking as damages the amount of the
judgment.
3. In February 1996, the Borrower 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, and that information he provided to the Company was used in
another book published by the Company, "Legacy of Deception." Mr.
Tourtelot alleged causes of action for breach or oral contract, fraud,
suppression of fact, 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, which has permitted Mr. Tourtelot to pursue claims
for breach of oral contract, fraud, suppression of fact, breach of the
implied covenant of good faith and fair dealing, breach of fiduciary duty,
conversion, conspiracy and quantum merit.
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4. 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 Ms. Datig for malicious prosecution. Ms.
Datig, however, has appealed the judgment.
5. 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
Cast No. BC152129) (the "Ghalayini Action"). The complaint alleges among
other things: (i) breach of employment contract against Four Point
Entertainment, Inc. ("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 the 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 Mr. 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.
In May 1997, the Company was served with a complaint in a related action
entitled Shukri Ghalayini v. Dove Audio, Inc., et al. (Los Angeles Superior
Court Case No. BC170340) (the "Ghalayini Defamation Action"). The Complaint
alleges that Mr. Ghalayini was defamed at a Company shareholders meeting and
seeks damages accorded to proof.
In September 1997, the Company entered into an agreement with Mr. Ghalayini
providing for settlement of all claims by the Company against Mr. Ghalayini and
settlement of all claims by Mr. Ghalayini against the Company. The settlement
agreement provides for the Company to issue 66,667 shares of common stock to Mr.
Ghalayini.
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6. 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 Cast 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.
7. In January 1997, the Company was served with a complaint in an action
entitled 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
recession, declamatory relief, conspiracy, unfair competition, and false
advertising.
8. In May 1997, the Company was served with a complaint in an action entitled
Kenneth Raskoff v. Dove (Los Angeles Superior Court Case No. BC171355)
(the "Raskoff Action"). Mr. Raskoff is a former employee of Dove Four
Point. The complaint seeks unspecified damages and other relief for breach
of Mr. Raskoff's alleged employment contract, breach of the implied
covenant of good faith and fair dealing, breach of implied-in-fact
contract, promissory estoppel, and fraudulent inducement. The complaint
also seeks an injunction requiring that Mr. Raskoff receive producer
credit with respect to the television program entitled "Unwed Father" and
other unnamed projects.
9. In June 1997, the Company was served with a complaint in an action
entitled Michael Bass v. Penguin USA Inc., et al. (New York Superior Court
Case No. 97-11143) (the "Bass Action"). The complaint alleges among other
things that Ms. Greer's contribution to the book "You'll Never Make Love
In This Town Again" defames Mr. Bass and violates his rights of publicity
under New York statutes. The complaint seeks damages of $70,000 for
defamation and $20,000,000 for violation of the New York right of
publicity statutes and an injunction taking the book out of circulation
and prohibiting the use of Mr. Bass' name. As a result of the Bass Action,
the Company has brought a cross-complaint against Ms. Greer in the Greer
Action.
10. In July 1997, the Michael Viner and Deborah Raffin Viner (the "Former
Principals") commenced an arbitration against the Company. In their
arbitration demand, the Former Principals claim that they are owed in
excess of $1 million by the Company relating to the motion picture
entitled "Morning Glory." The Former Principals claim that they are also
entitled to the repayment of certain deferred amounts for producing and
acting services rendered by them in connection with "Morning Glory" and to
50% of the profits. They claim that a director of the Company, Gerald
Leider, is entitled to
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the other 50% of the profits (although Mr. Leider's claim is not the
subject of any present proceeding). The Former Principals have also
asserted that from any recovery of a judgment confirming an arbitration
award against Steven Stern and/or Sharmhill Productions relating to
"Morning Glory" (the "Stern Judgment") they are entitled to receive $1
million, as well as the deferred amounts and 50% of the profits. Present
management believes it has good and sufficient defenses to the claims,
including, but not limited to the Former Principals' waiver of their
claims that any amounts are owed to them as debt, as profit
participation's or as deferred compensation and that the Company has not
yet recouped its investment in the Picture. The Company has also asked the
arbitrator to determine that the Former Principals are not entitled to any
monies or rights with respect to "Morning Glory," including from the
proceeds of the Stern Judgment.
11. In July 1997, the Former Principals advised the Company that they intend
to refer certain matters arising from the Securities Purchase Agreement
and Termination Agreement to arbitration. The Former Principals have
identified in writing their intention to arbitrate a variety of
miscellaneous claims, including the Company's alleged failure to reimburse
charitable contributions, business expenses, medical expenses, to return
certain personal property, to account for sales with respect to certain
titles, and other matters. They have also suggested to the arbitrator
their intention to seek unpaid consulting fees under the Termination
Agreement. On October 16, 1997, however, the Former Principals filed an
action in the Los Angeles Superior Court (Case No BC179639) for "Breach of
Written Contract; Specific Performance; Temporary Restraining Order,
Preliminary and Permanent Injunctive Relief" which appears to seek damages
for the same claims identified (either in writing or orally) as the Former
Principals' claims in arbitration, as well as for Producer and Executive
Producer fees on "Unwed Father." In this action the Former Principals
claim that, in addition to other damages, they are entitled to accelerate
all payments to become due under the Termination Agreement, in the
aggregate amount of $1,511,823.79 and to the rights to certain titles.
This action appears to have been filed for purposes of obtaining an
attachment.
12. In July 1997, the Company was served with a complaint in an action
entitled Alan Fields v. Dove Entertainment, Inc., et al. (Los Angeles
Superior Court No. BC 174659) (the "Fields Action"). The Fields Action was
brought by an alleged purchaser of Common Stock against the Company and
the Former Principals as a putative class action on behalf of all persons
who acquired Common Stock between July 25, 1995 and August 20, 1996. The
complaint alleges a cause of action for violation of Section 25400(d) of
the California Corporations Code based on the alleged dissemination of
false and misleading statements about, among other things, the success of
the Company's printed book operations, financial results, business
condition and future prospects. The plaintiff seeks unspecified damages
and other relief. The Company has not yet filed a response to the
complaint. While the Company believes it has good and meritorious defenses
against the claim, the
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Company has taken a charge of $150,000 in the quarter ended September 30,
1997 in respect of potential costs associated with the claim. In July
1997, the Company was served with a complaint in an action entitled Alan
Fields v. Dove Entertainment, Inc., et al. (Los Angeles Superior Court No.
BC174659) (the "Fields Action"). The Fields Action was brought by an
alleged purchaser of Common Stock against the Company and the Former
Principals as a putative class action on behalf of all persons who
acquired Common Stock between July 25, 1995 and August 20, 1996. The
complaint alleges a cause of action for violation of Section 25400(d) of
the California Corporations Code based on the alleged dissemination of
false and misleading statements about, among other things, the success of
the Company's printed book operations, financial results, business
condition and future prospect. The plaintiff seeks unspecified damages and
other relief. In August 1997, an action entitled Global Asset Allocation
Consultants, L.L.C. v. Dove Entertainment, Inc., et al. (Civil Action NO.
97-6253-WDK) (the "Global Asset Action"), was commenced against the
Company and the Former Principals in the United States District Court for
the Central District of California. The Global Asset Action was brought by
an alleged purchaser of Common Stock as a putative class action on behalf
of all persons who acquired Common Stock between July 25, 1995 and August
20, 1996. The complaint alleges a cause of action for violation of Section
10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5
promulgated thereunder based on the conduct at issue in the Fields Action.
The plaintiff seeks unspecified damages and other relief. The Company has
learned that another putative federal securities class action was filed in
the United States District Court for the Central District of California by
an alleged purchase of Common Stock represented by the law firm of Berman,
DeValerio & Pease LLP (the "Berman Action"; and collectively with the
Fields Action and the Global Asset Action, the "Securities Actions"). The
complaint is reported be brought on behalf of all persons who acquired
Common Stock between April 15, 1996 and October 10, 1996 and to allege a
cause of action against the Company and certain of its officers for
violation of Section 10(b) of the Securities Exchange Act of 1934 and SEC
Rule 10b-5 promulgated thereunder. To date, the Company has not been
served with the complaints in the Global Asset Action or the Berman
Action. The Company has not yet filed a response to the complaints in the
Securities Actions. While the Company believes it has good and meritorious
defenses against the claims, the Company took a charge of $150,000 in the
quarter ended June 30, 1997 in respect of potential costs associated with
the claims.
13. In July 1997, the Company was served with a complaint in an action
entitled Steven A. Soloway v. Dove Entertainment, Inc., etc. et al. (Los
Angeles Superior Court Case No. BC 175516) (the "Soloway Action"). Mr.
Soloway is a former director and employee of the Company and has sought
damages of approximately $350,000 for breach of contract. Mr. Soloway
claims that as a result of the Securities Purchase Agreement he was
entitled to declare his employment agreement terminated without cause and
to receive his base salary through September 1999. In September 1997, Mr.
Soloway obtained a writ of attachment for approximately $350,000 in
respect of
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his claims, for which the Borrower has substituted an undertaking for the
amount of the attachment. The Borrower has filed a cross-complaint against
Mr. Soloway for breach of fiduciary duty and legal malpractice.
THREATENED LITIGATION
1. Jerry Leider, a director and former officer of the Borrower, has informed
the Borrower that he intends to commence litigation in connection with a
dispute between the Borrower and Mr. Leider over a purported key
executives severance agreement. The amount of the dispute is currently
approximately $250,000.
2. A Mr. A.J. Goldman has informed the Borrower that he may commence
litigation in connection with alleged defamatory statements in the book
"Worse Than He Says He Is."
The Company is a party to various other routine legal proceedings and claims
incidental to its business. 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.
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SCHEDULE 3.17
EXISTING INDEBTEDNESS/MATERIAL AGREEMENTS
(i) Existing Indebtedness
1. Line of Credit pursuant to Loan Agreement, dated as of September 26,
1997, between Dove Entertainment, Inc. and Dove Four Point, Inc., as
Borrowers, and Media Equities International, LLC. TO BE REPAID AT
CLOSING.
2. Loan pursuant to Term Loan Agreement, dated as of August 16, 1996,
between Dove Entertainment, Inc. and Sanwa Bank California. TO BE
REPAID AT CLOSING.
3. Mortgage Note in the amount of $1,800,000 to Asahi Bank of
California (8% interest per annum, maturing on April 2001). This
mortgage note may be extended, renewed or increased to an amount not
to exceed $3.2 million.
4. Auto loan on Mercedes 500 SL.
(ii) Material Joint Venture Agreements
None
(iii) Material Distribution Agreements
1. Letter Agreement, dated July 1, 1994, between Penguin Books USA,
Inc. and Dove Audio, Inc.
2. Letter Agreement, dated as of February 15, 1995 between Buena Vista
Television and Four Point Entertainment re: "Make Me Laugh."
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3. Letter Agreement, dated October 21, 1996, between Discovery
Communications, Inc. and Dove Four Point Entertainment, re:
"Unnatural History."
(iv) Material Contractual Arrangements
1. Stock Purchase Agreement, dated as of March 27, 1997, among Dove
Entertainment, Inc., and the Purchasers named therein and the
following related agreements:
a. Warrant to Purchase Shares of Common Stock of Dove
Entertainment, in favor of Media Equities International, LLC
(1,500,000 shares).
b. Warrant to Purchase Shares of Common Stock of Dove
Entertainment, in favor of Media Equities International LLC
(500,000 shares).
c. Warrant to Purchase Shares of Common Sock of Dove
Entertainment, Inc., in favor of MEI (500,000 shares).
d. Warrant to Purchase Shares of Common Sock of Dove
Entertainment, Inc., in favor of MEI (500,000 shares).
e. Registration Rights Agreement, dated as of March 27, 1997, by
and among Dove Entertainment, Inc., Media Equities
International, LLC, Michael Viner and Deborah Raffin.
f. Pledge Agreement, dated as of March 27, 1997, among Michael
Viner, Deborah Raffin, Media Equities International, LLC and
Dove Entertainment, Inc.
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g. Shareholders Voting Agreement, dated as of March 27, 1997, by
and between Michael Viner and Deborah Raffin, on the one hand,
and Media Equities International, LLC, on the other hand.
h. Escrow Agreement, dated June 10, 1997, by and between Dove
Entertainment, Inc., Michael Viner and Deborah Raffin.
2. Employment Termination Agreement, dated June 10, 1997 among Dove
Entertainment, Inc., Michael Viner and Deborah Raffin.
3. Key Executive Severence Agreement between Dove Entertainment, Inc.
and Gerald Leider, dated September 4, 1996.
4. Employment Agreement between Dove Entertainment, Inc. and Ron Ziskin
dated April 29, 1996.
5. Employment Agreement between Dove Entertainment, Inc. and Steven
Soloway, dated September 4, 1996.
6. Dove Four Point, Inc. is a signatory with the Directors Guild of
America.
7. Registration Rights Agreements, between the various purchasers in
the private placement conducted through Whale Securities Co., L.P.
and Dove Audio, Inc. The agreements provide for piggyback
registration rights beginning January 1, 1996 and an automatic
registration on or prior to June 14, 1996.
8. Registration provisions in the Warrant Agreements between Dove
Audio, Inc. and Whale Securities Co., L.P.
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9. Registration Rights Agreement, dated as of April ____, 1996, between
Shukri Ghalayini and Dove Audio, Inc.
10. Registration Rights Agreement, dated as of April ____, 1996, between
Ronald Ziskin and Dove Audio, Inc.
11. Warrant Certificates of Dove Audio, Inc. to Morgan Fuller Capital
Group, LLC and others, each dated October 1, 1996.
12. Employment Agreement with Ronald Lightstone.
13. Employment Agreement with Neil Topham.
14. Insurance Policies.
15. Agreement and Plan of Merger, made and entered into as of April 12,
1996, by and among Dove Audio, Inc., Dove Four Point, Inc. and Four
Point Entertainment Inc.
16. Stock Option Award Agreement, dated April 1996, by and between Dove
Audio, Inc. and Ron Ziskin, as amended.
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SCHEDULE 3.21
ENVIRONMENTAL LIABILITIES
Nothing is to be reported on this Schedule 3.21
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SCHEDULE 3.22
OUTSTANDING RIGHTS RE: PLEDGED SECURITIES
Nothing is to be reported on this Schedule 3.22
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SCHEDULE 6.2
EXISTING LIENS
1. First Deed of Trust on 8955 Beverly Boulevard, Los Angeles, California in
favor of Asahi Bank of California
2. Mercedes Benz Credit Corporation - security interest in Mercedes Benz 500
SL
3. Lien in favor of Guinness Mahon in connection with the film
"Wilde"securing an obligation in the amount of $15,000.
4. Operating Leases:
Fletcher Jones Motorcars, Inc. - Mercedes 94 C280W
Miller Infinity - Infinity QX4 Truck
Various operating leases for Apple Computers, photocopiers and telephone
systems.
5. Liens in favor of Individual Guarantors securing amounts paid pursuant to
the Guaranty. Such Liens will be subordinate to the Liens of the Lender.
6. UCC-1 naming Dove International as Debtor and BWE Distribution, Inc.,
covering a security interest in Debtor's rights under the motion picture
"Unwed Father," to be filed.
7. Liens evidenced by the following UCC-1 financing statements:
(a) Where Filed: California Secretary of State
Debtor: Dove International, Inc.
Secured Party: Paramount Pictures Corporation
File No.: 9617660715
(b) Where Filed: California Secretary of State
Debtor: Dove International, Inc.
Secured Party: Paramount Pictures Corporation
File No.: 9617660730
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(c) Where Filed: California Secretary of State
Debtor: Dove International, Inc.
Secured Party: Paramount Pictures Corporation
File No.: 9625060583
(d) Where Filed: California Secretary of State
Debtor: Dove International, Inc.
Secured Party: Michael Viner
File No.: 9631061125
(e) Where Filed: California Secretary of State
Debtor: Dove International, Inc.
Secured Party: Paramount Pictures Corporation
File No.: 9635360269
(f) Where Filed: California Secretary of State
Debtor: Dove International, Inc.
Secured Party: Guinness Mahon & Co. Limited
File No.: 9635360521
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SCHEDULE 6.3
GUARANTEES
Nothing is to be reported on this Schedule 6.3
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SCHEDULE 6.4
Dove Four Point, Inc. has a 33% ownership interest in Empire Burbank Studios.
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SCHEDULE 6.23
BANK ACCOUNTS
Nothing is to be reported on this Schedule 6.23
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EXHIBIT B-1
November 10, 1997
The Chase Manhattan Bank, as Lender
under the Credit Agreement referred to below
270 Park Avenue
New York, New York 10017
Re: Credit, Security, Guaranty and Pledge Agreement, dated as of November 4,
1997 (the "Credit Agreement") among DOVE ENTERTAINMENT, INC., a
California corporation ("Borrower"), the Corporate Guarantors named
therein and THE CHASE MANHATTAN BANK, a New York banking corporation, as
Lender ("Lender)
Ladies and Gentlemen:
We have acted as special counsel to (i) Borrower and (ii) Dove International,
Inc., a California corporation ("DII"), and Dove Foup Point, Inc. a Florida
corporation ("DFP" and, together with DII, the "Corporate Guarantors"), in
connection with the Credit Agreement and the transactions contemplated thereby
(the "Transactions"). This opinion letter is given at the request of Borrower
and the Corporate Guarantors pursuant to Section 4.1(c) of the Credit Agreement.
Capitalized terms not otherwise defined in this opinion letter shall have the
meanings ascribed to them in the Credit Agreement. The term "Collateral", as
used herein shall include the "Pledged Stock", the "copyrights" and the
"collateral", as each such term is hereinafter defined.
We have delivered this opinion letter as counsel admitted to practice in the
States of California, Florida and New York, and we shall not be understood to
have expressed any opinion herein under or with respect to the laws of any
jurisdiction other than the State of New York, the State of California (with
respect to paragraphs 2 (other than the first sentence thereof), 5 and 6 of this
opinion letter), the State of Florida (with respect to paragraph 6 of this
opinion letter) and the Federal laws of the United States of America (with
respect to paragraph 5 of this opinion letter). In addition, except as
specifically set forth in this opinion letter, we are not rendering any opinion
herein as to any legal issue that would be excluded by Section 19 of the Legal
Opinion Accord of the ABA Section of Business Law (1991) were it to govern this
opinion letter.
<PAGE> 122
In connection with this opinion letter, we have reviewed executed
copies of the following documents:
(i) the Credit Agreement;
(ii) the Note;
(iii) the agreement dated as November 4, 1997 made by Borrower
and the Corporate Guarantors in favor of Lender (the "Copyright Security
Agreement");
(iv) the Uniform Commercial Code Form UCC-1 Financing
Statement to be filed with the Secretary of State of California, naming Borrower
as debtor and Lender as secured party ("Borrower Financing Statement");
(v) the Uniform Commercial Code Form UCC-1 Financing Statement
to be filed with the Secretary of State of California, naming DII as debtor and
Lender as secured party (the "DII Financing Statement");
(vi) the Uniform Commercial Code Form UCC-1 Financing
Statement to be filed with the Secretary of State of California, naming DFP as
debtor and Lender as secured party (the "DFP Financing Statement" and, together
with the Borrower Financing Statement and the DII Financing Statement, the
"Financing Statements");
(vii) the Articles of Incorporation and Bylaws of DFP;
(viii) a good standing certificate issued on October 31, 1997
by the Office of the Secretary of State of the State of Florida with respect to
DFP (the "DFP Florida Good Standing Certificate); and
(ix) a good standing certificate issued on October 31, 1997 by
the Office of the Secretary of State of the State of California with respect to
DFP (the "DFP California Good Standing Certificate and, together with the DFP
Florida Good Standing Certificate, the "DFP Good Standing Certificates").
The documents listed in subparagraphs (i) through (iii) above are hereinafter
sometimes referred to collectively as the "Documents."
We have not participated in the negotiations relating to the Documents
or the Transactions and have undertaken no review or investigation in connection
with the opinions expressed herein other than to read each of the Documents. As
to factual matters relevant to such opinions, we have relied with your
permission solely upon the representations and warranties contained in the
Documents and have not made any
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independent verification thereof. We have made such examinations of law as we
have deemed appropriate in order to render such opinions.
In rendering the opinions set forth herein, we have assumed (a) the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to authentic originals of all documents
submitted to us as copies; (b) that the Financing Statements have been properly
filed with the California Secretary of State, and that the Copyright Security
Agreement has been properly filed in the United States copyright office within
thirty days after its execution; (c) the legal capacity of each natural person;
(d) that each of Lender and each Credit Party (other than DFP) is a corporation
duly organized and validly existing in good standing under applicable law; (e)
that each Person has all requisite power and authority to execute, deliver and
perform each document executed and delivered by such Person and to do each other
act done or to be done by such Person; (f) the due execution and delivery by
each Person of each document executed and delivered or to be executed and
delivered by such Person; (g) except as specifically set forth in paragraph 1 of
this opinion letter with respect to the Credit Parties, the legality, validity,
binding effect and enforceability against each party thereto of each document
executed and delivered or to be executed and delivered in connection with the
Transactions; (h) that the execution and delivery of each such document do not
breach the certificate or articles of incorporation, by-laws and other
constituent documents of each such party and, except as specifically set forth
in paragraph 3 of this opinion letter, do not violate any law, rule or
regulation applicable to such party or breach any instrument or agreement to
which such party is a party; (i) that all conditions precedent set forth in
Article 4 of the Credit Agreement required as of the Closing Date have been
fully complied with or waived; (j) that Lender has given value, has acted in
good faith without notice of adverse claims or defenses against enforcement of
any rights created by the Documents, has complied with all laws applicable to it
that affect the Transactions or the Documents and has paid all taxes and fees
required to be paid by it in connection therewith; (k) that all statutes,
judicial and administrative decisions and rules and regulations of governmental
agencies constituting the law with respect to which we are rendering opinions
herein are published or otherwise generally accessible; (l) that, with respect
to the Documents or the Transactions, there has been no mutual mistake of fact,
fraud or duress; (m) the constitutionality and validity of all relevant laws,
regulations and governmental actions; (n) that routine procedural matters such
as service of process will be satisfied by the parties seeking to enforce any
right created by the Documents; (o) that the Credit Parties own, free and clear
of any liens or options, the Collateral that they purport to own; and (p) that
the DFP Good Standing Certificates have remained accurate through and including
the date of this opinion letter.
Various issues are addressed in the opinion letter of Robert Murray,
Esq., general counsel of Borrower, a copy of which is attached hereto as Exhibit
A, and we express no opinion with respect to the matters which are addressed in
such opinion letter. To the
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extent any of the opinions expressed therein are relevant to this opinion
letter, we have, with your permission, relied thereon together with and subject
to any and all assumptions, qualifications and limitations expressed therein and
herein which are relevant to those opinions upon which we have relied.
Based upon the foregoing and subject to the exceptions, qualifications,
limitations and other statements contained herein, it is our opinion that:
1. Under New York law, each of the Documents to which a Credit Party is
a party constitutes the legal, valid and binding obligation of such Credit Party
and is enforceable against such Credit Party in accordance with its terms.
2. The Credit Agreement creates in favor of Lender a valid security
interest in that portion of the collateral in which the creation and attachment
of security interests or liens are governed by Article 9 of the New York Uniform
Commercial Code (the "NYUCC"), as security for the obligations of the Credit
Parties under the Credit Agreement. Upon the filing of the Financing Statements
with the California Secretary of State (the "Filing Office"), Lender will have a
perfected security interest (to the extent that perfection may be accomplished
by filing the Financing Statement in the Filing Office) in that portion of the
collateral described in the Financing Statement other than fixtures (the "UCC
Property") in which the perfection of security interests is governed by Division
9 of the California Uniform Commercial Code ("CAUCC"). Whenever used in this
opinion letter, the term "collateral" shall be limited to "accounts", "general
intangibles", "inventory", "equipment" and "goods" as each of such terms is
defined in Article 9 of the NYUCC and Division 9 of the CAUCC. The Financing
Statements are in appropriate form for filing in the Filing Office.
3. The execution and delivery of the Documents by each Credit Party
that is a party thereto and the performance by such Credit Party of its
obligations thereunder, the grant to Lender of the security interests as
provided in the Credit Agreement and the pledge to Lender of the Pledged Stock
(as hereinafter defined) as provided in the Credit Agreement do not violate any
New York law, statute, rule or regulation applicable to such Credit Party, and
no governmental authorizations, consents, approvals, registrations or filings by
or in the State of New York are required in connection with the execution,
delivery and performance of the Documents by such Credit Party.
4. The delivery in the State of New York to Lender of the certificates
evidencing the shares of stock described in Exhibit B hereto (the "Pledged
Stock"), duly endorsed in the name of Lender or in blank (or accompanied by
stock powers or separate documents of assignment duly executed in favor of
Lender or in blank), together with the execution and delivery by the Credit
Parties of the Credit Agreement, creates in favor of Lender a valid and
perfected security interest in such Pledged Stock
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as security for the obligations of the Credit Parties under the Credit
Agreement, which security interest will remain perfected for as long as
possession of the Pledged Stock is continuously maintained by Lender in the
State of New York.
5. The Copyright Security Agreement creates in favor of Lender a valid
and enforceable security interest in that portion of the collateral (the
"copyrights") in which the creation and attachment of security interests or
liens are governed by 17 U.S.C. Section 205 and Article 9 of the NYUCC, and such
security interest will become effective against third parties at the later of
the execution and delivery of the Copyright Security Agreement and the filing of
the Financing Statements in the Filing Office.
6. DFP is a corporation duly organized, validly existing and, based
solely on the DFP Good Standing Certificates, in good standing under the laws of
the State of Florida and as a foreign corporation under the laws of the State of
California.
The opinions set forth above in this opinion letter are subject, in all
respects, to the following exceptions, qualifications and limitations:
(a) Our opinion concerning the legality, validity, binding effect and
enforceability of the Documents in accordance with their terms does not mean
that (1) any particular remedy is available upon a material default or (2) every
provision of the Documents will be upheld or enforced in any or each
circumstance by a court. Certain provisions of the Documents may be or are
unenforceable in whole or in part, but in each case the inclusion of such
provisions does not affect the validity of each such Documents taken as whole,
and each such Document taken as a whole contains adequate provisions for the
practical realization of the benefits purported to be created thereby (subject
to the consequences of any judicial, administrative or other delay which may be
imposed by, be related to or arise from applicable laws or equitable
principles). Furthermore, the validity, binding effect and enforceability of the
Documents may be limited or otherwise affected by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws, rules
or regulations affecting the enforcement of creditors' rights and remedies
generally and the unavailability of, or limitation of the availability of, a
particular right or remedy (whether in a proceeding in equity or at law) because
of an equitable principle or a requirement as to commercial reasonableness,
conscionability or good faith. The provisions of any Document which permit any
Person to take action or make determinations (and/or to have such determinations
be binding on other parties to any degree), or to benefit from indemnities,
contributions or similar undertakings, or waivers, exculpatory provisions or
similar provisions, may be subject to limitations imposed by law or by public
policy considerations, including, without limitation, a requirement that such
action be taken or such determination be made, or that any action or inaction by
any Person in respect of which such an indemnity, right of contribution or
similar undertaking, or such a
5
<PAGE> 126
waiver, exculpatory provision or similar provision, be called upon or raised, or
be taken or not taken, as the case may be, on a reasonable and lawful basis and
in good faith.
(b) The use of the term "enforceable" shall not imply any opinion as to
the availability of equitable remedies, including, without limitation, the
remedies of specific performance or injunctive relief, nor is any opinion
regarding the same intended to be expressed herein, and no opinion is expressed
that any particular provision of any of the Documents may not be limited by
defenses such as estoppel, waiver and other equitable considerations.
(c) Under certain circumstances the requirement that the provision of a
Document may be modified or waived only in writing or only in a specific
instance and the provision that failure or delay in exercising any power, right,
privilege or remedy will not impair or waive such power, right, privilege or
remedy may be unenforceable to the extent that an oral agreement has been
effected or a course of dealing has occurred modifying such provisions.
(d) With respect to any Document creating a security interest in UCC
Property, we express no opinion as to the enforceability of the rights and
remedies under such Documents against property located in the State of
California unless the procedural requirements under the CAUCC are followed.
(e) We express no opinion with respect to any security interest in any
Collateral described in the Financing Statements to which the provisions of
Article 9 of the NYUCC or Division 9 of the CAUCC do not apply.
(f) The continuation and perfection of security interests in proceeds
is limited to the extent set forth in Sections 9-306 through 9-309 of the NYUCC
and Sections 9306 through 9309 of the CAUCC.
(g) We express no opinion with respect to the creation, attachment,
validity, perfection or priority of any security interest, except as
specifically set forth in paragraphs 2, 4 and 5 of this opinion letter.
(h) We express no opinion as to (1) the impact of any laws regulating
the type of investments that can be made by, or the legal lending limits of,
Lender or (2) the effect of the laws of any jurisdiction in which Lender or any
Credit Party is located (other than the State of New York) that limit the
interest, fees or other charges Lender may impose.
6
<PAGE> 127
(i) We express no opinion with respect to the enforceability of any
provision of the Documents which provides for (1) acceleration of future amounts
due (other than principal) without appropriate discount to present value, (2)
late charges or (3) increased interest rates upon default, to the extent that
any such provision is determined to be penalty, or which purports to bind a
Person not a party or signatory thereto.
(j) We expressed no opinion as to any Credit Party's rights in, or
title to, any Collateral, the value thereof or the interest of Lender in any
after-acquired property. We call to your attention the fact that Section 552 of
the Federal Bankruptcy Code limits the extent to which property acquired by a
debtor after the commencement of a case under the Federal Bankruptcy Code may be
subject to a security interest arising from a security agreement entered into by
such debtor before the commencement of such case. Our opinions are subject to
the provisions of Sections 9-203 and 9-204 of the NYUCC relating to the time of
attachment of a security interest in an item of Collateral in which the Person
granting the security interest does not presently have rights.
(k) We express no opinion with respect to any provisions in the
Documents (1) authorizing the unilateral appointment of a receiver or (2) which
provide that Lender is appointed as any Credit Party's attorney-in-fact or that
Lender may otherwise act on behalf of in the name of a Credit Party.
(l) We express no opinion as to any Document provision contrary to
Section 9-311 or Part V of Article 9 of the NYUCC or Section 9311 or Chapter 5
of Division 9 of the CAUCC.
(m) We express no opinion as to the enforceability or perfection of any
interest of any Person other than Lender in any property included in the UCC
Property. Our opinion as to the enforceability of an governing law provision
contained in any Document is qualified by the effects of subsection (2) of
Section 1-105 of the NYUCC.
(n) We express no opinion regarding any items of Collateral which are
(1) accessioned to, or commingled or processed with, other goods to the extent
the security interest of Lender is limited by Section 9-314 or 9-315 of the
NYUCC or Section 9314 or 9315 of the CAUCC or (2) subject to or represented by a
certificate of title or a document of title.
(o) Except as specifically set forth in paragraph 5 of this opinion
letter, we express no opinion regarding any items of Collateral which are
subject to a statute, regulation or treaty of the United States which provides
for a national or international registration or a national or international
certificate of title for the perfection of a security interest therein or which
specifies a place of filing different from the place specified in the CAUCC.
7
<PAGE> 128
(p) We express no opinion regarding any Collateral consisting of claims
against any government or governmental agency (including, without limitation,
the United States or any state thereof or any agency or department of the United
States or any state thereof).
(q) In the case of any chattel paper, account or general intangible
which is itself secured by other property, we express no opinion with respect to
Lender's rights in and to such other property.
(r) We express no opinion with respect to Collateral consisting of
mobile goods, goods in possession of a third party, equipment used in farming
operations, farm products, consumer goods, crops growing or to be grown, timber
to be cut or minerals or the like (including oil and gas), accounts subject to
Section 9-103(5) of the NYUCC of Section 9103(5) of the CAUCC, goods which are
or are to become fixtures, an ownership interest in a corporation or partnership
formed for the purpose of cooperative ownership of real estate, policies of
insurance, beneficial interests in a trust or decedent's estate, letters of
credit, instruments, money, cash, deposit accounts (and any items of property in
such accounts), collection accounts (and any items of property in such
accounts), lockboxes, intellectual property (except as specifically set forth in
paragraph 5 of this opinion letter) or securities (except as specifically set
forth in paragraph 4 of this opinion letter).
(s) We have assumed that the collateral, other than accounts and
general intangibles, is located in the State of California and that any part of
such collateral that was brought into the State of California within the last
four months is not subject to a security interest perfected under the law of the
jurisdiction from which such part of the collateral was removed.
(t) We call to your attention that the security interest of Lender in
the collateral and the copyrights may be subject to the rights of lessees,
licensees, assignees or other account debtors, the claims and defenses of such
lessees, licensees, assignees and account debtors and the terms of any leases or
other agreements with such lessees, licensees, assignees and account debtors.
(u) We call to your attention that the perfection and the effect of
perfection and non-perfection of the security interest of Lender may be governed
by laws other than those of the State of California to the extent either the
collateral or a Credit Party is or becomes located in a jurisdiction other than
the State of California.
(v) We call to your attention that the perfection of the security
interest in any UCC Property may be terminated as to any UCC Property acquired
more than four months subsequent to a change in the nature, corporate structure
or identity of a Credit
8
<PAGE> 129
Party and that a continuation statement is required to be filed under the CAUCC
within six months prior to the expiration of five-years from the date of filing
of a financing statement and within six months prior to each fifth anniversary
of the expiration of such five-year period in order to maintain the continuous
perfection of the security interests referred to therein.
(w) We call to your attention that provisions of the Documents which
provide that a guaranty by a party thereto or the grant of a lien or security
interest by a party thereto to secure the obligations of a third party shall not
be affected by changes in or amendments to the Documents or other relevant
documents might be enforceable only to the extent such changes or amendments are
not so material as to constitute a new agreement among the parties to such
documents.
(x) We call to your attention that a court may modify or limit
contractual awards of attorneys' fees.
(y) We express no opinion with respect to any provision contained in
the Documents concerning waiver of inconvenient forum, venue, forum non
conveniens or subject matter jurisdiction, in each case with respect to Federal
courts.
(z) We express no opinion as to the enforceability of any provision of
any Document that purports to establish (or may be construed to establish)
evidentiary standards.
(aa) We express no opinion as to the last sentence of Section 9.1(b) of
the Credit Agreement, the last sentence of the first paragraph of Section 12.5
of the Credit Agreement, the last sentence of Section 12.6 of the Credit
Agreement, Sections 12.7 and 12.11 of the Credit Agreement, the third sentence
of Section 12.12 of the Credit Agreement (unless a reasonable time for
appearance is allowed in connection with any such service of process) or the
fifth sentence of Section 12.12 of the Credit Agreement.
(bb) We express no opinion herein as to the legality, validity or
enforceability of any provisions of the Documents precluding oral waivers or
modifications of provisions of the Documents, precluding waivers of equitable
rights and defenses by the Credit Parties or precluding the Credit Parties from
asserting certain claims or defenses or from obtaining certain rights and
remedies.
The opinions set forth herein are based upon those statutes, rules and
regulations that, in our experience, are normally applicable to transactions of
the type provided for in the Documents, but without our having made any
independent investigation of any other statute, rule or regulation.
9
<PAGE> 130
This opinion is issued as of the date hereof, and we disclaim any
obligation to advise you of changes of law or fact that occur after the date
hereof. This opinion is solely for your benefit in connection with the
Transactions and may not be relied upon for any other purpose or furnished,
circulated or quoted to, or used or referred to by, any other Person without our
prior written consent in each instance.
Very truly yours,
<PAGE> 131
EXHIBIT A
November 10, 1997
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Hughes Hubbard & Reed
One Battery Park Plaza
New York, New York 10004-1482
Ladies and Gentlemen:
I am Vice President and General Counsel of Dove Entertainment, Inc. (the
"Company"), a California corporation. I am providing this opinion to you
pursuant to Section 4.1(c) of the Credit, Security, Guaranty and Pledge
Agreement (the "Credit Agreement"), dated as of November 4, 1997, among the
Company, the Corporate Guarantors named therein and The Chase Manhattan Bank
(the "Lender"). Except as otherwise indicated, capitalized terms used in this
opinion and defined in the Credit Agreement will have the meanings given in the
Credit Agreement.
In my capacity as General Counsel, I have examined originals or copies of those
corporate and other records and documents I considered appropriate. I have
obtained and relied upon those certificates of public officials I considered
appropriate. I have assumed the genuineness of all signatures (other than with
respect to the Credit Parties), the authenticity of all documents submitted as
originals and the conformity with originals of all documents submitted as
copies. To the extent any Credit Parties' obligations depend on the due
authorization, execution and delivery of any Fundamental Document by any other
person, I have assumed that such Fundamental Document has been so authorized,
executed and delivered by such other person.
The "Individual Guaranty Agreements" are the guaranty agreements, each dated as
of November 4, 1997, between Terrence Elkes, Bruce Maggin, Kenneth Gorman, John
Healy and Ronald Lightstone and the Lender.
On the basis of such examination, my reliance upon the assumptions in this
opinion and my consideration of those questions of law I considered relevant,
and subject to the limitations and qualifications in this opinion, I am of the
opinion that:
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<PAGE> 132
1. The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of California.
2. Dove International, Inc. ("Dove International") is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California.
3. The Borrower has the power and authority (i) to own and
operate its assets and properties and to carry on its business as now being
conducted, (ii) to execute, deliver and perform its obligations under the Credit
Agreement and other Fundamental Documents to which it is a party and any other
documents contemplated thereby to which it is a party, (iii) to borrow under the
Credit Agreement, (iv) to grant to the Lender the security interests
contemplated by the Fundamental Documents and (v) to pledge to the Lender the
Pledged Securities as contemplated by the Credit Agreement.
4. Each of Dove International and Dove Four Point, Inc. ("Dove
Four Point") has the corporate power and authority (i) to own and operate its
assets and properties and to carry on its business as now being conducted, (ii)
to execute, deliver and perform its obligations under the Fundamental Documents
to which it is a party, (iii) to guarantee the obligations of the Borrower and
(iv) to grant to the Lender the security interests contemplated by the
Fundamental Documents.
5. The execution, delivery and performance of the Fundamental
Documents to which it is a party by each Credit Party, the grant to the Lender
of the security interest as contemplated by the Credit Agreement and the pledge
to the Lender of the Pledged Securities as contemplated by the Credit Agreement:
(a) have been duly authorized by all requisite corporate action on the part of
each Credit Party, (b) will not violate any provision of any State of California
or United States federal law, statute, governmental rule or regulation, or
treaty that I, in the exercise of customary professional diligence, recognized
as applicable to the Credit Parties or to transactions of the type contemplated
in the Fundamental Documents, (c) will not violate any provision of the Articles
of Incorporation or By-laws of any Credit Party, (d) will not violate any
provision of any material indenture, agreement, bond, note or other instrument
to which any Credit Party or by which any Credit Party or any of their
respective properties or assets are bound, or be in conflict with, result in a
breach or termination of, or constitute (with due notice or lapse of time or
both) a default under, or accelerate any performance required by, any such
indenture, agreement, bond, note or other instrument and (e) will not result in
the creation or imposition of (or the obligation to create or impose) any lien,
charge or encumbrance of any nature whatsoever upon any of the properties or
assets of any of any Credit Party, other than pursuant to of the Fundamental
Documents to which such Credit Party is a party.
-2-
<PAGE> 133
6. Each Credit Party has duly executed and delivered to the
Lender all of the Fundamental Documents to which it is a party.
7. No authorizations, consents, approvals, registrations or
filings from or with any California or United States federal governmental
authority that I have, in the exercise of customary professional diligence,
recognized as applicable to the Credit Parties or to transactions of the type
contemplated by the Fundamental Documents, is required in connection with the
execution, delivery and performance by any Credit Party of the Fundamental
Documents to which it is a party.
8. There is no judgment, order, action, suit or other proceeding
at law or in equity, or before any arbitrator or arbitration panel, of any
California state or United States federal governmental authority (and, to my
knowledge, any other Governmental Authority), or, to my knowledge, any
investigation of the affairs of, any Credit Party, or any of their respective
properties or rights which (i) if adversely determined, could reasonably be
expected to materially affect (a) the ability of any Credit Party to carry on
its business, (b) the ability of any Credit Party to perform its respective
obligations under the Fundamental Documents to which it is a party or any other
material contract to which it is a party, (c) the validity or enforceability or
priority of the security interests, rights, remedies or benefits available to
the Lender under any of the Fundamental Documents, or (d) the Collateral or the
Pledged Securities; or (ii) involves any of the transactions contemplated by the
Fundamental Documents.
9. The authorized, issued and outstanding capital stock of Dove
Four Point and Dove International is as set forth on Schedule 3.7(a) to the
Credit Agreement (the "Pledged Securities") and such issued and outstanding
capital stock has been duly authorized, validly issued, is fully paid and
nonassessable and is owned of record by the Borrower.
10. There are no restrictions on the transfer of any Pledged
Securities other than under the Credit Agreement. There are no outstanding
rights, warrants, options or agreements to purchase or otherwise acquire any
shares of stock or securities or obligations of any kind convertible into any
shares of capital stock of Dove International or Dove Four Point.
11. None of the Credit Parties is (a) and "investment company",
within the meaning of the Investment Company Act of 1940, as amended or (b)
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act or any federal statute or regulation limiting such
corporation's ability to incur indebtedness for money borrowed as contemplated
by the Credit Agreement or by any other Fundamental Document. The making of the
Loans and the application of the proceeds thereof as contemplated by the
Fundamental Documents do not violate any of
-3-
<PAGE> 134
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System, as amended.
12. Assuming that New York law is identical to California law,
each Individual Guaranty Agreement constitutes the legal, valid and binding
obligation of the Individual Guarantor party thereto and is enforceable against
such Individual Guarantor in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors rights generally (including, without limitation,
fraudulent conveyance laws) and by general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance or injunctive
relief, regardless of whether considered in a proceeding in equity or at law.
13. You have received an opinion letter of Hughes, Hubbard & Reed
(a copy of which is attached hereto) (the "HHR Opinion") with respect to the
creation and perfection of a security interest in the Pledged Stock (as defined
therein). Assuming that New York law is identical with California law, and in
reliance on the HHR Opinion and subject to any and all assumptions,
qualifications and limitations expressed therein, the perfected security
interest of the Lender in the Pledged Stock will be prior to any other security
interest in such Pledged Stock that may be created by the Company under the
Uniform Commercial Code.
I express no opinion as to the effect of non-compliance by the Lender with any
state or federal laws or regulations applicable to the transactions contemplated
by any of the Fundamental Documents because of the nature of its business.
The law covered by this opinion is limited to the present federal law of the
United States and the present law of the State of California. I express no
opinion as to the laws of any other jurisdiction and no opinion regarding the
statutes, administrative decisions, rules, regulations or requirements of any
county, municipality, subdivision or local authority of any jurisdiction.
This opinion is issued as of the date hereof, and I disclaim any obligation to
advise you of changes in law or fact that occur after the date hereof.
This opinion may be relied upon by you only in connection with the execution and
delivery of the Credit Agreement and the other Fundamental Documents. It may not
be used or relied upon by you for any other purpose or by any other person, nor
may copies be delivered to any other person, without in each instance my prior
written consent. You may, however, deliver a copy of this opinion to your
accountants, attorneys, and other professional advisors, to governmental
regulatory agencies having jurisdiction over you and to successors and permitted
transferees under the Credit
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<PAGE> 135
Agreement, and such successors and transferees may rely on this opinion as if it
were addressed and had been delivered to them on the date of this opinion.
Very truly yours,
/s/ ROBERT C. MURRAY
- ------------------------
Robert C. Murray
RCM:kms
-5-
<PAGE> 136
EXHIBIT B
<TABLE>
<CAPTION>
NAME OF ISSUER NUMBER OF SHARES
-------------- ----------------
<S> <C>
Dove International, Inc. 100
Dove Four Point, Inc. 100
</TABLE>
<PAGE> 137
EXHIBIT B-2
November 10, 1997
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Hughes Hubbard & Reed
One Battery Park Plaza
New York, New York 10004-1482
Ladies and Gentlemen:
I am Vice President and General Counsel of Dove Entertainment, Inc. (the
"Company"), a California corporation. I am providing this opinion to you
pursuant to Section 4.1(c) of the Credit, Security, Guaranty and Pledge
Agreement (the "Credit Agreement"), dated as of November 4, 1997, among the
Company, the Corporate Guarantors named therein and The Chase Manhattan Bank
(the "Lender"). Except as otherwise indicated, capitalized terms used in this
opinion and defined in the Credit Agreement will have the meanings given in the
Credit Agreement.
In my capacity as General Counsel, I have examined originals or copies of those
corporate and other records and documents I considered appropriate. I have
obtained and relied upon those certificates of public officials I considered
appropriate. I have assumed the genuineness of all signatures (other than with
respect to the Credit Parties), the authenticity of all documents submitted as
originals and the conformity with originals of all documents submitted as
copies. To the extent any Credit Parties' obligations depend on the due
authorization, execution and delivery of any Fundamental Document by any other
person, I have assumed that such Fundamental Document has been so authorized,
executed and delivered by such other person.
The "Individual Guaranty Agreements" are the guaranty agreements, each dated as
of November 4, 1997, between Terrence Elkes, Bruce Maggin, Kenneth Gorman, John
Healy and Ronald Lightstone and the Lender.
On the basis of such examination, my reliance upon the assumptions in this
opinion and my consideration of those questions of law I considered relevant,
and subject to the limitations and qualifications in this opinion, I am of the
opinion that:
-1-
<PAGE> 138
1. The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of California.
2. Dove International, Inc. ("Dove International") is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California.
3. The Borrower has the power and authority (i) to own and
operate its assets and properties and to carry on its business as now being
conducted, (ii) to execute, deliver and perform its obligations under the Credit
Agreement and other Fundamental Documents to which it is a party and any other
documents contemplated thereby to which it is a party, (iii) to borrow under the
Credit Agreement, (iv) to grant to the Lender the security interests
contemplated by the Fundamental Documents and (v) to pledge to the Lender the
Pledged Securities as contemplated by the Credit Agreement.
4. Each of Dove International and Dove Four Point, Inc. ("Dove
Four Point") has the corporate power and authority (i) to own and operate its
assets and properties and to carry on its business as now being conducted, (ii)
to execute, deliver and perform its obligations under the Fundamental Documents
to which it is a party, (iii) to guarantee the obligations of the Borrower and
(iv) to grant to the Lender the security interests contemplated by the
Fundamental Documents.
5. The execution, delivery and performance of the Fundamental
Documents to which it is a party by each Credit Party, the grant to the Lender
of the security interest as contemplated by the Credit Agreement and the pledge
to the Lender of the Pledged Securities as contemplated by the Credit Agreement:
(a) have been duly authorized by all requisite corporate action on the part of
each Credit Party, (b) will not violate any provision of any State of California
or United States federal law, statute, governmental rule or regulation, or
treaty that I, in the exercise of customary professional diligence, recognized
as applicable to the Credit Parties or to transactions of the type contemplated
in the Fundamental Documents, (c) will not violate any provision of the Articles
of Incorporation or By-laws of any Credit Party, (d) will not violate any
provision of any material indenture, agreement, bond, note or other instrument
to which any Credit Party or by which any Credit Party or any of their
respective properties or assets are bound, or be in conflict with, result in a
breach or termination of, or constitute (with due notice or lapse of time or
both) a default under, or accelerate any performance required by, any such
indenture, agreement, bond, note or other instrument and (e) will not result in
the creation or imposition of (or the obligation to create or impose) any lien,
charge or encumbrance of any nature whatsoever upon any of the properties or
assets of any of any Credit Party, other than pursuant to of the Fundamental
Documents to which such Credit Party is a party.
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<PAGE> 139
6. Each Credit Party has duly executed and delivered to the
Lender all of the Fundamental Documents to which it is a party.
7. No authorizations, consents, approvals, registrations or
filings from or with any California or United States federal governmental
authority that I have, in the exercise of customary professional diligence,
recognized as applicable to the Credit Parties or to transactions of the type
contemplated by the Fundamental Documents, is required in connection with the
execution, delivery and performance by any Credit Party of the Fundamental
Documents to which it is a party.
8. There is no judgment, order, action, suit or other proceeding
at law or in equity, or before any arbitrator or arbitration panel, of any
California state or United States federal governmental authority (and, to my
knowledge, any other Governmental Authority), or, to my knowledge, any
investigation of the affairs of, any Credit Party, or any of their respective
properties or rights which (i) if adversely determined, could reasonably be
expected to materially affect (a) the ability of any Credit Party to carry on
its business, (b) the ability of any Credit Party to perform its respective
obligations under the Fundamental Documents to which it is a party or any other
material contract to which it is a party, (c) the validity or enforceability or
priority of the security interests, rights, remedies or benefits available to
the Lender under any of the Fundamental Documents, or (d) the Collateral or the
Pledged Securities; or (ii) involves any of the transactions contemplated by the
Fundamental Documents.
