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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 000-29642
FILM ROMAN, INC.
(Exact name of registrant as specified in charter)
DELAWARE 95-4585357
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
12020 CHANDLER BOULEVARD, SUITE 200
NORTH HOLLYWOOD, CALIFORNIA 91607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 761-2544
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 at least the past 90 days. YES [ X ] NO [_].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of November 10, 1998, 8,522,190 shares of common stock, par
value $.01 per share, were issued and outstanding.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements......................................................................................... 3
Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998
(unaudited)................................................................................................ 3
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1997 and September 30, 1998 (unaudited)...................................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997
and September 30, 1998 (unaudited)......................................................................... 5
Notes to Consolidated Financial Statements................................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................................ 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................................. 13
Signatures............................................................................................................. S-1
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FILM ROMAN, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 15,986,250 $ 12,410,657
Accounts receivable...................................................... 1,228,142 939,502
Film costs, net of accumulated amortization of $212,107,777 (1997) and
$234,816,144(1998)....................................................... 16,084,110 20,899,417
Property and equipment, net of accumulated depreciation and
amortization of $1,198,494 (1997) and $1,461,131 (1998).................. 535,200 1,036,227
Deposits and other assets................................................ 544,927 490,152
------------ ------------
Total Assets............................................................. $ 34,378,629 $ 35,775,955
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable......................................................... $ 1,009,586 $ 560,787
Accrued expenses......................................................... 2,204,414 2,698,127
Deferred revenue......................................................... 12,190,650 17,490,021
------------ ------------
Total liabilities........................................................ 15,404,650 20,748,935
Stockholders' equity
Preferred Stock, $0.01 par value, 5,000,000 shares authorized,
none issued......................................................... ---- ----
Common stock, $0.01 par value, 20,000,000 shares authorized,
8,454,690 shares issued and outstanding (1997) and 8,522,190 shares
issued and outstanding (1998)............................................ 84,548 85,223
Additional paid-in capital............................................... 36,305,684 36,305,684
Accumulated deficit...................................................... (17,416,253) (21,363,887)
------------ ------------
Total stockholders' equity................................... 18,973,979 15,027,020
------------ ------------
Total liabilities and stockholders' equity................... $ 34,378,629 $ 35,775,955
============ ============
</TABLE>
See accompanying notes.
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FILM ROMAN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
------------------ -----------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue......................... $10,475,613 $ 5,273,605 $29,717,115 22,631,723
Cost of revenue................. 12,712,838 6,119,261 30,643,694 22,708,367
Selling, general and
administrative expenses....... 1,142,930 1,784,148 3,318,752 4,421,840
----------- ----------- ----------- -----------
Operating loss.................. (3,380,155) (2,629,804) (4,245,331) (4,498,484)
Interest income................. 185,026 166,316 449,918 550,850
Net loss........................ $(3,195,129) $(2,463,488) $(3,795,413) $(3,947,634)
=========== =========== =========== ===========
Net loss per share basic and
diluted......................... $ (0.38) $ (0.29) $ (0.45) $ (0.46)
=========== =========== =========== ===========
Weighted average number of
shares outstanding basic and
diluted........................ 8,454,690 8,522,190 8,453,023 8,501,915
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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FILM ROMAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
-----------------------------
1997 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss...................................................................... $ (3,795,413) $ (3,947,634)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................. 169,710 262,637
Amortization of film costs.................................................... 30,643,694 22,708,367
Changes in operating assets and liabilities:
Accounts receivable......................................................... 3,098,610 288,640
Film costs.................................................................. (29,086,541) (27,523,674)
Refundable income taxes..................................................... 800 -0-
Deposits and other assets................................................... (122,195) 54,775
Accounts payable............................................................ (2,127,203) (448,799)
Accrued expenses............................................................ 718,650 493,713
Deferred revenue............................................................ 2,245,761 5,299,371
------------ ------------
Net cash provided by (used in) operating activities......................... 1,745,873 (2,812,604)
Investing activities:
Additions to property and equipment........................................... (56,245) (763,664)
------------ ------------
Net cash used in investing activities......................................... (56,245) (763,664)
FINANCING ACTIVITIES:
Options Exercised............................................................. 50 675
------------ ------------
Net cash provided by financing activities.................................... 50 675
Net increase (decrease) in cash............................................... 1,689,678 (3,575,593)
------------ -------------
Cash and cash equivalents at beginning of period.............................. 13,738,927 15,986,250
Cash and cash equivalents at end of period.................................... $ 15,428,605 $ 12,410,657
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
$ -- $ --
------------ ------------
Income taxes..............................................................
$ -- $ --
------------ ------------
</TABLE>
See accompanying notes.
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FILM ROMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) - BASIS OF PRESENTATION
Film Roman, Inc., a Delaware corporation (the "Company"), currently
conducts all of its operations through its wholly owned subsidiaries, Film
Roman, Inc., a California corporation; Namor Productions, Inc., a California
corporation; and Chalk Line Productions, Inc., a California corporation. The
accompanying consolidated unaudited financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments consisting
only of normal recurring accruals necessary to present fairly the financial
position of the Company as of September 30, 1998 and the results of its
operations for the three and nine months ended September 30, 1997 and 1998, and
the cash flows for the nine months ended September 30, 1997 and 1998 have been
included. The results of operations for interim periods are not necessarily
indicative of the results which may be realized for the full year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
(the "Form 10-K") filed with the Securities and Exchange Commission.
(2) - NET LOSS PER COMMON SHARE
For the three months and the nine months ended September 30, 1997 and 1998,
the per share data is based on the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares,
consisting of outstanding stock options, are not included since they are
antidilutive.
(3) - FILM COSTS
The components of unamortized film costs consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
-----------------
(unaudited)
---------
<S> <C> <C>
Animated film productions released, less amortization.. $ 5,041,950 $ 3,019,658
Animated film productions in process................... 10,820,744 17,318,516
Animated film productions in development............... 221,416 561,243
----------- -----------
$16,084,110 $20,899,417
=========== ===========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
relate to, among other things, the 13 episodes of "The Downtowners" ordered by
Castle Rock Entertainment and tentatively scheduled to debut on the WB network
("The WB") during the fall 1999 season, the 13 episodes of "Family Guy" ordered
by 20th Century Fox Television and tentatively scheduled to air sometime in
1999, and the 13 episodes of "The Mr. Potato Head Show" ordered by the Fox Kids
Network which debuted in the fall of 1998; production fees, services and costs;
the Company's future production and delivery schedule (including the number of
episodes of programming to be produced and delivered during the 1998-1999
television season); plans to enter into new business areas beyond the Company's
core business of animation television production; and liquidity. These forward-
looking statements are based largely on the Company's current expectations and
are subject to a number of risks and uncertainties, including without
limitation, those described under the caption "Risks Related to the Business" in
the Company's Form 10-K. Actual results could differ materially from these
forward-looking statements. The Company does not make projections of its future
operating results and undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
GENERAL
The Company creates, develops, produces and distributes high quality
animated television programming. Historically, the Company has produced most of
its programming for third parties on a "fee-for-services" basis. Fees paid to
the Company for these production services generally range from $300,000 to
$600,000 per episode and typically cover all direct production costs plus a
profit margin. The Company has begun to produce programming for which it
controls some of the "proprietary rights" associated with such programming
(including, for example, international distribution and licensing and
merchandising rights). Fees paid to the Company for these production services
typically do not cover all direct production costs. Generally, the Company
seeks to cover at least 50% of its production costs prior to production of its
proprietary programs and seeks to cover the remaining production costs through
the exploitation of the proprietary rights associated with these programs. As a
result, the Company may recognize revenue associated with its proprietary
programming over a period of years.
