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Monday, October 28, 2013

Court rules in favor of Hannover's motion to limit NBCal to actual amounts due...

Some shareholders have asked for an update on the litigation matter between Hannover House and the National Bank of California.  As of Friday, the court finally made a ruling that was exactly what the attorneys for Hannover House had been seeking (and was not what NB Cal had been seeking). 

As a point of background, Hannover borrowed "Prints & Ads" funds from NB Cal for the release of the film "All's Faire In Love."  The original draw down against the $500,000 credit line had been reduced down to about $320,000 during the first year, and an "oral" agreement had been made between Hannover House and the bank officers to extend the note for another year.  The rationale' behind the extension of the note was that the subscription V.O.D. payments from Netflix were substantial (about $225,000 gross), and that ongoing home video sales and a pending sale to Basic Cable TV would fully retire the balance.

In support of the agreement to extend the note, NB Cal sent documents to Hannover House, which were promptly signed and returned to the bank.  However, unbeknownst to Hannover House (and as testified, to the Bank as well), one of the documents referred to in the amended note was not sent to Hannover House.  The first quarterly installment was due at the end of January, 2013.  During the final months of 2012, the bank officer at NB Cal left and was replaced.  In early January, rather than contact Hannover House to determine the status of the "missing document," the bank's attorneys preemptively filed a lawsuit for breach of the original note.  During discovery, it became clear that it was the bank's negligence in not sending the missing document to Hannover House to fully complete the amendment agreement.  When this document was finally provided (June, 2013), Hannover House promptly signed and returned it, along with an agreement to immediately "catch up" on payments that Hannover had withheld as a result of the lawsuit being filed.  The bank did not accept these terms, and pressed forward in hope of also winning the right to collect additional penalties and attorney's fees.  Rather than accept this obligation (about $100,000), Hannover instructed counsel to file an opposition to some aspects of the bank's filing for judgment, but not disputing the actual balance due.  The point that Hannover wanted to make was that the bank should have NEVER filed the lawsuit... that all of the documents provided to Hannover House were promptly signed... and that quarterly payments stopped only after the bank filed the lawsuit.  The court had to review a tremendous amount of evidence and pleadings. but ultimately agreed with the conclusions of Hannover's position.

In her opinion released last Friday, U.S. District Court Judge Margaret M. Morrow writes "... it is therefore now undisputed that defendant signed the note, delivered it to NBC, and that the amendment has taken effect" (page 9, line 6).  As a result, the attempts by NBCal's attorneys to enforce interest penalties (and to add-in their own legal fees) was denied, and the amount determined as owed was precisely the amount that Hannover House acknowledged and was performing on prior to the filing of the lawsuit.  As oft stated in our filings to the court (and our disclosure documents on the OTC Markets site), Hannover never denied the validity of the loan balance; the Company only disputed the due date of the loan and the bank's subsequent attempts to charge penalties and legal fees.

In her Conclusion, Judge Morrow writes: "... For the reasons stated, the court grants in part and denies in part NBC's motion for partial summary judgment" (Page 15, line 2).

The amount due on this item is the amount that Hannover has listed in our payables and disclosures, namely $331,466, plus $25,574 in interest.  The Company expects this debt to be fully covered by the balance remaining on the Netflix SVOD contract, plus the Basic Cable TV sale and current home video (budget bin) revenues.  Hannover was very pleased with the quality of the legal work and pleadings from our L.A. Counselors, Mark Hankin and Nima Darouian.

While there are certainly "performing obligations" still active as a result of prior litigations, Hannover House is pleased to hear from our corporate counsel that there are no other "open cases" awaiting adjudication before the courts.  The long struggle to overcome the debts from "Twelve" (and that title's impact to our cash flow), has made it past the court-litigation stages and is now a part of our performing debt obligations. Removing the distraction and cost of defendant litigation is a major step forward, and marks the closing of a journey we do not wish to ever travel on again.