9. The authorized, issued and outstanding capital stock of Dove
Four Point and Dove International is as set forth on Schedule 3.7(a) to the
Credit Agreement (the "Pledged Securities") and such issued and outstanding
capital stock has been duly authorized, validly issued, is fully paid and
nonassessable and is owned of record by the Borrower.
10. There are no restrictions on the transfer of any Pledged
Securities other than under the Credit Agreement. There are no outstanding
rights, warrants, options or agreements to purchase or otherwise acquire any
shares of stock or securities or obligations of any kind convertible into any
shares of capital stock of Dove International or Dove Four Point.
11. None of the Credit Parties is (a) and "investment company",
within the meaning of the Investment Company Act of 1940, as amended or (b)
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act or any federal statute or regulation limiting such
corporation's ability to incur indebtedness for money borrowed as contemplated
by the Credit Agreement or by any other Fundamental Document. The making of the
Loans and the application of the proceeds thereof as contemplated by the
Fundamental Documents do not violate any of
-3-
<PAGE> 140
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System, as amended.
12. Assuming that New York law is identical to California law,
each Individual Guaranty Agreement constitutes the legal, valid and binding
obligation of the Individual Guarantor party thereto and is enforceable against
such Individual Guarantor in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting creditors rights generally (including, without limitation,
fraudulent conveyance laws) and by general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance or injunctive
relief, regardless of whether considered in a proceeding in equity or at law.
13. You have received an opinion letter of Hughes, Hubbard & Reed
(a copy of which is attached hereto) (the "HHR Opinion") with respect to the
creation and perfection of a security interest in the Pledged Stock (as defined
therein). Assuming that New York law is identical with California law, and in
reliance on the HHR Opinion and subject to any and all assumptions,
qualifications and limitations expressed therein, the perfected security
interest of the Lender in the Pledged Stock will be prior to any other security
interest in such Pledged Stock that may be created by the Company under the
Uniform Commercial Code.
I express no opinion as to the effect of non-compliance by the Lender with any
state or federal laws or regulations applicable to the transactions contemplated
by any of the Fundamental Documents because of the nature of its business.
The law covered by this opinion is limited to the present federal law of the
United States and the present law of the State of California. I express no
opinion as to the laws of any other jurisdiction and no opinion regarding the
statutes, administrative decisions, rules, regulations or requirements of any
county, municipality, subdivision or local authority of any jurisdiction.
This opinion is issued as of the date hereof, and I disclaim any obligation to
advise you of changes in law or fact that occur after the date hereof.
This opinion may be relied upon by you only in connection with the execution and
delivery of the Credit Agreement and the other Fundamental Documents. It may not
be used or relied upon by you for any other purpose or by any other person, nor
may copies be delivered to any other person, without in each instance my prior
written consent. You may, however, deliver a copy of this opinion to your
accountants, attorneys, and other professional advisors, to governmental
regulatory agencies having jurisdiction over you and to successors and permitted
transferees under the Credit
-4-
<PAGE> 141
Agreement, and such successors and transferees may rely on this opinion as if it
were addressed and had been delivered to them on the date of this opinion.
Very truly yours,
/s/ ROBERT C. MURRAY
- ------------------------
Robert C. Murray
RCM:kms
-5-
<PAGE> 142
EXHIBIT C
FORM OF BORROWING BASE CERTIFICATE
as of ___________
The undersigned (the "Borrower") HEREBY CERTIFIES the following
information as of __________, pursuant to the Credit, Security, Guaranty and
Pledge Agreement dated as of November 4, 1997, among Dove Entertainment, Inc. as
Borrower, the Corporate Guarantors named therein and The Chase Manhattan Bank,
as the same may be amended, supplemented or otherwise modified, renewed or
replaced from time to time (herein called the "Credit Agreement"), the defined
terms therein being herein used with the same meanings:
<TABLE>
<CAPTION>
(from detailed schedules Amount Advance Borrowing
attached) $000's Rate Base
------ ------- ---------
<S> <C> <C> <C>
a. Eligible L/C Receivables x 100% =
------- ---------
b. Eligible Receivables x 85% =
------- ---------
c. Eligible Library Amount x 35% =
------- ---------
d. Inventory of physical audio
cassettes and printed books x 30% =
------- ---------
e. Less Amounts Payable to
Third Parties not Already
Deducted(1) ( )
--------
f. Less Amounts of accrued but
unpaid residuals owed to any
trade guilds with respect to
each item of Product included
in the Borrowing Base ( )
--------
TOTAL BORROWING BASE
==========
</TABLE>
- --------
(1) To the extent not already deducted in computing the Total Borrowing Base,
the sum of all amounts payable to third parties from or with regard to the
amounts otherwise included in the Borrowing Base pursuant to items (a)
through (d), including without limitation remaining acquisition payments,
set offs, current profit participations, deferments, commissions and
royalties must be subtracted from the Total Borrowing Base.
<PAGE> 143
<TABLE>
COMMITMENT AVAILABILITY
<S> <C>
a. Outstanding Loans
----------
b. L/C Exposure
----------
Total outstanding
----------
Availability
----------
</TABLE>
The Borrower has no reason to believe that the aggregate
principal amount of all Loans to the Borrower outstanding as of the date of this
certificate would exceed the Borrowing Base if such Borrowing Base was computed
as of the date of this certificate.
IN WITNESS WHEREOF, the undersigned has caused this certificate
to be executed this ____ day of _____________.
DOVE ENTERTAINMENT, INC.
By:
-------------------------------------
Name:
Title:
-2-
<PAGE> 144
EXHIBIT D-1
FORM OF PLEDGEHOLDER AGREEMENT
(ONLY APPLICABLE WITH RESPECT TO UNCOMPLETED PRODUCT
FOR WHICH A COMPLETION GUARANTEE IS REQUIRED)
AGREEMENT dated as of [INSERT DATE]
(the "Agreement") among (i) [INSERT NAME OF
LABORATORY] (the "Laboratory"), (ii) [INSERT
NAME OF EACH CREDIT PARTY WHO HAS CONTROL
OVER THE PHYSICAL ELEMENTS OF THE
COLLATERAL] (collectively referred to herein
as the "Company"), (iii) [INSERT NAME OF
COMPLETION GUARANTOR] (the "Completion
Guarantor") and (iv) The Chase Manhattan
Bank (the "Lender").
Pursuant to the Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997 (as the same may be amended, supplemented or
otherwise modified, renewed or replaced from time to time, the "Credit
Agreement"), among Dove Entertainment, Inc., (the "Borrower"), the Corporate
Guarantors named therein and the Lender, the Lender has agreed, subject to the
terms and conditions set forth in the Credit Agreement, to make loans to the
Borrower in connection with, among other things, the acquisition, production and
distribution of the Product (as hereinafter defined).
The Company has granted to the Lender a security interest in,
among other things, all of its right, title and interest in and to the [DESCRIBE
NATURE OF PRODUCT, I.E. MOVIE-OF-THE-WEEK, TELEVISION PROGRAMS, AUDIOBOOKS,
ETC.] listed on Schedule 1 hereto (hereinafter called the "Product") as security
for various obligations of the Company to the Lender. Such security interest
covers, among other things, all physical properties of every kind or nature of,
or relating to, the Product and all versions thereof, including, without
limitation, exposed film, developed film, positives, negatives, prints, positive
prints, answer prints, special effects, preparing materials (including
interpositives, duplicate negatives, internegatives, color reversals,
intermediates, lavenders, fine grain master prints and matrices, and all other
forms of pre-print elements), sound tracks, cutouts, trims and any and all other
physical properties of every kind and nature of, or relating to, the Product,
whether in completed form or in some state of completion, and all audio and
video masters, duplicates, drafts, versions, variations and copies of each
thereof, in all formats whether on film, videotape, disk, cassette, phonorecord
or otherwise and
-1-
<PAGE> 145
all music sheets and promotional materials relating to the Product all of the
foregoing items being hereinafter collectively called the "Collateral".
Pursuant to the Completion Guaranty dated as of [INSERT DATE],
among the Completion Guarantor, the Company and the Lender (the "Completion
Guaranty"), the Completion Guarantor has agreed to guaranty the completion and
delivery of the Product. In connection therewith, the Company has granted to the
Completion Guarantor, a security interest in certain assets that are included in
the Collateral, all as specified in, and subject to the terms and conditions of,
the Company's Completion Agreement dated as of [INSERT DATE], between the
Company and the Completion Guarantor (the "Company's Agreement").
From time to time, the Laboratory will have in its possession
certain items of the Collateral.
Accordingly, the parties hereto hereby agree as follows:
1. Each of the Company, the Completion Guarantor, and the Lender
hereby appoints the Laboratory as the pledgeholder of all items of Collateral
that may from time to time come into the possession or control of the
Laboratory. The Laboratory agrees to hold all such items of Collateral as
pledgeholder for the Lender subject to the following terms and conditions:
a. Except as permitted by Section 1(b) below, the
Laboratory will keep all items of Collateral at the laboratories
or storage facilities listed on Schedule 2 hereto, and will not
deliver such property to anyone.
b. Subject to the provisions of Sections 1(c) and 1(d)
below, the Laboratory will permit the Company and/or Completion
Guarantor (and their respective designated affiliates,
sublicensees or designees):
i) to have access to the negatives and other
pre-print material of the Product (but not remove them
from the possession of the Laboratory) for purposes of
inspecting, cutting, scoring or similar purposes;
ii) to obtain a reasonable number of positive
prints including without limitation, dailies, for the
purposes of editing and previewing the Product;
iii) to direct the making of pre-print material,
positive prints and video masters of the Product and
trailers thereof and the delivery thereof to the Company
or distributors, licensees or other parties as the Company
may direct;
-2-
<PAGE> 146
iv) to remove reasonable amounts of material for
processing by optical and/or sound houses which agree in
writing to be bound by the terms hereof or enter into a
separate laboratory pledgeholder agreement substantially
in the form hereof, and to return such materials when
processed to the Laboratory;
v) with the prior written consent of the Lender, to
forward any item of Collateral to another laboratory. The
Lender's consent contained in this clause (v) may be
revoked at any time by written notice to the Laboratory,
the Completion Guarantor and the Company from the Lender.
In addition, such consent shall be deemed to be revoked at
any time upon receipt by the Laboratory of written notice
from the Lender, that an Event of Default has occurred
under the Credit Agreement; and
vi) to forward any of the above-mentioned property
to another laboratory, approved by the Lender, if the
Lender has previously received a Pledgeholder Agreement
executed by such laboratory.
c. If and when the Laboratory shall receive written notice
from the Lender that an Event of Default shall have occurred and
is continuing under the Credit Agreement, the Laboratory shall
take no further orders from the Company and will hold all items
of Collateral within its possession or under its control as
pledgeholder hereunder, subject only (i) to the order and
instruction of the Lender; and (ii) to the rights of the Lender
and/or the Completion Guarantor to have access to and/or delivery
of items referred to in Section 6 below.
d. If and when the Laboratory shall receive written notice
from the Completion Guarantor that the Completion Guarantor has
exercised its right to take over the production of the Product
under the Company's Agreement and, unless and until the
Laboratory shall have received written notice from the Lender to
the contrary, the Laboratory shall allow the Completion Guarantor
to exercise the rights set forth in clauses (i), (ii), (iii) and
(iv) of Section 1(b) hereof. Following such notice from the
Completion Guarantor, the Laboratory will not permit the Company
to have any further access to, or direct any further actions to
be taken with respect to, the Collateral in the Laboratory's
possession or under its control or to obtain any prints thereof.
e. If the Completion Guarantor takes over the production
of the Product and requests that the Collateral be moved to a
different laboratory, the Lender agrees to consent to such move
so long as a laboratory pledgeholder agreement is executed by the
various parties hereto (other than the Laboratory)
-3-
<PAGE> 147
and by the replacement laboratory, substantially in the form
hereof and so as long as the replacement laboratory is reasonably
satisfactory to the Lender.
2. The Company agrees with the Lender that during production of
the Product it will deliver the daily rushes for the Product to the Laboratory
as soon as practicable and will use their best efforts to deliver the daily
rushes on a weekly basis.
3. The Laboratory shall keep the original negatives of the
Product in film vaults separate from and at a reasonable distance from
protective duplicating materials (whether protective masters, fine grains,
duplicate negatives or otherwise) to afford protection against any loss or
damage, whether by fire or other disaster or otherwise. The Laboratory shall
keep the Lender and the Completion Guarantor advised in writing of the actual
location of the film vaults where all items of the Collateral are kept,
including information as to the separate film vaults utilized for the original
negatives and protective materials as aforesaid.
4. Subject to the rights of the Completion Guarantor, the
Laboratory agrees that in its capacity as pledgeholder it is holding and has
possession of the Collateral and the physical properties thereof constructively
for the Lender and, until such time that the Lender notifies the Laboratory that
the Lender no longer has any rights in the Collateral, upon written notice to
the Laboratory indicating that an Event of Default has occurred and is
continuing under the Credit Agreement (a copy of which will be sent to the
Completion Guarantor unless its rights hereunder have terminated as contemplated
by Section 8 hereof), will hold a sale or sales of the Collateral or any part
thereof in accordance with the direction and instruction of the Lender, at the
expense of the Lender, or in the alternative will cause to be delivered or made
available to the Lender or its nominee (in all cases, pursuant to written
instructions from the Lender) the Collateral and all physical properties thereof
in the possession of the Laboratory or under its control for the purpose of
enabling the Lender to deal with the same pursuant to the Credit Agreement.
Nothing herein contained shall be construed to waive any rights of the
Laboratory as specified under Section 9 hereof.
5. Each of the Completion Guarantor and the Company hereby waives
any claim for damages or otherwise which it may have against the Laboratory for
any acts which the Laboratory may take as pledgeholder, pursuant to the written
direction of the Lender made in accordance with the terms of this Agreement.
6. Subject to Section 9 hereof, the Laboratory agrees that,
despite the existence of any other claim which the Laboratory may have against
the Company and/or the Completion Guarantor and/or any third-party distributor
of the Product, the Laboratory shall accept and fulfill orders for laboratory
work and any other material which may be required by the Lender or any other
third-party distributor of the Product, subject to satisfactory credit
arrangements being made with the Laboratory with respect to any charges incurred
on behalf of the Lender or any such third-party distributor, and the Laboratory
will not assert any claim or
-4-
<PAGE> 148
lien, statutory or otherwise, against the Lender or against the Product (except
as set forth in Section 9 hereof) with respect to any charges for laboratory
services or materials ordered by the Company, the designees of the Company, any
third-party distributor of the Product or the Completion Guarantor.
7. The parties hereto agree that the Lender and its respective
designees, successors and assigns shall each be entitled to unilaterally remove
from the Laboratory materials made pursuant to an order contemplated by Section
6 hereof, which materials shall not be subject to this Agreement.
8. The rights granted hereunder to the Completion Guarantor shall
(i) at all times be junior and subordinate to the rights hereunder of the Lender
and (ii) terminate upon the completion and delivery of the Product, unless prior
to such completion and delivery of the Product, the Completion Guarantor has
notified the Lender and the Laboratory in writing that it has or anticipates
that it will have to advance its own funds to complete the Product.
Notwithstanding anything to the contrary in this Agreement, the Completion
Guarantor shall have no rights under this Agreement if the Lender gives written
notice to the Laboratory and the Completion Guarantor that the Product has been
completed and delivered without the requirement that the Completion Guarantor
advance any of its own funds pursuant to the Completion Guaranty. The Completion
Guarantor hereby agrees that in the event that the Completion Guarantor shall
have been released in writing from all of its obligations under the Completion
Guaranty for the Product, any amendment or termination of this Agreement
thereafter shall not require the Completion Guarantor's consent.
9. The Laboratory shall hold and/or process the Collateral under
its standard terms of business as set forth in Schedule 3 hereto, except that
any liens arising in favor of the Laboratory shall be limited to an aggregate
amount of $50,000 at any one time outstanding for processing and/or storing the
Collateral and/or materials delivered therefrom for the Company, any of their
designees and/or the Completion Guarantor. Except as provided in the prior
sentence, the rights of the Laboratory in the Collateral shall be subordinate
and junior to the rights of the Lender and the Completion Guarantor in respect
of the Collateral.
10. The Lender shall promptly give written notice to the
Laboratory when the Lender's security interests in the Collateral has
terminated. Upon receipt of such written notice, the Laboratory's obligations
hereunder as pledgeholder for the Lender shall terminate.
11. This Agreement shall be binding on and inure to the benefit
of the parties hereto and the successors and assigns of each of the parties.
12. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
-5-
<PAGE> 149
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW
YORK.
13. No amendment to this Agreement shall be effective unless in
writing and signed by the Company, the Lender and the Laboratory and if the
Laboratory has not received the notice from the Lender contemplated by Section 8
hereof, then also the Completion Guarantor. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which when taken together, shall constitute but one instrument, and shall become
effective on the date on which each of the Completion Guarantor and the Lender
shall have received a fully-executed copy of this Agreement. Promptly
thereafter, the Company shall deliver or mail counterparts of this Agreement
bearing the signature of each of the parties hereto to each party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first written above.
[LABORATORY]
By
-----------------------------------------
Name:
Title:
Address:
Attn:
[LIST APPLICABLE CREDIT PARTY(IES)]
By
-----------------------------------------
Name:
Title:
Address:
Attn:
-6-
<PAGE> 150
[COMPLETION GUARANTOR]
By
-----------------------------------------
Name:
Title:
Address:
Attn:
THE CHASE MANHATTAN BANK
By
-----------------------------------------
Name:
Title:
Address: 270 Park Avenue, 37th floor
New York, NY 10017-2070
Attn: John J. Huber, III
-7-
<PAGE> 151
Schedule 1
List of items of Product
<PAGE> 152
Schedule 2
List of Laboratory and Storage Facilities
<PAGE> 153
Schedule 3
[Attach Laboratory's Standard Terms of Business]
<PAGE> 154
EXHIBIT D-2
FORM OF PLEDGEHOLDER AGREEMENT (COMPLETED PRODUCT)
AGREEMENT dated as of __________,
1997 (the "Agreement") among (i) [INSERT
NAME OF LABORATORY] (the "Laboratory"), (ii)
[INSERT NAME OF EACH CREDIT PARTY WHO HAS
CONTROL OVER THE PHYSICAL ELEMENTS OF THE
COLLATERAL] (collectively referred to herein
as the "Company") and (iii) The Chase
Manhattan Bank (the "Lender").
Pursuant to the Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997 (as the same may be amended, supplemented or
otherwise modified, renewed or replaced from time to time, the "Credit
Agreement"), among Dove Entertainment, Inc., (the "Borrower"), the Corporate
Guarantors named therein and the Lender, the Lender has agreed, subject to the
terms and conditions set forth in the Credit Agreement, to make loans to the
Borrower in connection with, among other things, the acquisition, production and
distribution of the Product (as hereinafter defined).
The Company has granted to the Lender a security interest in,
among other things, all of its right, title and interest in and to the [DESCRIBE
NATURE OF PRODUCT, I.E. MOVIE-OF-THE-WEEK, TELEVISION PROGRAMS, AUDIOBOOKS,
ETC.] listed on Schedule 1 hereto (hereinafter called the "Product") as security
for various obligations of the Company to the Lender. Such security interest
covers, among other things, all physical properties of every kind or nature of,
or relating to, the Product and all versions thereof, including, without
limitation, exposed film, developed film, positives, negatives, prints, positive
prints, answer prints, special effects, preparing materials (including
interpositives, duplicate negatives, internegatives, color reversals,
intermediates, lavenders, fine grain master prints and matrices, and all other
forms of pre-print elements), sound tracks, cutouts, trims and any and all other
physical properties of every kind and nature of, or relating to, the Product,
whether in completed form or in some state of completion, and all audio and
video masters, duplicates, drafts, versions, variations and copies of each
thereof, in all formats whether on film, videotape, disk, cassette, phonorecord
or otherwise and all music sheets and promotional materials relating to the
Product all of the foregoing items being hereinafter collectively called the
"Collateral".
From time to time, the Laboratory will have in its possession
certain items of the Collateral.
-1-
<PAGE> 155
Accordingly, the parties hereto hereby agree as follows:
1. Each of the Company and the Lender hereby appoints the
Laboratory as the pledgeholder of all items of Collateral that may from time to
time come into the possession or control of the Laboratory. The Laboratory
agrees to hold all such items of Collateral as pledgeholder for the Lender
subject to the following terms and conditions:
a. Except as permitted by Section 1(b) below, the
Laboratory will keep all items of Collateral at the laboratories
or storage facilities listed on Schedule 2 hereto, and will not
deliver such property to anyone.
b. Subject to the provisions of Sections 1(c) below, the
Laboratory will permit the Company and its designated affiliates,
sublicensees and designees:
i) to have access to the negatives and other
pre-print material of the Product (but not remove them
from the possession of the Laboratory) for purposes of
inspecting, cutting, scoring or similar purposes;
ii) to obtain a reasonable number of positive
prints including without limitation, dailies, for the
purposes of editing and previewing the Product;
iii) to direct the making of pre-print material,
positive prints and video masters of the Product and
trailers thereof and the delivery thereof to the Company
or distributors, licensees or other parties as the Company
may direct;
iv) to remove reasonable amounts of material for
processing by optical and/or sound houses which agree in
writing to be bound by the terms hereof or enter into a
separate laboratory pledgeholder agreement substantially
in the form hereof, and to return such materials when
processed to the Laboratory;
v) with the prior written consent of the Lender, to
forward any item of Collateral to another laboratory. The
Lender hereby consents to the Laboratory's forwarding
original material or elements constituting Collateral, if
requested to do so by the Company, to any of the
laboratories listed on Schedule 4 hereto. The Lender's
consent contained in this clause (v) may be revoked at any
time by written notice to the Laboratory and the Company
from the Lender. In addition, such consent shall be deemed
to be revoked at any time upon receipt by the Laboratory
of written notice
-2-
<PAGE> 156
from the Lender, that an Event of Default has occurred
under the Credit Agreement; and
vi) to forward any of the above-mentioned property
to another laboratory, approved by the Lender, if the
Lender has previously received a Pledgeholder Agreement
executed by such laboratory.
c. If and when the Laboratory shall receive written notice
from the Lender that an Event of Default shall have occurred and
is continuing under the Credit Agreement, the Laboratory shall
take no further orders from the Company and will hold all items
of Collateral within its possession or under its control as
pledgeholder hereunder, subject only (i) to the order and
instruction of the Lender; and (ii) to the rights of the Lender
to have access to and/or delivery of items referred to in Section
5 below.
2. The Laboratory shall keep the original negatives of the
Product in film vaults separate from and at a reasonable distance from
protective duplicating materials (whether protective masters, fine grains,
duplicate negatives or otherwise) to afford protection against any loss or
damage, whether by fire or other disaster or otherwise. The Laboratory shall
keep the Lender advised in writing of the actual location of the film vaults
where all items of the Collateral are kept, including information as to the
separate film vaults utilized for the original negatives and protective
materials as aforesaid.
3. The Laboratory agrees that in its capacity as pledgeholder it
is holding and has possession of the Collateral and the physical properties
thereof constructively for the Lender and, until such time that the Lender
notifies the Laboratory that the Lender no longer has any rights in the
Collateral, upon written notice to the Laboratory indicating that an Event of
Default has occurred and is continuing under the Credit Agreement, will hold a
sale or sales of the Collateral or any part thereof in accordance with the
direction and instruction of the Lender, at the expense of the Lender, or in the
alternative will cause to be delivered or made available to the Lender or its
nominee (in all cases, pursuant to written instructions from the Lender) the
Collateral and all physical properties thereof in the possession of the
Laboratory or under its control for the purpose of enabling the Lender to deal
with the same pursuant to the Credit Agreement. Nothing herein contained shall
be construed to waive any rights of the Laboratory as specified under Section 7
hereof.
4. The Company hereby waives any claim for damages or otherwise
which it may have against the Laboratory for any acts which the Laboratory may
take as pledgeholder, pursuant to the written direction of the Lender made in
accordance with the terms of this Agreement.
-3-
<PAGE> 157
5. Subject to Section 7 hereof, the Laboratory agrees that,
despite the existence of any other claim which the Laboratory may have against
the Company and/or any third-party distributor of the Product, the Laboratory
shall accept and fulfill orders for laboratory work and any other material which
may be required by the Lender or any other third-party distributor of the
Product, subject to satisfactory credit arrangements being made with the
Laboratory with respect to any charges incurred on behalf of the Lender or any
such third-party distributor, and the Laboratory will not assert any claim or
lien, statutory or otherwise, against the Lender or against the Product (except
as set forth in Section 7 hereof) with respect to any charges for laboratory
services or materials ordered by the Company, the designees of the Company or
any third-party distributor of the Product.
6. The parties hereto agree that the Lender and its respective
designees, successors and assigns shall each be entitled to unilaterally remove
from the Laboratory materials made pursuant to an order contemplated by Section
5 hereof, which materials shall not be subject to this Agreement.
7. The Laboratory shall hold and/or process the Collateral under
its standard terms of business as set forth in Schedule 3 hereto, except that
any liens arising in favor of the Laboratory shall be limited to an aggregate
amount of $50,000 at any one time outstanding for processing and/or storing the
Collateral and/or materials delivered therefrom for the Company and/or any of
their designees. Except as provided in the prior sentence, the rights of the
Laboratory in the Collateral shall be subordinate and junior to the rights of
the Lender in respect of the Collateral.
8. The Lender shall promptly give written notice to the
Laboratory when the Lender's security interests in the Collateral has
terminated. Upon receipt of such written notice, the Laboratory's obligations
hereunder as pledgeholder for the Lender shall terminate.
9. This Agreement shall be binding on and inure to the benefit of
the parties hereto and the successors and assigns of each of the parties.
10. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.
11. No amendment to this Agreement shall be effective unless in
writing and signed by the Company, the Lender and the Laboratory. This Agreement
may be executed in two or more counterparts, each of which shall constitute an
original, but all of which when taken together, shall constitute but one
instrument, and shall become effective on the date on which the Lender shall
have received a fully-executed copy of this Agreement. Promptly thereafter, the
-4-
<PAGE> 158
Company shall deliver or mail counterparts of this Agreement bearing the
signature of each of the parties hereto to each party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first written above.
[LABORATORY]
By
-------------------------------------
Name:
Title:
Address:
Attn:
DOVE ENTERTAINMENT, INC.
By
-------------------------------------
Name:
Title:
Address:
Attn:
DOVE INTERNATIONAL, INC.
By
-------------------------------------
Name:
Title:
Address:
Attn:
-5-
<PAGE> 159
DOVE FOUR POINT, INC.
By
-------------------------------------
Name:
Title:
Address:
Attn:
THE CHASE MANHATTAN BANK
By
-------------------------------------
Name:
Title:
Address: 270 Park Avenue, 37th floor
New York, NY 10017-2070
Attn: John J. Huber, III
-6-
<PAGE> 160
Schedule 1
List of Items of Product
<PAGE> 161
Schedule 2
List of Laboratory and Storage Facilities
<PAGE> 162
Schedule 3
[Attach Laboratory's Standard Terms of Business]
<PAGE> 163
Schedule 4
Other Laboratories
<PAGE> 164
EXHIBIT E-1
FORM OF COPYRIGHT SECURITY AGREEMENT
WHEREAS, Dove Entertainment, Inc., a California corporation
("Borrower"), and each Subsidiary of Borrower whose name appears at the foot
hereof (collectively the "Grantors") now own or hold and may hereafter acquire
or hold certain copyrights and rights under copyright with respect to certain
movies-of-the-week, television programs, films, videotapes or other programs
produced for television release or for release in any other medium, shown on
network, free and cable, pay and/or other television medium (including, without
limitation, first-run syndication), certain written works, books and other
published material, and sound recordings and audiobooks, in each case whether
recorded on film, videotape, cassette, cartridge, disc, audio cassette or on or
by any other means, method, process or device whether now owned or hereafter
developed, including, without limitation, those United States copyright
registrations listed on Schedule 1 hereto (the "Product") as such Schedule may
be amended from time to time by the addition of copyrights subsequently arising
or acquired;
WHEREAS, pursuant to that certain Credit, Security, Guaranty and
Pledge Agreement, dated as of November 4, 1997, (as the same may be amended,
modified or otherwise supplemented from time to time, the "Credit Agreement"),
among the Borrower, the Corporate Guarantors named therein and The Chase
Manhattan Bank (the "Lender"), the Lender has agreed to make loans to the
Borrower;
WHEREAS, pursuant to the terms of the Credit Agreement, the
Grantors granted to the Lender a security interest in all of the personal
property of the Grantors including all right, title and interest of the Grantors
in, to and under any copyright or copyright license whether now existing or
hereafter arising or acquired, and all proceeds thereof to secure the payment of
the Obligations (as such term is defined in the Credit Agreement);
NOW THEREFORE, for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, Grantors do, as security for
the Obligations, hereby grant to the Lender a continuing security interest in
all the Grantors' right, title and interest in and to each and every item of
Product, the scenario, screenplay or script upon which an item of Product is
based, all of the properties thereof, tangible and intangible, and all domestic
and foreign copyrights and all other rights therein and thereto, of every kind
and character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of such Grantors, including with respect to each
and every item of Product and without limiting the foregoing language, each and
all of the following particular rights and properties (to the extent they are
owned or hereafter created or acquired by Grantors):
-1-
<PAGE> 165
(i) all scenarios, screenplays and/or scripts at every stage
thereof;
(ii) all common law and/or statutory copyright and other rights
in all literary and other properties (hereinafter called "said literary
properties") which form the basis of each item of Product and/or which
are and/or will be incorporated into each item of Product, all component
parts of each item of Product consisting of said literary properties,
all rights in and to the story, all treatments of said story and said
literary properties, together with all preliminary and final screenplays
used and to be used in connection with the item of Product, and all
other literary material upon which the item of Product is based or from
which it is adapted;
(iii) all rights in and to all music and musical compositions
used and to be used in each item of Product, including, each without
limitation, all rights to record, rerecord, produce, reproduce or
synchronize all of said music and musical compositions in and in
connection therewith;
(iv) without limitation, all exposed film, developed film,
positives, negatives, prints, positive prints, answer prints, special
effects, preparing materials (including interpositives, duplicate
negatives, internegatives, color reversals, intermediates, lavenders,
fine grain master prints and matrices, and all other forms of pre-print
elements), sound tracks, cutouts, trims and any and all other physical
properties of every kind and nature relating to such item of Product,
whether in completed form or in some state of completion, and all
masters, duplicates, drafts, versions, variations and copies of each
thereof, in all formats whether on film, videotape, disk or otherwise
and all music sheets and promotional materials relating to such item of
Product (collectively, the "Physical Materials");
(v) all collateral, allied, subsidiary and merchandising rights
appurtenant or related to each item of Product including, without
limitation, the following rights: all rights to produce remakes or
sequels or prequels to each item of Product based upon each item of
Product, said literary properties or the theme of each item of Product
and/or the text or any part of said literary properties; all rights
throughout the world to broadcast, transmit and/or reproduce by means of
television (including commercially sponsored, sustaining and
subscription or "pay" television) or by any process analogous thereto,
now known or hereafter devised, each item of Product or any remake or
sequel or prequel to the item of Product; all rights to produce
primarily for television or similar use a motion picture or series of
motion pictures, by use of film or any other recording device or medium
now known or hereafter devised, based upon each item of Product, said
literary properties or any part thereof, including, without limitation,
based upon any script, scenario or the like used in each item of
Product; all merchandising rights including, without limitation, all
rights to use, exploit and license others to use and exploit any and all
commercial tieups of any kind arising out of or connected with said
literary properties, each item of Product, the title or titles of each
item of Product, the characters of each item
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<PAGE> 166
of Product or said literary properties and/or the names or
characteristics of said characters and including further, without
limitation, any and all commercial exploitation in connection with or
related to each item of Product, any remake or sequel thereof and/or
said literary properties;
(vi) all statutory copyrights, domestic and foreign, obtained or
to be obtained on items of Product, together with any and all copyrights
obtained or to be obtained in connection with each item of Product or
any underlying or component elements of each item of Product, including,
in each case without limitation, all copyrights on the property
described in subparagraphs (i) through (v) inclusive, of this paragraph,
together with the right to copyright (and all rights to renew or extend
such copyrights) and the right to sue in the name of any of the
Grantors' names for past, present and future infringements of copyright;
(vii) all insurance policies and completion bonds connected with
each item of Product and all proceeds which may be derived therefrom;
(viii) all rights to distribute, sell, rent, license the
exhibition of and otherwise exploit and turn to account each item of
Product, the Physical Materials and rights in and to said story, other
literary material upon which each item of Product is based or from which
it is adapted, and said music and musical compositions used or to be
used in each item of Product;
(ix) any and all sums, proceeds, money, products, profits or
increases, including money profits or increases (as those terms are used
in the New York Uniform Commercial Code (the "UCC") or otherwise) or
other property obtained or to be obtained from the distribution,
exhibition, sale or other uses or dispositions of each item of Product
or any part of each item of Product, including, without limitation, all
proceeds, profits, products and increases, whether in money or
otherwise, from the sale, rental or licensing of each item of Product
and/or any of the elements of each item of Product including from
collateral, allied, subsidiary and merchandising rights;
(x) the dramatic, nondramatic, stage, television, radio and
publishing rights, title and interest in and to each item of Product,
and the right to obtain copyrights and renewals of copyrights therein;
(xi) the name or title of each item of Product and all rights of
such Grantor to the use thereof, including, without limitation, rights
protected pursuant to trademark, service mark, unfair competition and/or
the rules and principles of any other applicable statutes, common law,
or other rule or principle of law;
(xii) any and all contract rights and/or chattel paper which may
arise in connection with each item of Product;
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<PAGE> 167
(xiii) all accounts and/or other rights to payment which such
Grantor presently owns or which may arise in favor of such Grantor in
the future, including, without limitation, any refund under a completion
guaranty, all accounts and/or rights to payment due from exhibitors in
connection with the distribution of each item of Product, and from
exploitation of any and all of the collateral, allied, subsidiary,
merchandising and other rights in connection with each item of Product;
(xiv) any and all "general intangibles" (as that term is
defined in the UCC) not elsewhere included in this definition,
including, without limitation, any and all general intangibles
consisting of any right to payment which may arise in the distribution
or exploitation of any of the rights set out herein, and any and all
general intangible rights in favor of such Grantor for services or other
performances by any third parties, including actors, writers, directors,
individual producers and/or any and all other performing or
nonperforming artists in any way connected with each item of Product,
any and all general intangible rights in favor of such Grantor relating
to licenses of sound or other equipment, licenses for any photograph or
photographic process, and all general intangibles related to the
distribution or exploitation of each item of Product including general
intangibles related to or which grow out of the exhibition of each item
of Product and the exploitation of any and all other rights in each item
of Product set out in this definition;
(xv) any and all goods, including inventory (as that term is
defined in the UCC), which may arise in connection with the creation,
production or delivery of each item of Product and which goods pursuant
to any production or distribution agreement or otherwise are owned by
such Grantor;
(xvi) all and each of the rights, regardless of denomination,
which arise in connection with the creation, production, completion of
production, delivery, distribution, or other exploitation of each item
of Product, including, without limitation, any and all rights in favor
of such Grantor, the ownership or control of which are or may become
necessary or desirable, in the opinion of the Lender, in order to
complete production of each item of Product in the event that the Agent
exercises any rights it may have to take over and complete production of
each item of Product;
(xvii) any and all documents issued by any pledgeholder or
bailee with respect to the item of Product, or any Physical Materials
(whether or not in completed form) with respect thereto;
(xviii) any and all production accounts or other bank accounts
established by such Grantor with respect to such item of Product;
(xix) any and all rights of such Grantor under contracts
relating to the production or acquisition of each item of Product; and
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<PAGE> 168
(xx) any and all rights of such Grantor under any agreement
entered into by such Grantor pursuant to which such Grantor has sold,
leased, licensed or assigned distribution rights or other exploitation
rights to any item of Product to an unaffiliated person;
(all of the foregoing items or types of property, whether presently existing or
hereafter arising or acquired, shall be referred to herein collectively as the
"Collateral").
Each of the Grantors agrees that if any person, firm, corporation
or other entity shall do or perform any acts which the Lender believes
constitute a copyright infringement of the photoplay or of any of the literary,
dramatic or musical material contained in the Product, or constitute a
plagiarism, or violate or infringe any right of any Grantor or the Lender
therein or if any person, firm, corporation or other entity shall do or perform
any acts which the Lender believes constitute an unauthorized or unlawful
distribution, exhibition, or use thereof, then and in any such event, upon 30
days' prior written notice to such Grantor, while an Event of Default under the
Credit Agreement is continuing, the Lender may and shall have the right to take
such steps and institute such suits or proceedings as the Lender may deem
advisable or necessary to prevent such acts and conduct and to secure damages
and other relief by reason thereof, and to generally take such steps as may be
advisable or necessary or proper for the full protection of the rights of the
parties. The Lender may take such steps or institute such suits or proceedings
in its own name or in the name of such Grantor or in the names of the parties
jointly. The Lender hereby agrees to give the applicable Grantor notice of any
steps taken, or any suits or proceedings instituted, by the Lender pursuant to
this paragraph.
This security interest is granted in conjunction with the
security interests granted to the Lender pursuant to the Credit Agreement. Each
Grantor does hereby further acknowledge and affirm that the rights and remedies
of the Lender with respect to the security interest in the Collateral made and
granted hereby are subject to, and more fully set forth in, the Credit
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.
This Copyright Security Agreement is made for collateral purposes
only. At such time as all of the Loans under the Credit Agreement shall have
been repaid in full, the Commitments (including any commitment to issue any
Letter of Credit) shall have terminated and all Letters of Credit shall have
expired or been terminated or cancelled, the Lender shall execute and deliver to
such Grantors, at the Borrower's or the applicable Grantor's expense, without
representation, warranty or recourse, all releases and reassignments,
termination statements and other instruments as may be necessary or proper to
terminate the security interest of the Lender in the Collateral, subject to any
disposition thereof which may have been made by the Lender pursuant to the terms
hereof or of the Credit Agreement.
The Lender agrees that there will be no assignment of the
Collateral, other than the security interest described herein, unless and until
there shall occur an Event of Default under
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<PAGE> 169
the Credit Agreement and the Lender gives written notice to the applicable
Grantor of its intention to enforce its rights against any of the Collateral.
So long as no Event of Default under the Credit Agreement shall
have occurred and be continuing, and subject to the various provisions of the
Credit Agreement and the other Fundamental Documents to which it is a party,
each Grantor may use, license and exploit the Collateral in any lawful manner.
THIS COPYRIGHT SECURITY AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.
Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed thereto in the Credit Agreement.
IN WITNESS WHEREOF, the Grantors have caused this Copyright
Security Agreement to be duly executed by its officer thereunto duly authorized
as of November 4, 1997.
DOVE ENTERTAINMENT, INC.
By
------------------------------------------
Name:
Title:
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<PAGE> 170
DOVE INTERNATIONAL, INC.
By
------------------------------------------
Name:
Title:
DOVE FOUR POINT, INC.
By
------------------------------------------
Name:
Title:
Accepted:
THE CHASE MANHATTAN BANK
By
------------------------------------------
Name:
Title:
-7-
<PAGE> 171
STATE OF CALIFORNIA )
: ss.:
COUNTY OF LOS ANGELES)
On the ____ day of __________, in the year 1997, before me personally
came _____________________, to me known, who, being by me sworn, did say that
s/he is an ____________ of Dove Entertainment, Inc. which corporation is
described in, and which corporation executed the above instrument, and that s/he
signed his/her name by order of the Board of Directors of said corporation.
-----------------------------------
Notary Public
<PAGE> 172
STATE OF )
: ss.:
COUNTY OF )
On the ____ day of __________, in the year 1997, before me personally
came _____________________, to me known, who, being by me sworn, did say that
s/he is an ____________ of Dove International, Inc., which corporation is
described in, and which corporation executed the above instrument, and that s/he
signed his/her name by order of the Board of Directors of said corporation.
-----------------------------------
Notary Public
<PAGE> 173
STATE OF )
: ss.:
COUNTY OF )
On the ____ day of __________, in the year 1997, before me personally
came _____________________, to me known, who, being by me sworn, did say that
s/he is an ____________ of Dove Four Point, Inc., which corporation is
described in, and which corporation executed the above instrument, and that s/he
signed his/her name by order of the Board of Directors of said corporation.
-----------------------------------
Notary Public
<PAGE> 174
SCHEDULE 1
to Copyright Security Agreement
<TABLE>
<CAPTION>
Title Registration No. Date of Registration
- ----- ---------------- --------------------
<S> <C> <C>
</TABLE>
<PAGE> 175
EXHIBIT E-2
FORM OF
SUPPLEMENT NO. __ TO THE COPYRIGHT SECURITY
AGREEMENT DATED AS OF NOVEMBER 4, 1997
WHEREAS, [INSERT NAME OF GRANTOR], a __________ corporation (the
"Grantor") is party to that certain Credit, Security, Guaranty and Pledge
Agreement, dated as of November 4, 1997, (as the same may be amended, modified
or otherwise supplemented from time to time, the "Credit Agreement"), among Dove
Entertainment, Inc. (the "Borrower"), the Corporate Guarantors named therein
(the "Guarantors") and The Chase Manhattan Bank, as Lender (the "Lender");
WHEREAS, pursuant to the terms of the Credit Agreement, the
Grantor has granted to the Lender a security interest in all right, title and
interest of the Grantor in and to all personal property, whether now owned,
presently existing or hereafter acquired or created, including, without
limitation, all right, title and interest of the Grantor in, to and under any
item of Product (such term being used herein as defined in the Copyright
Security Agreement referred to below) and any copyright or copyright license,
whether now existing or hereafter arising, acquired or created, and all proceeds
thereof or income therefrom, to secure the payment and performance of the
Obligations (such term being used herein as defined in the Credit Agreement)
pursuant to the Credit Agreement;
WHEREAS, the Grantor is a party to a Copyright Security
Agreement, dated as of November 4, 1997 (as the same has been, or may hereafter
be, amended or supplemented from time to time, the "Copyright Security
Agreement"), pursuant to which the Grantor has granted to the Lender, as
security for the Obligations, a continuing security interest in all of the
Grantor's right, title and interest in and to each and every item of Product,
the scenario, screenplay or script upon which an item of Product is based, all
of the properties thereof, tangible and intangible, and all domestic and foreign
copyrights and all other rights therein and thereto, of every kind and
character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of the Grantor, all as more fully set forth in the
Copyright Security Agreement;
WHEREAS, the Grantor has acquired or created additional items of
Product since the date of execution of the Copyright Security Agreement and the
most recent Supplement thereto and holds certain additional copyrights and
rights under copyright with respect to items of Product;
-1-
<PAGE> 176
WHEREAS, Schedule 1 to the Copyright Security Agreement does not
reflect (i) item(s) of Product acquired or created by the Grantor since the date
of execution of the Copyright Security Agreement and the most recent Supplement
thereto or (ii) all the copyrights and rights under copyright held by the
Grantor;
THEREFORE,
A. The Grantor does hereby grant to the Lender, as security, a
continuing security interest in and to all of the Grantor's right, title
and interest in and to each and every item of Product being added to
Schedule 1 to the Copyright Security Agreement pursuant to paragraph (b)
below, the scenario, screenplay or script upon which such item of
Product is based, all of the properties thereof, tangible and
intangible, and all domestic and foreign copyrights and all other rights
therein and thereto, of every kind and character, whether now in
existence or hereafter to be made or produced, and whether or not in
possession of the Grantor, all as contemplated by, and as more fully set
forth in, the Copyright Security Agreement.
B. Schedule 1 to the Copyright Security Agreement is hereby
supplemented, effective as of the date hereof, so as to reflect all of
the copyrights and rights under copyright with respect to the item(s) of
Product in and to which the Grantor has granted a continuing security
interest to the Lender pursuant to the terms of the Copyright Security
Agreement and the Credit Agreement. The following item(s) of Product and
copyright information are hereby added to Schedule 1 to the Copyright
Security Agreement:
<TABLE>
<CAPTION>
Date of
Title Registration No. Registration
----- ---------------- ------------
<S> <C> <C>
</TABLE>
Except as expressly supplemented hereby, the Copyright Security
Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Copyright Security
Agreement, the terms "Agreement", "this Agreement", "this Copyright Security
Agreement", "herein", "hereafter", "hereto", "hereof" and words of similar
import, shall, unless the context otherwise requires, mean the Copyright
Security Agreement as supplemented by this Supplement.
Except as expressly supplemented hereby, the Copyright Security
Agreement, all documents contemplated thereby and any previously executed
Supplements thereto, are each hereby confirmed and ratified by the Grantor.
The execution and filing of this Supplement, and the addition of
the item(s) of Product set forth herein to Schedule 1 to the Copyright Security
Agreement are not intended by
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<PAGE> 177
the parties to derogate from, or extinguish, any of the Lender's rights or
remedies under (i) the Copyright Security Agreement and/or any agreement,
amendment or supplement thereto or any other instrument executed by the Grantor
and heretofore recorded or submitted for recording in the U.S. Copyright Office
or (ii) any financing statement, continuation statement, deed or charge or other
instrument executed by the Grantor and heretofore filed in any state or country
in the United States of America or elsewhere.
IN WITNESS WHEREOF, the Grantor has caused this Supplement No.
___ to the Copyright Security Agreement to be duly executed by its duly
authorized officer as of [INSERT DATE OF EXECUTION].
[NAME OF GRANTOR]
By:
----------------------------------------
Name:
Title:
-3-
<PAGE> 178
STATE OF _____________)
: ss.:
COUNTY OF ____________)
On this the ___ day of __________, ____, before me,
________________________________, the undersigned Notary Public, personally
appeared ________________________________,
[ ] personally known to me,
[ ] proved to me on the basis of satisfactory evidence, to be the
_________________________ of the corporation known as ______________________ who
executed the foregoing instrument on behalf of the corporation, and acknowledged
that such corporation executed it pursuant to a resolution of its Board of
Directors.
WITNESS my hand and official seal.
______________________________
Notary Public
6
<PAGE> 179
EXHIBIT F
FORM OF LABORATORY ACCESS LETTER
[DATE]
[ADDRESS TO LABORATORY]
Dear Sir or Madam:
This letter will confirm the terms of an agreement among you (the
"Laboratory"), Dove Entertainment, Inc. ("Borrower") and the affiliates of
Borrower listed on the signature pages hereto (collectively, the "Company") and
The Chase Manhattan Bank (the "Lender") relating to the items of Product (the
"Product") listed on Schedule 1 hereto.
Reference is hereby made to that certain Credit, Security,
Guaranty and Pledge Agreement dated as of November 4, 1997 (as the same may be
amended, supplemented or otherwise modified, renewed or replaced from time to
time, the "Credit Agreement") among the Borrower, the Corporate Guarantors named
therein and the Lender;
The Laboratory now has or may have in its possession or under its
control certain of the exposed film, developed film, positives, negatives,
prints, positive prints, answer prints, special effects, preparing material
(including interpositives, duplicate negatives, internegatives, color reversals,
intermediates, lavenders, fine grain master prints and matrices, and all other
forms of pre-print elements), sound tracks, cutouts, trims and any and all other
physical properties of every kind and nature, of or relating to, the Product,
whether in completed form or in some state of completion, and all audio and
video masters, duplicates, drafts, versions, variations and copies of each
thereof, in all formats whether on film, videotape, disk, cassette, phonorecord
or otherwise and all materials relating to the Product (all of the foregoing
physical properties now or hereafter in the Laboratory's possession or control
are herein collectively referred to as the "Physical Materials"). The Company
now possesses certain rights in connection with the Product and the Physical
Materials, including, without limitation, non-exclusive rights of access with
respect to the Physical Materials (the "Access Rights").
For good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. The Laboratory hereby agrees and confirms to the Lender that
the Company is entitled to exercise the Access Rights with respect to the
Physical Materials. The Company and the Lender hereby confirm to the Laboratory,
and the Laboratory hereby acknowledges, that in
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<PAGE> 180
order to secure certain obligations under the Credit Agreement, the Company has
pursuant to the Credit Agreement, inter alia, granted to the Lender a security
interest in and to the Company's right, title and interest in and to the Access
Rights.
2. The parties hereby agree that, upon written notice from the
Lender to the Laboratory that an Event of Default (as such term is defined in
the Credit Agreement) has occurred and is continuing, and the Lender has
exercised its security interest with respect to Access Rights, the Laboratory
shall accord to the Lender (or the Lender's successors or assigns) instead of
the Company, the non-exclusive right to exercise the Access Rights including,
without limitation, the non-exclusive right to have access to the Physical
Materials and to order and receive from the Laboratory on the Laboratory's
normal and customary terms all materials and services customarily rendered or
furnished by the Laboratory in connection with the Physical Materials.