The Company produces a limited number of animated television series in any
year and is substantially dependent on revenues from licensing these programs to
domestic and international broadcasters. The Company's future performance will
be affected by issues facing all producers of animated programming, including
risks related to the limited number of time slots allocated to children's and/or
animated television programming, the intense competition for those time slots,
the limited access to distribution channels (particularly for programs produced
by independent studios), the declining license fees paid to producers of
programming by broadcasters and the regulations implemented by the Federal
Communications Commission governing program content. While the Company
generally seeks to limit its financial risk associated with its proprietary
programming by obtaining commitments prior to production to cover at least 50%
of its direct production costs, there can be no assurance that the Company will
be able to cover the balance of its production costs and overhead costs relating
to production, licensing and distribution through the exploitation of its
proprietary rights. As a result of the foregoing risks, there can be no
assurance that the Company will be able to generate revenues that exceed its
costs. The Company expects to report a loss for the year ended December 31,
1998.
The Company is currently seeking to enter into new business areas beyond
its core business of animation television production such as live action
television production, feature film production (both live action and animation),
computer generated animation and direct-to-video production (both live action
and
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animation). The Company's future performance will be affected by unpredictable
and changing factors that influence the success of an individual television
program, feature film or direct-to-video release such as personal taste of the
public and critics as well as public awareness of a production and the
successful distribution of a production. Although the Company intends to attempt
to limit the risks involved with television, film and direct-to-video
production, the Company will likely be unable to limit all financial risk, and
the level of marketing, promotional and distribution activities and expenses
necessary for such production cannot be predicted with certainty. The Company
has no history of developing, producing or distributing live action television,
computer generated animation or film productions, and there can be no assurance
that the Company can compete successfully with more established persons or
entities. Live action production involves many of the risks associated with
animation production as well as additional risks inherent to live action that
are outside of the Company's control. These risks include, but are not limited
to, the risk of strike by actors and film crew, increased union activity, delay
in production due to weather and other local conditions, inability to obtain
proper permitting at a desired site, at desired times and/or under desired
terms, and accidents or injury to actors and film crew. No assurance can be
given that the Company will produce any live action television, film or direct-
to-video productions or that, if produced, such productions will be profitable.
In the first quarter of 1998, the Company decided to reduce its fixed
overhead by outsourcing its licensing and merchandising, public relations,
promotion and advertising to third party suppliers. The Company will consider
bringing these functions in-house again, should the volume indicate that such
action would be cost effective.
RECENT DEVELOPMENT
The Company has been engaged by Castle Rock Entertainment to produce an
initial 13 episodes of a new primetime animated comedy series, "The
Downtowners", which is tentatively scheduled to debut on The WB during the fall
1999 season. The series, which will be produced on a "fee-for-services" basis
plus an adjusted gross profit participation, was created by and will be
executive produced by Bill Oakley and Josh Weinstein who were Emmy Award winning
producers of "The Simpsons". No assurance can be given that "The Downtowners"
will actually be produced or that the episodes will be aired by The WB in the
number contemplated, or at all.
THE COMPANY'S 1998-1999 TELEVISION PROGRAMMING
The Company is currently scheduled to produce 22 new episodes of "The
Simpsons" and 24 new episodes of "King of the Hill" for 20th Century Fox
Television for the 1998-1999 season. The Company is currently in production on
an initial 13 episodes of "The Mr. Potato Head Show", a new series that debuted
in September of 1998 on the Fox Kids Network, and in which series the Company
owns certain proprietary rights. In addition, the Company is scheduled to
produce 13 episodes of "Family Guy" and 13 episodes of "The Downtowners", both
half-hour animated comedies, which are tentatively scheduled to air sometime in
1999 on 20th Century Fox Television and The WB, respectively.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Total revenue decreased by 50%, or $5.2 million, to $5.3 million for the
three months ended September 30, 1998, from $10.5 million for the comparable
period in the prior year. Total revenue decreased primarily because revenue for
the three months ended September 30, 1997 included a $4.0 million settlement
from UPN related to UPN's decision to cancel its plan to air the Company's
proprietary production of "Blues Brothers: The Animated Series" (the "Blues
Brothers") and because the Company delivered fewer prime time fee-for-services
episodes.
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The Company delivered six "fee-for-services" episodes during the three
months ended September 30, 1998, compared to 11 episodes in the comparable
period in 1997. Fee-for-services revenue decreased 32%, or $1.7 million, to
$3.6 million for the three months ended September 30, 1998, from $5.3 million
during the comparable period in 1997.
The Company delivered five "proprietary" episodes during the three months
ended September 30, 1998 compared to no episodes in the comparable period in
1997. "Proprietary revenue" consists of revenue derived from the U.S. license
fees paid upon the initial delivery of a new episode of proprietary programming
to a U.S. broadcaster and from the exploitation of the proprietary rights (e.g.,
merchandising, licensing and/or international distribution rights) associated
with the proprietary episodes in the Company's library that were initially
delivered in prior periods. "Proprietary" revenue decreased by 79% or $3.9
million, to $1.0 million for the three months ended September 30, 1998, from
$4.9 million in the comparable three month period in 1997. Revenue decreased
primarily because revenue for the three months ended September 30, 1997
included a $4.0 million settlement from UPN related to UPN's decision to cancel
its plan to air the Company's proprietary production of the "Blues Brothers".
Other revenue increased by approximately $0.4 million during the three
months ended September 30, 1998, as compared to the same period of the prior
year, due primarily to a combined increase in revenue of approximately $0.4
million from specials, commercials and other creative services.
Total cost of revenue decreased by 52%, or $6.6 million, to $6.1 million
for the three months ended September 30, 1998, from $12.7 million for the three
months ended September 30, 1997. Total cost of revenue, as a percentage of
sales, decreased by 6% to 115%, primarily because the costs for the three month
period ended September 30, 1997 included a write-off related to the "Blues
Brothers" as discussed earlier. The overall decrease was partially offset by a
write-down to net realizable value as a result of changes in the Company's
estimated future revenues from certain of its episodic programming.
Total selling, general and administrative expenses for the three months
ended September 30, 1998 increased by $0.7 million to $1.8 million from $1.1
million for the comparable period in 1997, due primarily to increased
development costs resulting from the development of live action programming and
computer generated animation.