3. The Laboratory and the other parties hereto hereby agree that
the rights of any party hereunder (including, without limitation, the Lender's
non-exclusive right to exercise the Access Rights) shall not be affected,
diminished, impeded or interfered with by reason of any failure of any other
person or entity to pay for any charges which have heretofore been incurred or
which may hereinafter be incurred in connection with the Product or the Physical
Materials, that the Laboratory will not look to any party hereunder for payment
of any charges incurred by any other person or entity with respect to the
Product or the Physical Materials (it being understood and agreed that all
services or materials ordered by any party shall be at the sole cost and expense
of the party ordering the same) and that any claim or lien which the Laboratory
may assert against any party hereto with respect to services or materials
furnished or rendered by the Laboratory at the request of such party with
respect to the Product or the Physical Materials will not interfere with any
other party's rights of access with respect to the Physical Materials or other
rights referred to hereunder.
4. The parties hereto hereby agree that the Access Rights may not
be terminated without the prior written consent of the Lender or unless the
Laboratory shall have received notice that the Lender's security interest in and
to the Company's right, title and interest in and to the Access Rights has
terminated, and that the Physical Materials may not be released to any other
entity (including another laboratory) without the Lender's prior written consent
(which consent shall not be unreasonably withheld), except that unless and until
the Laboratory shall have received written notice to the contrary, the
Laboratory will permit the Company to remove Physical Materials from its
premises in the ordinary course of business and in a manner consistent with the
Access Rights.
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<PAGE> 181
Kindly confirm your agreement to and acceptance of the foregoing
by signing in the space provided below.
Very truly yours,
DOVE ENTERTAINMENT, INC.
By
------------------------------------------
Name:
Title:
DOVE INTERNATIONAL, INC.
By
------------------------------------------
Name:
Title:
DOVE FOUR POINT, INC.
By
------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
By
------------------------------------------
Name:
Title:
AGREED AND ACCEPTED BY:
[LABORATORY]
By:
------------------------------------
Name:
Title:
<PAGE> 182
Schedule 1
THE PRODUCT
[LIST TITLES OF PRODUCT]
<PAGE> 183
EXHIBIT G
FORM OF NOTICE OF ASSIGNMENT
AND IRREVOCABLE INSTRUCTIONS
[INSERT NAME AND ADDRESS OF APPLICABLE CREDIT PARTY]
As of __________
[INSERT NAME AND ADDRESS OF ACCOUNT DEBTOR]
Re: [DESCRIBE AGREEMENT BETWEEN THE APPLICABLE CREDIT PARTY (THE
"COMPANY") AND ACCOUNT DEBTOR (THE "AGREEMENT")]
Dear Sir or Madam:
The undersigned has created a security interest in its benefits and
rights to receive payments under the Agreement referred to above, for the
benefit of The Chase Manhattan Bank (the "Lender") pursuant to that certain
Credit, Security, Guaranty and Pledge Agreement dated as of November 4, 1997 (as
the same may be amended, supplemented or otherwise modified, renewed or replaced
from time to time, the "Credit Agreement") among Dove Entertainment, Inc., the
Corporate Guarantors named therein and the Lender.
The Company hereby irrevocably instructs and authorizes you to pay
all monies from time to time owing or to become due from you to us pursuant to
the Agreement (the "Assigned Payments") as follows:
If by wire transfer, to:
The Chase Manhattan Bank
for credit to Dove Entertainment, Inc. Collection Account
Account No. 323-516-440
ABA No. 021000021
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<PAGE> 184
If by mail or hand delivery, to:
The Chase Manhattan Bank
P.O. Box 29176
New York, NY 10087-9176
for credit to Dove Entertainment, Inc. Collection Account
This authority and instruction is coupled with an interest and may
not be modified, terminated or revoked without the prior written consent of the
Lender.
Upon the occurrence of an Event of Default (as such term is defined
in the Credit Agreement), the Lender shall have the right to modify this
authority and instruction by written notice to the parties hereto.
This Notice of Assignment and Irrevocable Instruction rescinds,
supersedes and replaces in its entirety any prior or previous notice and/or
directions to pay that you may have received with regard to the payment of all
or any portion of the Assigned Payments.
Please signify your acknowledgment hereof by signing and returning
to the Lender at the address below the acknowledgment and confirmation as set
out below.
Very truly yours,
[INSERT NAME OF APPLICABLE CREDIT PARTY]
By:___________________________
Name:
Title:
To: The Chase Manhattan Bank
c/o Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178-0060
Attention: Michael A. Chapnick, Esq.
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<PAGE> 185
WE ACKNOWLEDGE RECEIPT, of the foregoing notice of irrevocable authority and
instruction and undertake to comply with it. We hereby confirm and agree that
all monies owing under the Agreement shall be paid immediately when they are due
subject only to the Agreement between us and the Company.
Dated this ______ day of ______
[NAME OF ACCOUNT DEBTOR]
By:_________________________
Name:
Title:
[THE UNDERSIGNED ACKNOWLEDGES THAT
THE NOTICE OF ASSIGNMENT, DATED
AS OF ______, IN FAVOR OF
THE UNDERSIGNED HAS BEEN TERMINATED.
[NAME OF OLD LENDER]
BY:_________________________
NAME:
TITLE:(1)
- --------
(1) Applicable only to receivables previously assigned to another lender.
-3-
<PAGE> 186
EXHIBIT H
FORM OF BORROWING CERTIFICATE
The undersigned HEREBY CERTIFIES with respect to the Borrowing to be
made on the date indicated below pursuant to the Credit, Security, Guaranty and
Pledge Agreement dated as of November 4, 1997, among Dove Entertainment, Inc.
(the "Borrower"), the Corporate Guarantors named therein and The Chase Manhattan
Bank (the "Lender") (as the same may be amended, supplemented or otherwise
modified, renewed or replaced from time to time, the "Credit Agreement";
capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Credit Agreement) that:
(a) the representations and warranties contained in the Credit
Agreement are true and correct in all material respects on and as of the
date hereof as if such representations and warranties had been made on and
as of the date hereof except to the extent that such representations and
warranties expressly relate to an earlier date and except to the extent
that changes have occurred without breach or default under any of the
terms or conditions of the Credit Agreement;
(b) no Default or Event of Default has occurred or is continuing,
nor shall any such event occur by reason of the making of the Loan(s)
requested herein;
(c) the Borrower requests [A] Loan(s) on the terms and conditions
as stated in the Credit Agreement and the Note:
(i) the requested Business Day of the Loan is [INSERT DATE];
(ii) the type of [INSERT WHETHER AN ALTERNATE BASE RATE OR
EURODOLLAR LOAN] requested, the amounts thereof and the Interest
Period(s) [IF A EURODOLLAR LOAN IS REQUESTED] are as follows:
Type Interest Period Amount
---- --------------- ------
(iii) $_______ of the Loan requested above shall be subject to
the guaranty obligations of the Individual Guarantors pursuant to
the Guaranty Agreements(1);
(d) the Borrowing Base on [INSERT DATE] was $__________ as
indicated on the most recent Borrowing Base Certificate delivered to the
Lender pursuant to the Credit
- --------
(1) Applicable for Loans subject to the guaranty obligations of the Individual
Guarantors under the Guaranty Agreements.
-1-
<PAGE> 187
Agreement and the undersigned has no reason to believe that the sum of (x)
the Borrowing Base, (y) Maximum Guaranty Amount and (z) amounts currently
held in the Collection Account, if currently computed would be less than
the outstanding principal amount of all Loans under the Credit Agreement
(after giving effect to the Loan requested hereby).
IN WITNESS WHEREOF, the undersigned has caused this certificate to
be executed this ___ day of ___________.
DOVE ENTERTAINMENT, INC.
By____________________________
Name:
Title:
APPROVED BY:
MEDIA EQUITIES INTERNATIONAL, L.L.C.
By____________________________
Name: Kenneth F. Gorman
Title:
By____________________________
Name: Bruce Maggin
Title:
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<PAGE> 188
EXHIBIT I
FORM OF INSTRUMENT OF ASSUMPTION AND JOINDER
Instrument of ASSUMPTION AND JOINDER AGREEMENT dated as of
___________ (the "Assumption Agreement") made by [INSERT NAME OF NEW CREDIT
PARTY], a [INSERT STATE OF INCORPORATION] corporation (the "Company") in favor
of The Chase Manhattan Bank, as Lender (the "Lender"), under that certain
Credit, Security, Guaranty and Pledge Agreement dated as of November 4, 1997 (as
the same may be amended, supplemented or otherwise modified, renewed or replaced
from time to time, the "Credit Agreement") among Dove Entertainment, Inc., a
California corporation, the Corporate Guarantors referred to therein and the
Lender.
W I T N E S S E T H
The Company is a [INSERT STATE OF INCORPORATION] corporation and is
a Subsidiary of [INSERT NAME OF CREDIT PARTY]. Pursuant to Section 6.22 of the
Credit Agreement, the Company is required to execute this document (as a newly
[FORMED OR ACQUIRED] Subsidiary of [INSERT NAME OF CREDIT PARTY]).
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the Company
hereby agrees as follows:
1. Assumption and Joinder.
(a) The Company hereby expressly confirms that it has
assumed, and hereby agrees to perform and observe, each and every one of the
covenants, rights, promises, agreements, terms, conditions, obligations,
appointments, duties and liabilities of (i) a Corporate Guarantor under the
Credit Agreement and all the other Fundamental Documents applicable to it as a
Corporate Guarantor, (ii) a Contributor (as such term is defined in the
Contribution Agreement) under the Contribution Agreement and (iii) a Grantor (as
such term is defined in the Copyright Security agreement) under the Copyright
Security Agreement. By virtue of the foregoing, the Company hereby accepts and
assumes any liability of (x) a Corporate Guarantor and/or a Credit Party related
to each representation or warranty, covenant or obligation made by a Corporate
Guarantor and/or a Credit Party in the Credit Agreement or any other document
and hereby expressly affirms, on the date hereof, for the benefit of the Lender,
each of such representations, warranties, covenants and obligations, (y) a
Contributor related to each covenant or obligation made by a Contributor in the
Contribution Agreement and hereby expressly affirms,
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on the date hereof, each of such covenants and obligations and (z) a Grantor
related to each covenant or obligation made by a Grantor in the Copyright
Security Agreement and hereby expressly affirms, on the date hereof, each of
such covenants and obligations.
(b) All references to the term "Corporate Guarantor" or
"Credit Party" in the Credit Agreement or any other Fundamental Document, or in
any document or instrument executed and delivered or furnished, or to be
executed and delivered or furnished, in connection therewith shall be deemed to
be references to, and shall include, the Company.
(c) All references to the term "Contributor" in the
Contribution Agreement, or in any document or instrument executed and delivered
or furnished, or to be executed and delivered or furnished, in connection
therewith shall be deemed to be references to, and shall include, the Company.
(d) All references to the term "Grantor" in the Copyright
Security Agreement, or in any document or instrument executed and delivered or
furnished, or to be executed and delivered or furnished, in connection therewith
shall be deemed to be references to, and shall include, the Company.
2. Representations and Warranties. The Company hereby represents
and warrants to the Lender as follows:
(a) The Company has the requisite corporate power and
authority to enter into this Assumption Agreement and to perform its obligations
hereunder and under the Credit Agreement, the Contribution Agreement, the
Copyright Security Agreement and the other Fundamental Documents to which it is
a party. The execution, delivery and performance of this Assumption Agreement by
the Company and the performance of its obligations under the Credit Agreement
and the other Fundamental Documents have been duly authorized by the Board of
Directors of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize the execution, delivery or performance of
this Assumption Agreement, the transactions contemplated hereby or the
performance of its obligations under the Credit Agreement or any other
Fundamental Document. This Assumption Agreement has been duly executed and
delivered by the Company. This Assumption Agreement and the Credit Agreement
each constitutes a legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors rights generally and
to general principles of equity.
(b) The representations and warranties set forth in Article
3 of the Credit Agreement are true and correct on and as of the date hereof
(except to the extent that such representations and warranties expressly relate
to an earlier date) with the same effect as if made on and as of the date
hereof.
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(c) The authorized capitalization of the Company, the number
of shares of its capital stock outstanding on the date hereof, and the ownership
of the outstanding shares of its capital stock is set forth on Schedule 1
hereto.
(d) On the date hereof the Company has not done business, is
not doing business and does not intend to do business other than under its full
corporate name, including, without limitation, under any trade name or other
doing business name except as set forth on Schedule 1 hereto, and is in good
standing in all jurisdictions where the failure to be in good standing as a
foreign jurisdiction would give rise to a material liability of the Company.
(e) The chief executive office of the Company is located at
________________________. Such office is the place where the Company keeps the
records concerning the Collateral attributable to it on the date hereof. The
only places at which the Company regularly keeps any goods included in the
Collateral attributable to it on the date hereof are the places listed on
Schedule 2 hereto.
3. Further Assurances. At any time and from time to time, upon
the Lender?s request and at the sole expense of the Company, the Company will
promptly and duly execute and deliver any and all further instruments and
documents and take such further action as the Lender reasonably deems necessary
to effect the purposes of this Assumption Agreement.
4. Binding Effect; Assignment. This Assumption Agreement shall be
binding upon the Company and shall inure to the benefit of the Lender and its
successors and assigns.
5. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered by its duly authorized officer as of
the date first above written.
[NAME OF COMPANY]
By: ______________________
Name:
Title:
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SCHEDULE 1
Capital Stock of [NAME OF COMPANY]
Authorized capitalization:
Number of shares of capital stock outstanding:
Ownership of the outstanding capital stock:
<PAGE> 192
SCHEDULE 2
Location of Collateral
<PAGE> 193
EXHIBIT J
FORM OF CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT ("Agreement") is entered into as of
November 4, 1997 by and among Dove Entertainment, Inc., a California corporation
(the "Company" or the "Borrower") and each Subsidiary of the Borrower whose name
appears at the foot hereof (collectively, the "Contributors", individually each
a "Contributor"), for the purpose of establishing the respective rights and
obligations of contribution among the Contributors and the Borrower in
connection with the Credit Agreement (as hereinafter defined). Capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Credit Agreement.
WHEREAS, the Borrower and the Contributors are parties to a Credit,
Security, Guaranty and Pledge Agreement dated as of November 4, 1997 among the
Borrower, the Contributors and The Chase Manhattan Bank (the "Lender") (said
agreement, as it may hereafter be amended, supplemented or otherwise modified,
renewed or replaced from time to time in accordance with its terms being the
"Credit Agreement"), pursuant to which the Lender has made certain commitments,
subject to the terms and conditions set forth therein, to extend a credit
facility to the Borrower;
WHEREAS, pursuant to the Credit Agreement, the Contributors have
guaranteed the Obligations (such term being used herein as defined in the Credit
Agreement) of the Borrower;
WHEREAS, pursuant to the terms of the Credit Agreement, each of the
Borrower and Contributors has granted to the Lender a security interest in the
Collateral (as defined in the Credit Agreement) for their respective obligations
thereunder;
WHEREAS, as a result of the transactions contemplated by the Credit
Agreement, the Borrower and the Contributors will benefit, directly and
indirectly, from the Obligations and in consideration thereof desire to enter
into this Agreement to allocate such benefits among themselves and to provide a
fair and equitable arrangement to make contributions in the event any payments
are made by the Contributors under the Credit Agreement or the Lender exercises
recourse against any of the Collateral owned by the Contributors (such payment
or recourse being referred to herein as a "Contribution");
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Contributors and the Borrower hereby agree as follows:
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SECTION 1. Contribution. In order to provide for just and equitable
contribution among the Contributors and the Borrower in the event any
Contribution is made by a Contributor (a "Funding Contributor") under the Credit
Agreement, that Funding Contributor shall be entitled to a contribution from
certain other Contributors and from the Borrower for all payments, damages and
expenses incurred by that Funding Contributor in discharging any of the
Obligations, in the manner and to the extent set forth in this Agreement. The
amount of any Contribution under this Agreement shall be equal to the payment
made pursuant to the Credit Agreement or the fair saleable value of the Funding
Contributor's portion of the Collateral against which recourse is exercised, and
shall be determined as of the date on which such payment is made or recourse is
exercised, as the case may be.
SECTION 2. Benefit Amount Defined. For purposes of this Agreement,
the "Benefit Amount" of any Contributor as of any date of determination shall be
the net value of the benefits to such Contributor from extensions of credit made
by the Lender to the Borrower under the Credit Agreement. Such benefits shall
include benefits of funds constituting proceeds of Loans which are deposited
into the account of the Borrower by the Lender which are in turn advanced or
contributed by the Borrower to such Contributor (collectively, the "Benefits").
In the case of any proceeds of Loans or Benefits advanced or contributed to a
Person (an "Owned Entity") any of the equity interests of which are owned
directly or indirectly by a Contributor, the Benefit Amount of a Contributor
with respect thereto shall be that portion of the net value of the benefits
attributable to Loans or Benefits advanced or contributed to the Owned Entity
equal to the direct or indirect percentage ownership of such Contributor in its
Owned Entity.
SECTION 3. Contribution Obligation. Each Contributor and the
Borrower shall be liable to a Funding Contributor in an amount equal to the
greater of (A) the product of (i) a fraction the numerator of which is (x) the
Benefit Amount of such Contributor or Borrower, and the denominator of which is
(y) the total amount of Obligations and (ii) the amount of Obligations paid by
such Funding Contributor and (B) 95% of the excess of the fair saleable value of
the property of such Contributor over the total liabilities of such Contributor
(including the maximum amount reasonably expected to become due in respect of
contingent liabilities), as the case may be, determined as of the date on which
the payment made by a Funding Contributor is deemed made for purposes of this
Agreement or any recourse is exercised against any Contributor's portion of the
Collateral, as the case may be (giving effect to all payments made by other
Funding Contributors and to the exercise of recourse against any other Funding
Contributor's portion of the Collateral as of such date in a manner to maximize
the amount of such contributions).
SECTION 4. Allocation. In the event that at any time there exists
more than one Funding Contributor with respect to any Contribution (in any such
case, the "Applicable Contribution"), then payment from other Contributors and
from the Borrower pursuant to this Agreement shall be allocated among such
Funding Contributors in proportion to the total amount of the Contribution made
for or on account of the Borrower by each such Funding Contributor pursuant to
the Applicable Contribution. In the event that at any time any Contributor pays
an
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amount under this Agreement in excess of the amount calculated pursuant to
clause (A) of Section 3, that Contributor shall be deemed to be a Funding
Contributor to the extent of such excess and shall be entitled to contribution
from the other Contributors and from the Borrower in accordance with the
provisions of this Agreement.
SECTION 5. Subrogation. Any payments made hereunder by the Borrower
shall be credited against amounts payable by the Borrower pursuant to any
subrogation rights of the Contributors which received the payments under this
Agreement.
SECTION 6. Preservation of Rights. This Agreement shall not limit
any right which any Contributor may have against any other Person which is not a
party hereto.
SECTION 7. Subsidiary Payment. The amount of contribution payable
under this Agreement by any Contributor shall be reduced by the amount of any
contribution paid hereunder by a Subsidiary of such Contributor.
SECTION 8. Equitable Allocation. If as a result of any
reorganization, recapitalization, or other corporate change in the Company or
any Affiliates or Subsidiaries thereof, or as a result of any amendment, waiver
or modification of the terms and conditions governing the Credit Agreement or
the Obligations, or for any other reason, the Contributions under this Agreement
become inequitable, the parties hereto shall promptly modify and amend this
Agreement to provide for an equitable allocation of the Contributions. Any of
the foregoing modifications and amendments to this Agreement shall be in writing
and signed by all parties hereto.
SECTION 9. Asset of Party to Which Contribution is Owing. The
parties hereto acknowledge that the right to contribution hereunder shall
constitute an asset in favor of the party to which such contribution is owing.
SECTION 10. Subordination. No payments payable by a Contributor or
by the Borrower pursuant to the terms hereof shall be paid until all amounts
then due and payable by the Borrower to the Lender, pursuant to the terms of the
Fundamental Documents, are paid in full in cash. Nothing contained in this
Agreement shall affect the obligations of any party hereto to the Lender under
the Credit Agreement or any other Fundamental Documents.
SECTION 11. Successors and Assigns; Amendments. This Agreement shall
be binding upon each party hereto and its respective successors and assigns and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, and in the event of any transfer or assignment of rights by a
Contributor or by the Borrower, the rights and privileges herein conferred upon
that Contributor shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and condition hereof. Except as
specifically required under Section 8, this Agreement shall not be amended
without the prior written consent of the Lender.
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SECTION 12. Termination. This Agreement, as it may be modified or
amended from time to time, shall remain in effect, and shall not be terminated
until the Credit Agreement has been discharged or otherwise satisfied in
accordance with its terms.
SECTION 13. Choice of Law. This Agreement, and any instrument or
agreement required hereunder, shall be deemed to be made under, shall be
governed by, and shall be construed and enforced in accordance with, the laws of
the State of New York without regard to principles of conflict of laws.
SECTION 14. Counterparts. This Agreement, and any modifications or
amendments hereto may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed to be an original for all
purposes, but all such counterparts shall constitute but one and the same
instrument.
SECTION 15. Effectiveness. This Agreement shall become effective on
the date on which all of the parties hereto shall have executed this Agreement.
The Company shall deliver counterparts hereof bearing the signatures of each of
the parties hereto to the Lender.
IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be duly executed as of the day and year first written above.
DOVE ENTERTAINMENT, INC.
By_______________________________
Name:
Title:
DOVE INTERNATIONAL, INC.
DOVE FOUR POINT, INC.
By_____________________________
Name:
Title:
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EXHIBIT K-1
FORM OF GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of November
4, 1997 (as the same may be further
supplemented, amended or otherwise
modified, renewed or replaced from time
to time, the "Guaranty Agreement")
between (i) TERRENCE A. ELKES, an
individual residing in Westchester
County, New York (the "Individual
Guarantor") and (ii) THE CHASE MANHATTAN
BANK, a New York banking corporation (the
"Lender").
Pursuant to the Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997 (as the same may be further amended, supplemented,
or otherwise modified, renewed or replaced from time to time, the "Credit
Agreement") among Dove Entertainment, Inc., a California corporation (the
"Borrower"), the Corporate Guarantors referred to therein and the Lender, the
Lender has agreed to make Loans to the Borrower and issue Letters of Credit in
an amount outstanding at any one time not in excess of $8,000,000. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
The Individual Guarantor, Kenneth F. Gorman, Ronald Lightstone, John
T. Healy and Bruce Maggin (collectively, the "Guarantors") are the direct and
indirect owners of Media Equities International, L.L.C.
As an inducement to the Lender to make the Loans and issue Letters
of Credit to the Borrower, each of the Guarantors has agreed to guaranty such
obligations of the Borrower in an amount not to exceed the lesser of (x)
$2,000,000 and (y) the outstanding principal of and any interest on all Loans
made and to be made by the Lender to the Borrower in excess of the Borrowing
Base (as defined in the Credit Agreement) on the terms and conditions set forth
in the Credit Agreement (the "Maximum Guaranty Amount").
The Individual Guarantor individually has agreed to guaranty such
obligations of the Borrower to the extent and in accordance with the terms
hereof.
Therefore, for good and valuable consideration, the receipt of which
is hereby acknowledged by the Individual Guarantor, the parties hereto agree as
follows:
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1. GUARANTY
SECTION 1.1 Guaranty. (a) The Individual Guarantor unconditionally
and irrevocably guarantees the due and punctual payment by the Borrower, subject
to Section 1.1(g) and the limitations set forth in Section 3.1 hereof, in an
amount not to exceed the product of 110% of the Individual Guarantor's ownership
interest in MEI as of the date hereof (as set forth on Schedule 1 hereto)
multiplied by the Maximum Guaranty Amount (the "Guaranteed Obligations"), as and
when such amounts shall become due and payable whether by scheduled maturity,
acceleration or otherwise and any extensions or renewals thereof, reimbursement
obligations in respect of Letters of Credit, related costs and attorney's fees,
and all other monetary obligations of the Borrower to the Lender under the
Credit Agreement.
(b) In furtherance of the provisions of this Guaranty Agreement,
and not in limitation of any other right which the Lender may have at law or in
equity against the Borrower or any other guarantor of the Guaranteed
Obligations, upon failure of the Borrower to pay any of the Guaranteed
Obligations when and as the same shall become due, whether at maturity, by
acceleration, after notice or otherwise, the Individual Guarantor hereby
promises to and will, upon receipt of written demand by the Lender, forthwith
pay or cause to be paid to the Lender in cash an amount equal to the unpaid
balance of the Guaranteed Obligations then due and payable, subject always to
the limitations set forth in Section 3.1 hereof.
(c) The Individual Guarantor, to the extent permitted by
applicable law, waives presentation to, demand for payment from and protest to
the Borrower and also waives notice of protest for nonpayment, notice of
acceleration and notice of intent to accelerate. The obligations of the
Individual Guarantor hereunder shall not be affected by (i) the failure of the
Lender to assert any claim or demand or to enforce any right or remedy against
the Borrower or any other guarantor of the Guaranteed Obligations under the
provisions of the Credit Agreement or any other agreement or otherwise; (ii) any
extension or renewal of any provision hereof or thereof; (iii) any rescission,
waiver, compromise, acceleration, amendment or modification of any of the terms
or provisions of the Credit Agreement, the Note or any other agreement; (iv) the
release, exchange, waiver or foreclosure of any security held by the Lender for
the Guaranteed Obligations or any of them or (v) the failure of the Lender to
exercise any right or remedy against any other guarantor of the Guaranteed
Obligations.
(d) The Individual Guarantor further agrees that this guaranty is
a continuing guaranty and constitutes a guaranty of performance and of payment
when due and not just of collection, and waives, to the extent permitted by
applicable law, any right to require that any resort be had by the Lender to any
security held for payment of the Guaranteed Obligations or to any balance of any
deposit, account or credit on the books of the Lender in favor of the Borrower
or any other guarantor or to any other person.
(e) The Individual Guarantor hereby expressly assumes all
responsibilities to remain informed of the financial condition of the Borrower
and each other guarantor of the
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Guaranteed Obligations and any circumstances affecting the Collateral or the
ability of the Borrower to perform under the Credit Agreement.
(f) This guaranty shall not be affected by the genuineness,
validity, regularity or enforceability of the Guaranteed Obligations, the Note
or any other instrument evidencing any of the Guaranteed Obligations, or by the
existence, validity, enforceability, perfection or extent of any collateral
therefor or by any other circumstance relating to the Guaranteed Obligations
which might otherwise constitute a defense to the guaranty under this Guaranty
Agreement. The Lender makes no representation or warranty in respect to any such
circumstances nor has any duty or responsibility whatsoever to the Individual
Guarantor in respect to the management and maintenance of the Guaranteed
Obligations or the Collateral.
(g) Notwithstanding anything to the contrary contained herein, as
a condition precedent to any Borrowing in excess of the Borrowing Base being
included within the scope of this Guaranty, MEI shall have provided its prior
written approval to Borrower's request for the extension of such credit. The
Individual Guarantor agrees that the written approval by both Kenneth F. Gorman
and Bruce Maggin on behalf of MEI shall be binding upon and enforceable against
the Individual Guarantor.
SECTION 1.2 No Impairment of Guaranty. Except as provided in
Sections 1.1(g) and 3.1 hereof, the obligations of the Individual Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense (other than payment of the Guaranteed Obligations) or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Guaranteed Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of the
Individual Guarantor hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Lender to assert any claim or demand or to
enforce any remedy hereunder or under the Credit Agreement or any other
agreement, by any waiver or modification of any provision thereof, by any
default, failure, or delay, willful or otherwise, in the performance of the
Guaranteed Obligations, or by any other act or thing, or omission or delay to do
any other act or thing, which may or might in any manner or to any extent vary
the risk of the Individual Guarantor or would otherwise operate as a discharge
of the Individual Guarantor as a matter of law, unless and until the Guaranteed
Obligations are paid in full.
SECTION 1.3 Continuation and Reinstatement, etc. The Individual
Guarantor further agrees that his guaranty hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or other reorganization
of the Borrower or any other guarantor of the Guaranteed Obligations or
otherwise.
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SECTION 1.4 Subrogation. Subject to the prior final and indefeasible
payment in full of all Obligations and to the extent of payments received by the
Lender from the Individual Guarantor on the Guaranteed Obligations, the
Individual Guarantor shall be subrogated to the rights of the Lender to receive
payments or distributions of cash, property or securities of the Borrower
applicable to the Obligations; provided, that all such rights of subrogation
shall be subordinated and junior in right of payment to the prior payment in
full of the Obligations to the Lender.
SECTION 1.5 Application of Guaranteed Amounts. In the event the
Lender receives an amount in excess of the Maximum Guaranty Amount then due and
payable from the Individual Guarantor, the other Guarantors pursuant to the
terms of this Guaranty Agreement and the respective guaranty agreements of other
Guarantors or otherwise, the Lender shall remit such excess to MEI for
disbursement to the Guarantors in such amounts as the Guarantors shall
determine.
2. REPRESENTATIONS AND WARRANTIES
The Individual Guarantor makes the following representations and
warranties to the Lender, all of which shall survive the execution and delivery
of the Note and this Guaranty Agreement and the making of the loans evidenced
and to be evidenced by the Note:
(i) The execution, delivery and performance of this Guaranty
Agreement (a) will not violate, or involve the Lender in a violation of,
any provision of applicable law or any order of any governmental authority
or any judgment of any court applicable to the Individual Guarantor or his
property, (b) will not violate any indenture, any agreement for borrowed
money, any bond, note or other similar instrument or any other material
agreement to which the Individual Guarantor is a party or by which the
Individual Guarantor or any of his property is bound, (c) will not be in
conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under, any such indenture, agreement,
bond, note, instrument or other material agreement to which the Individual
Guarantor is a party and (d) will not result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any
property or assets of the Individual Guarantor other than pursuant to this
Guaranty Agreement.
(ii) This Guaranty Agreement constitutes the legal, valid and
binding obligation of the Individual Guarantor, enforceable in accordance
with its terms, subject (a) as to the enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency and other laws affecting
creditors' rights generally and to moratorium laws from time to time in
effect, (b) to general equitable principles which may limit the right to
obtain the remedy of specific performance and (c) to the qualification
that the enforceability of indemnification provisions may be limited by
applicable federal and state securities laws, rules and regulations.
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(iii) The Individual Guarantor will realize a direct economic
benefit as a result of the Loans being made to the Borrower pursuant to
the Credit Agreement.
3. REDUCTION OF GUARANTEED OBLIGATIONS
SECTION 3.1 Reduction of Guaranteed Obligations. The maximum
liability of the Guarantors pursuant to Section 1.1 hereof shall be reduced on a
dollar-for-dollar basis by (i) the amount, if any, by which the refinancing of
the Borrower's office building exceeds $1,800,000 and (ii) any net proceeds
received by the Credit Parties in connection with the exploitation of the motion
picture entitled "Wilde".
4. MISCELLANEOUS
SECTION 4.1 Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered or mailed (or if by
telecopier, delivered by such equipment) addressed (i) if to the Lender, to it
at 270 Park Avenue, 37th floor, New York, New York 10017, Attn: John J. Huber,
III, Facsimile No.: (212) 270-4584, with a copy to Chase Securities Inc., 1800
Century Park East, Suite 400, Los Angeles, California 90067, Attn: Kenneth R.
Wilson, Facsimile No.: (310) 788-5628, (ii) if to the Individual Guarantor, to
him at c/o Apollo Partners, LLC, 1 Stamford Plaza, 12th floor, Stamford, CT
06901, or such other address as such party may from time to time designate by
giving written notice to the other party hereunder. All notices and other
communications given to any party hereto in accordance with the provisions of
this Guaranty Agreement shall be deemed to have been given on the fifth Business
Day after the date when sent by registered or certified mail, postage prepaid
return receipt requested, if by mail, or when receipt is acknowledged, if by
telecopier, in each case addressed to such party as provided in this Section 4.1
or in accordance with the latest unrevoked written direction from such party.
SECTION 4.2 Successors. Each reference herein to a party hereto
shall be deemed to include its respective successors, assigns, heirs, executors,
administrators and legal representatives including but not by way of limitation,
any party in whose favor the provisions of the Note shall inure, all of whom
shall be bound by the provisions of this Guaranty Agreement.
SECTION 4.3 SERVICE OF PROCESS. THE INDIVIDUAL GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW
YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS GUARANTY AGREEMENT, OR THE
SUBJECT MATTER HEREOF BROUGHT BY THE LENDER OR ITS SUCCESSORS OR ASSIGNS. THE
INDIVIDUAL GUARANTOR TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY
WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE,
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OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT HE IS NOT
SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT HIS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS GUARANTY AGREEMENT OR THE SUBJECT
MATTER HEREOF OR THEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY
WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY THE
LENDER IN STATE COURT TO FEDERAL COURT, AND (C) HEREBY AGREES NOT TO ASSERT ANY
OFFSETS OR COUNTERCLAIMS (OTHER THAN COMPULSORY COUNTERCLAIMS) IN ANY SUCH
ACTION, SUIT OR PROCEEDING. THE INDIVIDUAL GUARANTOR HEREBY CONSENTS TO SERVICE
OF PROCESS BY CERTIFIED MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN,
AND AGREES THAT THE SUBMISSION TO JURISDICTION AND THE CONSENT TO SERVICE OF
PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE LENDER. FINAL JUDGMENT
AGAINST THE INDIVIDUAL GUARANTOR IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE, AND MAY BE ENFORCED IN OTHER JURISDICTIONS (X) BY SUIT, ACTION OR
PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF ANY INDEBTEDNESS OR
LIABILITY OF THE INDIVIDUAL GUARANTOR THEREIN DESCRIBED OR (Y) IN ANY OTHER
MANNER PROVIDED BY, OR PURSUANT TO, THE LAWS OF SUCH OTHER JURISDICTION;
PROVIDED, HOWEVER, THAT THE LENDER MAY AT ITS OPTION BRING SUIT OR INSTITUTE
OTHER JUDICIAL PROCEEDINGS AGAINST THE INDIVIDUAL GUARANTOR OR ANY OF HIS ASSETS
IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE
WHERE THE INDIVIDUAL GUARANTOR OR SUCH ASSETS MAY BE FOUND.
SECTION 4.4 GOVERNING LAW. THIS GUARANTY AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 4.5 No Waiver, etc. Neither a failure nor a delay on the
part of the Lender in exercising any right, power or privilege under this
Guaranty Agreement shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Lender herein
expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which it may have under this Guaranty Agreement, at law, in
equity, by statute, or otherwise.
SECTION 4.6 Modification, etc. No modification, amendment or waiver
of any provision of this Guaranty Agreement, nor the consent to any departure by
the Individual
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Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the Individual Guarantor in any case shall entitle the
Individual Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 4.7 Severability. If any one or more of the provisions
contained in this Guaranty Agreement should be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall in no way be affected or impaired thereby.
SECTION 4.8 Headings. Section headings used herein are for
convenience of reference only and are not to affect the construction of, or be
taken into consideration in interpreting, this Guaranty Agreement.
SECTION 4.9 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE INDIVIDUAL GUARANTOR HEREBY WAIVES,
AND COVENANTS THAT HE WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
GUARANTY AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. THE
INDIVIDUAL GUARANTOR ACKNOWLEDGES THAT HE HAS BEEN INFORMED BY THE LENDER THAT
THE PROVISIONS OF THIS SECTION 4.9 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH
THE LENDER HAS RELIED, IS RELYING AND WILL RELY IN MAKING THE LOANS EVIDENCED BY
THE NOTE AND ENTERING INTO THIS GUARANTY AGREEMENT. THE LENDER MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.9 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE INDIVIDUAL GUARANTOR TO THE WAIVER OF HIS RIGHTS
TO TRIAL BY JURY.
IN WITNESS WHEREOF, the Individual Guarantor and the Lender have
caused this Guaranty Agreement to be executed by its duly authorized officer,
all as of the date first written above.
-----------------------------------------
TERRENCE A. ELKES
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Executed by the Lender THE CHASE MANHATTAN BANK
in New York, New York
By:______________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED
with respect to Section 1.1(g)
MEDIA EQUITIES INTERNATIONAL, L.L.C.
By:____________________________________
Name:
Title:
<PAGE> 205
EXHIBIT K-2
FORM OF GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of
November 4, 1997 (as the same may be
further supplemented, amended or
otherwise modified, renewed or
replaced from time to time, the
"Guaranty Agreement") between (i)
KENNETH F. GORMAN, an individual
residing in Nassau County, New York
(the "Individual Guarantor") and
(ii) THE CHASE MANHATTAN BANK, a New
York banking corporation (the
"Lender").
Pursuant to the Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997 (as the same may be further amended, supplemented,
or otherwise modified, renewed or replaced from time to time, the "Credit
Agreement") among Dove Entertainment, Inc., a California corporation (the
"Borrower"), the Corporate Guarantors referred to therein and the Lender, the
Lender has agreed to make Loans to the Borrower and issue Letters of Credit in
an amount outstanding at any one time not in excess of $8,000,000. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
The Individual Guarantor, Terrence A. Elkes, Ronald Lightstone,
John T. Healy and Bruce Maggin (collectively, the "Guarantors") are the direct
and indirect owners of Media Equities International, L.L.C.
As an inducement to the Lender to make the Loans and issue
Letters of Credit to the Borrower, each of the Guarantors has agreed to guaranty
such obligations of the Borrower in an amount not to exceed the lesser of (x)
$2,000,000 and (y) the outstanding principal of and any interest on all Loans
made and to be made by the Lender to the Borrower in excess of the Borrowing
Base (as defined in the Credit Agreement) on the terms and conditions set forth
in the Credit Agreement (the "Maximum Guaranty Amount").
The Individual Guarantor individually has agreed to guaranty such
obligations of the Borrower to the extent and in accordance with the terms
hereof.
Therefore, for good and valuable consideration, the receipt of
which is hereby acknowledged by the Individual Guarantor, the parties hereto
agree as follows:
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1. GUARANTY
SECTION 1.1 Guaranty. (a) The Individual Guarantor
unconditionally and irrevocably guarantees the due and punctual payment by the
Borrower, subject to Section 1.1(g) and the limitations set forth in Section 3.1
hereof, in an amount not to exceed the product of 110% of the Individual
Guarantor's ownership interest in MEI as of the date hereof (as set forth on
Schedule 1 hereto) multiplied by the Maximum Guaranty Amount (the "Guaranteed
Obligations"), as and when such amounts shall become due and payable whether by
scheduled maturity, acceleration or otherwise and any extensions or renewals
thereof, reimbursement obligations in respect of Letters of Credit, related
costs and attorney's fees, and all other monetary obligations of the Borrower to
the Lender under the Credit Agreement.
(b) In furtherance of the provisions of this Guaranty Agreement,
and not in limitation of any other right which the Lender may have at law or in
equity against the Borrower or any other guarantor of the Guaranteed
Obligations, upon failure of the Borrower to pay any of the Guaranteed
Obligations when and as the same shall become due, whether at maturity, by
acceleration, after notice or otherwise, the Individual Guarantor hereby
promises to and will, upon receipt of written demand by the Lender, forthwith
pay or cause to be paid to the Lender in cash an amount equal to the unpaid
balance of the Guaranteed Obligations then due and payable, subject always to
the limitations set forth in Section 3.1 hereof.
(c) The Individual Guarantor, to the extent permitted by
applicable law, waives presentation to, demand for payment from and protest to
the Borrower and also waives notice of protest for nonpayment, notice of
acceleration and notice of intent to accelerate. The obligations of the
Individual Guarantor hereunder shall not be affected by (i) the failure of the
Lender to assert any claim or demand or to enforce any right or remedy against
the Borrower or any other guarantor of the Guaranteed Obligations under the
provisions of the Credit Agreement or any other agreement or otherwise; (ii) any
extension or renewal of any provision hereof or thereof; (iii) any rescission,
waiver, compromise, acceleration, amendment or modification of any of the terms
or provisions of the Credit Agreement, the Note or any other agreement; (iv) the
release, exchange, waiver or foreclosure of any security held by the Lender for
the Guaranteed Obligations or any of them or (v) the failure of the Lender to
exercise any right or remedy against any other guarantor of the Guaranteed
Obligations.
(d) The Individual Guarantor further agrees that this guaranty is
a continuing guaranty and constitutes a guaranty of performance and of payment
when due and not just of collection, and waives, to the extent permitted by
applicable law, any right to require that any resort be had by the Lender to any
security held for payment of the Guaranteed Obligations or to any balance of any
deposit, account or credit on the books of the Lender in favor of the Borrower
or any other guarantor or to any other person.
(e) The Individual Guarantor hereby expressly assumes all
responsibilities to remain informed of the financial condition of the Borrower
and each other guarantor of the
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<PAGE> 207
Guaranteed Obligations and any circumstances affecting the Collateral or the
ability of the Borrower to perform under the Credit Agreement.
(f) This guaranty shall not be affected by the genuineness,
validity, regularity or enforceability of the Guaranteed Obligations, the Note
or any other instrument evidencing any of the Guaranteed Obligations, or by the
existence, validity, enforceability, perfection or extent of any collateral
therefor or by any other circumstance relating to the Guaranteed Obligations
which might otherwise constitute a defense to the guaranty under this Guaranty
Agreement. The Lender makes no representation or warranty in respect to any such
circumstances nor has any duty or responsibility whatsoever to the Individual
Guarantor in respect to the management and maintenance of the Guaranteed
Obligations or the Collateral.
(g) Notwithstanding anything to the contrary contained herein, as
a condition precedent to any Borrowing in excess of the Borrowing Base being
included within the scope of this Guaranty, MEI shall have provided its prior
written approval to Borrower's request for the extension of such credit. The
Individual Guarantor agrees that the written approval by both Kenneth F. Gorman
and Bruce Maggin on behalf of MEI shall be binding upon and enforceable against
the Individual Guarantor.
SECTION 1.2 No Impairment of Guaranty. Except as provided in
Sections 1.1(g) and 3.1 hereof, the obligations of the Individual Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense (other than payment of the Guaranteed Obligations) or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Guaranteed Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of the
Individual Guarantor hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Lender to assert any claim or demand or to
enforce any remedy hereunder or under the Credit Agreement or any other
agreement, by any waiver or modification of any provision thereof, by any
default, failure, or delay, willful or otherwise, in the performance of the
Guaranteed Obligations, or by any other act or thing, or omission or delay to do
any other act or thing, which may or might in any manner or to any extent vary
the risk of the Individual Guarantor or would otherwise operate as a discharge
of the Individual Guarantor as a matter of law, unless and until the Guaranteed
Obligations are paid in full.
SECTION 1.3 Continuation and Reinstatement, etc. The Individual
Guarantor further agrees that his guaranty hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or other reorganization
of the Borrower or any other guarantor of the Guaranteed Obligations or
otherwise.
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<PAGE> 208
SECTION 1.4 Subrogation. Subject to the prior final and
indefeasible payment in full of all Obligations and to the extent of payments
received by the Lender from the Individual Guarantor on the Guaranteed
Obligations, the Individual Guarantor shall be subrogated to the rights of the
Lender to receive payments or distributions of cash, property or securities of
the Borrower applicable to the Obligations; provided, that all such rights of
subrogation shall be subordinated and junior in right of payment to the prior
payment in full of the Obligations to the Lender.
SECTION 1.5 Application of Guaranteed Amounts. In the event the
Lender receives an amount in excess of the Maximum Guaranty Amount then due and
payable from the Individual Guarantor, the other Guarantors pursuant to the
terms of this Guaranty Agreement and the respective guaranty agreements of other
Guarantors or otherwise, the Lender shall remit such excess to MEI for
disbursement to the Guarantors in such amounts as the Guarantors shall
determine.
2. REPRESENTATIONS AND WARRANTIES
The Individual Guarantor makes the following representations and
warranties to the Lender, all of which shall survive the execution and delivery
of the Note and this Guaranty Agreement and the making of the loans evidenced
and to be evidenced by the Note:
(i) The execution, delivery and performance of this Guaranty
Agreement (a) will not violate, or involve the Lender in a violation of,
any provision of applicable law or any order of any governmental
authority or any judgment of any court applicable to the Individual
Guarantor or his property, (b) will not violate any indenture, any
agreement for borrowed money, any bond, note or other similar instrument
or any other material agreement to which the Individual Guarantor is a
party or by which the Individual Guarantor or any of his property is
bound, (c) will not be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under,
any such indenture, agreement, bond, note, instrument or other material
agreement to which the Individual Guarantor is a party and (d) will not
result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any property or assets of the Individual
Guarantor other than pursuant to this Guaranty Agreement.
(ii) This Guaranty Agreement constitutes the legal, valid and
binding obligation of the Individual Guarantor, enforceable in
accordance with its terms, subject (a) as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency and other
laws affecting creditors' rights generally and to moratorium laws from
time to time in effect, (b) to general equitable principles which may
limit the right to obtain the remedy of specific performance and (c) to
the qualification that the enforceability of indemnification provisions
may be limited by applicable federal and state securities laws, rules
and regulations.
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<PAGE> 209
(iii) The Individual Guarantor will realize a direct economic
benefit as a result of the Loans being made to the Borrower pursuant to
the Credit Agreement.
3. REDUCTION OF GUARANTEED OBLIGATIONS
SECTION 3.1 Reduction of Guaranteed Obligations. The maximum
liability of the Guarantors pursuant to Section 1.1 hereof shall be reduced on a
dollar-for-dollar basis by (i) the amount, if any, by which the refinancing of
the Borrower's office building exceeds $1,800,000 and (ii) any net proceeds
received by the Credit Parties in connection with the exploitation of the motion
picture entitled "Wilde".
4. MISCELLANEOUS
SECTION 4.1 Notices. Notices and other communications provided
for herein shall be in writing and shall be delivered or mailed (or if by
telecopier, delivered by such equipment) addressed (i) if to the Lender, to it
at 270 Park Avenue, 37th floor, New York, New York 10017, Attn: John J. Huber,
III, Facsimile No.: (212) 270-4584, with a copy to Chase Securities Inc., 1800
Century Park East, Suite 400, Los Angeles, California 90067, Attn: Kenneth R.
Wilson, Facsimile No.: (310) 788-5628, (ii) if to the Individual Guarantor, to
him at c/o Apollo Partners, LLC, 1 Stamford Plaza, 12th floor, Stamford, CT
06901, or such other address as such party may from time to time designate by
giving written notice to the other party hereunder. All notices and other
communications given to any party hereto in accordance with the provisions of
this Guaranty Agreement shall be deemed to have been given on the fifth Business
Day after the date when sent by registered or certified mail, postage prepaid
return receipt requested, if by mail, or when receipt is acknowledged, if by
telecopier, in each case addressed to such party as provided in this Section 4.1
or in accordance with the latest unrevoked written direction from such party.
SECTION 4.2 Successors. Each reference herein to a party hereto
shall be deemed to include its respective successors, assigns, heirs, executors,
administrators and legal representatives including but not by way of limitation,
any party in whose favor the provisions of the Note shall inure, all of whom
shall be bound by the provisions of this Guaranty Agreement.
SECTION 4.3 SERVICE OF PROCESS. THE INDIVIDUAL GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW
YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS GUARANTY AGREEMENT, OR THE
SUBJECT MATTER HEREOF BROUGHT BY THE LENDER OR ITS SUCCESSORS OR ASSIGNS. THE
INDIVIDUAL GUARANTOR TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY
WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE,
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<PAGE> 210
OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT HE IS NOT
SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT HIS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS GUARANTY AGREEMENT OR THE SUBJECT
MATTER HEREOF OR THEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY
WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY THE
LENDER IN STATE COURT TO FEDERAL COURT, AND (C) HEREBY AGREES NOT TO ASSERT ANY
OFFSETS OR COUNTERCLAIMS (OTHER THAN COMPULSORY COUNTERCLAIMS) IN ANY SUCH
ACTION, SUIT OR PROCEEDING. THE INDIVIDUAL GUARANTOR HEREBY CONSENTS TO SERVICE
OF PROCESS BY CERTIFIED MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN,
AND AGREES THAT THE SUBMISSION TO JURISDICTION AND THE CONSENT TO SERVICE OF
PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE LENDER. FINAL JUDGMENT
AGAINST THE INDIVIDUAL GUARANTOR IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE, AND MAY BE ENFORCED IN OTHER JURISDICTIONS (X) BY SUIT, ACTION OR
PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF ANY INDEBTEDNESS OR
LIABILITY OF THE INDIVIDUAL GUARANTOR THEREIN DESCRIBED OR (Y) IN ANY OTHER
MANNER PROVIDED BY, OR PURSUANT TO, THE LAWS OF SUCH OTHER JURISDICTION;
PROVIDED, HOWEVER, THAT THE LENDER MAY AT ITS OPTION BRING SUIT OR INSTITUTE
OTHER JUDICIAL PROCEEDINGS AGAINST THE INDIVIDUAL GUARANTOR OR ANY OF HIS ASSETS
IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE
WHERE THE INDIVIDUAL GUARANTOR OR SUCH ASSETS MAY BE FOUND.