Operating loss was $2.6 million for the three months ended September 30,
1998, as compared to a loss of $3.4 million for the three months ended September
30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Total revenue decreased by 24%, or $7.1 million, to $22.6 million for the
nine months ended September 30, 1998, from $29.7 million for the comparable
period in the prior year. Total revenue for the nine months ended September 30,
1997 included a $4.0 million settlement from UPN related to UPN's decision to
cancel its plan to air the Company's proprietary production of the "Blues
Brothers". Total revenue also decreased because the Company delivered
significantly fewer episodes of programming in the first nine months of 1998 as
compared to the first nine months of 1997. The Company delivered a total of 36
episodes of programming for the nine months ended September 30, 1998, as
compared to 48 episodes for the nine months ended September 30, 1997.
The Company delivered 31 "fee-for-services" episodes during the nine months
ended September 30, 1998, compared to 38 episodes in the comparable period in
1997. Fee-for-services revenue decreased 8%, or $1.5 million, to $18.2 million
for the nine months ended September 30, 1998, from $19.7 million during the
comparable period in 1997.
The Company delivered five "proprietary" episodes during the nine months
ended September 30, 1998 compared to ten episodes delivered during the
comparable period for 1997. "Proprietary" revenue decreased by 74% or $5.4
million, to $1.9 million for the nine months ended September 30, 1998, from $7.3
million in the comparable nine month period in 1997. This decrease was
primarily because revenue for the
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nine months ended September 30, 1997 included a $4.0 million settlement related
to the "Blues Brothers", as discussed earlier, as well as lower international
sales for the first nine months of 1998 compared to the first nine months of
1997.
Other revenue decreased by approximately $0.2 million during the nine
months ended September 30, 1998, as compared to the same period of the prior
year, due primarily to a combined decrease of approximately $1.6 million in
revenue generated by the Company's creative services division, and the Company's
interactive unit which ceased production beginning in the first quarter of 1997.
This decrease was offset by an increase in revenue of approximately $1.4 million
from the Company's participation in net profits from certain of its fee-for-
services series, and revenue from commercials and specials.
Total cost of revenue decreased by 26%, or $7.9 million, to $22.7 million
for the nine months ended September 30, 1998, from $30.6 million for the nine
months ended September 30, 1997. Total cost of revenue, as a percentage of
sales, decreased by 3% to 100%, primarily because the costs for the nine month
period ended September 30, 1997, included a write-off related to the "Blues
Brothers" as discussed earlier. The overall decrease was partially offset by a
write-down to net realizable value as a result of changes in the Company's
estimated future revenues from certain of its episodic programming.
Total selling, general and administrative expenses for the nine months
ended September 30, 1998 increased by $1.1 million to $4.4 million from $3.3
million for the comparable period in 1997, due primarily to increased
development costs resulting from the development of live action programming and
computer generated animation partially offset by lower costs in licensing and
merchandising.
Operating loss was $4.5 million for the nine months ended September 30,
1998, as compared to a loss of $4.2 million for the nine months ended September
30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that the successful execution of a more aggressive and
broad production strategy will require it to increase its overall investment,
including additional personnel, to augment its development and production
efforts in animated programming, computer generated animated programming, live
action television series, feature films (both live action and animation) and
direct-to-video films (both live action and animation). Greater capital
resources are required for the Company to develop and produce proprietary
programs, retain the proprietary rights associated with such programs and
increase its presence in the international distribution markets. The Company
seeks to limit the financial risk associated with its proprietary programming by
obtaining commitments prior to production to cover at least 50% of its direct
production costs, but the Company must utilize its own funds to cover remaining
production costs and overhead costs relating to production, licensing and
distribution. The Company seeks to cover the remaining production costs through
the exploitation of the proprietary rights associated with the programs in its
library (e.g., international distribution rights and/or merchandising and
licensing). Historically, in the fourth quarter, and to a lesser extent the
third quarter, cash used in operations typically exceeded cash generated by
operations as completed shows were delivered to broadcasters. The Company
expects that cash used in or provided by operations will fluctuate greatly from
quarter to quarter, due in part, to the international sales and collections
cycle related to the programs in its library.
For the nine months ended September 30, 1998, net cash used in operating
activities was approximately $2.8 million due to cash used in connection with
film production activities and a decrease in accounts payable offset by an
increase in deferred revenue and an increase in accrued expenses. Cash used in
investing activities for the nine months ended September 30, 1998 was $763,664.
Cash provided by financing activities for the nine months ended September 30,
1998 was $675.
The Company recognizes revenues in accordance with the provisions of
Financial Accounting Standards Board Statement No. 53 ("FAS 53"). Cash
collected in advance of revenue recognition is recorded as deferred revenue. As
of September 30, 1998, the Company had a balance in its deferred revenue account
of $17.5 million. The net cost to the Company (future receipts less future
expenditures) to finish the programs for which cash has been collected in
advance and included in deferred revenue would be approximately $705,000.
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Management believes that the Company's cash and cash equivalents and
anticipated cash flow from operations will be sufficient to fund the Company's
operating requirements for at least the next year.
IMPACT ON YEAR 2000
GENERAL OVERVIEW:
The Company's Year 2000 Project is currently proceeding on schedule. The
Company's assessment was begun in the Spring of 1998 in response to a need to
address the issue of older computer programs and embedded computer chips'
inability to distinguish between the year 1900 and the year 2000. Critical
programs within the Company were written to use two digits rather than four
digits to define the applicable year. As a result, those programs have time-
sensitive software that recognizes a date using 00 as the year 1900 rather than
the year 2000. This programming method could cause a system failure or
miscalculations which could cause disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
This problem first became evident within The Company's Human Resources
division each time entries requiring dates beyond 2000 were entered. The
problem was immediately addressed by a software upgrade to the latest Year 2000
compliant version of the Company's HR software. With this first exposure to the
Year 2000 problem, the Company immediately began an assessment project which
will lead to modifying or replacing portions of its hardware and software so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter.
The current assessment project schedule is to be Year 2000 compliant by
December 31, 1998 in the critical areas that affect the Company's ability to do
business (i.e. Finance, HR, Legal). This will be followed by a further
assessment in non-critical areas, which is scheduled for completion by mid-1999.
PROJECT:
The Company's Year 2000 Project is divided into three sections -
Applications Software, Communications systems (telephones, voicemail, etc.) and
Infrastructure.
The methodology used to assess these three primary sections includes: a)
prioritizing by critical area; b) inventorying for potential Year 2000 problems
(i.e. computer workstations, servers, software); c) repairing/recording program
code (where applicable) and/or replacing hardware/software as necessary; d)
testing material items; and e) designing and implementing contingency and
business continuation plans for the Company.