SECTION 4.4 GOVERNING LAW. THIS GUARANTY AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 4.5 No Waiver, etc. Neither a failure nor a delay on the
part of the Lender in exercising any right, power or privilege under this
Guaranty Agreement shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Lender herein
expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which it may have under this Guaranty Agreement, at law, in
equity, by statute, or otherwise.
SECTION 4.6 Modification, etc. No modification, amendment or
waiver of any provision of this Guaranty Agreement, nor the consent to any
departure by the Individual
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<PAGE> 211
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the Individual Guarantor in any case shall entitle the
Individual Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 4.7 Severability. If any one or more of the provisions
contained in this Guaranty Agreement should be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall in no way be affected or impaired thereby.
SECTION 4.8 Headings. Section headings used herein are for
convenience of reference only and are not to affect the construction of, or be
taken into consideration in interpreting, this Guaranty Agreement.
SECTION 4.9 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE INDIVIDUAL GUARANTOR HEREBY WAIVES,
AND COVENANTS THAT HE WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
GUARANTY AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. THE
INDIVIDUAL GUARANTOR ACKNOWLEDGES THAT HE HAS BEEN INFORMED BY THE LENDER THAT
THE PROVISIONS OF THIS SECTION 4.9 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH
THE LENDER HAS RELIED, IS RELYING AND WILL RELY IN MAKING THE LOANS EVIDENCED BY
THE NOTE AND ENTERING INTO THIS GUARANTY AGREEMENT. THE LENDER MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.9 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE INDIVIDUAL GUARANTOR TO THE WAIVER OF HIS RIGHTS
TO TRIAL BY JURY.
IN WITNESS WHEREOF, the Individual Guarantor and the Lender have
caused this Guaranty Agreement to be executed by its duly authorized officer,
all as of the date first written above.
------------------------------------
KENNETH F. GORMAN
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<PAGE> 212
Executed by the Lender THE CHASE MANHATTAN BANK
in New York, New York
By:
----------------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED
with respect to Section 1.1(g)
MEDIA EQUITIES INTERNATIONAL, L.L.C.
By:
-----------------------------------
Name:
Title:
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<PAGE> 213
EXHIBIT K-3
FORM OF GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of
November 4, 1997 (as the same may be
further supplemented, amended or
otherwise modified, renewed or
replaced from time to time, the
"Guaranty Agreement") between (i)
BRUCE MAGGIN, an individual residing
in Westchester County, New York (the
"Individual Guarantor") and (ii) THE
CHASE MANHATTAN BANK, a New York
banking corporation (the "Lender").
Pursuant to the Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997 (as the same may be further amended, supplemented,
or otherwise modified, renewed or replaced from time to time, the "Credit
Agreement") among Dove Entertainment, Inc., a California corporation (the
"Borrower"), the Corporate Guarantors referred to therein and the Lender, the
Lender has agreed to make Loans to the Borrower and issue Letters of Credit in
an amount outstanding at any one time not in excess of $8,000,000. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
The Individual Guarantor, Terrence A. Elkes, Kenneth F. Gorman,
Ronald Lightstone and John T. Healy (collectively, the "Guarantors") are the
direct and indirect owners of Media Equities International, L.L.C.
As an inducement to the Lender to make the Loans and issue
Letters of Credit to the Borrower, each of the Guarantors has agreed to guaranty
such obligations of the Borrower in an amount not to exceed the lesser of (x)
$2,000,000 and (y) the outstanding principal of and any interest on all Loans
made and to be made by the Lender to the Borrower in excess of the Borrowing
Base (as defined in the Credit Agreement) on the terms and conditions set forth
in the Credit Agreement (the "Maximum Guaranty Amount").
The Individual Guarantor individually has agreed to guaranty such
obligations of the Borrower to the extent and in accordance with the terms
hereof.
Therefore, for good and valuable consideration, the receipt of
which is hereby acknowledged by the Individual Guarantor, the parties hereto
agree as follows:
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<PAGE> 214
1. GUARANTY
SECTION 1.1 Guaranty. (a) The Individual Guarantor
unconditionally and irrevocably guarantees the due and punctual payment by the
Borrower, subject to Section 1.1(g) and the limitations set forth in Section 3.1
hereof, in an amount not to exceed the product of 110% of the Individual
Guarantor's ownership interest in MEI as of the date hereof (as set forth on
Schedule 1 hereto) multiplied by the Maximum Guaranty Amount (the "Guaranteed
Obligations"), as and when such amounts shall become due and payable whether by
scheduled maturity, acceleration or otherwise and any extensions or renewals
thereof, reimbursement obligations in respect of Letters of Credit, related
costs and attorney's fees, and all other monetary obligations of the Borrower to
the Lender under the Credit Agreement.
(b) In furtherance of the provisions of this Guaranty Agreement,
and not in limitation of any other right which the Lender may have at law or in
equity against the Borrower or any other guarantor of the Guaranteed
Obligations, upon failure of the Borrower to pay any of the Guaranteed
Obligations when and as the same shall become due, whether at maturity, by
acceleration, after notice or otherwise, the Individual Guarantor hereby
promises to and will, upon receipt of written demand by the Lender, forthwith
pay or cause to be paid to the Lender in cash an amount equal to the unpaid
balance of the Guaranteed Obligations then due and payable, subject always to
the limitations set forth in Section 3.1 hereof.
(c) The Individual Guarantor, to the extent permitted by
applicable law, waives presentation to, demand for payment from and protest to
the Borrower and also waives notice of protest for nonpayment, notice of
acceleration and notice of intent to accelerate. The obligations of the
Individual Guarantor hereunder shall not be affected by (i) the failure of the
Lender to assert any claim or demand or to enforce any right or remedy against
the Borrower or any other guarantor of the Guaranteed Obligations under the
provisions of the Credit Agreement or any other agreement or otherwise; (ii) any
extension or renewal of any provision hereof or thereof; (iii) any rescission,
waiver, compromise, acceleration, amendment or modification of any of the terms
or provisions of the Credit Agreement, the Note or any other agreement; (iv) the
release, exchange, waiver or foreclosure of any security held by the Lender for
the Guaranteed Obligations or any of them or (v) the failure of the Lender to
exercise any right or remedy against any other guarantor of the Guaranteed
Obligations.
(d) The Individual Guarantor further agrees that this guaranty is
a continuing guaranty and constitutes a guaranty of performance and of payment
when due and not just of collection, and waives, to the extent permitted by
applicable law, any right to require that any resort be had by the Lender to any
security held for payment of the Guaranteed Obligations or to any balance of any
deposit, account or credit on the books of the Lender in favor of the Borrower
or any other guarantor or to any other person.
(e) The Individual Guarantor hereby expressly assumes all
responsibilities to remain informed of the financial condition of the Borrower
and each other guarantor of the
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<PAGE> 215
Guaranteed Obligations and any circumstances affecting the Collateral or the
ability of the Borrower to perform under the Credit Agreement.
(f) This guaranty shall not be affected by the genuineness,
validity, regularity or enforceability of the Guaranteed Obligations, the Note
or any other instrument evidencing any of the Guaranteed Obligations, or by the
existence, validity, enforceability, perfection or extent of any collateral
therefor or by any other circumstance relating to the Guaranteed Obligations
which might otherwise constitute a defense to the guaranty under this Guaranty
Agreement. The Lender makes no representation or warranty in respect to any such
circumstances nor has any duty or responsibility whatsoever to the Individual
Guarantor in respect to the management and maintenance of the Guaranteed
Obligations or the Collateral.
(g) Notwithstanding anything to the contrary contained herein, as
a condition precedent to any Borrowing in excess of the Borrowing Base being
included within the scope of this Guaranty, MEI shall have provided its prior
written approval to Borrower's request for the extension of such credit. The
Individual Guarantor agrees that the written approval by both Kenneth F. Gorman
and Bruce Maggin on behalf of MEI shall be binding upon and enforceable against
the Individual Guarantor.
SECTION 1.2 No Impairment of Guaranty. Except as provided in
Sections 1.1(g) and 3.1 hereof, the obligations of the Individual Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense (other than payment of the Guaranteed Obligations) or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Guaranteed Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of the
Individual Guarantor hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Lender to assert any claim or demand or to
enforce any remedy hereunder or under the Credit Agreement or any other
agreement, by any waiver or modification of any provision thereof, by any
default, failure, or delay, willful or otherwise, in the performance of the
Guaranteed Obligations, or by any other act or thing, or omission or delay to do
any other act or thing, which may or might in any manner or to any extent vary
the risk of the Individual Guarantor or would otherwise operate as a discharge
of the Individual Guarantor as a matter of law, unless and until the Guaranteed
Obligations are paid in full.
SECTION 1.3 Continuation and Reinstatement, etc. The Individual
Guarantor further agrees that his guaranty hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or other reorganization
of the Borrower or any other guarantor of the Guaranteed Obligations or
otherwise.
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<PAGE> 216
SECTION 1.4 Subrogation. Subject to the prior final and
indefeasible payment in full of all Obligations and to the extent of payments
received by the Lender from the Individual Guarantor on the Guaranteed
Obligations, the Individual Guarantor shall be subrogated to the rights of the
Lender to receive payments or distributions of cash, property or securities of
the Borrower applicable to the Obligations; provided, that all such rights of
subrogation shall be subordinated and junior in right of payment to the prior
payment in full of the Obligations to the Lender.
SECTION 1.5 Application of Guaranteed Amounts. In the event the
Lender receives an amount in excess of the Maximum Guaranty Amount then due and
payable from the Individual Guarantor, the other Guarantors pursuant to the
terms of this Guaranty Agreement and the respective guaranty agreements of other
Guarantors or otherwise, the Lender shall remit such excess to MEI for
disbursement to the Guarantors in such amounts as the Guarantors shall
determine.
2. REPRESENTATIONS AND WARRANTIES
The Individual Guarantor makes the following representations and
warranties to the Lender, all of which shall survive the execution and delivery
of the Note and this Guaranty Agreement and the making of the loans evidenced
and to be evidenced by the Note:
(i) The execution, delivery and performance of this Guaranty
Agreement (a) will not violate, or involve the Lender in a violation of,
any provision of applicable law or any order of any governmental
authority or any judgment of any court applicable to the Individual
Guarantor or his property, (b) will not violate any indenture, any
agreement for borrowed money, any bond, note or other similar instrument
or any other material agreement to which the Individual Guarantor is a
party or by which the Individual Guarantor or any of his property is
bound, (c) will not be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under,
any such indenture, agreement, bond, note, instrument or other material
agreement to which the Individual Guarantor is a party and (d) will not
result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any property or assets of the Individual
Guarantor other than pursuant to this Guaranty Agreement.
(ii) This Guaranty Agreement constitutes the legal, valid and
binding obligation of the Individual Guarantor, enforceable in
accordance with its terms, subject (a) as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency and other
laws affecting creditors' rights generally and to moratorium laws from
time to time in effect, (b) to general equitable principles which may
limit the right to obtain the remedy of specific performance and (c) to
the qualification that the enforceability of indemnification provisions
may be limited by applicable federal and state securities laws, rules
and regulations.
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(iii) The Individual Guarantor will realize a direct economic
benefit as a result of the Loans being made to the Borrower pursuant to
the Credit Agreement.
3. REDUCTION OF GUARANTEED OBLIGATIONS
SECTION 3.1 Reduction of Guaranteed Obligations. The maximum
liability of the Guarantors pursuant to Section 1.1 hereof shall be reduced on a
dollar-for-dollar basis by (i) the amount, if any, by which the refinancing of
the Borrower's office building exceeds $1,800,000 and (ii) any net proceeds
received by the Credit Parties in connection with the exploitation of the motion
picture entitled "Wilde".
4. MISCELLANEOUS
SECTION 4.1 Notices. Notices and other communications provided
for herein shall be in writing and shall be delivered or mailed (or if by
telecopier, delivered by such equipment) addressed (i) if to the Lender, to it
at 270 Park Avenue, 37th floor, New York, New York 10017, Attn: John J. Huber,
III, Facsimile No.: (212) 270-4584, with a copy to Chase Securities Inc., 1800
Century Park East, Suite 400, Los Angeles, California 90067, Attn: Kenneth R.
Wilson, Facsimile No.: (310) 788-5628, (ii) if to the Individual Guarantor, to
him at c/o H.A.M Media Group LLC, 305 Madison Avenue, Suite 301, New York, NY
10017, or such other address as such party may from time to time designate by
giving written notice to the other party hereunder. All notices and other
communications given to any party hereto in accordance with the provisions of
this Guaranty Agreement shall be deemed to have been given on the fifth Business
Day after the date when sent by registered or certified mail, postage prepaid
return receipt requested, if by mail, or when receipt is acknowledged, if by
telecopier, in each case addressed to such party as provided in this Section 4.1
or in accordance with the latest unrevoked written direction from such party.
SECTION 4.2 Successors. Each reference herein to a party hereto
shall be deemed to include its respective successors, assigns, heirs, executors,
administrators and legal representatives including but not by way of limitation,
any party in whose favor the provisions of the Note shall inure, all of whom
shall be bound by the provisions of this Guaranty Agreement.
SECTION 4.3 SERVICE OF PROCESS. THE INDIVIDUAL GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW
YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS GUARANTY AGREEMENT, OR THE
SUBJECT MATTER HEREOF BROUGHT BY THE LENDER OR ITS SUCCESSORS OR ASSIGNS. THE
INDIVIDUAL GUARANTOR TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY
WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE,
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<PAGE> 218
OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT HE IS NOT
SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT HIS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS GUARANTY AGREEMENT OR THE SUBJECT
MATTER HEREOF OR THEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY
WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY THE
LENDER IN STATE COURT TO FEDERAL COURT, AND (C) HEREBY AGREES NOT TO ASSERT ANY
OFFSETS OR COUNTERCLAIMS (OTHER THAN COMPULSORY COUNTERCLAIMS) IN ANY SUCH
ACTION, SUIT OR PROCEEDING. THE INDIVIDUAL GUARANTOR HEREBY CONSENTS TO SERVICE
OF PROCESS BY CERTIFIED MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN,
AND AGREES THAT THE SUBMISSION TO JURISDICTION AND THE CONSENT TO SERVICE OF
PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE LENDER. FINAL JUDGMENT
AGAINST THE INDIVIDUAL GUARANTOR IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE, AND MAY BE ENFORCED IN OTHER JURISDICTIONS (X) BY SUIT, ACTION OR
PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF ANY INDEBTEDNESS OR
LIABILITY OF THE INDIVIDUAL GUARANTOR THEREIN DESCRIBED OR (Y) IN ANY OTHER
MANNER PROVIDED BY, OR PURSUANT TO, THE LAWS OF SUCH OTHER JURISDICTION;
PROVIDED, HOWEVER, THAT THE LENDER MAY AT ITS OPTION BRING SUIT OR INSTITUTE
OTHER JUDICIAL PROCEEDINGS AGAINST THE INDIVIDUAL GUARANTOR OR ANY OF HIS ASSETS
IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE
WHERE THE INDIVIDUAL GUARANTOR OR SUCH ASSETS MAY BE FOUND.
SECTION 4.4 GOVERNING LAW. THIS GUARANTY AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 4.5 No Waiver, etc. Neither a failure nor a delay on the
part of the Lender in exercising any right, power or privilege under this
Guaranty Agreement shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Lender herein
expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which it may have under this Guaranty Agreement, at law, in
equity, by statute, or otherwise.
SECTION 4.6 Modification, etc. No modification, amendment or
waiver of any provision of this Guaranty Agreement, nor the consent to any
departure by the Individual
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Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the Individual Guarantor in any case shall entitle the
Individual Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 4.7 Severability. If any one or more of the provisions
contained in this Guaranty Agreement should be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall in no way be affected or impaired thereby.
SECTION 4.8 Headings. Section headings used herein are for
convenience of reference only and are not to affect the construction of, or be
taken into consideration in interpreting, this Guaranty Agreement.
SECTION 4.9 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE INDIVIDUAL GUARANTOR HEREBY WAIVES,
AND COVENANTS THAT HE WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
GUARANTY AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. THE
INDIVIDUAL GUARANTOR ACKNOWLEDGES THAT HE HAS BEEN INFORMED BY THE LENDER THAT
THE PROVISIONS OF THIS SECTION 4.9 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH
THE LENDER HAS RELIED, IS RELYING AND WILL RELY IN MAKING THE LOANS EVIDENCED BY
THE NOTE AND ENTERING INTO THIS GUARANTY AGREEMENT. THE LENDER MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.9 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE INDIVIDUAL GUARANTOR TO THE WAIVER OF HIS RIGHTS
TO TRIAL BY JURY.
IN WITNESS WHEREOF, the Individual Guarantor and the Lender have
caused this Guaranty Agreement to be executed by its duly authorized officer,
all as of the date first written above.
------------------------------------------
BRUCE MAGGIN
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Executed by the Lender THE CHASE MANHATTAN BANK
in New York, New York
By:
----------------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED
with respect to Section 1.1(g)
MEDIA EQUITIES INTERNATIONAL, L.L.C.
By:
---------------------------------
Name:
Title:
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<PAGE> 221
Schedule 1
Equity Interests in Media Equities International, L.L.C.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Guarantor Equity Interest
- --------------------------------------------------------------------------------
<S> <C>
Bruce Maggin 14.11% (through Maggin's 66 2/3% interest
in H.A.M. Media Group LLC, which holds
21.16% of MEI)
- --------------------------------------------------------------------------------
</TABLE>
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<
<PAGE> 222
EXHIBIT K-4
FORM OF GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of
November 4, 1997 (as the same may be
further supplemented, amended or
otherwise modified, renewed or
replaced from time to time, the
"Guaranty Agreement") between (i)
JOHN T. HEALY, an individual
residing in New York County, New
York (the "Individual Guarantor")
and (ii) THE CHASE MANHATTAN BANK, a
New York banking corporation (the
"Lender").
Pursuant to the Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997 (as the same may be further amended, supplemented,
or otherwise modified, renewed or replaced from time to time, the "Credit
Agreement") among Dove Entertainment, Inc., a California corporation (the
"Borrower"), the Corporate Guarantors referred to therein and the Lender, the
Lender has agreed to make Loans to the Borrower and issue Letters of Credit in
an amount outstanding at any one time not in excess of $8,000,000. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
The Individual Guarantor, Terrence A. Elkes, Kenneth F. Gorman,
Ronald Lightstone and Bruce Maggin (collectively, the "Guarantors") are the
direct and indirect owners of Media Equities International, L.L.C.
As an inducement to the Lender to make the Loans and issue
Letters of Credit to the Borrower, each of the Guarantors has agreed to guaranty
such obligations of the Borrower in an amount not to exceed the lesser of (x)
$2,000,000 and (y) the outstanding principal of and any interest on all Loans
made and to be made by the Lender to the Borrower in excess of the Borrowing
Base (as defined in the Credit Agreement) on the terms and conditions set forth
in the Credit Agreement (the "Maximum Guaranty Amount").
The Individual Guarantor individually has agreed to guaranty such
obligations of the Borrower to the extent and in accordance with the terms
hereof.
Therefore, for good and valuable consideration, the receipt of
which is hereby acknowledged by the Individual Guarantor, the parties hereto
agree as follows:
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1. GUARANTY
SECTION 1.1 Guaranty. (a) The Individual Guarantor
unconditionally and irrevocably guarantees the due and punctual payment by the
Borrower, subject to Section 1.1(g) and the limitations set forth in Section 3.1
hereof, in an amount not to exceed the product of 110% of the Individual
Guarantor's ownership interest in MEI as of the date hereof (as set forth on
Schedule 1 hereto) multiplied by the Maximum Guaranty Amount (the "Guaranteed
Obligations"), as and when such amounts shall become due and payable whether by
scheduled maturity, acceleration or otherwise and any extensions or renewals
thereof, reimbursement obligations in respect of Letters of Credit, related
costs and attorney's fees, and all other monetary obligations of the Borrower to
the Lender under the Credit Agreement.
(b) In furtherance of the provisions of this Guaranty Agreement,
and not in limitation of any other right which the Lender may have at law or in
equity against the Borrower or any other guarantor of the Guaranteed
Obligations, upon failure of the Borrower to pay any of the Guaranteed
Obligations when and as the same shall become due, whether at maturity, by
acceleration, after notice or otherwise, the Individual Guarantor hereby
promises to and will, upon receipt of written demand by the Lender, forthwith
pay or cause to be paid to the Lender in cash an amount equal to the unpaid
balance of the Guaranteed Obligations then due and payable, subject always to
the limitations set forth in Section 3.1 hereof.
(c) The Individual Guarantor, to the extent permitted by
applicable law, waives presentation to, demand for payment from and protest to
the Borrower and also waives notice of protest for nonpayment, notice of
acceleration and notice of intent to accelerate. The obligations of the
Individual Guarantor hereunder shall not be affected by (i) the failure of the
Lender to assert any claim or demand or to enforce any right or remedy against
the Borrower or any other guarantor of the Guaranteed Obligations under the
provisions of the Credit Agreement or any other agreement or otherwise; (ii) any
extension or renewal of any provision hereof or thereof; (iii) any rescission,
waiver, compromise, acceleration, amendment or modification of any of the terms
or provisions of the Credit Agreement, the Note or any other agreement; (iv) the
release, exchange, waiver or foreclosure of any security held by the Lender for
the Guaranteed Obligations or any of them or (v) the failure of the Lender to
exercise any right or remedy against any other guarantor of the Guaranteed
Obligations.
(d) The Individual Guarantor further agrees that this guaranty is
a continuing guaranty and constitutes a guaranty of performance and of payment
when due and not just of collection, and waives, to the extent permitted by
applicable law, any right to require that any resort be had by the Lender to any
security held for payment of the Guaranteed Obligations or to any balance of any
deposit, account or credit on the books of the Lender in favor of the Borrower
or any other guarantor or to any other person.
(e) The Individual Guarantor hereby expressly assumes all
responsibilities to remain informed of the financial condition of the Borrower
and each other guarantor of the
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<PAGE> 224
Guaranteed Obligations and any circumstances affecting the Collateral or the
ability of the Borrower to perform under the Credit Agreement.
(f) This guaranty shall not be affected by the genuineness,
validity, regularity or enforceability of the Guaranteed Obligations, the Note
or any other instrument evidencing any of the Guaranteed Obligations, or by the
existence, validity, enforceability, perfection or extent of any collateral
therefor or by any other circumstance relating to the Guaranteed Obligations
which might otherwise constitute a defense to the guaranty under this Guaranty
Agreement. The Lender makes no representation or warranty in respect to any such
circumstances nor has any duty or responsibility whatsoever to the Individual
Guarantor in respect to the management and maintenance of the Guaranteed
Obligations or the Collateral.
(g) Notwithstanding anything to the contrary contained herein, as
a condition precedent to any Borrowing in excess of the Borrowing Base being
included within the scope of this Guaranty, MEI shall have provided its prior
written approval to Borrower's request for the extension of such credit. The
Individual Guarantor agrees that the written approval by both Kenneth F. Gorman
and Bruce Maggin on behalf of MEI shall be binding upon and enforceable against
the Individual Guarantor.
SECTION 1.2 No Impairment of Guaranty. Except as provided in
Sections 1.1(g) and 3.1 hereof, the obligations of the Individual Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense (other than payment of the Guaranteed Obligations) or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Guaranteed Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of the
Individual Guarantor hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Lender to assert any claim or demand or to
enforce any remedy hereunder or under the Credit Agreement or any other
agreement, by any waiver or modification of any provision thereof, by any
default, failure, or delay, willful or otherwise, in the performance of the
Guaranteed Obligations, or by any other act or thing, or omission or delay to do
any other act or thing, which may or might in any manner or to any extent vary
the risk of the Individual Guarantor or would otherwise operate as a discharge
of the Individual Guarantor as a matter of law, unless and until the Guaranteed
Obligations are paid in full.
SECTION 1.3 Continuation and Reinstatement, etc. The Individual
Guarantor further agrees that his guaranty hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or other reorganization
of the Borrower or any other guarantor of the Guaranteed Obligations or
otherwise.
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<PAGE> 225
SECTION 1.4 Subrogation. Subject to the prior final and
indefeasible payment in full of all Obligations and to the extent of payments
received by the Lender from the Individual Guarantor on the Guaranteed
Obligations, the Individual Guarantor shall be subrogated to the rights of the
Lender to receive payments or distributions of cash, property or securities of
the Borrower applicable to the Obligations; provided, that all such rights of
subrogation shall be subordinated and junior in right of payment to the prior
payment in full of the Obligations to the Lender.
SECTION 1.5 Application of Guaranteed Amounts. In the event the
Lender receives an amount in excess of the Maximum Guaranty Amount then due and
payable from the Individual Guarantor, the other Guarantors pursuant to the
terms of this Guaranty Agreement and the respective guaranty agreements of other
Guarantors or otherwise, the Lender shall remit such excess to MEI for
disbursement to the Guarantors in such amounts as the Guarantors shall
determine.
2. REPRESENTATIONS AND WARRANTIES
The Individual Guarantor makes the following representations and
warranties to the Lender, all of which shall survive the execution and delivery
of the Note and this Guaranty Agreement and the making of the loans evidenced
and to be evidenced by the Note:
(i) The execution, delivery and performance of this Guaranty
Agreement (a) will not violate, or involve the Lender in a violation of,
any provision of applicable law or any order of any governmental
authority or any judgment of any court applicable to the Individual
Guarantor or his property, (b) will not violate any indenture, any
agreement for borrowed money, any bond, note or other similar instrument
or any other material agreement to which the Individual Guarantor is a
party or by which the Individual Guarantor or any of his property is
bound, (c) will not be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under,
any such indenture, agreement, bond, note, instrument or other material
agreement to which the Individual Guarantor is a party and (d) will not
result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any property or assets of the Individual
Guarantor other than pursuant to this Guaranty Agreement.
(ii) This Guaranty Agreement constitutes the legal, valid and
binding obligation of the Individual Guarantor, enforceable in
accordance with its terms, subject (a) as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency and other
laws affecting creditors' rights generally and to moratorium laws from
time to time in effect, (b) to general equitable principles which may
limit the right to obtain the remedy of specific performance and (c) to
the qualification that the enforceability of indemnification provisions
may be limited by applicable federal and state securities laws, rules
and regulations.
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<PAGE> 226
(iii) The Individual Guarantor will realize a direct economic
benefit as a result of the Loans being made to the Borrower pursuant to
the Credit Agreement.
3. REDUCTION OF GUARANTEED OBLIGATIONS
SECTION 3.1 Reduction of Guaranteed Obligations. The maximum
liability of the Guarantors pursuant to Section 1.1 hereof shall be reduced on a
dollar-for-dollar basis by (i) the amount, if any, by which the refinancing of
the Borrower's office building exceeds $1,800,000 and (ii) any net proceeds
received by the Credit Parties in connection with the exploitation of the motion
picture entitled "Wilde".
4. MISCELLANEOUS
SECTION 4.1 Notices. Notices and other communications provided
for herein shall be in writing and shall be delivered or mailed (or if by
telecopier, delivered by such equipment) addressed (i) if to the Lender, to it
at 270 Park Avenue, 37th floor, New York, New York 10017, Attn: John J. Huber,
III, Facsimile No.: (212) 270-4584, with a copy to Chase Securities Inc., 1800
Century Park East, Suite 400, Los Angeles, California 90067, Attn: Kenneth R.
Wilson, Facsimile No.: (310) 788-5628, (ii) if to the Individual Guarantor, to
him at c/o H.A.M Media Group LLC, 305 Madison Avenue, Suite 301, New York, NY
10017, or such other address as such party may from time to time designate by
giving written notice to the other party hereunder. All notices and other
communications given to any party hereto in accordance with the provisions of
this Guaranty Agreement shall be deemed to have been given on the fifth Business
Day after the date when sent by registered or certified mail, postage prepaid
return receipt requested, if by mail, or when receipt is acknowledged, if by
telecopier, in each case addressed to such party as provided in this Section 4.1
or in accordance with the latest unrevoked written direction from such party.
SECTION 4.2 Successors. Each reference herein to a party hereto
shall be deemed to include its respective successors, assigns, heirs, executors,
administrators and legal representatives including but not by way of limitation,
any party in whose favor the provisions of the Note shall inure, all of whom
shall be bound by the provisions of this Guaranty Agreement.
SECTION 4.3 SERVICE OF PROCESS. THE INDIVIDUAL GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW
YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS GUARANTY AGREEMENT, OR THE
SUBJECT MATTER HEREOF BROUGHT BY THE LENDER OR ITS SUCCESSORS OR ASSIGNS. THE
INDIVIDUAL GUARANTOR TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY
WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE,
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<PAGE> 227
OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT HE IS NOT
SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT HIS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS GUARANTY AGREEMENT OR THE SUBJECT
MATTER HEREOF OR THEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY
WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY THE
LENDER IN STATE COURT TO FEDERAL COURT, AND (C) HEREBY AGREES NOT TO ASSERT ANY
OFFSETS OR COUNTERCLAIMS (OTHER THAN COMPULSORY COUNTERCLAIMS) IN ANY SUCH
ACTION, SUIT OR PROCEEDING. THE INDIVIDUAL GUARANTOR HEREBY CONSENTS TO SERVICE
OF PROCESS BY CERTIFIED MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN,
AND AGREES THAT THE SUBMISSION TO JURISDICTION AND THE CONSENT TO SERVICE OF
PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE LENDER. FINAL JUDGMENT
AGAINST THE INDIVIDUAL GUARANTOR IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE, AND MAY BE ENFORCED IN OTHER JURISDICTIONS (X) BY SUIT, ACTION OR
PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF ANY INDEBTEDNESS OR
LIABILITY OF THE INDIVIDUAL GUARANTOR THEREIN DESCRIBED OR (Y) IN ANY OTHER
MANNER PROVIDED BY, OR PURSUANT TO, THE LAWS OF SUCH OTHER JURISDICTION;
PROVIDED, HOWEVER, THAT THE LENDER MAY AT ITS OPTION BRING SUIT OR INSTITUTE
OTHER JUDICIAL PROCEEDINGS AGAINST THE INDIVIDUAL GUARANTOR OR ANY OF HIS ASSETS
IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE
WHERE THE INDIVIDUAL GUARANTOR OR SUCH ASSETS MAY BE FOUND.
SECTION 4.4 GOVERNING LAW. THIS GUARANTY AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 4.5 No Waiver, etc. Neither a failure nor a delay on the
part of the Lender in exercising any right, power or privilege under this
Guaranty Agreement shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Lender herein
expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which it may have under this Guaranty Agreement, at law, in
equity, by statute, or otherwise.
SECTION 4.6 Modification, etc. No modification, amendment or
waiver of any provision of this Guaranty Agreement, nor the consent to any
departure by the Individual
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<PAGE> 228
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the Individual Guarantor in any case shall entitle the
Individual Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 4.7 Severability. If any one or more of the provisions
contained in this Guaranty Agreement should be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall in no way be affected or impaired thereby.
SECTION 4.8 Headings. Section headings used herein are for
convenience of reference only and are not to affect the construction of, or be
taken into consideration in interpreting, this Guaranty Agreement.
SECTION 4.9 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE INDIVIDUAL GUARANTOR HEREBY WAIVES,
AND COVENANTS THAT HE WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
GUARANTY AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. THE
INDIVIDUAL GUARANTOR ACKNOWLEDGES THAT HE HAS BEEN INFORMED BY THE LENDER THAT
THE PROVISIONS OF THIS SECTION 4.9 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH
THE LENDER HAS RELIED, IS RELYING AND WILL RELY IN MAKING THE LOANS EVIDENCED BY
THE NOTE AND ENTERING INTO THIS GUARANTY AGREEMENT. THE LENDER MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.9 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE INDIVIDUAL GUARANTOR TO THE WAIVER OF HIS RIGHTS
TO TRIAL BY JURY.
IN WITNESS WHEREOF, the Individual Guarantor and the Lender have
caused this Guaranty Agreement to be executed by its duly authorized officer,
all as of the date first written above.
------------------------------------
JOHN T. HEALY
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<PAGE> 229
Executed by the Lender THE CHASE MANHATTAN BANK
in New York, New York
By:
----------------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED
with respect to Section 1.1(g)
MEDIA EQUITIES INTERNATIONAL, L.L.C.
By:
-----------------------------------------
Name:
Title:
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<PAGE> 230
Schedule 1
Equity Interests in Media Equities International, L.L.C.
- --------------------------------------------------------------------------------
Guarantor Equity Interest
- --------------------------------------------------------------------------------
John T. Healy 7.05% (through Healy's 33 1/3% interest in
H.A.M. Media Group LLC, which holds
21.16% of MEI)
- --------------------------------------------------------------------------------
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<PAGE> 231
EXHIBIT K-5
FORM OF GUARANTY AGREEMENT
GUARANTY AGREEMENT, dated as of
November 4, 1997 (as the same may be
further supplemented, amended or
otherwise modified, renewed or
replaced from time to time, the
"Guaranty Agreement") between (i)
RONALD LIGHTSTONE, an individual
residing in Los Angeles County,
California (the "Individual
Guarantor") and (ii) THE CHASE
MANHATTAN BANK, a New York banking
corporation (the "Lender").
Pursuant to the Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997 (as the same may be further amended, supplemented,
or otherwise modified, renewed or replaced from time to time, the "Credit
Agreement") among Dove Entertainment, Inc., a California corporation (the
"Borrower"), the Corporate Guarantors referred to therein and the Lender, the
Lender has agreed to make Loans to the Borrower and issue Letters of Credit in
an amount outstanding at any one time not in excess of $8,000,000. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
The Individual Guarantor, Terrence A. Elkes, Kenneth F. Gorman,
John T. Healy and Bruce Maggin (collectively, the "Guarantors") are the direct
and indirect owners of Media Equities International, L.L.C.
As an inducement to the Lender to make the Loans and issue
Letters of Credit to the Borrower, each of the Guarantors has agreed to guaranty
such obligations of the Borrower in an amount not to exceed the lesser of (x)
$2,000,000 and (y) the outstanding principal of and any interest on all Loans
made and to be made by the Lender to the Borrower in excess of the Borrowing
Base (as defined in the Credit Agreement) on the terms and conditions set forth
in the Credit Agreement (the "Maximum Guaranty Amount").
The Individual Guarantor individually has agreed to guaranty such
obligations of the Borrower to the extent and in accordance with the terms
hereof.
Therefore, for good and valuable consideration, the receipt of
which is hereby acknowledged by the Individual Guarantor, the parties hereto
agree as follows:
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<PAGE> 232
1. GUARANTY
SECTION 1.1 Guaranty. (a) The Individual Guarantor
unconditionally and irrevocably guarantees the due and punctual payment by the
Borrower, subject to Section 1.1(g) and the limitations set forth in Section 3.1
hereof, in an amount not to exceed the product of 110% of the Individual
Guarantor's ownership interest in MEI as of the date hereof (as set forth on
Schedule 1 hereto) multiplied by the Maximum Guaranty Amount (the "Guaranteed
Obligations"), as and when such amounts shall become due and payable whether by
scheduled maturity, acceleration or otherwise and any extensions or renewals
thereof, reimbursement obligations in respect of Letters of Credit, related
costs and attorney's fees, and all other monetary obligations of the Borrower to
the Lender under the Credit Agreement.
(b) In furtherance of the provisions of this Guaranty Agreement,
and not in limitation of any other right which the Lender may have at law or in
equity against the Borrower or any other guarantor of the Guaranteed
Obligations, upon failure of the Borrower to pay any of the Guaranteed
Obligations when and as the same shall become due, whether at maturity, by
acceleration, after notice or otherwise, the Individual Guarantor hereby
promises to and will, upon receipt of written demand by the Lender, forthwith
pay or cause to be paid to the Lender in cash an amount equal to the unpaid
balance of the Guaranteed Obligations then due and payable, subject always to
the limitations set forth in Section 3.1 hereof.
(c) The Individual Guarantor, to the extent permitted by
applicable law, waives presentation to, demand for payment from and protest to
the Borrower and also waives notice of protest for nonpayment, notice of
acceleration and notice of intent to accelerate. The obligations of the
Individual Guarantor hereunder shall not be affected by (i) the failure of the
Lender to assert any claim or demand or to enforce any right or remedy against
the Borrower or any other guarantor of the Guaranteed Obligations under the
provisions of the Credit Agreement or any other agreement or otherwise; (ii) any
extension or renewal of any provision hereof or thereof; (iii) any rescission,
waiver, compromise, acceleration, amendment or modification of any of the terms
or provisions of the Credit Agreement, the Note or any other agreement; (iv) the
release, exchange, waiver or foreclosure of any security held by the Lender for
the Guaranteed Obligations or any of them or (v) the failure of the Lender to
exercise any right or remedy against any other guarantor of the Guaranteed
Obligations.
(d) The Individual Guarantor further agrees that this guaranty is
a continuing guaranty and constitutes a guaranty of performance and of payment
when due and not just of collection, and waives, to the extent permitted by
applicable law, any right to require that any resort be had by the Lender to any
security held for payment of the Guaranteed Obligations or to any balance of any
deposit, account or credit on the books of the Lender in favor of the Borrower
or any other guarantor or to any other person.
(e) The Individual Guarantor hereby expressly assumes all
responsibilities to remain informed of the financial condition of the Borrower
and each other guarantor of the
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<PAGE> 233
Guaranteed Obligations and any circumstances affecting the Collateral or the
ability of the Borrower to perform under the Credit Agreement.
(f) This guaranty shall not be affected by the genuineness,
validity, regularity or enforceability of the Guaranteed Obligations, the Note
or any other instrument evidencing any of the Guaranteed Obligations, or by the
existence, validity, enforceability, perfection or extent of any collateral
therefor or by any other circumstance relating to the Guaranteed Obligations
which might otherwise constitute a defense to the guaranty under this Guaranty
Agreement. The Lender makes no representation or warranty in respect to any such
circumstances nor has any duty or responsibility whatsoever to the Individual
Guarantor in respect to the management and maintenance of the Guaranteed
Obligations or the Collateral.
(g) Notwithstanding anything to the contrary contained herein, as
a condition precedent to any Borrowing in excess of the Borrowing Base being
included within the scope of this Guaranty, MEI shall have provided its prior
written approval to Borrower's request for the extension of such credit. The
Individual Guarantor agrees that the written approval by both Kenneth F. Gorman
and Bruce Maggin on behalf of MEI shall be binding upon and enforceable against
the Individual Guarantor.
SECTION 1.2 No Impairment of Guaranty. Except as provided in
Sections 1.1(g) and 3.1 hereof, the obligations of the Individual Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense (other than payment of the Guaranteed Obligations) or set-off,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Guaranteed Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations of the
Individual Guarantor hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Lender to assert any claim or demand or to
enforce any remedy hereunder or under the Credit Agreement or any other
agreement, by any waiver or modification of any provision thereof, by any
default, failure, or delay, willful or otherwise, in the performance of the
Guaranteed Obligations, or by any other act or thing, or omission or delay to do
any other act or thing, which may or might in any manner or to any extent vary
the risk of the Individual Guarantor or would otherwise operate as a discharge
of the Individual Guarantor as a matter of law, unless and until the Guaranteed
Obligations are paid in full.
SECTION 1.3 Continuation and Reinstatement, etc. The Individual
Guarantor further agrees that his guaranty hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or other reorganization
of the Borrower or any other guarantor of the Guaranteed Obligations or
otherwise.
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<PAGE> 234
SECTION 1.4 Subrogation. Subject to the prior final and
indefeasible payment in full of all Obligations and to the extent of payments
received by the Lender from the Individual Guarantor on the Guaranteed
Obligations, the Individual Guarantor shall be subrogated to the rights of the
Lender to receive payments or distributions of cash, property or securities of
the Borrower applicable to the Obligations; provided, that all such rights of
subrogation shall be subordinated and junior in right of payment to the prior
payment in full of the Obligations to the Lender.
SECTION 1.5 Application of Guaranteed Amounts. In the event the
Lender receives an amount in excess of the Maximum Guaranty Amount then due and
payable from the Individual Guarantor, the other Guarantors pursuant to the
terms of this Guaranty Agreement and the respective guaranty agreements of other
Guarantors or otherwise, the Lender shall remit such excess to MEI for
disbursement to the Guarantors in such amounts as the Guarantors shall
determine.
2. REPRESENTATIONS AND WARRANTIES
The Individual Guarantor makes the following representations and
warranties to the Lender, all of which shall survive the execution and delivery
of the Note and this Guaranty Agreement and the making of the loans evidenced
and to be evidenced by the Note:
(i) The execution, delivery and performance of this Guaranty
Agreement (a) will not violate, or involve the Lender in a violation of,
any provision of applicable law or any order of any governmental
authority or any judgment of any court applicable to the Individual
Guarantor or his property, (b) will not violate any indenture, any
agreement for borrowed money, any bond, note or other similar instrument
or any other material agreement to which the Individual Guarantor is a
party or by which the Individual Guarantor or any of his property is
bound, (c) will not be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under,
any such indenture, agreement, bond, note, instrument or other material
agreement to which the Individual Guarantor is a party and (d) will not
result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any property or assets of the Individual
Guarantor other than pursuant to this Guaranty Agreement.
(ii) This Guaranty Agreement constitutes the legal, valid and
binding obligation of the Individual Guarantor, enforceable in
accordance with its terms, subject (a) as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency and other
laws affecting creditors' rights generally and to moratorium laws from
time to time in effect, (b) to general equitable principles which may
limit the right to obtain the remedy of specific performance and (c) to
the qualification that the enforceability of indemnification provisions
may be limited by applicable federal and state securities laws, rules
and regulations.
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<PAGE> 235
(iii) The Individual Guarantor will realize a direct economic
benefit as a result of the Loans being made to the Borrower pursuant to
the Credit Agreement.
3. REDUCTION OF GUARANTEED OBLIGATIONS
SECTION 3.1 Reduction of Guaranteed Obligations. The maximum
liability of the Guarantors pursuant to Section 1.1 hereof shall be reduced on a
dollar-for-dollar basis by (i) the amount, if any, by which the refinancing of
the Borrower's office building exceeds $1,800,000 and (ii) any net proceeds
received by the Credit Parties in connection with the exploitation of the motion
picture entitled "Wilde".
4. MISCELLANEOUS
SECTION 4.1 Notices. Notices and other communications provided
for herein shall be in writing and shall be delivered or mailed (or if by
telecopier, delivered by such equipment) addressed (i) if to the Lender, to it
at 270 Park Avenue, 37th floor, New York, New York 10017, Attn: John J. Huber,
III, Facsimile No.: (212) 270-4584, with a copy to Chase Securities Inc., 1800
Century Park East, Suite 400, Los Angeles, California 90067, Attn: Kenneth R.
Wilson, Facsimile No.: (310) 788-5628, (ii) if to the Individual Guarantor, to
him at 400 Parkwood Drive, Los Angeles, California 90077-3530, or such other
address as such party may from time to time designate by giving written notice
to the other party hereunder. All notices and other communications given to any
party hereto in accordance with the provisions of this Guaranty Agreement shall
be deemed to have been given on the fifth Business Day after the date when sent
by registered or certified mail, postage prepaid return receipt requested, if by
mail, or when receipt is acknowledged, if by telecopier, in each case addressed
to such party as provided in this Section 4.1 or in accordance with the latest
unrevoked written direction from such party.
SECTION 4.2 Successors. Each reference herein to a party hereto
shall be deemed to include its respective successors, assigns, heirs, executors,
administrators and legal representatives including but not by way of limitation,
any party in whose favor the provisions of the Note shall inure, all of whom
shall be bound by the provisions of this Guaranty Agreement.
SECTION 4.3 SERVICE OF PROCESS. THE INDIVIDUAL GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW
YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS GUARANTY AGREEMENT, OR THE
SUBJECT MATTER HEREOF BROUGHT BY THE LENDER OR ITS SUCCESSORS OR ASSIGNS. THE
INDIVIDUAL GUARANTOR TO THE EXTENT PERMITTED BY APPLICABLE LAW (A) HEREBY
WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE,
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<PAGE> 236
OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT HE IS NOT
SUBJECT PERSONALLY TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT HIS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION
OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS GUARANTY AGREEMENT OR THE SUBJECT
MATTER HEREOF OR THEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, (B) HEREBY
WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR PROCEEDING INSTITUTED BY THE
LENDER IN STATE COURT TO FEDERAL COURT, AND (C) HEREBY AGREES NOT TO ASSERT ANY
OFFSETS OR COUNTERCLAIMS (OTHER THAN COMPULSORY COUNTERCLAIMS) IN ANY SUCH
ACTION, SUIT OR PROCEEDING. THE INDIVIDUAL GUARANTOR HEREBY CONSENTS TO SERVICE
OF PROCESS BY CERTIFIED MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN,
AND AGREES THAT THE SUBMISSION TO JURISDICTION AND THE CONSENT TO SERVICE OF
PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE LENDER. FINAL JUDGMENT
AGAINST THE INDIVIDUAL GUARANTOR IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE, AND MAY BE ENFORCED IN OTHER JURISDICTIONS (X) BY SUIT, ACTION OR
PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF ANY INDEBTEDNESS OR
LIABILITY OF THE INDIVIDUAL GUARANTOR THEREIN DESCRIBED OR (Y) IN ANY OTHER
MANNER PROVIDED BY, OR PURSUANT TO, THE LAWS OF SUCH OTHER JURISDICTION;
PROVIDED, HOWEVER, THAT THE LENDER MAY AT ITS OPTION BRING SUIT OR INSTITUTE
OTHER JUDICIAL PROCEEDINGS AGAINST THE INDIVIDUAL GUARANTOR OR ANY OF HIS ASSETS
IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE
WHERE THE INDIVIDUAL GUARANTOR OR SUCH ASSETS MAY BE FOUND.
SECTION 4.4 GOVERNING LAW. THIS GUARANTY AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 4.5 No Waiver, etc. Neither a failure nor a delay on the
part of the Lender in exercising any right, power or privilege under this
Guaranty Agreement shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Lender herein
expressly specified are cumulative and not exclusive of any other rights,
remedies or benefits which it may have under this Guaranty Agreement, at law, in
equity, by statute, or otherwise.
SECTION 4.6 Modification, etc. No modification, amendment or
waiver of any provision of this Guaranty Agreement, nor the consent to any
departure by the Individual
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<PAGE> 237
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the Individual Guarantor in any case shall entitle the
Individual Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 4.7 Severability. If any one or more of the provisions
contained in this Guaranty Agreement should be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall in no way be affected or impaired thereby.
SECTION 4.8 Headings. Section headings used herein are for
convenience of reference only and are not to affect the construction of, or be
taken into consideration in interpreting, this Guaranty Agreement.
SECTION 4.9 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE INDIVIDUAL GUARANTOR HEREBY WAIVES,
AND COVENANTS THAT HE WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
GUARANTY AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE. THE
INDIVIDUAL GUARANTOR ACKNOWLEDGES THAT HE HAS BEEN INFORMED BY THE LENDER THAT
THE PROVISIONS OF THIS SECTION 4.9 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH
THE LENDER HAS RELIED, IS RELYING AND WILL RELY IN MAKING THE LOANS EVIDENCED BY
THE NOTE AND ENTERING INTO THIS GUARANTY AGREEMENT. THE LENDER MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.9 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE INDIVIDUAL GUARANTOR TO THE WAIVER OF HIS RIGHTS
TO TRIAL BY JURY.
IN WITNESS WHEREOF, the Individual Guarantor and the Lender have
caused this Guaranty Agreement to be executed by its duly authorized officer,
all as of the date first written above.
---------------------------------------
RONALD LIGHTSTONE
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<PAGE> 238
Executed by the Lender THE CHASE MANHATTAN BANK
in New York, New York
By:
-----------------------------------------
Name:
Title:
ACKNOWLEDGED AND AGREED
with respect to Section 1.1(g)
MEDIA EQUITIES INTERNATIONAL, L.L.C.
By:
----------------------------------
Name:
Title:
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<PAGE> 239
GUARANTY AGREEMENT
SPOUSAL CONSENT
The undersigned acknowledges that she has read the foregoing
Guaranty Agreement (the "Guaranty Agreement") and that she knows its content.
The undersigned is aware that by its provisions her spouse agrees to guarantee
certain obligations owed by Dove Entertainment, Inc. to The Chase Manhattan Bank
(the "Lender") under that certain Credit, Security, Guaranty and Pledge
Agreement, dated as of November 4, 1997 among Dove Entertainment, Inc., as
borrower, the Corporate Guarantors referred to therein and the Lender (as the
same may be amended, supplemented or otherwise modified, renewed or replaced
from time to time, the "Credit Agreement"). The undersigned hereby consents to
the Guaranty Agreement and accepts all of the provisions of such Guaranty
Agreement to the extent of her community property interests in whatever property
is subject to the Guaranty Agreement, and further agrees that the undersigned
will take no action at any time to hinder the enforcement of the Guaranty
Agreement, the Credit Agreement, or any related document or instrument, or any
provision contained therein.
Dated: As of November ___, 1997
---------------------------------
<PAGE> 240
Schedule 1
Equity Interests in Media Equities International, L.L.C.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Guarantor Equity Interest
- --------------------------------------------------------------------------------
<S> <C>
Ronald Lightstone 11.70% in MEI
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE> 1
EXHIBIT 10.53
COPYRIGHT SECURITY AGREEMENT
WHEREAS, Dove Entertainment, Inc., a California corporation
("Borrower"), and each Subsidiary of Borrower whose name appears at the foot
hereof (collectively the "Grantors") now own or hold and may hereafter acquire
or hold certain copyrights and rights under copyright with respect to certain
movies-of-the-week, television programs, films, videotapes or other programs
produced for television release or for release in any other medium, shown on
network, free and cable, pay and/or other television medium (including, without
limitation, first-run syndication), certain written works, books and other
published material, and sound recordings and audiobooks, in each case whether
recorded on film, videotape, cassette, cartridge, disc, audio cassette or on or
by any other means, method, process or device whether now owned or hereafter
developed, including, without limitation, those United States copyright
registrations listed on Schedule 1 hereto (the "Product") as such Schedule may
be amended from time to time by the addition of copyrights subsequently arising
or acquired;
WHEREAS, pursuant to that certain Credit, Security, Guaranty and
Pledge Agreement, dated as of November 4, 1997, (as the same may be amended,
modified or otherwise supplemented from time to time, the "Credit Agreement"),
among the Borrower, the Corporate Guarantors named therein and The Chase
Manhattan Bank (the "Lender"), the Lender has agreed to make loans to the
Borrower;
WHEREAS, pursuant to the terms of the Credit Agreement, the Grantors
granted to the Lender a security interest in all of the personal property of the
Grantors including all right, title and interest of the Grantors in, to and
under any copyright or copyright license whether now existing or hereafter
arising or acquired, and all proceeds thereof to secure the payment of the
Obligations (as such term is defined in the Credit Agreement);
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, Grantors do, as security for the
Obligations, hereby grant to the Lender a continuing security interest in all
the Grantors' right, title and interest in and to each and every item of
Product, the scenario, screenplay or script upon which an item of Product is
based, all of the properties thereof, tangible and intangible, and all domestic
and foreign copyrights and all other rights therein and thereto, of every kind
and character, whether now in existence or hereafter to be made or produced, and
whether or not in possession of such Grantors, including with respect to each
and every item of Product and without limiting the foregoing language, each and
all of the following particular rights and properties (to the extent they are
owned or hereafter created or acquired by Grantors):
-1-
<PAGE> 2
(i) all scenarios, screenplays and/or scripts at every stage
thereof;
(ii) all common law and/or statutory copyright and other rights in
all literary and other properties (hereinafter called "said literary
properties") which form the basis of each item of Product and/or which are
and/or will be incorporated into each item of Product, all component parts
of each item of Product consisting of said literary properties, all rights
in and to the story, all treatments of said story and said literary
properties, together with all preliminary and final screenplays used and
to be used in connection with the item of Product, and all other literary
material upon which the item of Product is based or from which it is
adapted;
(iii) all rights in and to all music and musical compositions used
and to be used in each item of Product, including, each without
limitation, all rights to record, rerecord, produce, reproduce or
synchronize all of said music and musical compositions in and in
connection therewith;
(iv) without limitation, all exposed film, developed film,
positives, negatives, prints, positive prints, answer prints, special
effects, preparing materials (including interpositives, duplicate
negatives, internegatives, color reversals, intermediates, lavenders, fine
grain master prints and matrices, and all other forms of pre-print
elements), sound tracks, cutouts, trims and any and all other physical
properties of every kind and nature relating to such item of Product,
whether in completed form or in some state of completion, and all masters,
duplicates, drafts, versions, variations and copies of each thereof, in
all formats whether on film, videotape, disk or otherwise and all music
sheets and promotional materials relating to such item of Product
(collectively, the "Physical Materials");
(v) all collateral, allied, subsidiary and merchandising rights
appurtenant or related to each item of Product including, without
limitation, the following rights: all rights to produce remakes or sequels
or prequels to each item of Product based upon each item of Product, said
literary properties or the theme of each item of Product and/or the text
or any part of said literary properties; all rights throughout the world
to broadcast, transmit and/or reproduce by means of television (including
commercially sponsored, sustaining and subscription or "pay" television)
or by any process analogous thereto, now known or hereafter devised, each
item of Product or any remake or sequel or prequel to the item of Product;
all rights to produce primarily for television or similar use a motion
picture or series of motion pictures, by use of film or any other
recording device or medium now known or hereafter devised, based upon each
item of Product, said literary properties or any part thereof, including,
without limitation, based upon any script, scenario or the like used in
each item of Product; all merchandising rights including, without
limitation, all rights to use, exploit and license others to use and
exploit any and all commercial tieups of any kind arising out of or
connected with said literary properties, each item of Product, the title
or titles of each item of Product, the characters of each item
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<PAGE> 3
of Product or said literary properties and/or the names or characteristics
of said characters and including further, without limitation, any and all
commercial exploitation in connection with or related to each item of
Product, any remake or sequel thereof and/or said literary properties;
(vi) all statutory copyrights, domestic and foreign, obtained or to
be obtained on items of Product, together with any and all copyrights
obtained or to be obtained in connection with each item of Product or any
underlying or component elements of each item of Product, including, in
each case without limitation, all copyrights on the property described in
subparagraphs (i) through (v) inclusive, of this paragraph, together with
the right to copyright (and all rights to renew or extend such copyrights)
and the right to sue in the name of any of the Grantors' names for past,
present and future infringements of copyright;
(vii) all insurance policies and completion bonds connected with
each item of Product and all proceeds which may be derived therefrom;
(viii) all rights to distribute, sell, rent, license the exhibition
of and otherwise exploit and turn to account each item of Product, the
Physical Materials and rights in and to said story, other literary
material upon which each item of Product is based or from which it is
adapted, and said music and musical compositions used or to be used in
each item of Product;
(ix) any and all sums, proceeds, money, products, profits or
increases, including money profits or increases (as those terms are used
in the New York Uniform Commercial Code (the "UCC") or otherwise) or other
property obtained or to be obtained from the distribution, exhibition,
sale or other uses or dispositions of each item of Product or any part of
each item of Product, including, without limitation, all proceeds,
profits, products and increases, whether in money or otherwise, from the
sale, rental or licensing of each item of Product and/or any of the
elements of each item of Product including from collateral, allied,
subsidiary and merchandising rights;
(x) the dramatic, nondramatic, stage, television, radio and
publishing rights, title and interest in and to each item of Product, and
the right to obtain copyrights and renewals of copyrights therein;
(xi) the name or title of each item of Product and all rights of
such Grantor to the use thereof, including, without limitation, rights
protected pursuant to trademark, service mark, unfair competition and/or
the rules and principles of any other applicable statutes, common law, or
other rule or principle of law;
(xii) any and all contract rights and/or chattel paper which may
arise in connection with each item of Product;
-3-
<PAGE> 4
(xiii) all accounts and/or other rights to payment which such
Grantor presently owns or which may arise in favor of such Grantor in the
future, including, without limitation, any refund under a completion
guaranty, all accounts and/or rights to payment due from exhibitors in
connection with the distribution of each item of Product, and from
exploitation of any and all of the collateral, allied, subsidiary,
merchandising and other rights in connection with each item of Product;
(xiv) any and all "general intangibles" (as that term is defined in
the UCC) not elsewhere included in this definition, including, without
limitation, any and all general intangibles consisting of any right to
payment which may arise in the distribution or exploitation of any of the
rights set out herein, and any and all general intangible rights in favor
of such Grantor for services or other performances by any third parties,
including actors, writers, directors, individual producers and/or any and
all other performing or nonperforming artists in any way connected with
each item of Product, any and all general intangible rights in favor of
such Grantor relating to licenses of sound or other equipment, licenses
for any photograph or photographic process, and all general intangibles
related to the distribution or exploitation of each item of Product
including general intangibles related to or which grow out of the
exhibition of each item of Product and the exploitation of any and all
other rights in each item of Product set out in this definition;
(xv) any and all goods, including inventory (as that term is
defined in the UCC), which may arise in connection with the creation,
production or delivery of each item of Product and which goods pursuant to
any production or distribution agreement or otherwise are owned by such
Grantor;
(xvi) all and each of the rights, regardless of denomination, which
arise in connection with the creation, production, completion of
production, delivery, distribution, or other exploitation of each item of
Product, including, without limitation, any and all rights in favor of
such Grantor, the ownership or control of which are or may become
necessary or desirable, in the opinion of the Lender, in order to complete
production of each item of Product in the event that the Agent exercises
any rights it may have to take over and complete production of each item
of Product;
(xvii) any and all documents issued by any pledgeholder or bailee
with respect to the item of Product, or any Physical Materials (whether or
not in completed form) with respect thereto;
(xviii)any and all production accounts or other bank accounts
established by such Grantor with respect to such item of Product;
(xix) any and all rights of such Grantor under contracts relating to
the production or acquisition of each item of Product; and
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<PAGE> 5
(xx) any and all rights of such Grantor under any agreement entered
into by such Grantor pursuant to which such Grantor has sold, leased,
licensed or assigned distribution rights or other exploitation rights to
any item of Product to an unaffiliated person;
(all of the foregoing items or types of property, whether presently existing or
hereafter arising or acquired, shall be referred to herein collectively as the
"Collateral").
Each of the Grantors agrees that if any person, firm, corporation or
other entity shall do or perform any acts which the Lender believes constitute a
copyright infringement of the photoplay or of any of the literary, dramatic or
musical material contained in the Product, or constitute a plagiarism, or
violate or infringe any right of any Grantor or the Lender therein or if any
person, firm, corporation or other entity shall do or perform any acts which the
Lender believes constitute an unauthorized or unlawful distribution, exhibition,
or use thereof, then and in any such event, upon 30 days' prior written notice
to such Grantor, while an Event of Default under the Credit Agreement is
continuing, the Lender may and shall have the right to take such steps and
institute such suits or proceedings as the Lender may deem advisable or
necessary to prevent such acts and conduct and to secure damages and other
relief by reason thereof, and to generally take such steps as may be advisable
or necessary or proper for the full protection of the rights of the parties. The
Lender may take such steps or institute such suits or proceedings in its own
name or in the name of such Grantor or in the names of the parties jointly. The
Lender hereby agrees to give the applicable Grantor notice of any steps taken,
or any suits or proceedings instituted, by the Lender pursuant to this
paragraph.
This security interest is granted in conjunction with the security
interests granted to the Lender pursuant to the Credit Agreement. Each Grantor
does hereby further acknowledge and affirm that the rights and remedies of the
Lender with respect to the security interest in the Collateral made and granted
hereby are subject to, and more fully set forth in, the Credit Agreement, the
terms and provisions of which are incorporated by reference herein as if fully
set forth herein.
This Copyright Security Agreement is made for collateral purposes
only. At such time as all of the Loans under the Credit Agreement shall have
been repaid in full, the Commitments (including any commitment to issue any
Letter of Credit) shall have terminated and all Letters of Credit shall have
expired or been terminated or cancelled, the Lender shall execute and deliver to
such Grantors, at the Borrower's or the applicable Grantor's expense, without
representation, warranty or recourse, all releases and reassignments,
termination statements and other instruments as may be necessary or proper to
terminate the security interest of the Lender in the Collateral, subject to any
disposition thereof which may have been made by the Lender pursuant to the terms
hereof or of the Credit Agreement.
The Lender agrees that there will be no assignment of the
Collateral, other than the security interest described herein, unless and until
there shall occur an Event of Default under
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<PAGE> 6
the Credit Agreement and the Lender gives written notice to the applicable
Grantor of its intention to enforce its rights against any of the Collateral.
So long as no Event of Default under the Credit Agreement shall have
occurred and be continuing, and subject to the various provisions of the Credit
Agreement and the other Fundamental Documents to which it is a party, each
Grantor may use, license and exploit the Collateral in any lawful manner.
THIS COPYRIGHT SECURITY AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.
Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Credit Agreement.
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<PAGE> 7
IN WITNESS WHEREOF, the Grantors have caused this Copyright Security
Agreement to be duly executed by its officer thereunto duly authorized as of
November 4, 1997.
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name:
Title:
DOVE INTERNATIONAL, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name:
Title:
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name:
Title:
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<PAGE> 8
Accepted:
THE CHASE MANHATTAN BANK
By: /s/ MITCHELL J. GERVIS
-----------------------------------
Name: Mitchell J. Gervis
Title: Vice President
<PAGE> 9
STATE OF CALIFORNIA )
: ss.:
COUNTY OF LOS ANGELES )
On the 4th day of November, in the year 1997, before me personally came
Neil Topham, to me known, who, being by me sworn, did say that he is the CFO and
Treasurer of Dove Entertainment, Inc. which corporation is described in, and
which corporation executed the above instrument, and that s/he signed his/her
name by order of the Board of Directors of said corporation.
/s/ VICTORIA KAYE SEAL
-----------------------------
Notary Public
<PAGE> 10
STATE OF CALIFORNIA )
: ss.:
COUNTY OF LOS ANGELES )
On the 4th day of November, in the year 1997, before me personally came
Neil Topham, to me known, who, being by me sworn, did say that he is the CFO and
Treasurer of Dove International, Inc., which corporation is described in, and
which corporation executed the above instrument, and that s/he signed his/her
name by order of the Board of Directors of said corporation.
/s/ VICTORIA KAYE SEAL
-----------------------------
Notary Public
<PAGE> 11
STATE OF CALIFORNIA )
: ss.:
COUNTY OF LOS ANGELES )
On the 4th day of November, in the year 1997, before me personally came
Neil Topham, to me known, who, being by me sworn, did say that he is the CFO and
Treasurer of Dove Four Point, Inc., which corporation is described in, and
which corporation executed the above instrument, and that s/he signed his/her
name by order of the Board of Directors of said corporation.
/s/ VICTORIA KAYE SEAL
-----------------------------
Notary Public
<PAGE> 12
SCHEDULE 1
to Copyright Security Agreement
Title Registration No. Date of Registration
- ----- ---------------- --------------------
<PAGE> 1
EXHIBIT 10.54
SECURITY AGREEMENT
AGREEMENT dated as of November 4, 1997 among DOVE ENTERTAINMENT, INC., a
California corporation ("Dove"), DOVE FOUR POINT, INC., a Florida corporation
("Four Point") and DOVE INTERNATIONAL, INC., a California corporation ("Dove
International" and, together with Dove and Four Point, individually and
collectively, the "Borrower"), and MEDIA EQUITIES INTERNATIONAL, LLC, a New York
limited liability company ("MEI").
W I T N E S S E T H:
WHEREAS, Dove has entered into that certain Credit, Security and Pledge
Agreement (the "Credit Agreement"), dated as of the date hereof, among Dove, the
Guarantors named therein and The Chase Manhattan Bank ("Chase").
WHEREAS, Terrence A. Elkes, Kenneth F. Gorman, John T. Healy, Bruce
Maggin and Ronald Lightstone (collectively, the "MEI Principals") are, directly
or indirectly, all of the beneficial owners of MEI.
WHEREAS, it is a condition to the effectiveness of the Credit Agreement
that the MEI Principals guaranty a portion of the obligations of Dove under the
Credit Agreement, as more fully described in the Credit Agreement and the
Guaranty Agreement (as such terms is defined in the Credit Agreement).
WHEREAS, Dove has entered into a certain Fee Agreement of even date
hereof with MEI, pursuant to which Dove agreed to pay the sum of $25,000 per
year and to promptly reimburse MEI if any of the MEI Principals make any
payments to Chase pursuant to a Guaranty Agreement (the "Fee Agreement").
WHEREAS, it is a condition precedent to the making of the Guaranty
Agreement that Borrower shall have granted the security interests contemplated
by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the MEI Principals to make the guarantees under the Guaranty Agreement, Borrower
hereby agrees with MEI, as follows:
<PAGE> 2
SECTION I. Definitions
A. Certain Defined Terms. Terms defined in the Credit Agreement and
not otherwise defined herein have the respective meanings provided for in the
Credit Agreement.
The following terms, as used herein, have the meanings set forth below:
"Collateral" has the meaning assigned to that term in Section 2.
"Documents" means all "documents" (as defined in the UCC) or other
receipts covering, evidencing or representing goods now owned or hereafter
acquired by Borrower.
"Proceeds" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims of Borrower against third
parties for loss of, damage to or destruction of, or for proceeds payable under,
or unearned premiums with respect to, policies of insurance with respect to any
Collateral, and any condemnation or requisition payments with respect to any
Collateral, in each case whether now existing or hereafter arising.
"Secured Obligations" has the meaning assigned to that term in Section
3.
"Security Interests" means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned as
additional security for the Secured Obligations pursuant to the provisions of
this Agreement.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of New York, provided that if by reason of mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
Security Interest in any Collateral or the availability of any remedy hereunder
is governed by the Uniform Commercial Code as in effect on or after the date
hereof in any other jurisdiction, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection or availability of
such remedy.
B. Other Definition Provisions. References to "Subsections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.A. may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. All references to statutes and related regulations shall
include (unless otherwise specifically provided herein) any amendments of same
and any successor statutes and regulations.
2
<PAGE> 3
SECTION II. Grant of Security Interests
In order to secure the payment and performance of the Secured
Obligations in accordance with the terms thereof, each of Dove, Four Point and
Dove International hereby grants to MEI a continuing security interest,
subordinated as provided in the Subordination Agreement among Borrower, MEI, the
MEI Principals and Chase dated as of November 4, 1997 (the "Subordination
Agreement"), in and to all of their right, title and interest in the following
property, whether now owned or existing or hereafter acquired or arising and
regardless of where located (all being collectively referred to as the
"Collateral"):
All of the Borrowers' right, title and interest in personal property,
tangible and intangible, wherever located or situated and whether now owned or
hereafter acquired or created, including but not limited to goods, accounts,
intercompany obligations, partnership and joint venture interests, contract
rights, documents, chattel paper, general intangibles, goodwill, equipment,
inventory, investment property, instruments, copyrights, trademarks, trade
names, insurance proceeds, cash and deposit accounts and any proceeds thereon,
products thereof or income therefrom, further including but not limited to all
of such Borrowers' rights, title and interest in and to each and every item and
type of Product and Recorded Product, the scenario, screenplay or script upon
which an item of Product is based, all of the properties thereof, tangible and
intangible, and all domestic and foreign copyrights and all other rights therein
and thereto, of every kind and character, whether now in existence or hereafter
to be made or produced, and whether or not in possession of such Borrower,
including with respect to each and every item of Product and/or Recorded Product
and without limiting the foregoing language, each and all of the following
particular rights and properties (to the extent they are owned or hereafter
created or acquired by such Borrower):
(i) all scenarios, screenplays and/or scripts at every stage
thereof;
(ii) all common law and/or statutory copyright and other
rights in all literary and other properties (hereinafter
called "said literary properties") which form the basis
of each item of Product and/or Recorded Product and/or
which are and/or will be incorporated into each item of
Product and/or Recorded Product, all component parts of
each item of Product and/or Recorded Product consisting
of said literary properties, all rights in and to the
story, all treatments of said story and said literary
properties, together with all preliminary and final
screenplays used and to be used in connection with the
item of Product and/or Recorded Product, and all other
literary material upon which the item of Product and/or
Recorded Product is based or from which it is adapted;
(iii) all rights in and to all music and musical compositions
used and to be used in each item of Product and/or
Recorded Product, including, each without limitation,
all rights to record, rerecord, produce, reproduce or
synchronize all of said music and musical compositions
in and in connection therewith;
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<PAGE> 4
(iv) all tangible personal property relating to each item of
Product and/or Recorded Product, including, without
limitation, all exposed film, developed film, positives,
negatives, prints, positive prints, answer prints,
special effects, preparing materials (including
interpositives, duplicate negatives, internegatives,
color reversals, intermediates, lavenders, fine grain
master prints and matrices, and all other forms of
pre-print elements), sound tracks, cutouts, trims and
any and all other physical properties of every kind and
nature relating to such item of Product and/or Recorded
Product, whether in completed form or in some state of
completion, and all masters, duplicates, drafts,
versions, variations and copies of each thereof, in all
formats whether on film, videotape, disk or otherwise
and all music sheets and promotional materials relating
to such item of Product and/or Recorded Product
(collectively, the "Physical Materials");
(v) all collaterals, allied, subsidiary and merchandising
rights appurtenant or related to each item of Product
and/or Recorded Product including, without limitation,
the following rights: all rights to produce remakes or
sequels or prequels to each item of Product and/or
Recorded Product based upon each item of Product and/or
Recorded Product, said literary properties or the theme
of each item of Product and/or Recorded Product and/or
the text or any part of said literary properties; all
rights throughout the world to broadcast, transmit
and/or reproduce by means of television (including
commercially sponsored, sustaining and subscription or
"pay" television) or by any process analogous thereto,
now known or hereafter devised, each item of Product
and/or Recorded Product or any remake or sequel or
prequel to the item of Product and/or Recorded Product;
all rights to produce primarily for television or
similar use a motion picture or series of motion
pictures, by use of film or any other recording device o
medium now known or hereafter devised, based upon each
item of Product and/or Recorded Product, said literary
properties or any part thereof, including, without
limitation, based upon any script, scenario or the like
used in each item of Product and/or Recorded Product;
all merchandising rights including, without limitation,
all rights to use, exploit and license others to use and
exploit any and all commercial tie-ups of any kind
arising out of or connected with said literary
properties, each item of Product and/or Recorded
Product, the title or titles of each item of Product
and/or Recorded Product, the characters of each item of
Product and/or Recorded Product or said literary
properties and/or the names or characteristics of said
characters and including further, without limitation,
any and all commercial exploitation in connection with
or related to each item of Product and/or Recorded
Product, any remake or sequel thereof and/or said
literary properties;
4
<PAGE> 5
(vi) all statutory copyrights, domestic and foreign, obtained
or to be obtained on each item of Product and/or
Recorded Product, together with any and all copyrights
obtained or to be obtained in connection with each item
of Product and/or Recorded Product or any underlying or
component elements of each item of Product and/or
Recorded Product, including in each case without
limitation, all copyrights on the property described in
subparagraphs (I) through (v) inclusive, of this
paragraph, together with the right to copyright (and all
rights to renew or extend such copyrights) and the right
to sue in the name of any Borrower for past, present and
future infringements of copyright;
(vii) all insurance policies and completion bonds connected
with each item of Product and/or Recorded Product and
all proceeds which may be derived therefrom;
(viii) all rights to distribute, sell, rent, license the
exhibition of and otherwise exploit and turn to account
each item of Product and/or Recorded Product, the
Physical Materials and rights in and to said story,
other literary material upon which each item of Product
and/or Recorded Product is based or from which it is
adapted, and said music and musical compositions used or
to be used in each item of Product and/or Recorded
Product;
(ix) any and all sums, proceeds, money, products, profits or
increases, including money profits or increases (as
those terms are used in the UCC or otherwise) or other
property obtained or to be obtained from the
distribution, exhibition, sale or other uses or
dispositions of each item of Product and/or Recorded
Product or any part of each item of Product and/or
Recorded Product, including, without limitation, all
proceeds, profits, products and increases, whether in
money or otherwise, from the sale, rental or licensing
of each item of Product and/or Recorded Product
including from collateral, allied, subsidiary and
merchandising rights;
(x) the dramatic, nondramatic, stage, television, radio and
publishing rights, title and interest in and to each
item of Product and/or Recorded Product, and the right
to obtain copyrights and renewals of copyrights therein;
(xi) the name or title of each item of Product and/or
Recorded Product and all rights of such Borrower to the
use thereof; including, without limitation, rights
protected pursuant to trademark, service mark, unfair
competition and/or the rules and principles of law and
of any other applicable statutory, common law, or other
applicable statutes, common law, or other rule or
principle of law;
5
<PAGE> 6
(xii) any and all contract rights and/or chattel paper which
may arise in connection with each item of Product and/or
Recorded Product;
(xiii) all accounts and/or other rights to payment which such
Borrower presently owns or which may arise in favor of
such Borrower in the future, including, without
limitation, any refund under a completion guaranty, all
accounts and/or rights to payment due from exhibitors in
connection with the distribution of each item of Product
and/or Recorded Product, and from exploitation of any
and all of the collateral, allied, subsidiary,
merchandising and other rights in connection with item
of Product and/or Recorded Product;
(xiv) any and all "general intangibles" (as that term is
defined in the UCC) not elsewhere included in this
definition, including, without limitation, any and all
general intangibles consisting of any right to payment
which may arise in the distribution or exploitation of
any of the rights set out herein, and any and all
general intangible rights in favor of such Borrower for
services or other performances by any third parties,
including actors, writers, directors, individual
producers and/or any and all other performing or
nonperforming artists in any way connected with each
item of Product and/or Recorded Product, any and all
general intangible rights in favor of such Borrower
relating to licenses of sound or other equipment,
licenses for any photograph or photographic process, and
all general intangibles related to the distribution or
exploitation of each item of Product and/or Recorded
Product including general intangibles related to or
which grow out of the exhibition of each item of Product
and/or Recorded Product and the exploitation of any and
all other rights in each item of Product and/or Recorded
Product set out in this definition;
(xv) any and all goods including inventory (as that term is
defined in the UCC) which may arise in connection with
the creation, production or delivery of each item of
Product and/or Recorded and which goods pursuant to any
production or distribution agreement or otherwise are
owned by such Borrower;
(xvi) all and each of the rights, regardless of denomination,
which arise in connection with the creation, production,
completion of production, delivery, distribution, or
other exploitation of each item of Product and/or
Recorded Product, including, without limitation, any and
all rights in favor of such Borrower, the ownership or
control of which are or may become necessary or
desirable, in the opinion of MEI, in order to complete
production of each item of Product and/or Recorded
Product in the event that MEI exercises any rights it
may have to take over and complete production of each
item of Product and/or Recorded Product;
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<PAGE> 7
(xvii) any and all documents issued by any pledgeholder or
bailee with respect to the item of Product and/or
Recorded Product or any Physical Materials (whether or
not in completed form) with respect thereto;
(xviii) any and all production accounts or other bank accounts
established by such Borrower with respect to such item
of Product and/or Recorded Product;
(xix) any and all rights of such Borrower under contracts
relating to the production or acquisition of such item
of Product and/or Recorded Product;
(xx) any and all rights of such Borrower under Distribution
Agreements relating to each item of Product and/or
Recorded Product; and
(xxi) Proceeds of all or any of the foregoing;
provided, that, notwithstanding anything to the contrary contained above,
"Collateral" shall not include the "Real Property" described in the Deed of
Trust dated April 24, 1996 among the Borrower, Asahi Bank of California and
North America Title Company, as Trustee, and the "Accounts" described in the
Assignment of Rents dated April 24, 1996 between the Borrower and Asahi Bank of
California.
SECTION III. Security for Obligations
This Agreement secures the payment and prompt performance of Dove
pursuant to the Fee Agreement and all obligations of Borrower now or hereafter
existing under this Agreement and all renewals, extensions, restructurings and
refinancings of any of the above (all such debts, obligations and liabilities of
Borrower being collectively called the "Secured Obligations").
SECTION IV. Borrower Remains Liable
Anything herein to the contrary notwithstanding: (a) Borrower shall
remain liable under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed; (b)
the exercise by MEI of any of the rights hereunder shall not release Borrower
from any of its duties or obligations under the contracts and agreements
included in the Collateral; and (C) MEI shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall MEI be obligated to perform any of the
obligations or duties of Borrower thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
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<PAGE> 8
SECTION V. Representations and Warranties
Borrower represents and warrants as follows:
A. Binding Obligation. This Agreement is the legally valid and
binding obligation of Borrower, enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws or equitable principles relating to
or limiting creditor's rights generally.
B. Location of Tangible Personal Property. All of the tangible
personal property is located at the places specified on Schedule I.
C. Ownership of Collateral; Bailees. Except for matters disclosed on
Schedule II, other than Permitted Encumbrances and the Security Interests,
Borrower owns the Collateral free and clear of any Lien. No effective financing
statement or other form of lien notice covering all or any part of the
Collateral is on file in any recording office, except for those in favor of
Chase and MEI and as disclosed on Schedule II.
D. Office Locations; Fictitious Names. The chief place of business,
the chief executive office and the office where Borrower keeps its books and
records are located at the places specified on Schedule I. Borrower does not do
business and has not done business during the past five years under any
trade-name or fictitious business name except as disclosed on Schedule III.
E. Perfection. This Agreement creates a valid, perfected and, except
for the Permitted Encumbrances, and the security interest in favor of Chase
pursuant to the Credit Agreement, a first priority security interest in the
Collateral, securing the payment of the Secured Obligations, and all filings and
other actions necessary or desirable to perfect and protect such security
interest have been duly taken.
F. Governmental Authorizations; Consents. No authorization, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or consent of any other Person (including without limitation
any Licensor of Intellectual Property or party to any Assigned Agreement) is
required either (a) for the grant by Borrower of the security interest granted
hereby or for the execution, delivery or performance of this Agreement by
Borrower or (b) for the perfection of or the exercise by MEI of its rights and
remedies hereunder (except as may have been taken by or at the direction of
Borrower or MEI).
G. Accounts. Each Account constitutes the legally valid and binding
obligation of the customer obligated to pay the same. No customer has any
defense, set-off, claim or counterclaim against Borrower that can be asserted
against MEI, whether in any proceeding to enforce MEI's rights in the Collateral
or otherwise except defenses, set-offs, claims or counterclaims that are not, in
the aggregate, material to the value of the accounts. None of the accounts is
evidenced by a promissory note or other instrument other than a check.
8
<PAGE> 9
H. Intellectual Property. The copyrights and copyright licenses
constitute all of the intellectual property owned by Borrower.
I. Accurate Information. All information heretofore, herein or
hereafter supplied to MEI by or on behalf of Borrower with respect to the
Collateral is and will be accurate and complete in all material respects.
J. Credit Agreement Warranties. Each representation and warranty set
forth in the Credit Agreement is true and correct in all material respects and
such representations and warranties are hereby incorporated herein by this
reference with the same effect as though set forth in their entirety herein.
SECTION VI. Further Assurances; Covenants
A. Other Documents and Actions. Borrower will, from time to time, at
its expense, promptly execute and deliver all further instruments and documents
and take all further action that may be necessary or desirable, or that MEI may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable MEI to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, Borrower will: (a) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as MEI may request,
in order to perfect and preserve the security interests granted or purported to
be granted hereby; (b) at any reasonable time, upon demand by MEI exhibit the
Collateral to allow inspection of the Collateral by MEI or persons designated by
MEI; and (c) upon MEI's request, appear in and defend any action or proceeding
that may affect Borrower's title to or MEI's security interest in the
Collateral.
B. MEI Authorized. Borrower hereby authorizes MEI to file one or
more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
Borrower where permitted by law.
C. Corporate or Name Change. Borrower will notify MEI promptly in
writing prior to any change in Borrower's name, identity or corporate structure.
D. Business Locations. Borrower will keep the Collateral at the
locations specified on Schedule I. Borrower will give MEI thirty (30) days prior
written notice of any change in Borrower's chief place of business or of any new
location of business or any new location for any of the Collateral. With respect
to any new location (which in any event shall be within the continental United
States), Borrower will execute such documents and take such actions as MEI deems
necessary to perfect and protect the Security Interests.
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<PAGE> 10
E. Collateral Description. Borrower will furnish to MEI, from time
to time, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as MEI may
reasonably request, all in reasonable detail.
F. Records of Collateral. Borrower shall keep full and accurate
books and records relating to the Collateral and shall stamp or otherwise mark
such books and records in such manner as MEI may reasonably request indicating
that the Collateral is subject to the Security Interests.
G. Other Information. Borrower will, promptly upon request, provide
to MEI all information and evidence it may reasonably request concerning the
Collateral, and in particular the Accounts, to enable MEI to enforce the
provisions of this Agreement.
SECTION VII. MEI Appointed Attorney-in-Fact
Subject to the terms of the Intercreditor Agreement, if Dove is in
default of any of its obligations under the Fee Agreement and during the
continuance thereof, Borrower hereby irrevocably MEI as Borrower's
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower, MEI or otherwise, from time to time in MEI's discretion to
take any action and to execute any instrument that MEI may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(i) to obtain and adjust insurance required to be paid to
MEI;
(ii) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due
and to become due under or in respect of any of the
Collateral;
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection
with clauses (a) and (b) above;
(iv) to file any claims or take any action or institute any
proceedings that MEI may deem necessary or desirable for
the collection of any of the Collateral or otherwise to
enforce the rights of MEI with respect to any of the
Collateral;
(v) to pay or discharge taxes or Liens, levied or placed upon
or threatened against the Collateral, the legality or
validity thereof and the amounts necessary to discharge
the same to be determined by MEI in its sole discretion,
and such payments made by MEI to become obligations of
Borrower to MEI, due and payable immediately without
demand;
(vi) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts,
assignments, verifications and notices in
10
<PAGE> 11
connection with Accounts and other documents (including
without limitation financing statements, continuation
statements and other documents necessary or advisable to
perfect the Security Interests) relating to the
Collateral; and
(vii) generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the
Collateral as fully and completely as though MEI were the
absolute owner thereof for all purposes, and to do, at
MEI's option and Borrower's expense, at any time or from
time to time, all acts and things that MEI deems necessary
to protect, preserve or realize upon the Collateral.
Borrower hereby ratifies and approves all acts of MEI made or taken pursuant to
this Section 7. Neither MEI nor any person designated by MEI shall be liable for
any acts or omissions or for any error of judgment or mistake of fact or law.
This power, being coupled with an interest, is irrevocable so long as this
Agreement shall remain in force.
SECTION VIII. Transfers and Other Liens
Except as otherwise permitted by the Credit Agreement, Borrower shall
not:
(i) Sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to,
any of the Collateral, except that Borrower may sell
inventory in the ordinary course of business.
(ii) Create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of
the Collateral to secure indebtedness of any Person except
for the security interest created by this Agreement or
permitted under the Credit Agreement, except with written
permission of MEI.
SECTION IX. Remedies
Subject to the terms of the Subordination Agreement, if Dove is in
default of any of its obligations under the Fee Agreement or an Event of Default
has occurred and such default is continuing, MEI may exercise in respect of the
Collateral, in addition to all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and also may: (a) require Borrower to, and Borrower hereby agrees
that it will, at its expense and upon request of MEI forthwith, assemble all or
part of the Collateral as directed by MEI and make it available to MEI at a
place to be designated by MEI which is reasonably convenient to both parties;
(b) without notice or demand or legal process, enter upon any premises of
Borrower and take possession of the
11
<PAGE> 12
Collateral; and (C) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of MEI's offices or elsewhere, at such time or times, for cash, on credit
or for future delivery, and at such price or prices and upon such other terms as
MEI may deem commercially reasonable. Borrower agrees that, to the extent notice
of sale shall be required by law, at least ten days notice to Borrower of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. At any sale of the Collateral,
if permitted by law, MEI may bid (which bid may be, in whole or in part, in the
form of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of MEI (on behalf of MEI). MEI shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. MEI may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. To
the extent permitted by law, Borrower hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted.
SECTION X. Limitation on Duty of MEI with Respect to Collateral
Beyond the safe custody thereof, MEI shall have no duty with respect to
any Collateral in its possession or control (or in the possession or control of
any MEI or bailee) or with respect to any income thereon or the preservation of
rights against prior parties or any other rights pertaining thereto. MEI shall
be deemed to have exercised reasonable care in the custody and preservation of
the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which it accords its own property. MEI shall not be
liable or responsible for any loss or damage to any of the Collateral, or for
any diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other MEI or bailee
selected by MEI in good faith.
SECTION XI. Application of Proceeds
Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral shall be applied as set forth in the Credit Agreement and/or the
Subordination Agreement, whichever is applicable.
SECTION XII. Expenses
Borrower shall pay all insurance expenses and all expenses of
protecting, storing, warehousing, appraising, insuring, handling, maintaining
and shipping the Collateral, all costs, fees and expenses of perfecting and
maintaining the Security Interests, and any and all excise, property, sales and
use taxes imposed by any state, federal or local authority on any of the
Collateral, or with respect to periodic appraisals and inspections of the
Collateral, or with respect to the sale or other disposition thereof. If
Borrower fails promptly to pay any portion of the above expenses when due
12
<PAGE> 13
or to perform any other obligation of Borrower under this Agreement, MEI or any
other MEI may, at its option, but shall not be required to, pay or perform the
same and charge Borrower's account for all costs and expenses incurred therefor,
and Borrower agrees to reimburse MEI or such MEI therefor on demand. All sums so
paid or incurred by MEI or any other MEI for any of the foregoing, any and all
other sums for which Borrower may become liable hereunder and all costs and
expenses (including attorneys' fees, legal expenses and court costs) incurred by
MEI or any other MEI in enforcing or protecting the Security Interests or any of
their rights or remedies under this Agreement shall be payable on demand, shall
constitute Obligations, shall bear interest until paid at the highest rate
provided in the Credit Agreement and shall be secured by the Collateral.
SECTION XIII. Termination of Security Interests; Release of Collateral
Upon payment in full of all Secured Obligations and the termination of
all commitments under the Fee Agreement and the Guaranty Agreement, the Security
Interests shall terminate and all rights to the Collateral shall revert to
Borrower. Upon such termination of the Security Interests or release of any
Collateral, MEI will, at the expense of Borrower, execute and deliver to
Borrower such documents as Borrower shall reasonably request to evidence the
termination of the Security Interests or the release of such Collateral, as the
case may be.
SECTION XIV. Notices
Notices and other communications provided for herein shall be in writing
and shall be delivered or mailed (or if by telecopier, delivered by such
equipment) addressed (I) if to the Borrower, to it at 8955 Beverly Boulevard,
Los Angeles, California 90048, Attn: Robert Murray, Esq. and Ronald Lightstone,
Facsimile No.: (310) 788-5628, (ii) if to MEI, to it c/o Bruce Maggin, H.A.M.
Media Group LLC, 305 Madison Avenue, Suite 3016, New York, New York 10017,
Facsimile No.: (212) 297-2576, (with a copy to Morrison Cohen Singer &
Weinstein, LLP, 750 Lexington Avenue, 8th Floor, New York, NY 10022, Attention:
Joel A. Feldman, Esq., Facsimile No.: (212) 735-8708) or such other address as
such party may from time to time designate by giving written notice to the other
party hereunder. All notices and other communications given to any party hereto
in accordance with the provisions of this Security Agreement shall be deemed to
have been on the fifth Business Day after the date when sent by registered or
certified mail, postage prepaid, return receipt requested, if by mail, or when
receipt is acknowledged, if by telecopier, in each case addressed to such party
as provided in this Section 14 or in accordance with the latest unrevoked
written direction from such party.
SECTION XV. Waivers, Non-Exclusive Remedies
No failure on the part of MEI to exercise, and no delay in exercising
and no course of dealing with respect to, any right under the Credit Agreement
or this Agreement shall operate as a waiver
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<PAGE> 14
thereof; nor shall any single or partial exercise by MEI of any right under the
Credit Agreement or this Agreement preclude any other or further exercise
thereof or the exercise of any other right. The rights in this Agreement and the
Credit Agreement are cumulative and are not exclusive of any other remedies
provided by law.
SECTION XVI. Successors and Assigns
This Agreement is for the benefit of MEI and it successors and assigns,
and in the event of an assignment of all or any of the Secured Obligations, the
rights hereunder, to the extent applicable to the Secured Obligations so
assigned, may be transferred with such Secured Obligations. This Agreement shall
be binding on Borrower and its successors and assigns.
SECTION XVII. Changes in Writing
No amendment, modification, termination or waiver of any provision of
this Agreement or consent to any departure by Borrower therefrom, shall in any
event be effective without the written concurrence of MEI and the Borrower.
SECTION XVIII. Applicable Law
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
SECTION XIX. Failure or Indulgence Not Waiver; Remedies Cumulative
No failure or delay on the part of MEI in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or any other right, power or privilege. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION XX. Headings
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
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<PAGE> 15
SECTION XXI. Counterparts
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart.
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the day first above written.
DOVE ENTERTAINMENT, INC. MEDIA EQUITIES INTERNATIONAL, LLC
By: /s/ NEIL TOPHAM By: /s/ BRUCE MAGGIN
------------------------------- -------------------------------
Title: Chief Financial Officer Title: President
---------------------------- ----------------------------
DOVE FOUR POINT ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
-------------------------------
Title: Chief Financial Officer
----------------------------
DOVE INTERNATIONAL, INC.
By: /s/ NEIL TOPHAM
-------------------------------
Title: Chief Financial Officer
----------------------------
15
<PAGE> 16
SCHEDULE I
8955 BEVERLY BOULEVARD
LOS ANGELES, CA 90048
INTERNATIONAL CINE SERVICES, INC.
920 ALLEN AVENUE
GLENDALE, CA 91201
BONDED ARCHIVES
3205 BURTON AVENUE
BURBANK, CA 91504
LASER PACIFIC MEDIA CORP.
809 N. CAHUENGA BLVD.
HOLLYWOOD, CA 90038
AMERICAN DIRECT MAIL
3688 BEVERLY BOULEVARD
LOS ANGELES, CA 90069
GES EXPOSITION SERVICES
13861 RESENCRANS AVENUE
SANTA FE SPRINGS, CA 90670
GILBERT PRODUCTION SERVICES, INC.
4571 ELECTONICS PLACE
LOS ANGELES, CA 90039
KEEP IT SELF STORAGE
6827 WOODLEY AVENUE
VAN NUYS, CA 91406
SELECT STORAGE
135 WEST AVENUE 34
LOS ANGELES, CA 90031
MERCEDES
62 IMLAY STREET
BROOKLYN, NY
16
<PAGE> 17
SCHEDULE II
THE DIRECTORS GUILD AND THE SCREEN ACTORS GUILD WILL HAVE A FIRST PRIORITY
PERFECTED SECURITY INTEREST (AND RELATED FINANCING STATEMENTS) ON THE PROPERTY
OF DOVE FOUR POINT, INC. CONSISTING OF THE MADE FOR TELEVISION MOVIE KNOWN AS
"FUTURESPORT" AND ASSETS RELATED THERETO.
17
<PAGE> 18
SCHEDULE III
DOVE*
DOVE ENTERTAINMENT*
DOVE FOUR POINT*
DOVE INTERNATIONAL*
FOUR POINT
DOVE BOOKS*
DOVE AUDIO*
DOVE TELEVISION*
DOVE FRONTLIST
AUDIO SELECT
DOVE BOOKS ON TAPE
DOVE KIDS
OLIVE BRANCH
DOVE PICTURES, INC.
*NAMES WITH AN ASTERISK ARE NAMES CURRENTLY USED BY THE CREDIT
PARTIES.
18
<PAGE> 1
EXHIBIT 10.55
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT dated as of
November 4, 1997 (as amended, supplemented
otherwise modified, renewed or replaced from
time to time, the "Subordination Agreement")
among (i) DOVE ENTERTAINMENT, INC.
("Borrower"), (ii) DOVE INTERNATIONAL, INC. and
DOVE FOUR POINT, INC. (collectively, the
"Corporate Guarantors"; together with the
Borrower, the "Obligors"), (iii) TERRENCE A.
ELKES, KENNETH F. GORMAN, RONALD LIGHTSTONE,
JOHN T. HEALY and BRUCE MAGGIN (each an
"Individual Guarantor"), (iv) MEDIA EQUITIES
INTERNATIONAL, L.L.C. ("MEI"; and together with
the Individual Guarantors, the "Subordinated
Creditors"), and (v) THE CHASE MANHATTAN BANK
(the "Lender").
Introductory Statement
Pursuant to the terms of a Credit, Security, Guaranty and Pledge
Agreement dated as of November 4, 1997 among Obligors and the Lender (the
"Credit Agreement"), the Lender has agreed, subject to the terms and conditions
thereof, to make loans (the "Loans") to the Borrower. The Credit Agreement, the
Note referred to therein and the other documents, instruments and agreements
contemplated thereby as they may be amended or otherwise modified from time to
time, shall hereinafter be referred to as "Senior Obligation Documents". For
purposes of this Subordination Agreement, unless otherwise defined herein,
capitalized terms used herein shall have the respective meanings given to such
terms in the Credit Agreement.
Pursuant to the terms of the Guaranty Agreement, the Individual
Guarantors have agreed to provide an unconditional guaranty of the payment of
the Obligations (as defined in the Credit Agreement) in an amount equal to the
lesser of (x) $2,000,000 and (y) the amount by which the actual borrowings by
the Borrower exceeds the Borrowing Base in accordance with the terms of the
Credit Agreement and Guaranty Agreement, subject to the limitations set forth
therein (the "Maximum Guaranty Amount"); provided, that in the case of any
Individual Guarantor, such guarantor's guaranty obligation shall not exceed the
product of 110% of such Individual Guarantor's ownership interest in Media
Equities International, L.L.C. as of the date
<PAGE> 2
of the Credit Agreement multiplied by the Maximum Guaranty Amount. Pursuant to
the terms of a certain Fee Agreement dated as of November 4, 1997 (the "Fee
Agreement") between the Borrower and MEI, the Borrower has agreed to pay the sum
of $25,000 per year and to reimburse MEI for any payments made to the Lender by
the Individual Guarantors under the Guaranty Agreement. The obligations of the
Obligors to repay any amounts payable to MEI or the Individual Guarantors in
connection with the Guaranty Agreement and Fee Agreement are hereinafter
referred to as the "Subordinated Obligations." Any promissory note evidencing
any loan, any replacements or substitutes therefore with respect to the
Subordinated Obligations and any related loan agreement, security agreement or
any other related agreement, including without limitation, the Fee Agreement,
with respect to the Subordinated Obligations are hereinafter referred to as
"Junior Obligation Documents".
In order to induce the Lender to enter into the Credit Agreement, the
Subordinated Creditors have agreed, subject to the provisions of this
Subordination Agreement, that the Subordinated Obligations shall be subordinate
to the Senior Obligations (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Agreement to Subordinate. Each Subordinated Creditor agrees
that the Subordinated Obligations are and shall be subordinate and subject in
right of payment, to the extent and in the manner hereinafter set forth, to the
prior payment in full of the Senior Obligations and that any guarantees,
security interests, mortgages and other liens securing payment of the
Subordinated Obligations are and shall be subordinate, to the fullest extent
permitted by law and as hereinafter set forth, to any guarantees, security
interests and mortgages and other liens securing payment of the Senior
Obligations, notwithstanding the perfection, order of perfection or failure to
perfect, any such security interest or other lien, or the filing or recording,
order of filing or recording, or failure to file or record this Subordination
Agreement or any instrument or other document in any filing or recording office
in any jurisdiction. The term "Senior Obligations" shall mean all obligations of
the Obligors under the Senior Obligation Documents including, without
limitation, whether outstanding at the date hereof or hereafter incurred or
created, all obligations to pay principal, premium, if any, interest (including,
without limitation, interest accruing after the commencement of any bankruptcy,
insolvency, reorganization or similar proceedings with respect to the Obligors,
whether or not determined to be an allowed claim in any such proceeding),
charges, costs, expenses and fees including, without limitation, the
disbursements and reasonable fees of counsel to the Lender, all obligations to
reimburse or indemnify the Lender in any way, and all renewals, extensions,
restructurings, refinancings or refunding of any indebtedness under the Senior
Obligation Documents in the nature of a "workout" or otherwise.
The expressions "prior payment in full", "payment in full", "paid in
full" or any other similar term(s) or phrase(s) when used herein with respect to
Senior Obligation Documents
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<PAGE> 3
shall mean the payment in full, in cash, of all of the Senior Obligations and
the termination of the Commitment.