As of October 30, 1998, the priority assessment had been completed as it
relates to the Company's computer systems. Year 2000 issues as they relate to
the physical premises (building power, incoming phone service, etc.) are outside
of the Company's control and correspondence inquiring as to Year 2000 compliance
has been delivered to the principals of the building's property management,
phone system suppliers, alarm system suppliers and communications service
providers (i.e. MCI, Pacific Bell). Because it is not possible to gauge the
readiness of third-party vendors, the Company is in the process of drafting a
contingency plan in the event that the Company's third-party vendors do not
complete their Year 2000 implementations in time to not affect the Company's
operations. This contingency plan is scheduled to be drafted and implemented by
mid-1999.
Inventorying of potential Year 2000 systems is approximately 60% complete
overall within the Company and 95% complete in areas deemed critical. The
Company is currently investigating into Year 2000 inventorying systems that will
guarantee that all inventorying of non-critical areas is completed by March
1999.
The Applications Software section includes both the conversion of
applications software not yet Year 2000 compliant and, where available from the
supplier, the replacement of such software. As of October 30, 1998, the main
accounting system in use by the Company, Show Auditor, had been recoded to
comply with Year 2000 issues and has been tested as compliant. The Human
Resources division of the
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Company is also Year 2000 compliant. The Company's International Division is
also Year 2000 compliant. Compliance is also about 80% completed at the desktop
application level (word processing, spreadsheets and operating systems) at each
of the Company's computer workstations.
The Infrastructure section consists of hardware and systems software other
than Applications Software. This section is on schedule, with approximately 60%
of activities related to this section being completed as of October 30, 1998.
The Company continues to test older computer systems and has instituted a policy
of buying only Year 2000 compliant computer systems and applications. All
Infrastructure activities are expected to be completed by mid-1999 -- with the
exception of critical infrastructure systems within the Company's Finance,
International and Legal divisions which are already complete as of October 30,
1998.
The Communications section consists of the phone system's
hardware/software, alarm systems and third-party phone services (MCI, Pacific
Bell, etc.). As of October 30, 1998, the internal phone system, alarm system
and voice mail system are Year 2000 compliant. Third-party phone services are
outside of the Company's control. The Company has, however, delivered
correspondence to these third parties requesting assessment reports of their
Year 2000 compliance.
The Company is also involved in prioritizing non-computer related systems
to assess their potential impact to the Company's operations. These systems
would include operations such as delivery services, materials suppliers, etc. A
contingency plan to address any of these systems which prove to be critical to
the Company's operations will be drafted by the Company and implemented by
mid-1999.
COSTS:
The total cost associated with required modifications necessary to become
Year 2000 compliant is not expected to be material to the Company's financial
position and is estimated at approximately $100 thousand. This does not include
the Company's potential share of Year 2000 costs that may be incurred by the
Company by way of partnerships and joint ventures in which the Company
participates but is not the controlling entity. Accordingly, the foreseeable
costs arising from such third-party relationships cannot be determined at this
time. The total amount expended on the Year 2000 Project through October 30,
1998 was $15 thousand which was related to the cost to repair or replace
software and related hardware problems.
RISKS:
The failure to correct material Year 2000 problems could result in an
interruption in, or a failure of, certain normal business operations. These
failures could potentially materially affect the Company's results of operations
and financial condition; however, due to the general uncertainty which is
inherent in potential Year 2000 problems, resulting in part from the uncertainty
of the Year 2000 readiness of third-party suppliers, customers or partners, the
Company is unable to determine, at this time, whether the consequences of Year
2000 failures will have a material impact on the Company's results of operations
or financial condition.
The Year 2000 assessment project is the Company's response to this
potential problem and is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 problem and the compliance and readiness of its
material third-party vendors. The Company believes that with the implementation
of new systems and completion of the Year 2000 project as scheduled, the
possibility of significant interruptions affecting the Company's operations
should be reduced.
Readers are cautioned that forward-looking statements contained in this
Year 2000 disclosure should be read in conjunction with the Company's
disclosures under the heading "Risks Related to the Business" in the Company's
Form 10-K for the year ended December 31, 1997. Readers should understand that
the dates on which the Company believes the Year 2000 project will be completed
are based upon Management's best estimates, which were derived utilizing
numerous assumptions of future events, including the availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, or that there will not be
a delay in, or increased costs associated with, the implementation of the
Company's Year 2000 compliance project. A delay in specific factors that might
cause differences between the estimates and actual results include, but are not
limited to, the availability and cost of personnel trained in these areas, the
ability to correct all relevant computer code, timely responses to and
corrections by third parties and suppliers, the ability to implement interfaces
between the new systems and the systems not being replaced, and similar
uncertainties. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third
parties and the inter-connection of national and international businesses, the
Company cannot ensure that its ability to timely and cost effectively resolve
problems associated with the Year 20000 issue may not effect its operations and
business, or expose it to third party liability.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
+3.1 Certificate of Incorporation of Film Roman, Inc., a Delaware
corporation (the "Company")
+3.2 Bylaws of the Company
3.3 Amendment to Bylaws of the Company dated as of August 5, 1997
(Incorporated by reference to Exhibit 3.3 to the Company's form
10-Q for the quarter ended September 30, 1997)
+4.1 Specimen Stock Certificate
4.2 Rights Agreement (Incorporated by reference to Exhibit 1 to the
Company's Form 8-A filed September 1, 1998)
4.3 Certificate of Designation of Rights, Preferences and Privileges
of Series A Preferred Stock (Incorporated by reference to Exhibit
2 to the Company's Form 8-A filed September 1, 1998)
+*10.1 Employment Agreement dated as of August 7, 1995 by and between
Film Roman, Inc., a California corporation ("Film Roman
California") and Mr. Phil Roman
+*10.2 Employment Agreement dated as of January 2, 1996 by and between
Film Roman California and Mr. Gregory Arsenault (Exhibit 10.5)
*10.3 Employment Agreement dated as of August 1, 1997 by and between
Film Roman California and Mr. Jon Vein (Incorporated by reference
to Exhibit 10.48 to the Company's Form 10-Q for the quarter ended
September 30, 1997)
*10.4 Terms of Executive Employment Agreement dated as of August 22,
1997 by and between the Company and Mr. David Pritchard
(Incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997)
*10.5 Amendment dated as of June 25, 1998 to Employment Agreement dated
as of August 1, 1997 by and between Film Roman California and Mr.
Jon Vein (Incorporated by reference to Exhibit 10.5 to the
Company's Form 10-Q for the quarter ended June 30, 1998)
*10.6 Amendment dated as of July 20, 1998 to Employment Agreement
dated as of August 1, 1997 by and between Film Roman California
and Mr. Jon Vein
*10.7 Stock Option Plan of the Company (Incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997)
+*10.8 Form of Non-Qualified Stock Option Agreement for Employees
+*10.9 Form of Incentive Stock Option Agreement for Employees
*10.10 First Amendment to 1996 Stock Option Plan of Film Roman, Inc.
(Incorporated by reference to Exhibit 10.10 to the Company's Form
10-Q for the quarter ended June 30, 1998)
+10.11 Lease for Registrant's headquarters and studio in North
Hollywood, California
*10.12 Employment Agreement dated as of September 30, 1998 by and
between Film Roman California and Mr. William Shpall
10.13 Intentionally Omitted
+10.14 Agreement dated December 11, 1990, between Film Roman, Inc. and
Alevy Productions, Inc.