2. Restrictions on Payment of the Subordinated Obligations, Etc.
Except after the Blockage Period (as defined below), the Subordinated Creditors
shall not ask, demand, sue for, take or receive, directly or indirectly, from
any Obligor or any affiliate thereof, in cash or other property, by set-off, by
realizing upon collateral, foreclosing on any lien or otherwise, exercise any
remedies or rights under the Junior Obligation Documents or by executions,
garnishments, levies, attachments or by any other action relating to the
Subordinated Obligations, or in any other manner, payment of, or additional
security for, all or any part of the Subordinated Obligations unless and until
the Senior Obligations shall have been paid in full. Each of the Subordinated
Creditors and the Lender agree that if any Default (as defined in the Credit
Agreement) occurs and is continuing, pursuant to which the Lender may, or
following notice or lapse of time would be able to, accelerate the maturity of
the Senior Obligations, and if the Lender gives written notice of the event of
default to the Obligors and the Subordinated Creditors (a "Blockage Notice"),
then, unless and until such event of default has been cured or waived or has
ceased to exist or the Subordinated Creditors and the Obligors receive notice
from the Lender terminating the Blockage Period (as defined below), during the
270 days after the delivery of such Blockage Notice (the "Blockage Period"), the
Subordinated Creditors shall not exercise any of the rights or remedies
described in the preceding sentence. The Lender shall provide the Subordinated
Creditors with such Blockage Notice within (10) Business Days' after it obtains
knowledge of such Default, in which case the Blockage Period shall commence from
the date such notice is received by the Subordinated Creditors; provided,
however, that in the event the Lender fails to deliver such notice within such
10-day period, the Blockage Period shall commence from the date the Lender
obtained knowledge of such Default. The Obligors will not make any payment on
any of the Subordinated Obligations, or take any other action, in contravention
of the provisions of this Subordination Agreement.
3. Additional Provisions Concerning Subordination. Each
Subordinated Creditor and each of the Obligors agree as follows:
a. In the event of (i) any dissolution, winding up, liquidation
or reorganization of any of the Obligors (whether voluntary or involuntary and
whether in bankruptcy, insolvency or receivership proceedings, or upon an
assignment for the benefit of creditors or proceedings for voluntary or
involuntary liquidation, dissolution or other winding up of any of the Obligors,
whether or not involving insolvency or bankruptcy, or any other marshalling of
the assets and liabilities of any of the Obligors or otherwise); or (ii) any
Event of Default or an event which with notice and/or passage of time would
constitute an Event of Default (as such term is defined in the Credit
Agreement), or any default, demand for payment or acceleration of maturity
regarding the Subordinated Obligations:
(1) all Senior Obligations shall first be paid to the
Lender in full before any payment or distribution is made upon the principal of
or interest on or any fees, costs,
- 3 -
<PAGE> 4
charges or expenses in connection with the Subordinated Obligations, and before
any other action described in Section 2 and 4 hereof is taken by any
Subordinated Creditor; and
(2) any payment or distribution of assets of any of
the Obligors, whether in cash, property or securities to which the Subordinated
Creditors would be entitled with respect to the Subordinated Obligations except
for the provisions hereof, shall be paid or delivered by the Obligors, or any
receiver, trustee in bankruptcy, liquidating trustee, disbursing agent, agent or
other person making such payment or distribution, directly to the Lender, to the
extent necessary to pay in full all Senior Obligations remaining unpaid, after
giving effect of any concurrent payment or distribution to the Lender before any
payment or distribution is made to any Subordinated Creditor;
b. In any proceeding referred to or resulting from any event
referred to in subsection (a) of this Section 3 commenced by or against any of
the Obligors, each Subordinated Creditor will duly and promptly take such action
as the Lender may reasonably request to (i) demand, sue for, collect and receive
any and all payments or distribution referred to in subsection (a) of this
Section 3 which may be payable or deliverable upon or with respect to the
Subordinated Obligations and to file appropriate claims or proofs of claim with
respect thereto, and (ii) execute and deliver to the Lender such powers of
attorney, assignments or other instruments as the Lender may request in order to
enable it to enforce any and all claims with respect to the Subordinated
Obligations. In the event the Subordinated Creditors fail to take such action
upon the Lender's request, the Lender may, and is hereby irrevocably authorized
and empowered (in its own name or in the name of the Subordinated Creditors or
otherwise) but shall have no obligation to, (i) demand, sue for, collect and
receive any and all payments or distribution which may be payable or deliverable
upon or with respect to the Subordinated Obligations and to give acquittance
therefore, (ii) file appropriate claims or proofs of claim in respect of the
Subordinated Obligations and (iii) take such other action as the Lender may deem
necessary or advisable for the exercise or enforcement of any of the rights or
interests of the Lender hereunder.
c. All payments or distributions upon or with respect to the
Subordinated Obligations which are received by any of the Subordinated Creditors
contrary to the provisions of this Subordination Agreement shall be deemed to be
the property of the Lender, shall be received in trust for the benefit of the
Lender, shall be segregated from other funds and property held by any of the
Subordinated Creditors and shall be forthwith paid over to the Lender in the
same form as so received (with any necessary endorsement) to be applied to the
payment or prepayment of the Senior Obligations until the Senior Obligations
shall have been paid in full;
d. Each Subordinated Creditor hereby waives any requirement for
marshalling of assets by the Lender in connection with any foreclosure of any
lien of the Lender under the Senior Obligation Documents;
- 4 -
<PAGE> 5
e. Each Subordinated Creditor shall not take any action to
impair or otherwise adversely affect the foreclosure of, or other realization of
the Lender's rights under the Senior Obligation Documents; and
f. The Lender is hereby authorized to demand specific
performance of this Subordination Agreement at any time when any Subordinated
Creditor shall have failed to comply with any of the provisions of this
Subordination Agreement, and each Subordinated Creditor hereby irrevocably
waives any defense based on the adequacy of a remedy at law which might be
asserted as a bar to such remedy of specific performance.
4. Subrogation. Subject to the payment in full of all Senior
Obligations to the extent of payments received by the Lender for application
against the Senior Obligations which would be payable to any of the Subordinated
Creditors for application against the Subordinated Obligations but for the
provisions of this Agreement, the applicable Subordinated Creditor shall be
subrogated to the rights of the Lender to receive payments or distributions of
cash, property or securities of any of the Obligors applicable to the Senior
Obligations until the principal of (and premium, if any) and interest on the
Subordinated Obligations shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the Lender of any cash, property or
securities to which any of the Subordinated Creditors would be entitled with
respect to the Subordinated Obligations except for the provisions of this
Section, and no payments over to the Lender pursuant to the provisions of this
Subordination Agreement by any of the Subordinated Creditors, shall, as between,
the Obligors, its creditors other than the Lender, and the Subordinated
Creditors, be deemed to be a payment by the Obligors to or on account of the
Senior Obligations. However, each Subordinated Creditor agrees that no payment
or distribution to the Lender pursuant to the provisions of this Subordination
Agreement shall entitle the Subordinated Creditors to exercise any rights of
subrogation in respect thereof until the Senior Obligations shall have been paid
in full.
5. Legend. Each Subordinated Creditor and the Obligors will
cause each promissory note evidencing any of the Subordinated Obligations, any
replacement thereof and any mortgage or security document relating thereto to
include the following provision:
"The principal amount of the indebtedness evidenced or
secured by this instrument is subordinated to other
indebtedness pursuant to, and to the extent provided in, and
is otherwise subject to the terms of, the Subordination
Agreement dated as of November 4, 1997 by and among Dove
Entertainment, Inc., the Individual Guarantors named
therein, Media Equities International, L.L.C. and The Chase
Manhattan Bank."
6. Negative Covenants of the Subordinated Creditors. So long as
any of the Senior Obligations shall remain outstanding, each Subordinated
Creditor will not, without the prior written consent of the Lender:
- 5 -
<PAGE> 6
a. Sell, assign, pledge, encumber or otherwise dispose of any
instrument evidencing the indebtedness owed to any Subordinated Creditor or any
collateral securing the Subordinated Obligations unless such sale, assignment,
pledge, encumbrance or other disposition is made expressly subject to this
Subordination Agreement and the other party to such sale, assignment, pledge,
encumbrance or other disposition consents in writing to be bound by the terms
hereof;
b. Permit the terms of the Junior Obligations Documents or
collateral securing any Subordinated Obligations to be changed in any way which
would limit or impair these subordinated provisions, allow the interest payable
on the Subordinated Obligations to be no greater than as is currently set forth
in the Junior Obligation Documents;
c. Declare all or any portion of the Subordinated Obligations
due and payable prior to the date fixed therefor or realize upon, or otherwise
exercise any remedies with respect to, any collateral securing the Subordinated
Obligations or take any other action prohibited by Section 2 hereof; or
d. Subject to Section 2 hereof, commence, or join with any
creditor other than the Lender in commencing any proceeding referred to in
Section 3(a).
7. Obligations Unconditional. All rights and interests of the
Lender hereunder, and all agreements and obligations of the Subordinated
Creditors and the Obligors hereunder, shall remain in full force and effect
irrespective of:
a. Any lack of validity or enforceability of any Senior
Obligation Document or any other agreement or instrument relating thereto;
b. Any change in the time, manner or place of payment of, or in
any other term of, all or any of the Senior Obligations, or any other amendment
or waiver of or any consent to departure from any Senior Obligation Document;
c. Any exchange, release or nonperfection of any collateral, or
any release or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Senior Obligations; or
d. Any other circumstances which might otherwise constitute a
defense available to, or a discharge of, any of the Obligors in respect of the
Senior Obligations or any of the Subordinated Creditors or the Obligors in
respect of this Subordination Agreement.
8. Further Assurances. Each Subordinated Creditor and the
Obligors will, at their own expense and at any time and from time to time,
promptly execute and deliver all further instruments and documents, and take all
further action that the Lender may reasonably request, in order to perfect or
otherwise protect any right or interest granted or purported to be granted
- 6 -
<PAGE> 7
hereby or to enable the Lender to exercise and enforce its rights and remedies
hereunder. Each Subordinated Creditor further authorizes the Lender to file UCC
financing statements and any amendments thereto or continuations thereof with
regard to the Subordinated Obligations without the Subordinated Creditors'
signatures.
9. Expenses. The Obligors agree to pay to the Lender, upon
demand, the amount of any and all reasonable expenses, including the reasonable
fees and expenses of counsel for the Lender, which the Lender may incur in
connection with the exercise or enforcement against any of the Subordinated
Creditors of any of the rights or interests of the Lender hereunder.
10. Notice. All demands, notices and other communications which
any party hereto may desire or may be required to give to any other party
hereunder shall be in writing (including telegraphic communication) and shall be
mailed, telecopied, telegraphed or delivered to such other party at its address
as follows:
a. to the Lender at:
The Chase Manhattan Bank
270 Park Avenue, 37th floor
New York, New York 10017
Attn: John J. Huber III
With a copies to:
Chase Securities Inc.
1800 Century Park East, Suite 400
Los Angeles, CA 90067
Attention: Kenneth R. Wilson
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Michael A. Chapnick, Esq.
b. to the Obligors at:
Dove Entertainment, Inc.
8955 Beverly Boulevard
Beverly Hills, CA 90048
Attention: Robert Murray, Esq. and Ronald Lightstone
- 7 -
<PAGE> 8
c. to the Subordinated Creditors at:
Media Equities International, L.L.C.
c/o H.A.M. Media Group LLP
305 Madison Avenue, Suite 3016
New York, New York 10017
Attn: Bruce Maggin
With a copy to:
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue, 8th Floor
New York, NY 10022
Attn: Joel Feldman, Esq.
or to any such party at such other address as shall be designated by such party
in a written notice to each other party, complying as to delivery with the terms
of this Section 10. All such demands, notices, and other communications shall be
effective when received.
11. SERVICE OF PROCESS. EACH SUBORDINATED CREDITOR AND EACH OF
THE OBLIGORS HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS
OF THE STATE OF NEW YORK AND THE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSE OF ANY SUIT, ACTION
OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON THIS SUBORDINATION AGREEMENT OR
THE SUBJECT MATTER HEREOF BROUGHT BY THE LENDER OR ITS SUCCESSORS OR ASSIGNS IN
EITHER OF THE ABOVE- MENTIONED FORUMS AT THE SOLE OPTION OF THE LENDER. EACH
SUBORDINATED CREDITOR AND EACH OF THE OBLIGORS TO THE EXTENT PERMITTED BY
APPLICABLE LAW, (A) HEREBY WAIVES AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS
A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT
HE OR IT, AS APPLICABLE IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF THE
ABOVE-NAMED COURTS, THAT HIS OR ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT
OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS
SUBORDINATION AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR
BY SUCH COURT, (B) HEREBY WAIVES THE RIGHT TO REMOVE ANY SUCH ACTION, SUIT OR
PROCEEDING INSTITUTED BY THE AGENT IN STATE COURT TO FEDERAL COURT, AND (C)
HEREBY WAIVES IN ANY SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR
COUNTERCLAIMS (EXCEPT FOR COMPULSORY COUNTERCLAIMS). EACH SUBORDINATED CREDITOR
AND EACH OF THE OBLIGORS HEREBY CONSENTS TO SERVICE OF PROCESS BY
- 8 -
<PAGE> 9
REGISTERED MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN. EACH
SUBORDINATED CREDITOR AND EACH OF THE OBLIGORS AGREES THAT HIS OR ITS SUBMISSION
TO JURISDICTION AND HIS OR ITS CONSENT TO SERVICE OF PROCESSES BY MAIL IS MADE
FOR THE EXPRESS BENEFIT OF THE LENDER. FINAL JUDGMENT AGAINST THE SUBORDINATED
CREDITORS OR ANY OF THE OBLIGORS IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
CONCLUSIVE, AND MAY BE ENFORCED IN OTHER JURISDICTIONS (A) BY SUIT, ACTION OR
PROCEEDING ON THE JUDGMENT, A CERTIFIED OR TRUE COPY OF WHICH SHALL BE
CONCLUSIVE EVIDENCE OF THE FACT AND OF THE AMOUNT OF ANY INDEBTEDNESS OR
LIABILITY OF THE SUBORDINATED CREDITORS OR ANY OF THE OBLIGORS THEREIN DESCRIBED
OF (B) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH OTHER
JURISDICTION; PROVIDED, HOWEVER, THAT THE LENDER MAY AT ITS OPTION BRING SUIT,
OR INSTITUTE OTHER JUDICIAL PROCEEDINGS AGAINST THE SUBORDINATED CREDITORS OR
ANY OF THE OBLIGORS OR ANY OF THEIR RESPECTIVE ASSETS IN ANY STATE OR FEDERAL
COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE THE SUBORDINATED
CREDITORS, ANY OF THE OBLIGORS OR THEIR RESPECTIVE ASSETS MAY BE FOUND. EACH
SUBORDINATED CREDITOR AND EACH OF THE OBLIGORS FURTHER COVENANTS AND AGREES THAT
SO LONG AS THIS SUBORDINATION AGREEMENT SHALL BE IN EFFECT, EACH SHALL MAINTAIN
A DULY APPOINTED AGENT FOR THE RECEIPT AND ACCEPTANCE ON ITS BEHALF OF SERVICE
OF SUMMONS AND OTHER LEGAL PROCESSES, AND UPON FAILURE TO DO SO THE CLERK OF
EACH COURT TO WHOSE JURISDICTION IT HAS SUBMITTED SHALL BE DEEMED TO BE HIS OR
ITS, AS APPLICABLE RESPECTIVE DESIGNATED AGENT UPON WHOM SUCH PROCESS MAY BE
SERVED ON HIS OR ITS, AS APPLICABLE, BEHALF, AND NOTIFICATION BY THE ATTORNEY
FOR PLAINTIFF, COMPLAINANT OR PETITIONER THEREIN BY MAIL OR TELEGRAPH TO THE
SUBORDINATED CREDITOR OR ANYB OF THE OBLIGORS OF THE FILING OR EACH SUIT, ACTION
OR PROCEEDING SHALL BE DEEMED SUFFICIENT NOTICE THEREOF.
12. Miscellaneous.
a. No amendment of any provision of this Subordination Agreement
shall be effective unless it is in writing and signed by each of the
Subordinated Creditors, each of the Obligors and the Lender, and no waiver of
any provision of this Subordination Agreement, and no consent to any departure
therefrom, shall be effective unless it is in writing and signed by the Lender,
and any such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
b. No failure on the part of the Lender to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
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<PAGE> 10
c. Any provision of this Subordination Agreement which is
prohibited or unenforceable in any jurisdiction, shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
d. This Subordination Agreement shall be binding on the
Subordinated Creditors and the Obligors and their respective successors and
assigns including without limitation any holders of the instruments evidencing
the Subordinated Obligations.
e. This Subordination Agreement may be executed by one or more
of the parties to this Subordination Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
f. This Subordination Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this
Subordination Agreement on the date first above written.
OBLIGORS:
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
-------------------------------
Name: Neil Topham
Title: Chief Financial Officer
DOVE INTERNATIONAL, INC.
By: /s/ NEIL TOPHAM
-------------------------------
Name: Neil Topham
Title: Chief Financial Officer
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
-------------------------------
Name: Neil Topham
Title: Chief Financial Officer
- 10 -
<PAGE> 11
SUBORDINATED CREDITORS:
/s/ TERRENCE ELKES
----------------------------------
TERRENCE A. ELKES
/s/ KENNETH GORMAN
----------------------------------
KENNETH F. GORMAN
/s/ RONALD LIGHTSTONE
----------------------------------
RONALD LIGHTSTONE
/s/ JOHN HEALY
----------------------------------
JOHN T. HEALY
/s/ BRUCE MAGGIN
----------------------------------
BRUCE MAGGIN
MEDIA EQUITIES INTERNATIONAL, L.L.C.
By: /s/ BRUCE MAGGIN
-------------------------------
Name: Bruce Maggin
Title: President
THE CHASE MANHATTAN BANK
Executed in
New York, New York
on February 13, 1998 By: /s/ TRACEY S. NAVIN
-------------------------------
Name: Tracey A. Navin
Title: Vice President
- 11 -
<PAGE> 1
EXHIBIT 10.56
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT ("Agreement") is entered into as of
November 4, 1997 by and among Dove Entertainment, Inc., a California corporation
(the "Company" or the "Borrower") and each Subsidiary of the Borrower whose name
appears at the foot hereof (collectively, the "Contributors", individually each
a "Contributor"), for the purpose of establishing the respective rights and
obligations of contribution among the Contributors and the Borrower in
connection with the Credit Agreement (as hereinafter defined). Capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Credit Agreement.
WHEREAS, the Borrower and the Contributors are parties to a
Credit, Security, Guaranty and Pledge Agreement dated as of November 4, 1997
among the Borrower, the Contributors and The Chase Manhattan Bank (the "Lender")
(said agreement, as it may hereafter be amended, supplemented or otherwise
modified, renewed or replaced from time to time in accordance with its terms
being the "Credit Agreement"), pursuant to which the Lender has made certain
commitments, subject to the terms and conditions set forth therein, to extend a
credit facility to the Borrower;
WHEREAS, pursuant to the Credit Agreement, the Contributors have
guaranteed the Obligations (such term being used herein as defined in the Credit
Agreement) of the Borrower;
WHEREAS, pursuant to the terms of the Credit Agreement, each of
the Borrower and Contributors has granted to the Lender a security interest in
the Collateral (as defined in the Credit Agreement) for their respective
obligations thereunder;
WHEREAS, as a result of the transactions contemplated by the
Credit Agreement, the Borrower and the Contributors will benefit, directly and
indirectly, from the Obligations and in consideration thereof desire to enter
into this Agreement to allocate such benefits among themselves and to provide a
fair and equitable arrangement to make contributions in the event any payments
are made by the Contributors under the Credit Agreement or the Lender exercises
recourse against any of the Collateral owned by the Contributors (such payment
or recourse being referred to herein as a "Contribution");
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the Contributors and the Borrower hereby agree as follows:
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<PAGE> 2
SECTION 1. Contribution. In order to provide for just and
equitable contribution among the Contributors and the Borrower in the event any
Contribution is made by a Contributor (a "Funding Contributor") under the Credit
Agreement, that Funding Contributor shall be entitled to a contribution from
certain other Contributors and from the Borrower for all payments, damages and
expenses incurred by that Funding Contributor in discharging any of the
Obligations, in the manner and to the extent set forth in this Agreement. The
amount of any Contribution under this Agreement shall be equal to the payment
made pursuant to the Credit Agreement or the fair saleable value of the Funding
Contributor's portion of the Collateral against which recourse is exercised, and
shall be determined as of the date on which such payment is made or recourse is
exercised, as the case may be.
SECTION 2. Benefit Amount Defined. For purposes of this
Agreement, the "Benefit Amount" of any Contributor as of any date of
determination shall be the net value of the benefits to such Contributor from
extensions of credit made by the Lender to the Borrower under the Credit
Agreement. Such benefits shall include benefits of funds constituting proceeds
of Loans which are deposited into the account of the Borrower by the Lender
which are in turn advanced or contributed by the Borrower to such Contributor
(collectively, the "Benefits"). In the case of any proceeds of Loans or Benefits
advanced or contributed to a Person (an "Owned Entity") any of the equity
interests of which are owned directly or indirectly by a Contributor, the
Benefit Amount of a Contributor with respect thereto shall be that portion of
the net value of the benefits attributable to Loans or Benefits advanced or
contributed to the Owned Entity equal to the direct or indirect percentage
ownership of such Contributor in its Owned Entity.
SECTION 3. Contribution Obligation. Each Contributor and the
Borrower shall be liable to a Funding Contributor in an amount equal to the
greater of (A) the product of (i) a fraction the numerator of which is (x) the
Benefit Amount of such Contributor or Borrower, and the denominator of which is
(y) the total amount of Obligations and (ii) the amount of Obligations paid by
such Funding Contributor and (B) 95% of the excess of the fair saleable value of
the property of such Contributor over the total liabilities of such Contributor
(including the maximum amount reasonably expected to become due in respect of
contingent liabilities), as the case may be, determined as of the date on which
the payment made by a Funding Contributor is deemed made for purposes of this
Agreement or any recourse is exercised against any Contributor's portion of the
Collateral, as the case may be (giving effect to all payments made by other
Funding Contributors and to the exercise of recourse against any other Funding
Contributor's portion of the Collateral as of such date in a manner to maximize
the amount of such contributions).
SECTION 4. Allocation. In the event that at any time there exists
more than one Funding Contributor with respect to any Contribution (in any such
case, the "Applicable Contribution"), then payment from other Contributors and
from the Borrower pursuant to this Agreement shall be allocated among such
Funding Contributors in proportion to the total amount of the Contribution made
for or on account of the Borrower by each such Funding Contributor pursuant to
the Applicable Contribution. In the event that at any time any Contributor pays
an
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<PAGE> 3
amount under this Agreement in excess of the amount calculated pursuant to
clause (A) of Section 3, that Contributor shall be deemed to be a Funding
Contributor to the extent of such excess and shall be entitled to contribution
from the other Contributors and from the Borrower in accordance with the
provisions of this Agreement.
SECTION 5. Subrogation. Any payments made hereunder by the
Borrower shall be credited against amounts payable by the Borrower pursuant to
any subrogation rights of the Contributors which received the payments under
this Agreement.
SECTION 6. Preservation of Rights. This Agreement shall not limit
any right which any Contributor may have against any other Person which is not a
party hereto.
SECTION 7. Subsidiary Payment. The amount of contribution payable
under this Agreement by any Contributor shall be reduced by the amount of any
contribution paid hereunder by a Subsidiary of such Contributor.
SECTION 8. Equitable Allocation. If as a result of any
reorganization, recapitalization, or other corporate change in the Company or
any Affiliates or Subsidiaries thereof, or as a result of any amendment, waiver
or modification of the terms and conditions governing the Credit Agreement or
the Obligations, or for any other reason, the Contributions under this Agreement
become inequitable, the parties hereto shall promptly modify and amend this
Agreement to provide for an equitable allocation of the Contributions. Any of
the foregoing modifications and amendments to this Agreement shall be in writing
and signed by all parties hereto.
SECTION 9. Asset of Party to Which Contribution is Owing. The
parties hereto acknowledge that the right to contribution hereunder shall
constitute an asset in favor of the party to which such contribution is owing.
SECTION 10. Subordination. No payments payable by a Contributor
or by the Borrower pursuant to the terms hereof shall be paid until all amounts
then due and payable by the Borrower to the Lender, pursuant to the terms of the
Fundamental Documents, are paid in full in cash. Nothing contained in this
Agreement shall affect the obligations of any party hereto to the Lender under
the Credit Agreement or any other Fundamental Documents.
SECTION 11. Successors and Assigns; Amendments. This Agreement
shall be binding upon each party hereto and its respective successors and
assigns and shall inure to the benefit of the parties hereto and their
respective successors and assigns, and in the event of any transfer or
assignment of rights by a Contributor or by the Borrower, the rights and
privileges herein conferred upon that Contributor shall automatically extend to
and be vested in such transferee or assignee, all subject to the terms and
condition hereof. Except as specifically required under Section 8, this
Agreement shall not be amended without the prior written consent of the Lender.
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<PAGE> 4
SECTION 12. Termination. This Agreement, as it may be modified or
amended from time to time, shall remain in effect, and shall not be terminated
until the Credit Agreement has been discharged or otherwise satisfied in
accordance with its terms.
SECTION 13. Choice of Law. This Agreement, and any instrument or
agreement required hereunder, shall be deemed to be made under, shall be
governed by, and shall be construed and enforced in accordance with, the laws of
the State of New York without regard to principles of conflict of laws.
SECTION 14. Counterparts. This Agreement, and any modifications
or amendments hereto may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original for all
purposes, but all such counterparts shall constitute but one and the same
instrument.
SECTION 15. Effectiveness. This Agreement shall become effective
on the date on which all of the parties hereto shall have executed this
Agreement. The Company shall deliver counterparts hereof bearing the signatures
of each of the parties hereto to the Lender.
IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be duly executed as of the day and year first written above.
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
-----------------------------------------
Name:
Title:
DOVE INTERNATIONAL, INC. /s/ NEIL TOPHAM
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
------------------------------------------
Name:
Title:
-4-
<PAGE> 1
EXHIBIT 10.57
FEE AGREEMENT
THIS FEE AGREEMENT (this "Agreement") is made the 4th day of November,
1997, by and between DOVE ENTERTAINMENT, INC., a California corporation, having
its principal place of business at 8955 Beverly Blvd., Los Angeles, California,
90048 ("Dove") and MEDIA EQUITIES INTERNATIONAL, LLC, a New York limited
liability company having its principal place of business at c/o Morrison Cohen
Singer & Weinstein, LLP, 750 Lexington Avenue, New York, New York ("MEI").
WHEREAS, Dove has entered into that certain Credit, Security and Pledge
Agreement (the "Credit Agreement"), dated as of the date hereof, among Dove, the
Guarantors named therein and The Chase Manhattan Bank ("Chase").
WHEREAS, Terrence A. Elkes, Kenneth F. Gorman, John T. Healy, Bruce
Maggin and Ronald Lightstone are, directly or indirectly, all of the beneficial
owners of MEI (the "MEI Principals").
WHEREAS, it is a condition to the effectiveness of the Credit Agreement
that the MEI Principals guaranty a portion of the obligations of Dove under the
Credit Agreement, as more fully described in the Credit Agreement and the
Guaranty Agreement (as such term is defined in the Credit Agreement).
WHEREAS, Dove and its subsidiaries will receive substantial benefit
from the credit facility provided by the Credit Agreement and the guaranty
thereof by the MEI Principals.
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Dove and MEI hereby agree as follows:
1. So long as the Guaranty Agreement (as such term is defined in the
Credit Agreement) shall be in full force and effect (and not be declared null
and void, or become unenforceable or be terminated or disaffirmed by any MEI
Principal) and no Event of Default shall exist and be continuing under and as
defined in the Credit Agreement, Dove shall pay to MEI a fee in the amounty of
$25,000 per annum, to be paid yearly, in advance , on the date of the execution
and delivery of the Guaranty Agreement and each anniversary thereof.
2. Payment shall be made by check and mailed to MEI at its principal
place of buisness as set forth in the introductory paragraph to this Agreement,
or at such other address as MEI shall provide to Dove in writing.
- 1 -
<PAGE> 2
3. Dove hereby agrees that, if, pursuant to the Guaranty Agreement, any
MEI Principal shall make any payment to Chase, Dove shall promptly pay such
amount to such MEI Principal. Each MEI Principal under the Guaranty Agreement
shall be a third party beneficiary under this Paragraph 3 of this Agreement.
4. Dove and MEI represent and warrant that they have the legal power
and authority to enter into thisAgreement and that the persons signing for each
party are authorized and directed to do so.
5. This agreement constitutes and expresses the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemtporaneous agreements and understandings,
inducements or conditions, whether express or implied, oral or written. Neither
this Agreement nor any portion or provision hereof may be amended orally or in
any manner other than by an agreement in writing signed by Dove and MEI.
6. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY
SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY
WAY RELATED TO THIS AGREEMENT AND/OR THE DEFENSE OR ENFORCEMENT OF ANY PARTIES'
RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS. EACH PARTY
ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEY.
7. This Agreement shall inure to the benefit of MEI, its successors and
assigns, and shall be binding upon both Dove and MEI and their respective heirs,
personal representatives, successors and assigns.
8. The vaildity, construction and enforcement of this Agreement shall
be governed by the internal laws of the State of California.
9. The provisions of this Agreement are independent of and separable
from each other. If any provision hereof shall for any reason be held invalid or
unenforceable, it is the intent of the parties that such invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision hereof, and that this Agreement shall be construed as if such invalid
or unenforceable provision had never been contained herein.
10. This Agreement may be executed in separate counterparts and be each
party on a separate counterpart, each of which, when executed and delivered,
shall be deemed to be an original. Such counterparts shall together constitute
one and the same instrument.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered this 4th day of November, 1997.
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
-------------------------------
Name: Neil Topham
Title: Chief Financial Officer
MEDIA EQUITIES INTERNATIONAL, LLC
By: /s/ BRUCE MAGGIN
-------------------------------
Name: Bruce Maggin
Title: President
- 3 -
<PAGE> 1
EXHIBIT 10.58
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and among Dove Entertainment, Inc. (the "Company"), a
California corporation, and Ronald Lightstone (the "Executive"), is dated as of
the 4th day of February, 1998.
WHEREAS, the Executive has been duly appointed President and Chief
Executive Officer of the Company by resolution duly adopted by the Board of
Directors of the Company (the "Board"); and
WHEREAS, the Executive is willing to serve in the employ of the Company
on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to be employed by the Company, on the terms and
subject to the conditions set forth herein.
2. Term of Employment. The term of the Executive's employment under
this Agreement (the "Employment Period") shall have commenced on June 10, 1997
and shall end on June 10, 1999, unless extended or terminated earlier in
accordance with Section 5.
3. Titles and Responsibilities.
a) Titles. During the Employment Period, the Executive shall serve as
the President and Chief Executive Officer of the Company. The Executive shall
report and be responsible to the Board.
b) Responsibilities. The Company hereby engages the Executive to
provide his exclusive services as president and chief executive officer and to
supervise the development, production and publication of books and audio books
and to develop and produce motion pictures and television programs for the
Company, and to supervise the exploitation and sale of such books, audio books,
motion pictures and television programs. The Executive shall be the Company's
president, general manager and chief executive officer and shall, subject to the
control of the Board, have general supervision, direction and control of the
business, affairs and officers of the Company. The Executive shall have the
general powers and duties of management usually vested in the office of
president and chief executive officer of a corporation; shall have any other
powers and duties that are prescribed by the Board or the By-laws of the Company
from time to time; and shall be primarily responsible for carrying out all
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orders and resolutions of the Board. Pursuant to the terms and conditions
hereof, the Executive hereby accepts such engagement. The Executive shall render
all services usually and customarily rendered by and required of presidents,
chief executive officers and other executives similarly employed in the
publishing, audio book publishing and/or entertainment industry. The Executive
shall report only to the Board.
c) Place of Performance. During the Employment Period, the Executive's
office shall be located at the principal executive office of the Company, except
for required business travel consistent with the Executive's position. The
Company shall provide the Executive with an office, and executive secretary
reasonably acceptable to him, and other support reasonably appropriate to his
duties.
d) Business Time. During the Employment Period, the Executive agrees to
devote his full business time during normal business hours to the business and
affairs of the Company and to perform faithfully, diligently and competently the
responsibilities assigned to him hereunder, except for (i) time spent serving on
corporate, civic or charitable boards or committees only if and to the extent
not substantially interfering with the performance of such responsibilities,
(ii) periods of vacation, disability and sick leave to which he is otherwise
entitled under this Agreement, and (iii) activities having a charitable,
educational or other public interest purpose only if and to the extent not
substantially interfering with the performance of such responsibilities.
4. Compensation.
a) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Base Salary") equal to $200,000, payable in
accordance with the customary payroll as in effect from time to time for
executives of the Company.
b) Restricted Stock Award. On January 9, 1998, the Company shall grant
to the Executive 400,000 shares of common stock of the Company (the "Grant
Shares"). Ownership of the Grant Shares shall vest in the Executive as follows:
On the tenth day of each month, commencing July 10, 1997, 1/36 of the Grant
Shares shall vest in the Executive, such that after the third anniversary of
July 10, 1997, ownership in all of the Grant Shares shall be vested in the
Executive. Ownership in the Grant Shares shall continue to vest in the Executive
in accordance with the preceding schedule whether or not the Executive shall be
employed by the Company; provided that (i) if the Executive is terminated for
Cause (as provided in Section 5(c) hereof), the Executive shall not be entitled
to receive any Grant Shares that have not vested prior to the date of
termination and (ii) if, at any time, the Executive is in breach of Section 8
of this
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Agreement, the Executive shall not be entitled to receive any Grant Shares
that would vest during such time.
In addition, all Grant shares shall vest immediately upon the death of
the Executive.
At the time of issuance, all Grant Shares shall be "restricted shares"
as such term is defined in Rule 144 of the Securities Act of 1933, as amended
(the "Securities Act").
The Company shall notify the Executive no later than twenty(20) days
prior to the filing of any registration statement under the Securities Act on
Form S-3 (or any successor to Form S-3) or any similar short-form registration
statement and any related qualification or compliance under applicable
securities and "blue sky" laws with respect to any shares of common stock of the
Company, and will afford the Executive an opportunity to include in such
registration all or part of the Grant Shares. All expenses of such registration
shall be borne by the Company.
c) Vacation. During the Employment Period, the Executive shall be
entitled to three (3) weeks paid vacation per year.
d) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable business-related
expenses incurred by the Executive in accordance with the policies and
procedures of the Company as applicable to its executives.
e) Car Allowance. During the Employment Period, the Executive shall be
entitled to automobile allowance of $1,000 per month.
f) Other Executive Benefits. Without limiting the foregoing provisions
of this Section 4, during the Employment Period the Executive shall be entitled
to participate in or be covered under all compensation, pension, retirement and
welfare and fringe benefit plans, programs and policies of the Company
applicable to executives of the Company generally, provided, however, that he
shall not be entitled to participate in any bonus plan or stock option plan
except in the sole discretion of the Board.
5. Termination.
a) Death or Disability. The Executive's employment pursuant to this
Agreement shall terminate automatically upon the Executive's death. The Company
may terminate the Executive's employment for Disability by giving to the
Executive notice of its intention in accordance with Section 5(e) unless the
Executive returns to the performance of his employment in accordance with
Section 3(b) with 60 days after receipt of such notice. For purposes of this
Agreement, "Disability" means any
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physical or mental condition that renders the Executive unable to perform the
functions of his employment in accordance with Section 3(b) for 60 consecutive
days or for a total of 90 days in any period of 360 consecutive days.
b) Voluntary Termination After Change in Control. Notwithstanding
anything in this Agreement to the contrary, after a Change in Control the
Executive may voluntarily terminate his employment at any time (i) for any
reason upon six months' written notice to the Company or (ii) on account of the
Executive's serious illness which would prevent him from performing his
responsibilities of employment in accordance with Section 3(b), which illness is
duly documented, upon written notice pursuant to Section 5(e) but without any
notice period. In the event of any termination pursuant to this Section 5(b),
the Executive shall have no further obligation to the Company under this
Agreement, except as provided in Section 9.
c) Cause. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement, "Cause" means (i) gross negligence or
willful misconduct of the Executive that is materially and demonstrably
injurious to the Company; (ii)(ii)fraud, theft, embezzlement, conviction of the
Executive by final judgment of a felony or misdemeanor involving dishonesty; or
(iii) the occurrence of any matter relating to the Executive of the type set
forth in Item 401(f) of Regulation S-K promulgated by the Securities and
Exchange Commission.
d) Good Reason. The Executive may terminate his employment for Good
Reason. For purposes of the Agreement, "Good Reason" means (i) a material breach
by the Company of any of the provisions of this Agreement or (ii) the failure by
the Company to obtain an agreement from any successor to assume and agree to
perform this Agreement, as contemplated by Section 12(b).
e) Notice of Termination. Any termination by the Company for Cause or
Disability or by the Executive for Good Reason shall be communicated by a
written notice (a "Notice of Termination") to the other party hereto given in
accordance with Section 13(d). A "Notice of Termination" shall set forth in
reasonable detail the events giving rise to such termination.
f) Date of Termination. For purposes of this Agreement, the term "Date
of Termination" means (i) in the case of termination for Disability, 30 days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such 30-day period);
(ii) in the case of termination for Cause, the date specified in the Notice of
Termination; (iii) in the case of any other termination for which a Notice of
Termination is required, 30 days after Notice of Termination is given or, if
later, the date specified therein, as the case may be; and (iv) in all other
cases, the actual date on which the Executive's employment terminates during the
Employment Period.
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6. Obligations of the Company Upon Termination.
a) Death, Disability, Cause and Voluntary Termination. If at any time
before or after a Change in Control the Executive's employment is terminated by
the Company during the Employment Period by reason of the Executive's death,
Disability or for Cause, or is voluntarily terminated by the Executive (other
than for Good Reason), the Company shall have no further obligation to the
Executive or the Executive's legal representatives other than (i) those
obligations earned for Base Salary that have accrued at the Date of Termination
(the "Accrued Obligations"), (ii) those obligations expressly provided under any
of the plans referred to in Section 4(e) (the "Benefit Rights") and (iii) in the
case of termination of employment by reason of the Executive's death, the
payment of an amount equal to the Executive's Base Salary for one year.
Notwithstanding anything herein to the contrary, if the Executive's employment
is terminated by the Company for Cause as set forth in Section 5(c)(ii) the
Company shall have no obligation under this Section 6(a) and shall have no
further obligation to the Executive or the Executive's legal representatives.
b) Termination by the Company other than for Cause or Disability and
Termination by the Executive for Good Reason.
(i) Lump Sum Payments. If during the Employment Period, the Company
terminates the Executive's employment other than for death, Cause or
Disability, or the Executive terminates his employment for Good Reason, the
Company shall provide the Benefit Rights and shall pay to the executive in
a lump sum in cash within 15 days of the Date of Termination the sum of the
following amounts: (A) the Accrued Obligations; plus (B) an amount equal to
the product of (1) one-twelfth times (2) the sum of the Executive's Base
Salary times (3) the number full or partial of months remaining in the
expired term of the Employment Period, but in no event less than twelve
months (such period being the "Severance Period").
(ii) Welfare Benefits. If during the Employment Period, the Company
terminates the Executive's employment other than for death, Cause or
Disability, or the Executive terminates his employment for Good Reason, the
Company shall provide or cause to be provided to the Executive and his
family for the Severance Period continued life, medical and dental and
disability insurance benefits at lease equal to those which the Executive
was receiving or entitled to receive immediately prior to the termination
of employment.
(iii) Office. If during the Employment Period, the Company terminates
the Executive's employment other than for death, Cause or Disability, or
the Executive terminates his employment for Good Reason, for the Severance
Period, the
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Company shall provide the Executive with an office and an executive
secretary reasonably acceptable to him.
(iv) Discharge of the Company's Obligations. The Company shall have no
further obligations to the Executive in respect of any termination
described in this Section 6(b).
c) Change in Control. A Change in Control shall be deemed to have
occurred if at any time Media Equities International, LLC shall not be entitled,
directly or indirectly, whether through ownership of stock, corporation,
contract or otherwise, to elect a majority of the Board.
7. No Mitigation: No Offset. In no event shall the Executive be
obligated to seek other employment by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Any amounts that
may be earned by the executive other than from the Company after the Date of
Termination shall not reduce the Company's obligation to make any payments
hereunder. The amounts payable by the Company hereunder shall be subject to any
right of set off that the Company may assert against the Executive.
8. Non-competition.
(a) Scope. In the case of the Executive's termination of employment,
including due to the expiration of the Employment Period, the Executive shall
not, for one year following the Date of Termination, (a) divert to any
competitor of the Company in the business conducted by the Company (the
"Designated Industry") any active project of the Company; or (b) solicit or
encourage any officer, employee or consultant of the Company to leave their
employ for employment by or with any competitor of the Company of the Designated
Industry. If at any time the provisions of this Section 8 shall be determined to
be invalid or unenforceable, by reason of being vague or unreasonable as to
area, duration or scope of activity, this Section 9 shall be considered
divisible and shall become and be immediately amended to apply only to such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 8 as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein. Nothing in this Section 8 shall prevent or restrict the Executive from
engaging in any business or industry other than the Designated Industry in any
capacity.
(b) Irreparable Harm. The Executive agrees that the remedy at law for
any breach of this Section 8 shall be inadequate and that the Company shall be
entitled to injunctive relief.
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9. Indemnification. The Company shall indemnify and hold harmless the
executive, his heirs and personal representatives to the fullest extent
permitted by applicable law, as now or hereafter in effect, with respect to any
acts, omissions or events that occurred while the Executive is or was an
employee of the Company or serves or served the Company or any other corporation
or other enterprise of any kind in any capacity at the request of the Company
(an "Enterprise"). Without limiting the generality of the foregoing, the Company
shall promptly pay, or reimburse the Executive for, or advance to the Executive
amounts for the payment of (a) all of the Executive's reasonable expenses,
including attorneys' fees and court costs, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding, including any
suit seeking recovery under any Company director's and officer's liability
policy, or in connection with any appeal thereof, to which the Executive may be
party by reason of any action taken or failure to act under or in connection
with his service for the Company or an Enterprise; and (b) all amounts required
to be paid in settlement of or in satisfaction of a judgment in connection with
any such action, suit or proceeding; provided, however, that the Company shall
not be required to indemnify or hold harmless the Executive, his heirs or
personal representatives in any manner whatsoever in the event that the
liability incurred by the Executive resulted from his negligence, fraud, willful
malfeasance or willful misconduct.
10. Arbitration. If a dispute arises between the parties respecting
the terms of this Agreement or Executive's employment with the Company,
including, without limitation, any dispute with respect to the validity of this
Agreement of this arbitration clause, such dispute shall be finally resolved by
binding arbitration as follows. The parties agree that any and all disputes,
claims or controversies arising out of or relating to this agreement that are
not resolved by their mutual agreement shall be submitted to final and binding
arbitration before JAMS/Endispute, with copy to the other party. The arbitration
will be conducted in accordance with the provisions of JAMS/Endispute's
Comprehensive Arbitration Rules and Procedures in effect at the time of filing
of the demand for arbitration. The parties will cooperate with JAMS/Endispute
and with one another in selecting an arbitrator from JAMS/Endispute's panel of
neutrals, and in scheduling the arbitration proceedings. The parties covenant
that they will participate in the arbitration in good faith, and that they will
share equally in its costs. The provisions of this paragraph may be enforced by
any Court of competent jurisdiction, and the party seeking enforcement shall be
entitled to an award of all costs, fees and Angeles, California expenses ,
including attorneys fees, to be paid by the party against whom enforcement is
ordered. Notwithstanding anything to the contrary contained herein, no discovery
shall be permitted in the arbitration proceeding.
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11. Successors.
a) This Agreement is personal to the Executive and, without the prior
written consent of the Company, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of an be enforceable by the Executive's legal
representatives.
b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors. The Company shall require any successor to all
or substantially all of the business and/or assets of the Company, whether
direct or indirect, by an agreement in form and substance reasonably
satisfactory to the executive, expressly to assume and agree to perform this
Agreement.
12. Miscellaneous.
(a) Withholding. Any payments provided for hereunder shall be paid net
of any applicable withholding required under federal, state or local law and any
additional withholding to which the executive has agreed.
(b) Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of California, applied without reference to
principles of conflict of law.
(c) Amendments. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(d) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered or mailed
to the other party by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Ronald Lightstone
(Personal and Confidential)
c/o Dove Entertainment
8955 Beverly Boulevard
Los Angeles, CA 90048
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If to the Company:
Dove Entertainment, Inc.
8955 Beverly Boulevard
Los Angeles, CA 90048
Attn.: General Counsel
or to any such other address as either party shall have furnished to the other
in writing in accordance herewith, except that notice of change of address shall
be effective only when actually received by the addressee.
(e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement.
(f) Waiver. Waiver by any party hereto of any breach or default by any
other party of any of the terms of this Agreement shall no operate as a waiver
of any other breach or default, whether similar to or different from the breach
or default waived.
(g) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein, and
no other agreement, verbal or otherwise, shall be binding as between the parties
unless it is in writing and signed by the party against who enforcement is
sought. All prior and contemporaneous agreements and understandings between the
parties with respect to the subject matter of this Agreement are superseded by
this Agreement.
(h) Survival. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
(i) Captions and References. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect. References in
this Agreement to a section number are references to sections of the Agreement
unless otherwise specified.
(j) Consent to Jurisdiction. Each of the parties to this Agreement
hereby submits to the exclusive jurisdiction of the courts of the State of
California and the Federal courts of the United States of America located in
such state solely in respect of the interpretation and enforcement of the
provisions of this interpretation and enforcement of this Agreement, that it is
not subject thereto; that such action, suit or proceeding may not be brought or
is not maintainable in said courts; that this Agreement may not be enforced in
or by said courts; that its property is exempt or immune from execution; that
the suit, action or proceeding is brought in an inconvenient forum; or that
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the venue of the suit, action or proceeding is improper. Each of the parties
agrees that service of process in any such action, suit or proceeding shall be
deemed in every respect effective service of process upon it if given in the
manner set forth in Section 13(d).
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IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name on its behalf all
as of the day and year first above written.
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
------------------------------
Neil Topham
Chief Financial Officer
RONALD LIGHTSTONE
/s/ RON LIGHTSTONE
---------------------------------
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EXHIBIT 10.59
SUPPLEMENT NO. 1 TO THE COPYRIGHT SECURITY
AGREEMENT DATED AS OF NOVEMBER 4, 1997
WHEREAS, Dove Four Point, Inc., a Florida corporation (the "Grantor")
is party to that certain Credit, Security, Guaranty and Pledge Agreement, dated
as of November 4, 1997, (as the same may be amended, modified or otherwise
supplemented from time to time, the "Credit Agreement"), among Dove
Entertainment, Inc. (the "Borrower"), the Corporate Guarantors named therein
(the "Guarantors") and The Chase Manhattan Bank, as Lender (the "Lender");
WHEREAS, pursuant to the terms of the Credit Agreement, the Grantor
has granted to the Lender a security interest in all right, title and interest
of the Grantor in and to all personal property, whether now owned, presently
existing or hereafter acquired or created, including, without limitation, all
right, title and interest of the Grantor in, to and under any item of Product
(such term being used herein as defined in the Copyright Security Agreement
referred to below) and any copyright or copyright license, whether now existing
or hereafter arising, acquired or created, and all proceeds thereof or income
therefrom, to secure the payment and performance of the Obligations (such term
being used herein as defined in the Credit Agreement) pursuant to the Credit
Agreement;
WHEREAS, the Grantor is a party to a Copyright Security Agreement,
dated as of November 4, 1997 (as the same has been, or may hereafter be, amended
or supplemented from time to time, the "Copyright Security Agreement"), pursuant
to which the Grantor has granted to the Lender, as security for the Obligations,
a continuing security interest in all of the Grantor's right, title and interest
in and to each and every item of Product, the scenario, screenplay or script
upon which an item of Product is based, all of the properties thereof, tangible
and intangible, and all domestic and foreign copyrights and all other rights
therein and thereto, of every kind and character, whether now in existence or
hereafter to be made or produced, and whether or not in possession of the
Grantor, all as more fully set forth in the Copyright Security Agreement;
WHEREAS, the Grantor has acquired or created additional items of
Product since the date of execution of the Copyright Security Agreement and the
most recent Supplement thereto and holds certain additional copyrights and
rights under copyright with respect to items of Product;
WHEREAS, Schedule 1 to the Copyright Security Agreement does not
reflect (i) item(s) of Product acquired or created by the Grantor since the date
of execution of the Copyright Security Agreement and the most recent Supplement
thereto or (ii) all the copyrights and rights under copyright held by the
Grantor;
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THEREFORE,
A. The Grantor does hereby grant to the Lender, as security, a
continuing security interest in and to all of the Grantor's right, title
and interest in and to each and every item of Product being added to
Schedule 1 to the Copyright Security Agreement pursuant to paragraph (b)
below, the scenario, screenplay or script upon which such item of Product
is based, all of the properties thereof, tangible and intangible, and all
domestic and foreign copyrights and all other rights therein and thereto,
of every kind and character, whether now in existence or hereafter to be
made or produced, and whether or not in possession of the Grantor, all as
contemplated by, and as more fully set forth in, the Copyright Security
Agreement.