+10.15 Series Production Agreement dated as of April 27, 1990 between
Fox Children's Network and Film Roman, Inc.
+10.16 Agreement dated as of June 20, 1995, between Film Roman, Inc. and
Starstream Limited
+10.17 Amendment dated December 18, 1992 between Film Roman, Inc. and
Fox Children's Network
+10.18 Amendment dated March 22, 1994 between Film Roman, Inc. and Fox
Children's Network
13
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
+10.19 Agreement dated October 5, 1994 between Flying Heart, Inc. and
Film Roman, Inc.
+10.20 Agreement dated February 20, 1996 with Live Film and Mediaworks,
Inc. and Film Roman, Inc.
+10.21 Letter Agreement dated January 9, 1995 with Agreement dated
November 22, 1993, revised December 9, 1994, December 13, 1993,
June 23, 1994 and August 1, 1994 between Fox Children's Network
and Film Roman, Inc.
+10.22 Agreement dated June 1, 1995, between Fox Children's Network and
Film Roman, Inc.
+10.23 Amendment dated March 1, 1996 to the Agreement dated as of
November 22, 1993 between Fox Children's Network and Film Roman,
Inc.
+10.24 Agreement dated September 12, 1994 between Film Roman, Inc. and
Tone Loc, Inc.
+10.25 Agreement dated as of May 7, 1993 between Film Roman, Inc. and
Adelaide Productions, Inc.
+10.26 Amendment dated as of May 18, 1994 revised as of June 14, 1994
between Film Roman, Inc. and Adelaide Productions, Inc.
+10.27 Amendment dated as of June 20, 1994 revised as of July 7, 1994
between Film Roman, Inc. and Adelaide Productions, Inc.
+10.28 Agreement dated November 9, 1993 between Film Roman, Inc. and
Felix The Cat Creations, Inc.
+10.29 Agreement dated as of June 28, 1994 between CBS Entertainment and
Film Roman, Inc.
+10.30 Agreement dated September 27, 1994 between Felix The Cat
Creations, Inc. and Film Roman, Inc.
+10.31 Letter Agreement dated June 6, 1995 between Felix The Cat
Corporation and Film Roman, Inc.
+10.32 Agreement dated September 1, 1995 between Felix Comics, Inc. and
Film Roman, Inc.
+10.33 Agreement dated November 20, 1995 between Felix The Cat
Creations, Inc. and Film Roman
+10.34 Amendment to Output Distribution Agreement dated February 1, 1994
between Film Roman, Inc. and Taurus Film GmbH & Company
+10.35 Output Distribution Agreement dated as of September 1, 1994
between Film Roman, Inc. and Taurus Film GmbH & Company
+10.36 Agreement dated April 1, 1991 between United Media/Mendelson
Production and Film Roman,Inc. re: Prime Time Television special
+10.37 Agreement dated April 1, 1991 between United Media/Mendelson
Production and Film Roman, Inc. re: Saturday Morning Series
+10.38 Co-Production Agreement dated June 11, 1993 between Canal Plus
and Bluebird Toys (the U.K.) Limited and Film Roman, Inc.
regarding Mighty Max
+10.39 Agreement dated April 12, 1994 between Canal Plus and Bohbot
Entertainment Worldwide, Inc. and Film Roman, Inc
+10.40 Form of Agreement between Film Roman, Inc. and Threshold
Entertainment
+10.41 Agreement dated as of January 29, 1992 between Film Roman, Inc.
and 20th Television (Exhibit 10.43)
+10.42 Agreement dated as of March 7, 1996, between Film Roman, Inc. and
LUK International (Exhibit 10.44)
+10.43 Agreement dated as of May 22, 1996, between Film Roman, Inc. and
Canal-Plus--Spain (Exhibit 10.45)
+10.44 Co-Production Agreement between Television Espanola, S.A. and
Film Roman, Inc. (Exhibit 10.46)
10.45 Agreement dated as of February 26, 1998 between Claster
Television and Film Roman, Inc. in connection with "Mr. Potato
Head" (As indicated by asterisk, selected text of the agreement
has been redacted pursuant to a confidentiality request)
(Incorporated by reference to Exhibit 10.45 of the Company's Form
10-Q for the quarter ended June 30, 1998)
10.46 Agreement dated as of February 26, 1998 between Fox Kids
Worldwide and Film Roman, Inc. in connection with "Mr. Potato
Head" ( As indicated by asterisk, selected text of the agreement
has been redacted pursuant to a confidentiality request)
(Incorporated by reference to Exhibit 10.46 of the Company's Form
10-Q for the quarter ended June 30, 1998)
14
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
99.1 Press Release dated October 6, 1998, re: appointment of William
Shpall
___________________________
+ Incorporated by reference to the similarly numbered exhibit (or to the
exhibit number listed in parentheses) to the Company's Registration
Statement on Form S-1 (Registration No. 333-03987) as filed with the
Securities and Exchange Commission on September 30, 1996.
* Management contract or other compensation plan or arrangement.
(B) REPORTS ON FORM 8-K.
One report on Form 8-K was filed by the Company on September 1, 1998
with respect to the adoption by the Company of a Stockholder Rights Plan. Item
5 was reported.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 13, 1998
FILM ROMAN, INC.
By: /s/ David Pritchard
-------------------
David Pritchard
President and Chief Executive Officer
By: /s/ Greg Arsenault
------------------
Greg Arsenault
Senior Vice President - Finance and
Administration
S-1
<PAGE>
EXHIBIT 10.6
AMENDMENT As of July 20, 1998
Reference is hereby made to that certain agreement ("Agreement") dated as
of August 1, 1997 by and between Film Roman, Inc. ("FRI") and Jon F. Vein
("Employee"), as amended as of June 25, 1998. For good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, FRI and
Employee have agreed and do hereby agree to amend the Agreement as follows:
1. Prior to the words "initiates or sets up" in the 3rd line of the first
Paragraph 4.3(b), the words "or any persons reporting directly or
indirectly to Executive" shall be inserted.
2. Following the word "five (5)" in the 3rd line of the second paragraph of
Paragraph 4.3(b), the words "per contract year" shall be inserted.
3. Following the word "films" in the 7th line of the second paragraph of
Paragraph 4.3(b), the words "per contract year" shall be inserted.
4. Following the word "involvement" in the 6th line of Paragraph 4.3(C), the
words "or the involvement of those reporting directly or indirectly to
Executive" shall be inserted.
Other than as modified above, the Agreement shall remain in full force and
effect for the Term, as hereby extended.
ACCEPTED & AGREED:
FILM ROMAN, INC.