B. Schedule 1 to the Copyright Security Agreement is hereby
supplemented, effective as of the date hereof, so as to reflect all of the
copyrights and rights under copyright with respect to the item(s) of
Product in and to which the Grantor has granted a continuing security
interest to the Lender pursuant to the terms of the Copyright Security
Agreement and the Credit Agreement. The following item(s) of Product and
copyright information are hereby added to Schedule 1 to the Copyright
Security Agreement:
Date of
Title Registration No. Registration
----- ---------------- ------------
"Futuresport" (screenplay) Pending Submitted 2/12/98
Except as expressly supplemented hereby, the Copyright Security
Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Copyright Security
Agreement, the terms "Agreement", "this Agreement", "this Copyright Security
Agreement", "herein", "hereafter", "hereto", "hereof" and words of similar
import, shall, unless the context otherwise requires, mean the Copyright
Security Agreement as supplemented by this Supplement.
Except as expressly supplemented hereby, the Copyright Security
Agreement, all documents contemplated thereby and any previously executed
Supplements thereto, are each hereby confirmed and ratified by the Grantor.
The execution and filing of this Supplement, and the addition of the
item(s) of Product set forth herein to Schedule 1 to the Copyright Security
Agreement are not intended by the parties to derogate from, or extinguish, any
of the Lender's rights or remedies under (i) the Copyright Security Agreement
and/or any agreement, amendment or supplement thereto or any other instrument
executed by the Grantor and heretofore recorded or submitted for recording in
the U.S. Copyright Office or (ii) any financing statement, continuation
statement, deed or charge
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or other instrument executed by the Grantor and heretofore filed in any state or
country in the United States of America or elsewhere.
IN WITNESS WHEREOF, the Grantor has caused this Supplement No. 1 to
the Copyright Security Agreement to be duly executed by its duly authorized
officer as of February 20, 1998
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
----------------------------
Name: Neil Topham
Title: Chief Financial Officer
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STATE OF CALIFORNIA )
: ss.:
COUNTY OF LOS ANGELES )
On this the 20th day of February, 1998, before me, Victoria Kaye, the
undersigned Notary Public, personally appeared Neil Topham,
[X] personally known to me,
[ ] proved to me on the basis of satisfactory evidence, to be the Vice
President of the corporation known as Dove Four Point, Inc. who executed the
foregoing instrument on behalf of the corporation, and acknowledged that such
corporation executed it pursuant to a resolution of its Board of Directors.
WITNESS my hand and official seal.
/s/ VICTORIA KAYE
-------------------------------
Notary Public
<PAGE> 1
EXHIBIT 10.60
AMENDMENT NO. 1 dated as of February 27, 1998 to
the Credit, Security, Guaranty and Pledge
Agreement dated as of November 4, 1997 (the
"Credit Agreement"), among DOVE ENTERTAINMENT,
INC. (the "Borrower"), the Corporate Guarantors
named therein and THE CHASE MANHATTAN BANK, as
Lender (the "Lender").
INTRODUCTORY STATEMENT
The Lender has made available to the Borrower a revolving credit
facility pursuant to the terms of the Credit Agreement.
The Borrower has requested, among other things, that certain
provisions of the Credit Agreement be modified in order to provide for the
making of additional loans to Dove Four Point, Inc. in connection with the
production of the television motion picture tentatively entitled "Futuresport".
The Borrower, the Corporate Guarantors and the Lender have agreed to
make revisions to the Credit Agreement, all on the terms and subject to the
conditions hereinafter set forth.
Therefore, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meaning given them in the Credit
Agreement.
Section 2. Amendments to the Credit Agreement. Subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof, the
Credit Agreement is hereby amended as of the Effective Date (as hereinafter
defined) as follows:
(A) Article 1 of the Credit Agreement is hereby amended by inserting the
following definitions in their correct alphabetical position:
"Futuresport ABC Contract" shall mean that certain license agreement
dated as of January 12, 1998, revised as of January 26, 1998, February 4,
1998 and February 13, 1998, between the Futuresport Borrower and American
Broadcasting Companies, Inc.
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"Futuresport Borrower" shall mean Dove Four Point, Inc.
"Futuresport Closing Date" shall mean the date on which the conditions
precedent set forth in Section 4.3 have been satisfied or waived and the
initial Futuresport Loan is made hereunder.
"Futuresport Columbia Contract" shall mean that certain license
agreement dated as of January 9, 1998, between Dove International, Inc. and
Columbia Tristar Home Video with respect to worldwide video distribution
rights for 'Futuresport'.
"Futuresport Commitment Termination Date" shall mean June 30, 1998.
"Futuresport Distribution Agreements" shall mean, collectively, the
agreements entered into by the Futuresport Borrower or the Borrower,
whether existing on the Futuresport Closing Date or thereafter executed,
pursuant to which the Futuresport Borrower or the Borrower has licensed,
leased, assigned or sold distribution, exhibition or other exploitation
rights to "Futuresport" in any media or territory to any Person.
"Futuresport Rights Agreements" shall mean, collectively, the
following documents:
(i) Writing Services Agreement dated as of February 3, 1997
between Dove Four Point, Inc. and Robert Wolfe with respect to
the writing services of Robert Wolfe in connection with a
teleplay tentatively entitled 'Futuresport' (the "Futuresport
Screenplay");
(ii) Letters dated January 13, 1997 and September 22, 1997, each
from Dove Four Point, Inc. to Writers and Artists Agency
confirming that Dove Four Point, Inc. has engaged Robert Wolfe
to provide a first rewrite and a second rewrite of the
Futuresport Screenplay;
(iii) Certificate of Authorship dated February 13, 1998 from Robert
Wolfe in favor of Dove Four Point, Inc.;
(iv) Production Services Deal Memo dated as of January 6, 1998
between Dove Four Point, Inc. and MEC Futuresport Productions
Inc.
"Futuresport RTL Contract" shall mean that certain Deal Memo dated as
of January 27, 1998, between Dove International, Inc. and RTL Plus
Deutschland Fernshen GmbH & Co., KG with respect to 'Futuresport'.
(B) Clause (xiii) of the definition of "Eligible Receivables" appearing in
Article 1 of the Credit Agreement is hereby amended by adding the following
clause at the end thereof:
-2-
<PAGE> 3
" or (3) with respect to 'Futuresport', amounts attributable to such
Product (other than the proceeds of the Futuresport ABC Contract, the
Futuresport Columbia Contract and the Futuresport RTL Contract) may be
treated as Eligible Receivables (even though 'Futuresport' has not yet been
Completed), provided that such amounts otherwise meet all of the applicable
criteria for inclusion as Eligible Receivables; provided, further, that
upon payment in full of the Futuresport Loans, amounts payable under the
Futuresport ABC Contract, the Futuresport Columbia Contract and the
Futuresport RTL Contract which have not previously been applied to repay
the Futuresport Loans may also be treated as Eligible Receivables if such
amounts otherwise meet all of the applicable criteria for inclusion as
Eligible Receivables; or"
(C) The definition of "Commitment" appearing in Article 1 of the Credit
Agreement is hereby amended by adding the words "(other than the
Futuresport Loans)" immediately following the word "Loans" appearing in the
first line therein.
(D) Section 2.1(a) to the Credit Agreement is hereby amended by adding the
words "(excluding the Futuresport Loans)" immediately following the word
"Loans" in such Section 2.1(a).
(E) Section 2.1(d) of the Credit Agreement is hereby amended by adding the
parenthetical "(excluding the Futuresport Loans)" immediately following the
word "Loans" appearing in the second line therein and third line therein.
(F) Section 2.1 to the Credit Agreement is hereby amended by adding the
following clause (e) at the end thereof:
"(e) In addition to the Loans contemplated pursuant to Section 2.1(a)
and (b) above, the Lender agrees, upon the terms and subject to the
conditions hereof, to make loans (the "Futuresport Loans") to the
Futuresport Borrower, on any Business Day from the Futuresport Closing Date
to but excluding the Futuresport Commitment Termination Date for use in
paying (i) production costs in connection with the motion picture
tentatively entitled "Futuresport", in amounts not to exceed $3,289,260 in
the aggregate (the "Futuresport Production Commitment"), and (ii) all
charges of the Lender in connection with "Futuresport", including, but not
limited to, interest, bank fees and legal fees, in amounts not to exceed
$210,740 in the aggregate (the "Futuresport Bank Charges Commitment"). The
Futuresport Production Commitment and the Futuresport Bank Charges
Commitment are collectively referred to herein as the "Futuresport
Commitment". Once repaid, amounts constituting the Futuresport Commitment
may not be reborrowed and the Futuresport Commitment shall be reduced
accordingly."
(G) Section 2.2(c) to the Credit Agreement is hereby amended by adding the
words "other than a Futuresport Loan" immediately preceding the words "in
excess of the Borrowing Base" appearing in the proviso of such section.
-3-
<PAGE> 4
(H) Section 2.2(e) to the Credit Agreement is hereby amended by adding the
words "or the Futuresport Commitment, as the case may be" immediately
following the words "Commitment" appearing therein.
(I) Section 2.2 to the Credit Agreement is hereby amended by adding the
following clause (g) at the end thereof:
"(g) The Lender shall disburse the proceeds of the Futuresport Loans
directly into the Production Account for "Futuresport", located at Royal
Bank of Canada, 1025 West Georgia Street, Vancouver, B.C. V7M 2J3, Account
No. 2829-15507, ABA No. 00010- 003, Reference: "Futuresport", which account
has been established for the sole purpose of paying production costs of
such motion picture."
(J) Section 2.3(a) to the Credit Agreement is hereby amended in its entirety to
read as follows
"(a) The Loans made by the Lender hereunder shall be evidenced by
promissory notes substantially in the forms of Exhibit A and A-2
(Production) and A-2 (Bank Charges) hereto (collectively, the "Note"), in
the face amount of the Lender's Commitment, the Futuresport Production
Commitment and Futuresport Bank Charges Commitment, respectively, payable
to the order of the Lender, duly executed by the Borrower or the
Futuresport Borrower, as the case may be, and dated the date of the Closing
Date or Futuresport Closing Date, as the case may be. The outstanding
principal balance of the Loans shall be payable on the Commitment
Termination Date, except in the case of the Futuresport Loans, the
outstanding principal balance of such loans shall be payable on October 31,
1998."
(K) Section 2.5(a) to the Credit Agreement is hereby amended by adding the
words "(excluding the Futuresport Loans)" immediately following the words
"outstanding Loans" appearing in the last line therein.
(L) Section 2.6(a) to the Credit Agreement is hereby amended by adding the
words "(excluding the Futuresport Loans)" immediately following the word
"Loans" appearing in the second to last line therein.
(M) Section 2.9(d) of the Credit Agreement is hereby amended by adding the
words "(excluding the Futuresport Loans)" immediately after the word
"Loans" appearing in the first and fourth lines therein.
(N) Section 2.9(e) of the Credit Agreement is hereby amended by adding the
words "(excluding the Futuresport Loans)" immediately after the word
"Loans" appearing therein.
-4-
<PAGE> 5
(O) Section 2.9 of the Credit Agreement is hereby amended by adding the
following clause (h) at the end thereof:
"(h) In addition to the mandatory prepayment contemplated by Section
2.9(d), the Futuresport Borrower shall prepay the Futuresport Loans (i) in
an amount equal to any balance in the Production Account for "Futuresport"
remaining after all expenditures relating to the production of
"Futuresport" shall have been paid, (ii) in an amount equal to and promptly
upon the receipt of any other funds which shall be paid to the Futuresport
Borrower in connection with that portion of the Collateral relating to
"Futuresport" (other than the first $3,950,000 of the advance payable to
the Futuresport Borrower by American Broadcasting Companies, Inc. pursuant
to the Futuresport ABC Contract) and (iii) as otherwise provided in Article
8."
(P) Section 2.14(a) to the Credit Agreement is hereby amended by adding the
words "(excluding the Futuresport Loans)" immediately after the words
"loans then outstanding" appearing in clause (A) of the proviso of such
section.
(Q) Section 2.14(h) of the Credit Agreement is hereby amended by adding the
words "(excluding the Futuresport Loans)" immediately following the words
"Loans outstanding" appearing in the second line therein.
(R) The Credit Agreement is hereby amended by adding the following Article 3A
immediately prior to Article 4 appearing therein:
"3A. ADDITIONAL REPRESENTATIONS AND COVENANTS RELATING TO "FUTURESPORT". In
order to induce the Lender to make the Futuresport Loans, the Futuresport
Borrower makes the following representations, warranties and covenants to
the Lender:
(a) Ownership of Copyright, etc. Futuresport Borrower owns under
copyright sufficient motion picture, television and allied rights in the
literary properties upon which the motion picture tentatively entitled
"Futuresport" (hereinafter referred to as "Futuresport") is based to enable
the Futuresport Borrower to produce such picture in accordance with, and to
satisfy its obligations under, the Futuresport Distribution Agreements.
Futuresport Borrower has duly recorded a Form PA covering the Futuresport
Screenplay in the United States Copyright Office (and in no other offices)
and delivered copies of all such recordation to the Lender. "Futuresport"
and any Film Asset or any component part thereof will not violate or
infringe upon any copyright, right of privacy, trademark, patent, trade
name, performing right or any literary, dramatic, musical, artistic,
personal, private, civil, contract or property right or any other right of
any Person or contain any libelous or slanderous material. There is no
claim, suit, action or proceeding pending or threatened against the
Futuresport Borrower that involves a claim of infringement of any copyright
with respect to "Futuresport" or any Film Asset
-5-
<PAGE> 6
and the Futuresport Borrower has no knowledge of any existing infringement
by any other Person of any copyright held by the Futuresport Borrower with
respect to "Futuresport" or any Film Asset.
(b) Futuresport Rights Agreements. Futuresport Rights Agreements are
the only documents and agreements pursuant to which the Futuresport
Borrower obtained rights to the Film Assets for "Futuresport". True and
complete copies of the various agreements constituting the Futuresport
Rights Agreements and all agreements with all persons whose services in
connection with "Futuresport" are a requirement of the Futuresport
Distribution Agreements, have been furnished to the Lender and are
consistent with the requirements of the Futuresport Distribution
Agreements. At the time of each Futuresport Loan, the above mentioned
agreements will be in full force and effect, all amounts required to be
paid to prevent reversion of the rights under the Futuresport Rights
Agreement shall have been paid in full and no party to any such agreements
will be in default thereunder or have any accrued right of termination
thereunder. Futuresport Borrower agrees that it will not amend, alter,
modify or waive, or consent to any amendment, alteration, modification or
waiver of, the Futuresport Rights Agreements without the consent of the
Lender.
(c) The Futuresport Borrower agrees that it will direct, or cause to
be directed, payment of the first $3,950,000 payable to the Futuresport
Borrower by ABC under the Futuresport ABC Contract, to the production
account for 'Futuresport' set forth in Section 2.2(g) hereof.
(S) Article 4 of the Credit Agreement is hereby amended by adding the following
Section 4.3 at the end thereof:
"SECTION 4.3. Conditions Precedent to Futuresport Loans. The
obligations of the Lender to make each Futuresport Loan are subject to the
following conditions precedent (in addition to those conditions precedent
set forth in Section 4.2):
(a) Security and Supporting Documentation. The Lender shall have
received each of the items required by Section 5.21 of the Credit Agreement
(as amended by Amendment No. 1) with respect to the production of
'Futuresport'."
(T) Section 5.13 (a)(i) of the Credit Agreement is hereby amended by adding the
words "(or the case of 'Futuresport', to a location outside the United
States or Canada)" immediately after the words "United States".
(U) Section 5.21(ix) of the Credit Agreement is hereby amended by adding the
words "with respect to the motion picture tentatively entitled
'Futuresport' and" immediately after the words "shall not be applicable"
appearing in the proviso.
-6-
<PAGE> 7
(V) Section 6.21(b)(ii) of the Credit Agreement is hereby amended by adding the
words "(other than 'Futuresport') immediately after the words
"movie-of-the-week" and "movies-of-the-week" respectively.
(W) Article 7 of the Credit Agreement is hereby amended by adding the words
"and/or the Futuresport Commitment" following word "Commitment" appearing
in the third and eighth lines of the concluding paragraph of such Article
7.
Section 3. Conditions to Effectiveness. The effectiveness of this
Amendment is subject to the satisfaction in full of each of the conditions
precedent set forth in this Section 3 (the date on which all such conditions
have been satisfied being herein called the "Effective Date"):
(A) the Lender shall have received counterparts of this Amendment
which, when taken together, bear the signatures of the Borrower, each Corporate
Guarantor and the Lender; and
(B) all legal matters incident to this Amendment shall be satisfactory
to Morgan, Lewis & Bockius LLP, counsel for the Lender.
Section 4. Fees. In consideration for the Lender entering into this
Amendment and making the Futuresport Loans, on the Futuresport Closing Date, the
Futuresport Borrower agrees to pay the Lender a one-time fee in the amount of
$35,000.
Section 5. Representations and Warranties. Each Credit Party
represents and warrants that:
(A) after giving effect to this Amendment, the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent that
any such representations and warranties specifically relate to an earlier date);
and
(B) after giving effect to this Amendment, no Event of Default or
Default will have occurred and be continuing on and as of the date hereof.
Section 6. Further Assurances. At any time and from time to time, upon
the Lender's request and at the sole expense of the Credit Parties, each Credit
Party will promptly and duly execute and deliver any and all further instruments
and documents and take such further action as the Lender reasonably deems
necessary to effect the purposes of this Amendment.
Section 7. Fundamental Documents. This Amendment is designated a
Fundamental Document by the Lender.
-7-
<PAGE> 8
Section 8. Full Force and Effect. Except as expressly amended hereby,
the Credit Agreement and the other Fundamental Documents shall continue in full
force and effect in accordance with the provisions thereof on the date hereof.
As used in the Credit Agreement, the terms "Agreement", "this Agreement",
"herein", "hereafter", "hereto", "hereof", and words of similar import, shall,
unless the context otherwise requires, mean the Credit Agreement as amended by
this Amendment.
Section 9. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 10. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
Section 11. Expenses. The Borrower agrees to pay all out-of-pocket
expenses incurred by the Lender in connection with the preparation, execution
and delivery of this Amendment, including, but not limited to, the reasonable
fees and disbursements of counsel for the Lender.
Section 12. Headings. The headings of this Amendment are for the
purposes of reference only and shall not affect the construction of or be taken
into consideration in interpreting this Amendment
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to
be duly executed as of the date first written above.
BORROWER:
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
------------------------------
Name: Neil Topham
Title: Vice President & Chief
Financial Officer
-8-
<PAGE> 9
CORPORATE GUARANTORS:
DOVE INTERNATIONAL, INC.
By: /s/ NEIL TOPHAM
--------------------------------
Name: Neil Topham
Title: Vice President
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
--------------------------------
Name: Neil Topham
Title: Vice President
LENDER:
Executed in THE CHASE MANHATTAN BANK, as Lender
New York, New York
On February 27, 1998
By: /s/ ANN B. KERNS
--------------------------------
Name: Ann B. Kerns
Title: Vice President
-9-
<PAGE> 10
EXHIBIT A-2 (Production)
FORM OF FUTURESPORT PRODUCTION NOTE
$3,289,260 New York, New York
as of February 27, 1998
FOR VALUE RECEIVED, DOVE FOUR POINT, INC., a Florida corporation (the
"Obligor"), DOES HEREBY PROMISE TO PAY to the order of THE CHASE MANHATTAN BANK
(the "Lender") at the office of The Chase Manhattan Bank at 270 Park Avenue, New
York, New York 10017-2070, in lawful money of the United States of America in
immediately available funds, the principal amount of THREE MILLION TWO HUNDRED
EIGHTY NINE THOUSAND TWO HUNDRED SIXTY DOLLARS ($3,289,260), or the aggregate
unpaid principal amount of all Futuresport Loans (as defined in the Credit
Agreement referred to below) made by the Lender to the Obligor under the
Futuresport Production Commitment pursuant to said Credit Agreement, whichever
is less, on such date or dates as is required by said Credit Agreement, and to
pay interest at the rates and times provided in the Credit Agreement on the
unpaid principal amount from time to time outstanding hereunder, in like money,
at such office and at such times as set forth in said Credit Agreement. All
amounts payable hereunder shall be payable no later than October 31, 1998.
The Obligor and any and all sureties, guarantors and endorsers of this
Note and all other parties now or hereafter liable hereon severally waive grace,
demand, presentment for payment, protest, notice of any kind (including, but not
limited to, notice of dishonor, notice of protest, notice of intention to
accelerate or notice of acceleration) and diligence in collecting and bringing
suit against any party hereto and agree to the extent permitted by applicable
law (i) to all extensions and partial payments, with or without notice, before
or after maturity, (ii) to any substitution, exchange or release of any security
now or hereafter given for this Note, (iii) to the release of any party
primarily or secondarily liable hereon, and (iv) that it will not be necessary
for any holder of this Note, in order to enforce payment of this Note, to first
institute or exhaust such holder's remedies against the Obligor or any other
party liable hereon or against any security for this Note. The nonexercise by
the holder of any of its rights hereunder in any particular instance shall not
constitute a waiver thereof in that or any subsequent instance.
The Lender may (but is not obligated to) set forth on the last page
hereof such information as is designated on the last page hereof.
This Note is the Production Note with respect to "Futuresport"
referred to in that certain Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997, as amended (as the same may be further amended,
supplemented or otherwise modified, renewed or replaced
<PAGE> 11
from time to time, the "Credit Agreement") among the Obligor, the Corporate
Guarantors referred to therein and The Chase Manhattan Bank, and is entitled to
the benefits of, and is secured by the security interests granted in the Credit
Agreement and the other security documents and guarantees referred to and
described therein, which among other things, contains provisions for optional
and mandatory prepayment and for acceleration of the maturity hereof upon the
occurrence of certain events, all as provided in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
WHOLLY WITHIN THE STATE OF NEW YORK.
DOVE FOUR POINT, INC.
By: _____________________________
Name:
Title:
<PAGE> 12
[LAST PAGE OF NOTE]
<TABLE>
<CAPTION>
Unpaid Name of
Principal Person
Payments Balance Making
Date Amount of Loan Principal Interest of Note Notation
- ---- -------------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 13
EXHIBIT A-2 (Bank Charges)
FORM OF FUTURESPORT BANK CHARGES NOTE
$210,740 New York, New York
as of February 27, 1998
FOR VALUE RECEIVED, DOVE FOUR POINT, INC., a Florida corporation (the
"Obligor"), DOES HEREBY PROMISE TO PAY to the order of THE CHASE MANHATTAN BANK
(the "Lender") at the office of The Chase Manhattan Bank at 270 Park Avenue, New
York, New York 10017-2070, in lawful money of the United States of America in
immediately available funds, the principal amount of TWO HUNDRED TEN THOUSAND
SEVEN HUNDRED FORTY DOLLARS ($210,740), or the aggregate unpaid principal amount
of all Futuresport Loans (as defined in the Credit Agreement referred to below)
made by the Lender to the Obligor under the Futuresport Bank Charges Commitment
pursuant to said Credit Agreement, whichever is less, on such date or dates as
is required by said Credit Agreement, and to pay interest at the rates and times
provided in the Credit Agreement on the unpaid principal amount from time to
time outstanding hereunder, in like money, at such office and at such times as
set forth in said Credit Agreement. All amounts payable hereunder shall be
payable no later than October 31, 1998.
The Obligor and any and all sureties, guarantors and endorsers of this
Note and all other parties now or hereafter liable hereon severally waive grace,
demand, presentment for payment, protest, notice of any kind (including, but not
limited to, notice of dishonor, notice of protest, notice of intention to
accelerate or notice of acceleration) and diligence in collecting and bringing
suit against any party hereto and agree to the extent permitted by applicable
law (i) to all extensions and partial payments, with or without notice, before
or after maturity, (ii) to any substitution, exchange or release of any security
now or hereafter given for this Note, (iii) to the release of any party
primarily or secondarily liable hereon, and (iv) that it will not be necessary
for any holder of this Note, in order to enforce payment of this Note, to first
institute or exhaust such holder's remedies against the Obligor or any other
party liable hereon or against any security for this Note. The nonexercise by
the holder of any of its rights hereunder in any particular instance shall not
constitute a waiver thereof in that or any subsequent instance.
The Lender may (but is not obligated to) set forth on the last page
hereof such information as is designated on the last page hereof.
This Note is the Bank Charges Note with respect to "Futuresport"
referred to in that certain Credit, Security, Guaranty and Pledge Agreement
dated as of November 4, 1997, as amended (as the same may be further amended,
supplemented or otherwise modified, renewed or replaced from time to time, the
"Credit Agreement") among the Obligor, the Corporate Guarantors referred to
therein and The Chase Manhattan Bank, and is entitled to the benefits of, and is
secured by the security interests granted in the Credit Agreement and the
<PAGE> 14
other security documents and guarantees referred to and described therein, which
among other things, contains provisions for optional and mandatory prepayment
and for acceleration of the maturity hereof upon the occurrence of certain
events, all as provided in the Credit Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
WHOLLY WITHIN THE STATE OF NEW YORK.
DOVE FOUR POINT, INC.
By: _____________________________
Name:
Title:
<PAGE> 15
[LAST PAGE OF NOTE]
<TABLE>
<CAPTION>
Unpaid Name of
Principal Person
Payments Balance Making
Date Amount of Loan Principal Interest of Note Notation
- ---- -------------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10.61
AMENDMENT NO. 2 dated as of March 30,
1998 to the Credit, Security, Guaranty
and Pledge Agreement dated as of November
4, 1997 (the "Credit Agreement"), among
DOVE ENTERTAINMENT, INC. (the
"Borrower"), the Corporate Guarantors
named therein and THE CHASE MANHATTAN
BANK, as Lender (the "Lender").
INTRODUCTORY STATEMENT
The Lender has made available to the Borrower a revolving credit
facility pursuant to the terms of the Credit Agreement.
The Borrower has requested that certain provisions of the Credit
Agreement be modified, and the Borrower, the Corporate Guarantors and the Lneder
have agreed to make revisions to the Credit Agreement, all on the terms and
subject to the conditions hereinafter set forth.
Therefore, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meaning given them in the Credit
Agreement.
Section 2. Amendments to the Credit Agreement. Subject to the
satisfaction of the conditions precedent set forth in Section 4 hereof, the
Credit Agreement is hereby amended as of the Effective Date (as hereinafter
defined) as follows:
(A) Section 6.16 of the Credit Agreement is hereby amended by deleting the
amount "$8,000,000"appearing therein and replacing it with "$1,000,000."
Section 3. Consent. The Lender hereby waives, effective as of
December 31, 1997, the Credit Parties' non-compliance with (i) Section 6.15 of
the Credit Agreement solely with respect to amount of allocated and unallocated
overhead expenses in the fourth quarter of fiscal year 1997 permitted by such
Section 6.15 and (ii) Section 6.16 jof the Credit Agreement solely with respect
to the Consolidated Capital Base for the quarter ended December 31, 1997
permitted by such Section 6.16.
-1-
<PAGE> 2
Section 4. Conditions to Effectiveness. The effectiveness of this
Amendment is subject ot the satisfaction in full of each of the conditions
precedent set forth in the Section 4 (the date on which all such conditions have
been satisfied being herin called the "Effective Date"):
(A) the Lender shall have received counterparts of this Amendment
which, when taken together, bear the signatures of the Borrower, each Corporate
Guarantor and the Lender; and
(B) all legal matters incident to this Amendment shall be
satisfactory to Morgan, Lewis & Bockius LLP, counsel for the Lender.
Section 5. Representations and Warranties. Each Credit Party
represents and warrants that:
(A) after giving effect to this Amendment, the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects on and as of the date hereof as if such representations and
warranties had been made on and as of the date hereof (except to the extent that
any such representations and warranties specifically relate to an earlier date
); and
(B) after fiving effect to this Amendment, no Event of Default or
Default will have occurred and be continuing on and as of the date hereof.
Section 6. Further Assurnaces. At any time and from time to time,
upon the Lender's request and at the sole expense of the Credit Parties, each
Credit Party will promptly and duly execute and deliver any and all further
instruments and documents and take such further action as the Lender reasonbly
deems necessary to effect the purposes of this Agreement.
Section 7. Fundamental Documents. This Amendment is designated a
Fundamental Document by the Lender.
Section 8. Full Force and Effect. Except as expressly amended
hereby, the Credit Agreement and the other Fundemental Documents shall continue
in full force and effect in accordance with the provisions thereof on the date
hereof. As used in the Credit Agreement, the terms "Agreement", "this
Agreement", "herein", "hereafter", "hereto", "hereof", and words of similar
import shall, unless the context otherwise requires, mean the Credit Agreement
as amended by this Amendment.
Section 9. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
-2-
<PAGE> 3
Section 10. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
Section 11. Expenses. The Borrower agrees to pay all out-of-pocket
expenses incurred by the Lender in connection with the preparation, execution
and delivery of this Amendment, including, but not limited to, the reasonable
fees and disbursements of counsel for the Lender.
Section 12. Headings. The headings of this Amendment are for the
purposes of reference only and shll not affect the contruction of or be taken
into consideration in interpreting this Amendment.
IN WITNESS WHEREOF, the parties hereby have caused this Amendment to
be duly executed as of the date first writtne above.
BORROWER:
DOVE ENTERTAINMENT, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name: Neil Topham
Title: Vice President & Chief Officer
CORPORATE GUARANTORS:
DOVE INTERNATIONAL, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name: Neil Topham
Title: Vice President
-3-
<PAGE> 4
DOVE FOUR POINT, INC.
By: /s/ NEIL TOPHAM
-------------------------------------
Name: Neil Topham
Title: Vice President
LENDER:
Executed in THE CHASE MANHATTAN BANK, as Lender
New York, New York
By: /s/ DAVIDG. STAPLES
-------------------------------------
Name: David G. Staples
Title: Vice President
-4-
<PAGE> 1
EXHIBIT 10.62
Publishing Agreement
DOVE BOOKS
A DOVE AUDIO, INC. LABEL
(the "Publisher")
and
("Author")
agree:
FIRST: The Author
A. shall deliver to the Publisher the literary work now entitled "" (hereinafter
referred to as the "Literary Work") on "" in Final Form on an IBM or Macintosh
compatible computer diskette with two double-spaced copies of the corresponding
hard copy). The Literary Work, containing 200 entries shall be a guided tour to
celebrity homes organized by neighborhood throughout the Los Angeles area. The
final manuscript shall be approximately 250 typeset pages.
B. makes the warranties and representations set forth in Part Two Paragraphs
36-45 of the Basic Agreement;
C. grants and assigns to the Publisher:
(i) all primary rights; and
(ii) the shares provided in THIRD: A of this Publishing Agreement
of the proceeds on disposition of the secondary rights; and
D. grants the Publisher the first opportunity to consider the Author's next
(i.e., written after the Literary Work) full-length work for publication on
mutually satisfactory terms. If, within 60 days following submission of the
final manuscript of such work to the Publisher, or within 60 days after
publication of the Literary Work, whichever shall be later, Publisher and Author
are unable in good faith to agree upon terms for publication, the Author shall
be free thereafter to submit such next work to other publishers, provided,
however, that the Publisher shall retain
1
<PAGE> 2
the first option of publishing such work on terms no less favorable to the
Author than those offered by any other publisher. During the period of this
option, Author shall not submit such next work to other publishers, nor seek
offers from or negotiate with others with respect thereto.
SECOND: The Publisher
A. shall publish the Literary Work in book form within 24 months
after acceptance of the manuscript therefore;
B. shall pay the Author, as an advance and on account of all
monies accruing to Author, "" USD
"" paid within thirty (30) days of full execution of this
Agreement;
"" paid within thirty (30) days of delivery and acceptance of the
complete and final draft of the manuscript.
(i) royalties at the following rates, based on Dove's suggested
retail price of every copy sold in the United States, less returns for sales of
the trade hardcover edition. The term "net receipts" shall mean all sums
actually received by Publisher from sales, less any commissions to distributors
or sales agents incurred by Publisher in making such sales.
10% of the suggested retail price of copies 1-5,000 sold; 12 1/2% of
the suggested retail price of copies 5,001-10,000 sold; 15% of the suggested
retail price of all copies sold thereafter.
(ii) royalties at the following rates, based on Publisher's suggested
retail price of every copy sold in the United States, less returns for sales of
the trade paperback and mass market editions. The term "net receipts" shall mean
all sums actually received by Publisher from sales, less any commissions to
distributors or sales agents incurred by Publisher in making such sales.
7 1/2% of the suggested retail price of all trade paperback copies
sold; 8% of the suggested retail price of all mass market paperback copies sold.
(iii) 50% of the proceeds on disposition of the other primary rights,
except as otherwise provided herein; and
(iv) in accordance with the provisions in Part Five of the Basic
Agreement, for sales by mail order, at special discount, for export or outside
the United States, as unbound sheets, from reduced printings, to book clubs, or
as excess stock, or for any
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textbook, large print or hardcover reprint editions, on calendars and on
Publisher's exercise of commercial rights, on electronic, audio or video
editions of the Literary Work published by the Publisher itself or under one of
its own imprints.
THIRD: The Publisher and the Author
A. shall share the proceeds on disposition of the secondary
rights, except as otherwise provided herein, as follows:
<TABLE>
<S> <C> <C>
Dramatic Rights 50% to Author 50% to Publisher
Motion Picture Rights 50% to Author 50% to Publisher
Radio Rights 50% to Author 50% to Publisher
Television Rights 50% to Author 50% to Publisher
First Periodical Rights 50% to Author 50% to Publisher
Commercial Rights 50% to Author 50% to Publisher
British Commonwealth
Rights 50% to Author 50% to Publisher
</TABLE>
B. shall be bound by all of the terms and conditions of the Basic Agreement
which follows and which is made an integral part of this Publishing Agreement;
and
Author: DOVE ENTERTAINMENT, INC.
_________________________ By_________________________
Ron Lightstone
FID# or SS#______________
Citizenship______________
Dated____________________
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Basic Agreement
PART ONE
Definition of Terms
As used in this Basic Agreement and in the Publishing Agreement:
Primary Rights
1. "Primary rights" shall mean all of the rights defined in Part One
Paragraphs 2 through 14 inclusive. The territory within which such rights are
exercisable is set forth in Part Three Paragraph 46.
Trade Edition Rights, Trade Editions
2. "Trade edition rights" shall mean the exclusive right to publish,
or authorize others to publish, trade editions of the Literary Work referred to
in the Publishing Agreement. "Trade Editions" shall mean the first edition of
the Literary Work in hardcover book form, and all other editions in book form
except those referred to in the following paragraphs.
Book Club Rights
3. "Book club rights" shall mean the exclusive right to authorize
book clubs to print and sell the Literary Work in book form.
Mass Market and Trade Paperback Rights
4. (a) "Mass market paperback rights" shall mean the exclusive right,
after the publication of the first trade edition, to authorize others (not
including book clubs) to publish paperback editions of the Literary Work in
formats known in the publishing industry as designed primarily for mass market
distribution through such channels as chain store outlets and news and magazine
wholesalers.
(b) "Trade paperback rights" shall mean the exclusive right to
publish, or authorize others to publish, paperback editions of the Literary Work
in formats known in the publishing industry as designed primarily for
distribution through book
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trade channels.
Calendar Rights
5. "Calendar rights" shall mean the exclusive right to use, or to
authorize others to use, all or any portion of the Literary Work as the basis
for one or more calendars, which may include solely text and/or illustrations
from the Literary Work with text and/or illustrations from other works.
Textbook Rights
6. "Textbook rights" shall mean the exclusive right to publish, or to
authorize others to publish, the Literary Work or any portion thereof in
textbook form for distribution to or use in educational or other similar
institutions.
Permissions
7. "Permissions" shall mean the exclusive right, after publication of
the trade edition, to reproduce, or to authorize others to reproduce, portions
of the Literary Work, including, without limitation, selections from, parts of,
and/or photographs, charts, maps, drawings, index, illustrations and other
illustrative or decorative material from the Literary Work, to the extent that
the Publisher deems appropriate. Publisher may authorize copyright and
permissions clearance organizations to act in full or in part on its behalf and
Publisher shall account to the Author for royalties received from such
organizations designated as arising from reproduction of the Literary Work.
Abridgment or Condensation Rights
8. "Abridgment or condensation rights" shall mean the exclusive right
to publish, or to authorize others to publish, either as part of a book (as
distinguished from a periodical), or as a separate book publication, an
abbreviated version of the Literary Work, not exceeding two-thirds of the
original version in length, all of which must be (i) in the original text, if it
is an abridgment, or (ii) approved in writing by the Author, if it is a
condensation.
Second Periodical Rights
9. "Second periodical rights" shall mean the exclusive right to
publish all or part of the Literary Work in a periodical (including a magazine
or newspaper), serially or in one issue, after publication of the trade edition
of the Literary Work.
Transcription Rights
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10. "Transcription rights" shall mean the exclusive right to use the
Literary Work, or any portion thereof, as a basis for phonographic, tape, wire,
magnetic, electronic, light wave amplification, photographic, microfilm,
microfiche, slides, filmstrips, transparencies, programming for any method of
information storage, reproduction or retrieval, and for any other forms or means
of copying, recording, storage or retrieval (now known or hereafter devised) the
text of the Literary Work, including recordings made for the blind, but
excluding any uses encompassed in the electronic rights.
Electronic Rights
11. "Electronic rights" shall mean the sole and exclusive right to
use or adapt, and to authorize others to use or adapt, the Literary Work or any
portion thereof, for one or more "electronic versions." As used herein, the term
"electronic versions" shall mean any and all methods of copying, recording,
storage, retrieval or transmission of all or any portion of the Literary Work,
alone or in combination with other works, including in any multimedia work or
electronic book, by any electronic, electromagnetic or other means now known or
hereafter devised, including, without limitation, by analog or digital signal,
whether in sequential or non-sequential order, on any and all physical media now
known or hereafter devised including, without limitation, magnetic tape, floppy
disks, interactive CD, CD-ROM, laser disk, optical disk, integrated circuit card
or chip and any other human or machine readable medium, whether or not
permanently affixed in such media, and the broadcast of transmission thereof by
any means now known or hereafter devised, but excluding audio recording rights,
video recording rights and all uses encompassed in the definitions of motion
picture rights and television rights (provided that the exercise of any of the
foregoing rights, if reserved herein by the Author or licensed to any third
party, shall not preclude the exercise of electronic rights).
Audio and Video Rights
12. (a) "Audio rights" shall mean the exclusive right to use or
adapt, and to authorize others to use or adapt, the Literary Work or any portion
thereof as the basis for one or more non- dramatic audio recordings.
(b) "Video rights" shall mean the exclusive right to use or
adapt, and to authorize others to use or adapt, the Literary Work or any portion
thereof as the basis for one or more non-dramatic video recordings.
Digest Rights
13. "Digest rights" shall mean the exclusive right to
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publish, or to authorize others to publish, in any magazine whether devoted
exclusively to abbreviated versions, or consisting primarily of other material -
an abbreviated version (abridged or condensed) of the Literary Work, which
version shall be complete in one issue and shall not exceed approximately 30,000
works or one-half of the length of the Literary Work, whichever is less.
Other Publishing Rights
14. "Other publishing rights" shall mean all publishing rights not
specifically enumerated herein, whether now in existence of hereafter coming
into existence.
Secondary Rights
15. "Secondary rights" shall mean all the rights defined in Part One
Paragraphs 16 through 23 inclusive. The territory within which such rights are
exercisable is set forth in Part Three Paragraph 47.
Dramatic Rights
16. "Dramatic rights" shall mean the exclusive right to use, or to
authorize others to use, the Literary Work, title, plot, episodes, events,
scenes and characters depicted therein, in whole or in part, for (i) writing a
dramatic version thereof, or a drama in any way based thereon and (ii) producing
or performing either of the above on the stage.
Motion Picture Rights
17. "Motion picture rights" shall mean the exclusive right to use, or
to authorize others to use, the Literary Work, title, plot, episodes, events,
scenes and characters depicted therein, in whole or in part, for the purpose of
making motion pictures primarily for exhibition in regular commercial channels,
and shall include the allied motion picture rights. "Allied motion picture
rights" shall mean (i) the exclusive right to condense, or to authorize others
to condense, the Literary Work, or the commercial motion picture treatment
thereof, into not more than 7,500 words, for the purpose of promoting motion
pictures based upon the Literary Work, and (ii) such limited radio or television
rights as are customarily granted for the purpose of using those mediums to
promote motion pictures based on the Literary Work.
18. DELETED
Radio Rights
19. "Radio rights" shall mean the exclusive right to use, or to
authorize others to use, the Literary Work, title, plot,
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episodes, events, scenes and characters depicted therein, in whole or in part,
for AM, FM or other broadcasting.
Television Rights
20. "Television rights" shall mean the exclusive right to use or to
authorize others to use, the Literary Work, title, plot, episodes, events,
scenes and characters depicted therein, in whole or in part, for broadcast
performances on television.
First Periodical Rights
21. "First periodical rights" shall mean the exclusive right to
publish, or authorize others to publish, all or part of the Literary Work in a
periodical (including a magazine or newspaper), serially or in one issue, before
publication of the trade edition of the Literary Work.
Commercial Rights
22. "Commercial rights" shall mean the exclusive right to use, or to
authorize others to use, in whole or in part, the Literary Work, the title of
the Literary Work, and the names and characterizations of characters created in
the Literary Work, as a basis for (i) trademarks or trade names for other
products, or (ii) toys or games.
Foreign Language Rights and British Commonwealth Rights
23. (a) "Foreign language rights" shall mean the exclusive right to
translate or to authorize others to translate the Literary Work in whole or in
part into one or more foreign languages, and to publish, or to authorize others
to publish, such translations in any part of the world.
(b) "British Commonwealth rights" shall mean the exclusive right
to publish and to authorize others to publish the Literary Work in whole or in
part in the English language in the British Commonwealth as defined by Publisher
at the date of this agreement, excluding Canada and Israel.
(c) Whichever party controls foreign language or British
Commonwealth rights in the Literary Work shall control all publishing rights
thereto as well as non-publishing primary rights. Non-publishing secondary
rights shall in all instances be controlled by the party who is otherwise
authorized to dispose of such rights pursuant to this agreement.
Author's Unshared Secondary Rights
24. "Author's unshared secondary rights" shall mean all secondary
rights as to which, under Part THIRD: A of the
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Publishing Agreement, the Author is to retain all the proceeds from disposition.
Shared Secondary Rights
25. "Shared secondary rights" shall mean all secondary rights as to
which, under Part THIRD: A of the Publishing Agreement, the Author and the
Publisher are to share the proceeds from disposition.
Sale, Disposition or Grant of Rights
26. A "sale", "disposition" or "grant" of rights shall include an
assignment, transfer, bargain or license of the rights referred to or of any
interest or option relating to such rights.
Proceeds on Disposition of Primary Rights
27. "Proceeds on disposition of the primary rights" shall mean the
gross amount received on the sale or disposition of such primary rights, less
any costs and expenses incurred by the Publisher in connection with or by reason
of such sale or disposition.
Proceeds on Disposition of Secondary Rights
28. "Proceeds on disposition of the secondary rights" shall mean the
gross amount received from the sale or disposition of such secondary rights,
less any third party commission which may be paid for services rendered in
connection with such disposition, either to the Author's agent designated in the
Publishing Agreement or to any agent authorized by the Publisher to dispose of
such secondary rights, and less any bank fees or other monetary transfer charges
incurred by the Publisher or Author in connection with or by reason of such sale
or disposition.
Final Form
29. "Final Form" shall mean a complete, legible, typewritten
manuscript of the Literary Work (including photographs, charts, maps, drawings
or index, if any of these are required), or, if Publisher requests, diskettes or
other electronic format specified by Publisher containing the Literary Work,
acceptable to the Publisher in content and form.
Agreed Publication Date
30. "Agreed publication date" shall mean the date on which the
Publisher has agreed in the Publishing Agreement to publish the Literary Work.
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<PAGE> 10
Actual Publication Date
31. "Actual publication date" shall mean the date of the first sale
and shipment of the Literary Work.
Base Royalty Rate
32. "Base royalty rate" shall mean the royalty rates provided in Part
Second: B(i) and (ii) of the Publishing Agreement.
Mail Order Sales
33. "Mail order sales" shall mean sales of the Literary Work directly
to the consumer through mail order coupon advertising, direct-by-mail
solicitation, or other direct response sales employing the mails.
Special Discount Sales
34. "Special discount sales" shall mean sales made in the United
States outside regular trade channels at a discount of more than 50% from the
catalog retail price. Sales to book clubs shall not be included under special
discount sales.
Agreement
35. "Agreement (or "this agreement") shall mean the Publishing
Agreement and this Basic Agreement.
Part Two
Author's Warranties
The Author warrants and represents that:
Sole Author and Proprietor
36. Author is the sole author and proprietor of the Literary Work.
Authority to Grant
37. Author has full power and authority to make this agreement and to
grant the rights granted hereunder, and Author has not previously assigned,
transferred or otherwise encumbered the same; and Author has no prior agreement,
commitment, or other arrangement, oral or written, to write or participate in
writing any other book-length work and will enter into no such agreement,
commitment, or other agreement until after delivery of the manuscript of the
Literary Work in Final Form.
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Not Previously Published, Not in Public Domain
38. The Literary Work is wholly original, has not been previously
published, and is not in the public domain.
No Infringement
39. The Literary Work does not infringe any statutory or common law
copyright or any proprietary right of any third party.
Not Libelous
40. The Literary Work does not invade the right of privacy of any
third person, or contain any matter libelous or otherwise in contravention of
the rights of any third person, and, if the Literary Work is not a work of
fiction, all statements in the Literary Work asserted as facts are true or are
based upon reasonable research for accuracy.
Not Unlawful
41. (a) The Literary Work contains no matter which is obscene or
matter the publication or sale whereof otherwise violates any federal or state
statute or regulation, nor does Author's entering into this agreement violate
any such statute or regulation, nor is the Literary Work in any other manner
unlawful.
Not Injurious
41. (b) Nothing contained in the Literary Work shall be
injurious to the health of the user.
Permissions
41. (c) If the Author incorporates in the Literary Work any writings,
drawings, photographs or other material either previously published or not,
either by the Author or another artist or writer, Author shall, prior to
delivery of the Literary Work in Final Form obtain and, whenever requested by
Publisher, deliver to the Publisher proper and complete written permission and
authorization from the owner of the common law or statutory copyright or other
right to use the same in the Literary Work and for the purpose of promoting or
advertising the Literary Work throughout the world.
Next Work
42. The Literary Work will be the Author's next book (whether under
the Author's own name or otherwise). The Author agrees that he or she will not
undertake to write any other work for publication in book form before delivery
to the Publisher of
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the manuscript of the Literary Work in Final Form, and that in no event will he
or she publish or authorize publication of any other book-length work of which
he or she is an author or co- author until six months after publication of the
Literary Work.
Investigation by Publisher
43. The Publisher shall be under no obligation to make an independent
investigation to determine whether the foregoing warranties and representations
are true and correct; and any independent investigation by or for the Publisher,
or its failure to investigate, shall not constitute a defense to the Author in
any action based upon a breach of any of the foregoing warranties.
Effect of Warranties and Representations
44. The warranties and representations of Author hereunder are true
on the date of execution of this agreement and shall be true of the date of
actual publication of the Literary Work, and at all intervening times. The
Publisher may rely on the truth of the warranties and representations herein in
dealings with any third party in connection with the exercise or disposition of
any rights in the Literary Work.
Warranties to Survive Termination
45. Each of the foregoing warranties and representations shall
survive the termination of this agreement.
PART THREE
Extent of Grant
Territorial Extent of Primary Rights
46. Under the grant of primary rights, the Publisher and its grantees
shall have:
(a) the exclusive right of publication throughout the world in the
English language under its own name and under various trade names and imprints;
and
(b) the non-exclusive right to sell or authorize others to sell
Publisher's edition of the Literary Work in Australia if no other English
language edition is for sale in Australia within 30 days after first English
language publication in accordance with the provisions of the Australian
Copyright Amendment Act of 1991. The Author shall advise Publisher immediately
following Author's disposition of Australian rights in the Literary Work. The
Publisher shall pay the Author royalties on such sales at the
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applicable export royalty rate.
Territorial Extent of Secondary Rights
47. The secondary rights are world-wide rights, and all provisions as
to the disposition of such secondary rights and the sharing of the proceeds
thereof shall apply equally in all countries of the world.
Duration of Grant
48. All rights granted under this agreement are, except where
expressly subject to earlier termination, to continue in effect during the full
term of the copyright of the Literary Work in the United States under the laws
of the United States.