/s/ Jon F. Vein By: /s/ David Pritchard
- ------------------------- --------------------------
JON F. VEIN Its Authorized Signatory
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 30th day of September, 1998, by and
between FILM ROMAN, INC., a California corporation, 12020 Chandler Street, North
Hollywood, California 91607 ("Company") and WILLIAM SHPALL, 460 N. Las Palmas,
Los Angeles, California 90004 ("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment:
----------
1.1 Company shall employ Executive and Executive accepts such
employment with the Company upon the terms and conditions set forth in this
agreement.
1.2 During the Term defined below Executive shall serve as Chief
Operating Officer of the Company and of its parent company (Film Roman Inc., a
Delaware corporation) and any direct or indirect wholly owned subsidiary of the
Company or its parent which the Board of Directors ("Board") may designate.
Executive shall be responsible and report to the Chief Executive Officer of the
Company. The duties to be performed by Executive shall include those consistent
with his position as Chief Operating Officer as the Chief Executive Officer of
the Company may from time to time designate. All personnel (other than creative
personnel) shall report directly to Executive or his designees (including, but
not limited to, the Senior Executive in the Company's Finance Department.
1.3 Executive shall devote Executive's best efforts and, subject to
Section 1.7 below, Executive's exclusive full business time and attention (as
required by the Chief Executive Officer of the Company or the Board) to the
business and affairs of Company, its parent, and their direct or indirect wholly
owned subsidiaries, if any. In connection with the foregoing, Executive shall be
located at and perform his services primarily at the Company's principal
executive offices located in the greater Los Angeles Metropolitan area (it being
understood that the performance of the Executive's duties shall include business
travel from time to time outside of such area).
1.4 Executive shall perform Executive's duties and responsibility to
the best of Executive's abilities in a diligent, trustworthy, business-like and
efficient manner and shall comply with Company's reasonable instructions and
regulations in all matters, including, if applicable, artistic taste.
1.5 Reference is made to Company's"Executive Handbook" as the same
may be currently in effect or hereafter modified (modifications, if any, which
are inconsistent with
<PAGE>
specific provisions of this agreement shall not be deemed incorporated herein).
Said Executive Handbook shall be deemed a part of this Agreement, except that
the Company's termination rights hereunder shall be only as set forth in this
Agreement and if there are any other inconsistencies between the handbook and
this agreement the provisions of this Agreement shall prevail.
1.6 Executive shall cooperate with Company to enable Company to
obtain, at its expense, life insurance on the life of Executive for the benefit
of Company in such amounts as Company may from time to time determine, but
failure to qualify for insurance shall not be a breach hereof.
1.7 Notwithstanding that Executive's services are exclusive hereunder
it is agreed that Executive shall be entitled to complete any current
assignments which he may have in such a manner so as not to conflict with the
reasonable time requirements of Company; additionally, Executive may spend a
reasonable amount of time (not in conflict with Company's requirements
hereunder) to maintain business relationships with other companies and
individuals with whom he has established such relationships provided that in no
event shall he engage in any such activities with any companies which are
competitive to Company, nor shall the time spent in connection with maintaining
such relationships be a significant expenditure of time.
2. Term:
-----
2.1 The term (herein "Term") of this agreement shall commence as of
September 30, 1998, and shall continue, unless sooner terminated as elsewhere
herein provided, for two (2) consecutive "contract years" as defined below. The
date on which the Term is scheduled to expire shall be referred to herein as the
"Expiration Date."
2.2 The term "contract year" as used above means each period of
fifty- two (52) consecutive weeks; provided, however, that if the Term were to
-------- -------
expire in the middle of any week, the Term shall be deemed extended so as to
expire on the Friday of such week.
3. Termination and Effect of Termination:
--------------------------------------
3.1 Expiration of Term. Executive's employment by the Company and
------------------
this Agreement shall automatically expire and terminate on the expiration of the
Term unless sooner terminated pursuant to the provisions of this Section 3.
3.2 Death. Executive's employment by the Company and this Agreement
-----
shall automatically terminate upon Executive's death.
3.3 Disability. The Company shall have the right and option,
----------
exercisable by giving written notice to Executive, to terminate Executive's
employment by the Company and this Agreement at any time after Executive has
been unable to perform the services or duties required of Executive in
connection with Executive's employment by the Company as a result of physical
2
<PAGE>
or mental disability (or disabilities) which has (or have) continued for a
period of 60 days in the aggregate, during any twelve (12) month period.
Executive shall be deemed to be physically or mentally incapacitated if
Executive is unable for any reason whatsoever to devote substantial time to the
business of the Company, as determined by the Board in good faith. If the
Company determines that Executive is disabled or incapacitated and if Executive
does not agree, determination shall be made by a panel of three (3) doctors, the
first to be chosen by the Company, the second to be chosen by Executive and the
third to be chosen by the first two. Any doctor selected by a party will not be
affiliated, associated or related to the party selecting that doctor in any
manner whatsoever. The opinion of a majority of the panel of doctors shall be
binding on the parties hereto. Each party shall bear its own cost for their own
doctor, and the parties shall split the cost of the third doctor (unless it is
determined that Executive is not permanently incapacitated, in which even all
doctor costs shall be borne by Company).
3.4 For Cause. The Company shall have the right and option,
---------
exercisable by giving written notice to Executive, to terminate Executive's
employment by the Company and this Agreement at any time after the occurrence of
any of the following events or contingencies (any such termination being deemed
to be a termination "for cause"):
(i) Executive materially breaches, materially repudiates or
otherwise materially fails to comply with or perform any of the terms of this
Agreement, any duties of Executive in connection with Executive's employment by
the Company or any of the Company's policies or procedures, or deliberately
interferes with the compliance by any other Executive of the Company with any of
the foregoing; provided, that if any action or omission by Executive
constituting one of the foregoing is curable and not "intentional" and does not
constitute any of the events or actions described in clause (ii), below,
Executive shall have five (5) business days to cure such breach following notice
thereof from the Company (which notice shall be written or, if immediate written
notice is not possible, oral notice may be given, provided that such oral notice
is confirmed in writing within the foregoing five business day period.) (For
purposes of this clause (i) and clauses (iii) and (iv), below, an action (or
omission) shall be "intentional" if Executive knows, or reasonably should have
known, that such action (or omission) constitutes a material breach hereof). For
these purposes, actions (or omissions) by the Executive which he in good faith
believes to be in the best interests of the Company and are permitted by this
Agreement shall not be deemed in any circumstance to constitute an action (or
omission) which he "reasonably should have known" to constitute a material
breach of this Agreement;
(ii) The commission by Executive of a felony (whether or not
prosecuted) or the pleading by Executive of no contest (or similar plea) to any
felony (other than a crime for which vicarious liability is imposed upon
Executive solely by reason of Executive's position with the Company, and not by
reason of Executive's conduct). For purposes of this clause, the Company shall
bear the burden of proof in any action in which the Company attempts to
terminate Executive based upon the "commission of a felony" unless a judgment of
"guilty" has been entered against Executive in a court of competent jurisdiction
with respect to such felony; or
3
<PAGE>
(iii) Any act or omission by Executive constituting fraud,
gross negligence or willful misconduct in connection with Executive's employment
by the Company; provided, that if any action or omission by Executive
constituting one of the foregoing is curable and not "intentional" and does not
constitute any of the events or actions described in clause (ii) above,
Executive shall have five (5) business days to cure such breach following notice
thereof from the Company (which notice shall be written or, if immediate written
notice is not possible, oral notice may be given, provided that such oral notice
is confirmed in writing within the foregoing five business day period).
3.5 Employment Beyond the Term. The Company shall have no obligation
---------------------------
to renew or extend the Term. Neither (i) the expiration of the Term, (ii) the
failure or refusal of the Company to renew or extend the Term, this Agreement,
or Executive's employment by the Company upon the Expiration of the Term nor
(iii) the termination of this Agreement by the Company pursuant to any provision
of this Section 3, shall be deemed to constitute a termination of Executive's
employment by the Company "without cause" for the purpose of triggering any
rights of or causes of action by Executive. The Company agrees to provide
Executive with at least six months notice of its determination whether to extend
the Term or allow the Term to expire; provided, however, if the Company provides
-------- -------
Executive with less than six months notice, the Term shall be automatically
extended at Executive's option to that date which is six months following the
giving of any such notice.
3.6 Consequences of Termination. If this Agreement, the Term or
---------------------------
Executive's employment by the Company is terminated or expires pursuant to any
provision of this Section 3 (other than Section 3.2, 3.3 or 3.7), or is
terminated by Executive, Executive's right to receive salary or other
compensation from the Company and all other rights and entitlements of Executive
pursuant to this Agreement or as an Executive of the Company shall forthwith
cease and terminate, and the Company shall have no liability or obligation
whatsoever to Executive, except that:
(i) The Company shall be obligated to pay to Executive not
later than the effective date of such termination all unpaid salary, vacation
and reimbursable expenses which shall have accrued as of the effective date of
such termination; and
(ii) The terms and conditions of applicable Executive
Benefit Plans, if any, shall control Executive's entitlement, if any, to receive
benefits thereunder.
3.7 Termination Without Cause. The Company shall not be obligated to
utilize Executive's services or any of the results and proceeds thereof or to
permit Executive to retain any corporate office or to continue to do so; and the
Company shall have the unilateral right, at any time, without notice, in the
Company's sole and absolute discretion, to terminate Executive's employment by
the Company, without cause, and for any reason or for no reason (the Company's
"Termination Rights"). The Company's Termination Rights are not limited or
restricted by, and shall supersede, any policy of the Company requiring or
favoring continued employment of its
4
<PAGE>
Executives during satisfactory performance, any seniority system or any
procedure governing the manner in which the Company's discretion is to be
exercised. No exercise by the Company of its Termination Rights shall, under any
circumstances, be deemed to constitute (i) a breach by the Company of any term
of this Agreement, express or implied (including without limitation a breach of
any implied covenant of good faith and fair dealing), (ii) a wrongful discharge
of Executive or a wrongful termination of Executive's employment by the Company,
or (iii) a wrongful deprivation by the Company of Executive's corporate office
(or authority, opportunities or other benefits relating thereto). If the Company
elects to terminate Executive's employment by the Company without cause prior to
the expiration of the Term, the Company shall have no obligation or liability to
Executive pursuant to this Agreement or otherwise, except to pay to Executive
not later than the effective date of such termination (i) all unpaid vacation
which shall have accrued as of the effective date of such termination, (ii) a
lump-sum payment equal to the aggregate amount of salary provided in Section 4.1
hereto that would have been payable to Executive during the remainder of the
Term, as if Executive's employment by the Company had not been terminated. If
the Company terminates Executive's employment without cause prior to the
Expiration Date, Executive shall have no obligation to mitigate and the Company
shall have no right to offset the Company's payment obligations against any
employment income received by Executive.
3.8 Termination by Executive. Executive shall have the right to
------------------------
terminate the term of this Agreement prior to the expiration date specified
herein:
(i) If the Company purports to require Executive to report to
any officer other than the Chief Executive Officer of Company; or
(ii) If the Company materially breaches this Agreement
(including, but not limited to, the provisions of Section 1.2 hereof) and such
breach is not cured within five (5) business days after receipt of written
notice from Executive alleging such breach; or
(iii) Executive shall have the right and option, exercisable by
giving written notice to the Company, to terminate Executive's employment by the
Company and this Agreement at any time during the 90-day period following the
occurrence of a Change in Control, in which case the Company shall make the
payments required by Section 3.7. For purposes of this Agreement, a Change in
Control shall be deemed to occur if (x) during any period of two consecutive
years, individuals at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose nomination was
approved by a vote of the majority of the directors of Holdings then still in
office who were either directors at the beginning of such period or whose
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then if office or (y) a
Distribution Date occurs under the terms of that certain Rights Agreement, dated
as of August 21, 1998, by and between the Company and American Stock Transfer &
Trust Corporation.
3.9 Consequences of Termination - By Reason of Death or Disability.
--------------------------------------------------------------
5
<PAGE>
If this Agreement, the Term or Executive's employment by the
Company is terminated or expires pursuant to the provisions of Section 3.2
(Death) or Section 3.3 (Disability), Executive's right to receive salary or
other compensation from the Company and all other rights and entitlements of
Executive pursuant to this Agreement or as an Executive of the Company shall
forthwith cease and terminate, and the Company shall have no liability or
obligation whatsoever to Executive, except that:
(i) The Company shall be obligated to pay to Executive or
Executive's estate, as applicable, not later than the effective date of such
termination all unpaid salary, vacation and reimbursable expenses which shall
have accrued as of the effective date of such Termination;
(ii) The Company shall be obligated to pay to Executive or
Executive's estate, as applicable, an amount equal to the Base Salary that would
have accrued during the six months following the effective date of such
termination, as if such termination had not occurred; and
(iii) The terms and conditions of applicable Executive
Benefit Plans, if any, shall control Executive's entitlement, if any, to receive
benefits thereunder.
4. Salary and Bonuses: Provided Executive fully and faithfully renders
------------------
all services required hereunder and is not otherwise in material breach hereof,
Company will pay salary (in equal weekly or bi-weekly installments) and bonuses
as follows:
4.1 Base Salary:
-----------
(a) First contract year - $275,000.00
(b) Second contract year - $300,000.00
Nothing herein shall preclude Company from reviewing and increasing
any compensation provided for herein which review shall occur not more often
than semi-annually; any such increases shall require the approval of the Board.
4.2 Bonuses: Executive may be entitled to an annual performance bonus
-------
as from time to time determined by the Board of Directors (it being acknowledged
that there is no obligation to grant such a Bonus).
4.3 Company's obligation for payment of compensation hereunder shall
be subject to all present and future laws, rules, regulations and executive
orders affecting such obligation. No withholding, deduction, reduction or
limitation of payments hereunder by reason of any such law, rule, regulation or
order shall be deemed a breach of this agreement or relieve Executive from
Executive's obligations hereunder or give Executive any right to terminate this
agreement. If Company is unable to make full payments hereunder because of any
wage control
6
<PAGE>
law or regulation, Company shall pay Executive any portion of such payment
(which is not paid when due) at such time when such law or regulation no longer
prohibits such payment (unless such law or regulation prohibits such retroactive
payments).