Author's Rights
49. All rights not expressly granted by the Author to the Publisher
are reserved by the Author. The Author shall not exercise or dispose of any
reserved rights in such a way as to substantially destroy, detract from, impair
or frustrate the value of any rights granted therein to the Publisher, nor shall
the Author publish or permit to be published during the term of this agreement
any book or other writing based substantially on subject matter, material,
characters or incidents in the Literary Work without the written consent of the
Publisher. The Author has not granted and will not grant to any person (except
to the Publisher), permission, authority, right or license for publication or
distribution of the Literary Work in the open English language market, in a
mass-market or trade paperback edition, sooner than the later of one year
following the publication of any British hardcover edition or three months
following publication of the first United States mass market paperback edition.
The Author shall not submit any full-length work or proposal therefor in any
form to the Publisher or to any third party until he or she has delivered to the
publisher the complete manuscript of the Literary Work in Final Form.
Disposition or Exercise by Publisher of Primary Rights
50. The Publisher shall have the exclusive right, but shall not be
obligated, to dispose of or exercise any or all of the primary rights in the
Literary Work.
Disposition of Author's Unshared Secondary Rights
51. The Author shall have the exclusive right to dispose of the
Author's unshared secondary rights, and shall notify the Publisher promptly
after each such disposition.
Flow-Through to Publisher
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52. Until the Author's advance has earned out (after a reasonable
reserve for returns), the Author shall be obligated to pay the Publisher all
proceeds (less the agent's commission) resulting from the disposition of first
periodical rights, foreign language rights and British Commonwealth rights, and
such sums paid to the Publisher shall be credited in reduction of any unearned
portion of the advance paid to the Author hereunder. The Publisher shall have
the right to approve any disposition of such rights made before the Author's
advance has earned out, such approval not unreasonably to be withheld. The
Author's agent is hereby directed to make payments to the Publisher in
accordance with this paragraph within 30 days after Author's agent's receipt
thereof.
Disposition by Publisher of Shared Secondary Rights
53. The Publisher shall have the exclusive right, but shall not be
obligated, as agent of the Author, to dispose of the shared secondary rights as
to which it has authority from the Author. The Publisher may appoint an agent to
dispose of any rights of which the Publisher is authorized to dispose. When
Publisher is specifically authorized to dispose of rights such authorization
shall be deemed an agency coupled with an interest.
Approvals, Sales to Affiliates
54. Neither the Publisher nor the Author shall unreasonably withhold
consent where such consent is requested in connection with the disposition or
exercise of rights under this agreement. The Author and the Publisher shall each
have the right to receive copies of any contracts made with respect to said
rights on request therefor. The Publisher may sell copies of the Literary Work
and license primary and secondary rights granted to Publisher in the Literary
Work to Publisher's parent, subsidiaries, affiliates and divisions, provided
that the terms for such sale or license shall be no less favorable to the Author
than the terms which Publisher in its reasonable judgment would accept from an
unrelated third party.
Author's Consent
55. When the Author's written consent or approval is requested under
this agreement, if the Author, or the Author's agent or estate does not answer
the Publisher's request for such consent or approval within a reasonable time,
or if after reasonable diligence the Publisher has not succeeded in informing
the Author or Author's agent or estate that such consent or approval is desired,
the Author shall be deemed to have given his or her consent.
Author's Name and Likeness
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56. The Publisher may use the name and photograph or other likeness
of the Author on the cover and jacket and generally in connection with the
advertising and promotion of the Literary Work.
Author and Publisher to Execute Documents
57. The Author shall, when requested by the Publisher, execute all
documents which may be reasonably necessary or appropriate to enable the
Publisher to exercise or deal with any of the rights granted hereunder. Author
hereby appoints Publisher to be Author's attorney-in-fact to execute in Author's
name and to file any and all documents necessary to record in the Copyright
Office the assignment of exclusive rights made to Publisher hereunder.
License Without Fee
58. The Publisher is authorized to license publication of the
Literary Work in Braille or large type editions for sale to the physically
handicapped and is authorized to license publication of extracts of the Literary
Work containing not more than approximately 500 words, or 10,000 words in
connection with motion picture licenses, without compensation therefor. In the
event compensation is received it shall be shared as provided in Part SECOND:
B(iii) of the Publishing Agreement.
PART FOUR
Copyright
Copyright in the United States
59. The Author shall be deemed the sole holder and owner of the
copyright in the Literary Work and Publisher may register such copyright in the
United States.
Notice
60. The Publisher shall print in each copy of the Literary Work
published by it any notice required to comply with the applicable copyright laws
of the United States and the provisions of the Universal Copyright Convention
and the Berne Copyright Convention.
Protection of Copyright in Disposition of Rights
61. Any agreement made by the Author or by the Publisher to dispose
of any rights in and to the Literary Work shall require the licensee or grantee
to take all necessary and appropriate steps to protect the copyright in the
Literary Work.
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Foreign Copyright
62. The Publisher may take such steps as it deems appropriate to
copyright the Literary Work in countries other than the United States, but the
Publisher shall be under no obligation to procure copyright in any such
countries, and shall not be liable to the Author for any acts or omissions by it
in connection therewith.
PART FIVE
Royalties and Other Payments
Computation of Royalties Generally
63. When royalties are based on suggested retail price, they shall be
computed on the basis of the number of copies actually sold by the Publisher,
less returns. No royalties shall be computed on copies given away for review or
promotion, nor on copies given or sold to Author.
On Mail Orders and Special Discounts
64. On mail order sales and special discount sales the royalty shall
be 5% of the suggested retail price.
On Sheet and Export
65. On copies sold for export to third parties or outside the United
States by Publisher or its affiliates, and on unbound sheet sales, royalties
shall be calculated on the net amount actually received from such sales. No
royalty will be payable to the Author with respect to any unbound sheet sales or
full copy sales for export where such copies are furnished to a foreign licensee
at the Publisher's cost plus a handling charge for such sheets and/or copies.
On Sales From Reduced Printings
66. On sales made out of any new printings or bindings of 2,500
copies or less, made more than one year after publication date, royalties shall
be computed at one-half the base royalty rate.
Royalty Statements and Payments
67. The Publisher shall render royalty statements and make accounting
and royalty and other payments to the Author (a) in September for the preceding
period January 1 to June 30, and (b) in March for the preceding period July 1 to
December 31, to the extent that Publisher has received payment for the sales
upon which the royalties are calculated. The first such statement and
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payment shall become due three (3) months after the conclusion of the first
complete accounting period (January 1 to June 30 or July 1 to December 31) to
follow publication of the Literary Work. Publisher may from time to time change
such accounting periods provided no longer than six months elapses between any
two accountings to the Author. If for any royalty period the current period
total activity in the Author's account for the Literary Work is less than $100,
then the Publisher may defer the rendering of a statement and payment until such
royalty period as the cumulative activity since the last statement exceeds such
amount.
Details to Be Shown
68. Royalty statements will include the net number of copies sold and
the reserve for returns being held by the Publisher.
Book Club Sales
69. On sales to book clubs, the amount allocated as royalty or other
compensation to the Publisher shall be divided equally between the Author and
the Publisher. No royalty will be payable to the Author on unbound sheet sales
or full copy sales to book clubs where such copies are furnished at the
Publisher's cost plus a handling charge for such sheets and/or copies.
Certain Primary Rights Exercised by Publisher
70. (a) On the exercise of textbook rights by publication under one
of its own imprints royalties (but no further advance) shall be paid to the
Author at the following rates: (i) 10% of the net amount received by Publisher
on all copies sold within the United States; and (ii) 5% of the net amount
received by Publisher on mail order sales and on all copies sold for export or
outside the United States and on special discount sales.
(b) On Publisher's publication of a large print edition, a
hardcover reprint edition, or a calendar based upon the Literary Work under one
of its own imprints, royalties (but no further advance) shall be paid to the
Author at the following rates: (i) 10% of the net amount received by Publisher
on all copies sold within the United States, exclusive of sales specified in
subparagraph (ii) below, and (ii) 5% of the net amount received on mail order
sales, on all copies sold for export or outside the United States and on special
discount sales. If the Literary Work is combined with another work or works in a
calendar, the Author's royalty on such calendar shall be a pro rata share of the
total royalty payable for such calendar, based on the proportion material from
the Literary Work bears to the calendar as a whole.
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(c) On Publisher's exercise of commercial rights, royalties (but no
further advance) shall be paid to the Author at the following rates: (i) 10% of
the net amount received by Publisher on all copies or units sold within the
United States, exclusive of sales specified in subparagraph (ii) below, and (ii)
5% of the net amount received on mail order sales, on all copies sold for export
or outside the United States and on special discount sales.
(d) On the exercise of electronic rights under one of its own or its
affiliated imprints, royalties (but no further advance) shall be paid to the
Author on electronic versions at the following rates: (i) 10% of net receipts
received by Publisher. If the Literary Work is combined with another work or
works in an electronic version, the Author's royalty on such electronic version
shall be a pro rata share of the total royalty payable for such electronic
version, based on the proportion material from the Literary Work bears to the
electronic version as a whole.
(e) On the exercise of audio or video rights by publication under one
of its own imprints, royalties (but no further advance) shall be paid to the
Author at the following rates: (i) 10% of net receipts received by Publisher. If
the Literary Work is combined with another work or works in an audio/video
version, the Author's royalty on such audio/video version shall be a pro rata
share of the total royalty payable for such electronic version, based on the
proportion material from the Literary Work bears to the audio/video version as a
whole.
Remainder and Salvage Sales
71. When the Publisher in its sole discretion determines that copies
of the Literary Work are not readily salable at regular prices within a
reasonable time, the Publisher may remainder copies of the Literary Work (but
not earlier than 12 months from the actual publication date) or dispose of such
copies as surplus at the best price obtainable. Notwithstanding anything set
forth in this agreement, no royalty shall be payable on copies of the Literary
Work sold at a discount of 85% or more from the catalog retail price.
Payment of Advance
72. The payment of advances to the Author, including such payment
following delivery of the manuscript, shall not be deemed to be evidence that
the manuscript of the Literary Work is acceptable to the Publisher, or that the
Author has complied with Author's warranties or other agreements hereunder.
Offset
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73. Any advance royalties or other sums paid to or on behalf of the
Author under this agreement or otherwise, and any amounts due from the Author to
the Publisher, may be applied in reduction of any amounts payable to the Author
under this agreement. In the event of any overpayment by the Publisher to the
Author, the Publisher may, in addition to any other remedies available to it,
recoup such overpayment by deducting it from any amount payable to the Author
under this agreement or any other agreement between the Author and the
Publisher.
74. DELETED
Reserve for Returns
75. Any amounts payable to the Author hereunder shall be subject to
such reasonable reserve for returns of copies as the Publisher shall establish
in its reasonable discretion.
Author's Right to Examine Books of Account
76. The Author or the Author's representative may, upon written
request, conduct a reasonable examination of the books and records of the
Publisher insofar as they relate to the Literary Work for the period of two
years immediately preceding such examination. Such examination must be conducted
by a "Big 6" or otherwise affiliated accounting firm. Such examination shall
occur on Publisher's premises at a time convenient to Publisher, but no later
than 90 days after Author's request for such examination. Statements rendered
hereunder shall be final and binding upon the Author unless objected to in
writing, setting forth the specific objections thereto and the basis for such
objections, within two years after the date of the statement. Author or Author's
representative shall be limited to one (1) examination per calendar year.
77. DELETED
PART SIX
Delivery of Manuscript and Correction of Proofs
Failure of Author to Deliver Work in Final Form
78. (a) Timely delivery of the Literary Work in Final Form is
essential to the Publisher and is of the essence of this agreement. Any
extension of the delivery date must be in writing signed by the Publisher. If
the Author fails to deliver the Literary Work in Final Form within the time
specified, the Publisher shall have the option to give the Author a notice in
writing termination this agreement, and in such event the Publisher may then
recover and the Author shall repay on demand
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all amounts advanced to the Author. In the event that the Author completes a
manuscript for the Literary Work after termination of this agreement pursuant to
the preceding sentence, then the Publisher shall have the option, exercisable
within 30 days after receipt of said manuscript, to acquire the Literary Work on
the same terms and conditions as provided in this agreement.
(b) The Publisher shall not be obligated to accept or publish the
Literary Work if in its sole judgment such work is not acceptable to it. If the
Author delivers a manuscript of the Literary Work within the time specified, in
what the Author represents to be Final Form, the Literary Work shall be deemed
to be acceptable to the Publisher unless, within 90 days after receipt thereof
by the Publisher, the Publisher (1) notifies the Author in writing that in its
editorial judgment the Literary Work is not acceptable to it, in which case the
Author shall repay on demand all amounts advanced to the Author and upon such
repayment this agreement shall terminate; or (2) notifies the Author in writing
of the reasons why the submitted manuscript is unacceptable (including, without
limitation, reservations or questions of the Publisher concerning matters within
any of the warranties, in which case the Author shall have a period of 60 days
to respond to the satisfaction of the Publisher in respect to all subject matter
of such notice, provided however that if the Publisher in its sole discretion
determines to submit the manuscript to a legal review, the Author shall
cooperate with Publisher or Publisher's counsel in such review and the time for
Publisher to accept or reject the Literary Work shall be extended to 30 days
after completion of the legal review.
Delay for Author's Illness
79. If because of illness or any other factor beyond his or her
control, the Author is unable to deliver the Literary Work by the date provided
in the Publishing Agreement, the date for such delivery shall be extended for a
reasonable time. If after the elapse of such reasonable time the Author
continues to be unable to deliver the Literary Work or to satisfy the
Publisher's request for changes or substantiation, then the Publisher may give
written notice of termination, effective at the expiration of 60 days or such
longer period as the Publisher may specify in such notice, and if the Author
shall fail to deliver the manuscript in Final Form within such period then this
agreement shall terminate and the Author shall repay on demand all amounts
advanced to author. If the Author dies prior to acceptance of the manuscript by
the Publisher, whether or not following delivery of the manuscript in Final
Form, the Publisher, in its sole discretion, may terminate this agreement upon
giving written notice of termination to Author's personal representatives within
90 days of receipt by Publisher of notice of Author's death. In such event the
publisher may then recover from such personal representatives all amounts
previously advanced hereunder.
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Failure to Delivery Photos, Charts, etc.; Care of Property
80. (a) If the Author fails to deliver photographs, charts, maps,
drawings, or the index, in cases where any of these are required by Publisher
for the Literary Work, the Publisher shall have the right (but not the
obligation) to cause the same to be prepared, and in such event the cost of such
preparation shall be borne by the Author as follows: (i) Author shall pay such
costs upon receipt of an invoice from the Publisher; (ii) Publisher may withhold
a portion of any advances payable to the Author under this agreement and deduct
such costs from said advances; or (iii) at Publisher's option, Publisher may
charge such cost to Author's royalty account, provided however that if the
advance payable to Author under this agreement is unearned one year after
publication of the Literary Work, then Author will reimburse Publisher for such
costs upon receipt of an invoice from Publisher.
(b) Publisher shall be responsible for only the same care of any
property of Author in its hands as it takes of its own. Except in the case of
Publisher's gross negligence, Publisher shall not be responsible for loss or
damage to any property furnished by Author while in Publisher's custody or in
the custody of anyone to whom delivery of such property is necessary in
connection with the production of the Literary Work or is otherwise made with
Author's consent. Author shall retain copies of any such property and, in the
case of photographs, the negative for each photograph furnished.
Corrections of Proofs
81. The Publisher shall supply the Author with one set of galley
proofs, and, at its option, page proofs, and the Author shall return each set of
proofs with his or her corrections to the Publisher within 21 days of receipt
thereof. The Publisher also shall proofread the proofs. If the Author shall fail
to return the corrected proofs within the 21-day period herein specified, the
Publisher may publish the Literary Work without the Author's approval of the
proofs - provided, however, that if, because of illness or any other factor
beyond his or her control, the Author informs the Publisher that he or she is
unable to return the corrected proofs, his or her time for correcting such
proofs shall be extended for another 21-day period, and after that period the
Publisher may publish the Literary Work without the Author's approval of the
proofs.
Cost of Author's Alterations
82. If, in the correction of galley and page proofs, the Author
requests changes from the text of the manuscript, the Author shall bear the cost
of such changes over 15% of the original cost of composition, as follows: (i)
Author shall pay
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such costs upon receipt of an invoice from the Publisher; (ii) Publisher may
withhold a portion of any advances payable to the Author under this agreement
and deduct such costs from said advances; or (iii) at Publisher's option,
Publisher may charge such cost to author's royalty account, provided however
that if the advance payable to the Author under this agreement is unearned one
year after publication of the Literary Work, then the Author will reimburse
Publisher for such costs upon receipt of an invoice from Publisher. At Author's
request Publisher shall submit an itemized statement of such charges and shall
make available corrected proofs for the Author's inspection at the Publisher's
office.
No Obligation to Publish
83. (a) Notwithstanding anything contained herein to the contrary,
the Publisher shall not be obligated to publish the Literary Work if, in its
sole and absolute judgment, whether before or after acceptance thereof, the
Literary Work contains libelous or obscene material, or its publication would
violate the right of privacy, common law or statutory copyright, or any other
right of any person. In such event, Publisher shall be entitled on demand to the
return of all monies advanced to the Author hereunder, and to terminate this
agreement. Notwithstanding any request by Publisher for change or
substantiation, nothing in this agreement shall be deemed to impose upon the
Publisher any duty of independent investigation or to relieve the Author of any
of the obligations assumed by Author hereunder, including, without limitation,
the ongoing validity of Author's warranties and representations.
(b) Notwithstanding anything contained herein to the contrary, the
Publisher shall not be obligated to publish the Literary Work if, in its sole
and absolute judgment, whether before or after acceptance thereof, supervening
events or circumstances since the date of this agreement have, in the sole
judgment of the Publisher, materially adversely changed the economic
expectations of the Publisher in respect to the Literary Work at the time of the
making of this agreement, and in such event all of the Publisher's rights in and
to the Literary Work shall terminate and revert to the Author on the giving by
the Publisher to the Author of notice of its decision, or, if the Publisher
fails to do so, by the Author pursuant to Paragraph 84, and in any such event,
except as provided in Paragraph 79, the Author shall be entitled as liquidated
damages and in lieu of all damages and remedies, legal or equitable, to retain
all payments theretofore made to the Author under this agreement.
PART SEVEN
Delays in Publication
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Delays Due to Publisher's Fault
84. The Publisher, in its sole and absolute discretion, shall have
the right to reschedule publication of the Literary Work beyond the agreed
publication date for a reasonable time. If publication of the Literary Work is
delayed in the absence of excusable circumstances the Author's sole and
exclusive remedy shall be to give the Publisher a notice in writing, stating
that if the Publisher fails to publish the Literary Work within 180 days after
the date of such notice, then all of the Publisher's right in and to the
Literary Work shall terminate at the end of such 180-day period; and if, in such
event, the Publisher shall fail to publish the Literary Work within such 180-day
period, all of the Publisher's rights in and to the Literary Work shall
terminate and revert to the Author, and the Author shall be entitled, as
liquidated damages and in lieu of all damages and remedies, legal or equitable,
to retain all payments theretofore made to Author under this agreement.
Delays Not Due to Publisher's Fault
85. If publication is delayed beyond the agreed publication date
because of acts or conditions beyond the control of the Publisher or its
suppliers or contractors, including (by way of illustration and not by way of
limitation) war, shortages of material, strikes, riots, civil commotions, fire
or flood, the agreed publication date shall be extended to a date six months
following removal of the cause of the delay.
PART EIGHT
Disputes Between Parties
Disputes Between Parties
86. Exclusive jurisdiction for the determination of any dispute
solely between or among parties to this agreement is hereby vested in the
Superior Court, Los Angeles, County or, at the election of either party if the
jurisdictional prerequisites at the time exist, in the United States District
Court for the Central District of California, and each party hereto shall submit
to the jurisdiction of either such court in the City of Los Angeles or State of
California for the determination of any such dispute and hereby consents (in
addition to service of process by any other means provided at the time by law)
to service of process on him, her or it, as the case may be, by registered mail,
first class postage prepaid, return receipt requested, addressed to the party
named in such process at the address to which notices may be given pursuant to
Paragraph 106 of this agreement. Such notice by mail so given shall confer
jurisdiction upon such court. At the sole election and
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discretion of Publisher, all disputes between the parties shall be settled by
arbitration before the American Arbitration Association in Los Angeles,
California.
PART NINE
Indemnification and Defense of Litigation
Indemnification by Author
87. The Author shall indemnify and hold the Publisher harmless
against any loss, liability, damage, cost or expense (including reasonable
attorneys' fees) arising out of or for the purpose of avoiding any suit,
proceeding, claim or demand or the settlement thereof, which may be brought or
made against the Publisher by reasons of the publication, sale, or distribution
of, or disposition of rights in respect to the Literary Work, based on the
contents of the Literary Work, except in connection with matters involving
solely controversies arising out of or based on commercial transactions between
the Publisher and its customers.
Notice of Suits Brought
88. Prompt notice of any suit, proceeding, claim or demand brought or
made against the Publisher or Author shall be given to the Author or Publisher
respectively.
Cost of Defending Suits
89. If any suit, claim or demand is brought or made, other than as
excepted in Paragraph 87, the Publisher may elect (i) to undertake the defense
thereof, or (ii) to notify the Author to undertake the defense. If the Publisher
does so notify the Author, the Author shall undertake such defense; and in such
cases the Publisher may, at its option, join in the defense. In all the
foregoing events the cost and expense of any defense shall be borne by the
Author, unless the Author has, pursuant to notification from the Publisher,
undertaken the defense and the Publisher at its option elects to join with the
Author in the defense, in which case the total cost and expense (including
reasonable attorneys' fees) shall be shared equally by the Publisher and Author.
Limitation on Liability
90. Whenever any non-excepted suit, claim or demand is instituted,
the Publisher may withhold payments due to the Author under this agreement, or
any other agreement between the Author and the Publisher. If a final adverse
judgment is rendered in such a suit and is not discharged by the Author, the
Publisher may apply the payments so withheld to its expenses and to the
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satisfaction and discharge of such judgment. Author shall be insured under the
Publisher's liability policy, which covers claims of libel and other forms of
defamation, invasion of privacy or publicity and infringement of copyright or
trademark arising from publication or the Literary Work, to the extent such
policy is valid and collectible. In connection with such coverage and
notwithstanding the other provisions of this Part Nine, with respect to all
judgments, settlements and costs of defense, including attorneys' fees and other
costs of claims covered by the policy, the Publisher and the Author shall share
equally the first $100,000 of all such costs; thereafter the Author's liability
shall be limited to 10% of all such costs up to the limits of the policy.
Publisher shall retain counsel to represent Publisher and Author in any
proceeding brought with respect to all such claims and shall control the defense
of such claims, and Author shall cooperate fully with Publisher and said counsel
in such defense. Notwithstanding the foregoing, Author shall be solely
responsible for the cost of counsel separately retained by the Author for any
reason and for judgments, settlements and costs of defense, including all
attorneys' fees, attributable to a willful or reckless breach of this agreement
by Author, and for any uninsured amount upon the finding of any copyright
infringement.
PART TEN
Infringement by Others
Suits by Publisher or Author
91. If during the existence of this agreement the copyright, or any
other right in respect to the Literary Work, is infringed upon or violated, the
Publisher may, at its own cost and expense, take such legal action, in the
Author's name if necessary, as may be required to restrain such infringement and
to seek damages therefor. The Publisher shall not be liable to the Author for
the Publisher's failure to take such legal steps. If the Publisher does not
bring such an action, the Author may do so in his or her own name and at his or
her own cost and expense. Money damages recovered for an infringement shall be
applied first toward the repayment of the expense of bringing and maintaining
the action, and thereafter the balance shall be divided equally between the
Author and Publisher.
PART ELEVEN
Withdrawal from Publication
If Discontinued or Out of Print
92. If, at any time after the expiration of two years from the actual
publication date, the Publisher allows all of its
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editions of the Literary Work to go out of print and such status continues in
effect for six months after the Author has made a written request for Publisher
to put the Literary Work back into print, and if there is no English language or
foreign language reprint edition authorized by Publisher available or contracted
for, then the Author may by a notice in writing terminate this agreement subject
to any licenses previously granted by Publisher (and any renewals or extensions
thereof) and Publisher's right to continue to share in the proceeds therefrom.
In the event of such termination the Author shall have the right to purchase any
available plates or film of the Literary Work at cost. If the Author does not
purchase such plates, film, copies or sheets, then the Publisher may dispose of
them at any price and retain the proceeds of such sale. The Publisher is under
no obligation to retain any such plates, film, copies or sheets. The Literary
Work shall not be deemed out of print as long as it is (a) available in any
edition, including electronic editions, in Publisher's inventory; (b) offered
for sale by Publisher in its catalog or order form; or (c) electronically stored
and available to the consumer for retrieval.
PART TWELVE
Breach by Publisher
Termination for Material Breach
93. Except as otherwise specifically provided in this agreement, if
the Publisher shall commit a material breach of this agreement and shall fail to
remedy the breach within 60 days after receiving a written notice from the
Author requesting the Publisher to remedy such breach, the Author may by a
notice in writing (a) revoke the Publisher's right to publish the Literary Work,
if it has not been published at such time; (b) require the Publisher to cease
further publication of the Literary Work, if it has been published at such time,
but in such event the Publisher shall be permitted to sell all copies of those
editions of the Literary Work which have already been printed or are in the
process of being printed; (c) revoke the grant to the Publisher of such of the
other primary rights as the Publisher has not already exercised or disposed of;
(d) revoke any power given to the Publisher to dispose of such secondary rights
as have not already been disposed of; and (e) revoke any grant of the rights
made to the Publisher in the Publishing Agreement to share in the proceeds on
disposition of such secondary rights as have not already been disposed of. In
such event the Author shall have the right to purchase any available plates or
film of the Literary Work at cost, and/or remaining copies or sheets of the
Literary Work already printed at the Publisher's manufacturing cost. If the
Author does not purchase such plates, film, copies or sheets, the Publisher may
dispose of them at any price and retain the proceeds of such sale. The Publisher
is
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under no obligation to retain any such plates, film, copies or sheets. Any right
of the Author pursuant to Paragraph 76 shall survive such termination.
PART THIRTEEN
Miscellaneous Provisions
Publisher Shall Determine Style, etc.
94. The format, imprint, style of printing and binding, and all
matters relating to the manufacture, sale, distribution and promotion of the
Literary Work shall be determined at the sole discretion of the Publisher.
Title Changes
95. The title of the Literary Work as set forth in the Publishing
Agreement may be changed at the sole discretion of the Publisher.
Single Author to Represent
96. When there is more than one author, any one may be designated in
writing to act on behalf of all the authors jointly, and the Publisher may rely
on the acts of the author so designated as representative of and binding upon
all authors; and in the absence of such designation, the Publisher may deal with
any one of the authors as the agent and representative of all, and may rely on
the acts of such author-representative as binding on all the authors. When there
is more than one author, unless the Publishing Agreement specifies otherwise or
until receipt by the Publisher of contrary instructions, the Publisher may
assume that all authors share equally in proceeds payable hereunder and may
either issue separate checks in equal amounts payable to each author severally
or single checks payable jointly to all authors.
Free Copies for Author, Purchases by Author
97. The Publisher shall present the Author with ten free copies of
each edition of the Literary Work published by the Publisher, upon publication.
The Author shall have the right to purchase additional copies for his or her own
use at a 50% discount from the catalog retail price.
Revisions
98. Author shall revise the first and subsequent editions of the
Literary Work at the request of Publisher and supply any new matter necessary
from time to time to keep the Literary Work up to date. If Author shall neglect,
be incapable, be unwilling or, in Publisher's judgment, will not be able to
revise or supply new
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matter at a time and in a form satisfactory to Publisher, then Publisher shall
have the right to engage some other person(s) to do so. When such revisions are
not made by Author, Publisher may cause such fact to be evidenced in the revised
edition. Publisher shall have all rights in connection with all subsequent
editions which Publisher has in the original Literary Work.
Publisher to Execute Documents
99. If any of the rights granted to the Publisher revert to the
Author, the publisher shall execute all documents which may be necessary or
appropriate to revest all such rights in the Author.
Acceptance of Agreement
100. This agreement shall be binding on the Publisher only when it
has been signed by an authorized officer of the Publisher.
Laws Applicable to Agreement
101. This agreement shall be construed in accordance with the laws of
the State of California applicable to agreements made and performed therein.
Agreement on Binding on Successors in Interest
102. This agreement shall be binding upon and inure to the benefit of
the executors, administrators and assigns of the Author, and upon and to the
successors and assigns of the Publisher.
Modification of Agreement
103. This agreement may not be modified, altered or changed except by
an instrument in writing signed by the party to be charged.
Waivers Are Not Cumulative
104. No waiver of any term or condition of this agreement, or of any
breach of this agreement or of any part thereof, shall be deemed a waiver of any
other term or condition of this agreement or of any later breach or of any part
thereof, nor shall publication or continued publication or payment by the
Publisher following notice or claim of facts which, if true, would constitute a
breach of warranty, representation or agreement of the Author, constitute or
imply any waiver by the Publisher of any defense, rights or remedies of the
Publisher. No failure by either party to assert any right under this agreement
shall preclude any later assertion of such right.
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Validity and Enforceability
105. The invalidity or unenforceability of any provision of this
agreement shall not affect the validity or enforceability of any other provision
hereof, and any such invalid or unenforceable provision shall be deemed to be
severable.
Notices
106. All notices to be given hereunder by either party shall be in
writing and shall be sent to the other party at the respective addresses as they
are given in the Publishing Agreement, unless said addresses are changed by
either party by a notice in writing to the other party.
Singular Shall Include Plural
107. Wherever required by the context of this agreement, the singular
shall include the plural, and the masculine shall include the feminine and the
neuter. The term "Author" shall include "Authors" if there are more than one.
Captions, Table of Contents, etc.
108. Captions or printed marginal notes, and the table of contents of
this agreement are for convenience only, and are not to be deemed part of this
agreement.
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EXHIBIT 10.63
June 12, 1997
ARTIST AGREEMENT
The following confirms the terms of the agreement (the "Agreement") between DOVE
AUDIO, INC., 301 N. Canon Drive, Suite #207, Beverly Hills, California 90210
("Producer") and BAG Productions, Inc. ("Lender") f/s/o Brian Austin Green
("Artist"), c/o Karen Sellars, ICM, 8942 Wilshire Blvd., Beverly Hills, CA 90211
for Artist's services to perform concerning a reading of the Work entitled
"ELFIS" by Alan Katz ("Work") for audio recording. The Agreement contains the
following terms:
1. Lender hereby furnishes to Producer the services of Artist to
perform a reading of an abridged and/or unabridged version of the Work in
connection with the audio recording ("Recording") of the Work. Lender shall
cause Artist to render services in accordance with this Agreement and to comply
with all of the terms hereof, and Lender shall not permit Artist to violate any
provision of this Agreement insofar as they refer to Artist. Lender warrants it
has a valid, binding and subsisting written agreement with Artist under which
Artist is obligated to render Artist's services exclusively for Lender, and that
by the terms of such agreement between Lender and Artist, Lender has the right
to enter into this Agreement with Producer for the furnishing of Artist's
services to Producer hereunder and to grant to Producer any and all of the
services and rights herein set forth.
2. Producer hereby employs Artist through Lender to render Artist's
services to read the Work for audio recording. Producer shall notify Artist in
advance of the date(s) of the recording sessions, with such dates to be mutually
approved.
3. As full and complete consideration for any and all services
performed and rights granted to Producer by Lender or Artist hereunder, Producer
shall pay Lender the sum of Nine Hundred USD ($900.00) plus pension, health and
welfare to payments and any other payments required by the applicable AFTRA code
upon Artist's complete recording of the Work acceptable to Producer. For
purposes of payroll, Entertainment Partners will be considered the employee of
record.
4. Lender and Artist hereby agree that Producer shall pay directly to
Lender all of the compensation that would have been payable to Artist had Artist
rendered services directly to Producer in the first instance, and Producer shall
not be obligated to make any such payments of any nature whatsoever to Artist.
In no event shall Lender's failure to pay any amounts to Artist be deemed to
constitute a breach of this Agreement by Producer.
5. Artist's services hereunder shall be rendered as an employee of
Lender, and Lender hereby agrees that it will fully perform and discharge, and
that Producer shall have no responsibility or liability on account of, any
obligations of an employer with respect to Artist and
<PAGE> 2
Artist's services hereunder, including, but not limited to, the withholding
and/or payment of any sum required to be withheld and/or paid by such employer
to any governmental authority based on or resulting from the services rendered
by Artist hereunder or the compensation paid to Lender for such services,
including, without limitation, payroll taxes, and Lender agrees to and does
hereby indemnify and hold harmless Producer from and against such liability or
obligation.
6. Producer shall have the perpetual and exclusive right, throughout
the universe, to publish and distribute, and/or cause or authorize third parties
to publish and distribute, reproductions of the Recordings in the form of
phonograph records, audio cassettes, compact discs, or by any other method,
means or process of embodying and/or transmitting spoken words now known or
hereafter devised, for the full term of copyright, including renewals and
extensions. The format in which the Recording is to be produced and distributed,
the manner of distribution, the nature and extent of advertising and promotion,
prices and discount schedules and the packaging to be utilized shall be in
Producer's sole discretion. Nothing herein shall be deemed to obligate Producer
to use or otherwise exploit the Recording.
7. Lender hereby grants to Producer, exclusively and perpetually, all
present or hereafter existing rights of every kind or character whatsoever,
whether or not such rights are now known, recognized or contemplated, and the
complete unconditional and unencumbered title throughout the universe in and to
the results and proceeds of Artist's services and performances pursuant to this
Agreement and any and all material, writings, ideas, or dialogue composed,
submitted or interpolated by Artist in connection with the preparation or
production of the audio recording of the Work (the "Material"). All the
Material, and the copyright therein shall automatically become the property of
the Producer, which shall be the author thereof, it being agreed and
acknowledged that all of the Material is a work specially ordered or
commissioned for use as a part of the audio recording of the Work and
constitutes a work-made-for-hire within the meaning of the Copyright Laws of the
United States, or any similar laws throughout the world.
8. It is understood that Artist's services and the results and
proceeds of such services shall be rendered on a work-made-for-hire basis within
the meaning of the Copyright Laws of the United States, or any similar laws
throughout the world, and all now known or hereafter existing rights of every
kind, throughout the universe, in perpetuity and in all languages, for all now
known or hereafter existing uses and forms of the audio recording of the Work,
including without limitation all copyrights and renewals and extensions thereof,
shall be owned solely and exclusively by Producer, and the foregoing shall be a
full and complete assignment to Producer thereof.
9. Lender warrants that Artist is free to enter into this Agreement
and to perform in accordance with its terms; that no lien, claim or encumbrance
exists against the results or proceeds of Artist's services herein, and there
are no conflicts with the rights granted herein nor any interference with
Producer's full enjoyment thereof. Lender shall indemnify and hold harmless
Producer, its officers, directors, employees, licensees, distributors,
successors and assigns, from and against any cost, damage, liability, loss or
expense, including attorney's fees and costs, arising from or related to the
breach or alleged breach of the foregoing warranties.
<PAGE> 3
10. Producer shall have the right to use the name and likeness of, and
biographical information concerning Artist on the Recordings and the packaging
thereof, and any and all advertising, publicity and/or promotion relating
thereto.
11. Upon commencement of distribution, Producer shall provide Artist
with five (5) complimentary copies of the Recordings.
12. Artist shall not perform on other recordings of the text of the
Work, or any excerpts therefrom, without Producer's prior written approval, for
as long as the Recordings are in print and available for sale. Artist may
perform in motion pictures, television programs or any other dramatizations of
the Work.
13. This Agreement shall be binding upon, and inure to the benefit of,
the parties and their respective successors, assigns and/or licensees.
14. Lender and Artist agree that no default by Producer shall cause
Lender or Artist irreparable damages entitling Lender or Artist to an injunction
or other equitable relief; it being agreed that Lender and/or Artist shall be
entitled to seek only monetary damages, if any, for a default by Producer
hereunder.
15. Any controversy arising under any provision of this Agreement
shall be settled by arbitration in Los Angeles, California by the American
Arbitration Association under its rules as in effect on the date of delivery of
demand for arbitration. Any award resolved thereunder may be confirmed by the
Superior Court of the State of California, County of Los Angeles. Regardless of
its place of physical execution, it is being made under, and shall be
interpreted in accordance with the laws of the state of California applicable to
contracts wholly to be performed therein.
#
#
#
<PAGE> 4
16. If any provision of this Agreement, as applied to any party or to
any circumstance, shall be found to be void, invalid or unenforceable, the same
shall in no way affect any other provision of this Agreement, the application of
any such provision in any other circumstance, or the validity or enforceability
of this Agreement.
17. This Agreement contains the entire understanding of the parties
hereto, and may not be modified, nor shall any waiver be effective, unless in
writing and signed by all the parties hereto.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT AS OF THE
DAY AND YEAR FIRST ABOVE WRITTEN.
AGREED TO AND ACCEPTED BY:
BAG PRODUCTIONS, DOVE AUDIO, INC.
INC.
By : By:
Brian Austin Green Michael Viner
Its: Its: President
Fed. ID #: 95-4355626
I AGREE TO ABIDE BY THE TERMS AND CONDITIONS
SET FORTH HEREIN:
Brian Austin Green
<PAGE> 1
EXHIBIT 10.64
Date
EXCLUSIVE PUBLICATION AGREEMENT
This will confirm the agreement made between DOVE ENTERTAINMENT, INC.,
8955 Beverly Blvd., Los Angeles, CA 90048 ("Dove"), and "', concerning a work
entitled "" ("Work") in which Author is the owner of all audio rights.
1. GRANT OF RIGHTS
(a) Author hereby grants and licenses to Dove the sole and
exclusive audio rights in and to the Work for the full term of copyright,
including any renewals or extensions thereof, throughout the universe, in all
languages, to publish abridged and unabridged readings of the Work, and to
record, electronically or by any other manner now known or hereafter developed,
the Work for the purpose of duplication on audio cassettes, compact discs or any
other electronic forms now known or hereafter developed ("Cassettes").
(b) Author grants Dove the right to produce, publish, sell,
license, and distribute the Cassettes under the Dove label or its assigns and to
authorize others to produce, publish and distribute the Cassettes. This right
shall include the right to authorize others to use portions of the Cassette for
broadcast.
(c) Author grants Dove permission to use Author's name and likeness
in connection with all advertisement, publicity or promotion of the Cassettes
provided that the Author's name and likeness will not be used in any endorsement
or testimonial without Author's prior written consent, which consent shall not
be unreasonably withheld. Author shall not receive any additional compensation
for such endorsement or testimonial.
(d) All other rights including, but not limited to print, motion
picture and television, remain with the Author.
(e) Promptly after execution of this Agreement, Author shall
provide Dove free-of-charge with three (3) copies of the Work.
2. ROYALTIES
As consideration for any and all rights granted by Author hereunder,
Dove shall pay
1
<PAGE> 2
Author a royalty as follows:
(a) As an advance against future royalties, "" to be paid one-half upon
signing of this agreement and one-half upon release of the Cassette by Dove.
(b) On sales of the Cassettes:
(i) Ten percent (10%) of net sales received from sales of the
Cassettes.
(ii) Five percent (5%) of the net sales received from premiums,
special sales, catalog, book, library, record, tape, shopping or other clubs,
and foreign sales of the Cassette.
(iii) Fifty percent (50%) of net sales received under any
licensing agreements.
(iv) Net sales shall be defined as gross sales, less all returns.
(c) On use of the Cassettes for review, advertising, publicity, or the
like to promote the sale and distribution of the Cassettes, no royalties shall
be paid. No royalty shall be paid on Cassettes sold at or below the cost of
manufacture.
(d) If any Cassette produced or licensed hereunder contains a work or
works other than the Work that is the subject of this agreement, Author shall
receive a proportion of the foregoing amounts stated in this paragraph based on
the actual playing time of Author's Work on the Cassette against the total
playing time of the Cassette.
3. ACCOUNTING
Dove shall render a semi-annual accounting to Author of estimated net
sales as of the first day of January or the first day of July. Dove shall send
such statements, with checks in payment of amounts due, on or about the last day
of March and September, to the extent that Dove has received payment for the
sales upon which the royalties are calculated. The first such statement and
payment shall become due three (3) months after the conclusion of the first
complete accounting period (January 1-June 30, or July 1-December 31) to follow
publication of the Cassette, and shall cover the time period from publication
through the end of such accounting period. Dove shall maintain a reasonable
reserve against returns of the Cassettes and the amount thereof shall be
deducted from the payments to Author. Author shall have the right to inspect
Dove's books of accounting, upon reasonable written request and sufficient
notice, to determine the accuracy of statements rendered to Author, provided
that there may not be more than one such examination in any twelve month period,
and that each such statement shall be deemed incontestable two years after the
date upon which such statement is issued unless an examination has taken place
and a claim with respect thereto has been asserted in such two year period.
After two years from the date of publication, no royalty statements will be
issued on amounts less than Twenty USD ($20.00).
2
<PAGE> 3
4. WARRANTY
(a) Author warrants and represents that the Work is original; that
Author is the sole author and proprietor of the Work; that Author has the full
power and authority to enter into this agreement and to grant the rights granted
hereunder to Dove, that there are no claims, liens, or encumbrances against the
Work, that Author has not previously assigned, transferred or otherwise
encumbered the Work in any manner which will conflict, interfere with, or impair
the rights granted to Dove herein. Author further warrants and represents that
the Work, when published by Dove, will not infringe upon any statutory or common
law copyright, invade the right of privacy or publicity of any third person, or
contain any matter that is defamatory, libelous or slanderous or otherwise in
contravention of the rights of any third persons or party anywhere in the world,
that nothing contained in the Work is injurious, harmful or damaging to the
health of a user, and that all statements in the Work asserted as facts are true
or are based upon reasonable research for accuracy.
(b) Author agrees to defend and indemnify and hold harmless Dove, and
its officers, directors, shareholders, employees, agents, representatives,
successors, licensees, assigns, distributors and any seller of the Cassettes
against any loss, liability, damage, cost, expense, claim, demand, action or
proceeding that may be brought, including reasonable attorney fees and costs,
arising from a breach or alleged breach of warranties set forth in this
paragraph or otherwise arising from the Work or the rights therein.
(c) Author warrants and represents that Author shall provide Dove with
a complete copyright report of the Work, to be delivered to Dove either prior to
or contemporaneous with the signing of this agreement. Author shall be solely
responsible for all costs incurred in connection with the preparation of said
copyright report.
5. RIGHT OF FIRST NEGOTIATION/ RIGHT OF LAST REFUSAL
Author hereby grants Dove the right of first negotiation and the right
of last refusal for the audio rights to Author's next book, and grants Dove the
right of first negotiation and the right of last refusal for the audio rights to
Author's subsequent book thereafter.
(a) The term "Right of First Negotiation" is defined as when Author
completes his or her next book, Author shall notify Dove in writing concerning
said completion and immediately commence good faith negotiations with Dove
regarding such audio rights. If, after the expiration of a thirty (30) day
negotiation period ("Initial Negotiation Period") following the receipt of
notice, no agreement has been reached between Author and Dove, Author may then
negotiate with third parties regarding such audio rights.
(b) The term "Right of Last Refusal" is defined as when Dove and Author
fail to reach an agreement during the Initial Negotiation period, and Author
makes or receives any firm bona fide third party offer to purchase the audio
rights or any interest therein ("Third Party Offer").
3
<PAGE> 4
Author shall notify Dove by registered mail or telegram, if Author proposes to
accept such Third Party Offer, including the name of the offeror, the proposed
purchase price, and all other material terms of such Third Party Offer.
Beginning upon Dove's receipt of Author's written notice of said Third Party
Offer Dove shall have an exclusive thirty (30) day period to purchase the audio
rights for the same purchase price and upon the same terms and conditions as set
forth in such written Third Party Offer. If Dove elects to purchase such audio
rights, Dove shall notify Author in writing of its intent to purchase the audio
rights within such thirty (30) day period ("Second Negotiation Period"). If Dove
elects not to purchase said audio rights from Author, Author may accept such
Third Party Offer; except in the event that there is a change in the identity of
the third party, the purchase price or in the terms and conditions of such Third
Party Offer then Author shall offer to Dove the right to purchase the audio
rights on the same terms as then set forth in the said Third Party Offer, or if
any such proposed sale is not consummated with the third party within thirty
(30) days following the Second Negotiation Period Dove's right of last refusal
shall be revive and shall apply to each and every further offer or offers
whenever received by Author relating to the audio rights or any interest
therein; provided, further, that Dove's option shall continue in full force and
effect, upon all the terms and conditions of this paragraph, while Author
retains any rights, title or interest in or to the audio rights. Dove's interest
in or to the audio rights and Dove's Right of Last Refusal shall inure to the
benefit of Dove, its successors, licensees and assigns, and shall bind Author
and Author's heirs, successors and assigns.
6. COVER ART
To the extent of Author's rights in the design and illustration of the
cover art used for the print version of the Work, Author grants to Dove the
right to use such material for the Cassettes to the full extent of Author's
rights in said cover art and, to the extent third parties control such rights,
Author shall use best efforts to arrange for Dove to obtain the right to use
such material for the Cassettes provided, however, that Author shall not be
obligated to pay for such rights.
7. RIGHT TO EDIT
Dove shall have the right, without further obligation to Author, to
edit the Work in any manner it deems appropriate, for the purpose of, without
limitation, connective material, advertising and promoting the Work.
8. AUTHOR'S COPIES
Dove shall provide Author with five (5) copies of the Cassette, free of
charge. Should the Author request additional copies, Dove will provide such
additional copies at a price equal to 50% of the retail price of each Cassette,
with no royalties paid to Author on all such sales.
9. ASSIGNMENT
The provisions of this Agreement shall apply to, and inure to the
benefit of and bind the
4
<PAGE> 5
heirs, successors, executors, administrators, and assigns of the Author, and the
successors, licensees and assigns of Dove.
10. COPYRIGHT
Dove shall have the sole and exclusive right to secure copyright
registration of the sound recording of the Work as contained in the Cassettes
(as distinguished from the copyright of the Work) in the United States and such
other Territories as set forth herein, if any, under any now existing or
subsequent created laws, regulations or rules, in the name of Dove or any
person, firm or corporation designated by Dove, and Dove shall own the copyright
thereto. Author hereby assigns for the term of this Agreement, and any renewal
thereof, and Dove shall own all right, title and interest in and to the Work as
contained in the Cassettes and all additions to, alterations of or revisions of
the Work as contained in the Cassettes, and all drafts, notes, scripts, voice
recordings and musical recordings related thereto. If requested by Dove, Author
agrees to execute, acknowledge and deliver, or, cause to be executed,
acknowledged and delivered to Dove any instruments that may be required by Dove
or that may be necessary, proper or expedient in the opinion of Dove to
establish and vest in Dove such rights of copyright.
Author shall notify Dove immediately in writing of any copyright notice
Author wishes to be set forth on the package containing the Cassettes relating
to the copyright in the underlying Work.
11. REMEDIES
Author agrees that no default by Dove shall cause Author irreparable
damages entitling Author to an injunction or other equitable relief; it being
agreed that Author shall be entitled to seek only monetary damages, if any, for
a default by Dove hereunder.
12. SEVERABILITY
If any provision of this Agreement, as applied to any party or to any
circumstance, shall be found to be void, invalid or unenforceable, the same
shall in no way affect any other provision of this Agreement, the application of
any such provision in any other circumstance, or the validity or enforceability
of this Agreement.
#
#
#
5
<PAGE> 6
13. CALIFORNIA LAW APPLIES
This Agreement shall be interpreted according to the laws of the State
of California, applicable to agreements made and to be performed wholly therein.
At Dove's sole election and discretion, any disputes between the parties
regarding the provisions of this Agreement shall be settled by arbitration
before the American Arbitration Association in Los Angeles, California.
14. INTEGRATION
This Agreement shall contain the entire understanding of the parties
hereto, and may not be modified, nor shall any waiver be effective, unless in
writing and signed by all the parties hereto.
THE PARTIES HERETO HEREBY AGREE TO ALL OF THE TERMS AND CONDITIONS SET FORTH
ABOVE BY SIGNING BELOW.
AGREED TO AND ACCEPTED BY:
DOVE ENTERTAINMENT, INC.
By: By:
Ron Lightstone
Its: President
SS#
Date: Date:
6
<PAGE> 1
EXHIBIT 23
The Board of Directors
Dove Entertainment, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-43527 and No. 333-6059) on Form S-3 of Dove Entertainment, Inc. of our
report dated April 3, 1998, relating to the consolidated balance sheet of Dove
Entertainment, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1997, which report
appears in the December 31, 1997 annual report on Form 10-KSB of Dove
Entertainment, Inc.
(signed) KPMG Peat Marwick LLP
Los Angeles, California
April 9, 1998
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