5. Expenses;
--------
5.1 (a) Company shall reimburse Executive for such expenses which
are reasonably incurred by Executive on behalf of or for the benefit of Company
in accordance with the Company's then current expense reimbursement policies
applicable to senior executive officers (which in any event shall be no less
favorable than that applicable to the Chief Executive Officer) and the
presentation by Executive from time to time of an itemized account of such
expenditures setting forth the date, the purposes for which incurred, and the
amounts thereof, and such other information as Company may reasonably require,
together with such receipts showing payments as Executive has been able to
obtain. Company shall either pay for or reimburse Executive for all such travel
expenses as well as reasonable living expenses while he is outside of the
greater Los Angeles area.
(b) Further, Executive shall be entitled to a Company telephone
credit card. Executive shall also be entitled to a car allowance in the amount
of Five Hundred Dollars ($500.00) per month, which amount shall be reported on
Executive's W-2 or on Form 1099 (as Company may determine) and shall cover all
normal work-related automobile expenses and shall be payable in accordance with
Company's then existing policies (currently, payment to be made at the beginning
of each applicable month). Company shall reimburse Executive for charges
relating to cellular telephone, and car telephone uses pertaining to Company's
business upon receipt of substantiating vouchers. With respect to the Company
telephone credit card, car allowance, cellular telephone and car telephone,
Company shall treat Executive in accordance with the Company's then current
policies applicable to senior executive officers (which in any event shall be no
less favorable than that applicable to the Chief Executive Officer).
6. Benefits:
--------
6.1 Medical Plans, etc.
-------------------
(a) During the Term, Executive shall also be entitled to and
shall be accorded all rights and benefits under any life insurance, disability,
health and major medical insurance policy or policies, and any other plans or
benefits, 401(K) Plan and pension plans which Company may provide during the
Term ("Employee Benefit Plans") to senior executive officers generally (which in
any event shall be no less favorable than the policies applicable to the Chief
Executive Officer). Further, the Company shall consult with Executive with
respect to the Company's decision to adopt a new disability plan for the
Company.
(b) During each contract year Executive shall also be entitled
to (i) three (3) weeks of paid vacation at times to be mutually agreed to and
(ii) sick leave on a basis accorded
7
<PAGE>
other senior executives generally during the Term (which in any event shall be
no less favorable than that applicable to the Chief Executive Officer).
(c) Provided that Executive meets qualifications (including
medical qualifications) for the same Company shall furnish Executive with term
life insurance having a face value of $500,000.00, which insurance coverage
shall remain in effect during the term hereof.
6.2 Employee Stock Options:
----------------------
Executive is entitled to participate in the Employee Stock Option
Plan of Film Roman, Inc., a Delaware corporation ("FRI Delaware"). Said Plan
includes usual provisions included in a non-qualified stock option plan
including the right to satisfy the exercise price with cash, promissory notes
(if secured to the reasonable satisfaction of FRI, Delaware) or stock in the FRI
Delaware. Executive acknowledges that such Plan is not intended to be an
"incentive stock option" within the meaning of Section 422A of the Internal
Revenue Code of 1986 as amended and is to be considered in all respects as "non-
qualified." Company will cause FRI Delaware to grant to Executive options under
the Employee Stock Option Plan of FRI Delaware, containing the terms and
conditions summarized below, to purchase two hundred thousand (200,000) shares
of FRI Delaware's common stock at an exercise price equal to its fair market
value (as defined in the Plan) as of June 16, 1998, which options shall vest as
follows:
(i) an option as to 100,000 shares to vest immediately upon
signing of this agreement; and
(ii) an option as to 100,000 shares to vest in twelve monthly
installments, the first installment date being the first day of the second
contract year with respect to 16,667 shares; the following 10 installment dates
being the first day of each of the following ten months with respect to 7,575
shares; and the last installment date being the first day of the last month of
the second contract year with respect to all remaining unvested shares.
Said options shall remain exercisable for a period ending on the
earlier to occur of (i) ten (10) years from the date of the grant, (ii) nine
months from the effective date of termination of this Agreement for any reason
other than Death (Section 3.2) or Disability (Section 3.3); and (iii) two years
from the effective date of termination of this Agreement by reason of Death
(Section 3.2) or Disability (Section 3.3). Notwithstanding anything above to the
contrary, with respect to stock options granted Executive, Executive may elect
to exercise such options on a cashless basis, deducting from the number of
option shares to be received a number of shares equal in value to the exercise
price of the option as determined in accordance with the provisions of the Plan,
as applicable. Without limiting the foregoing, in the event of termination of
this Agreement, unvested stock options granted hereunder shall be canceled as
and to extent provided in the Plan; except that if termination of this agreement
is by reason of Death (as provided in Section 3.2), Disability (as provided in
Section 3.3), without cause (as provided in Section 3.7
8
<PAGE>
above) or by Executive (as provided in Section 3.8 (i), (ii) or (iii) above)
then and in such event all options granted hereunder but not yet vested shall be
accelerated and shall be considered vested as of the date of such termination.
6.3 Office; Assistant: Executive will be furnished with a private
-----------------
office, office equipment as reasonably required, and the services of an
assistant exclusive to Executive during the Term hereof. Company acknowledges
that Executive will be moving his office from its present location to the office
space provided at Company's headquarters; Company agrees to pay to Executive a
flat amount of $5,000.00 to reimburse Company for any expenses incurred in
connection with such move, as well as any expenses (including legal expenses)
incurred by Executive in connection with the review of this agreement. Such
amount shall be treated as additional income to Executive and shall be reported
on Form 1099.
7. Company's Rights:
----------------
7.1 Executive acknowledges that Company, as employer of
Executive, shall own all right, title and interest in and to the results of
Executive's services hereunder, including all material developed or conceived by
Executive within the scope of Executive's employment. Company shall have the
right to use all such materials and the elements thereof and the programs or
other productions in which the material is contained worldwide and in
perpetuity, without limitation or restriction whatsoever and Company may
distribute, broadcast and otherwise exhibit, use and/or exploit, in whole or in
part, worldwide, in perpetuity, same in any manner and through any media,
whether presently in existence or subsequently devised, as Company may elect.
Executive hereby waives the so-called "moral rights" of an author. Executive
agrees and acknowledges that for purposes of Section 201 of the United States
Copyright Act and for ownership purposes, Company is the "employer for hire" of
Executive and shall have all ownership rights in the material and services of
Executive hereunder as the author thereof. Company shall have no obligation to
use the product of Executive's services.
7.2 Without limiting the foregoing, Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to
Company's or any of its subsidiaries' actual or anticipated business, research
and development or existing or future products or services and which are
conceived, developed or made by Executive while employed by Company or its
predecessor belong to Company or such subsidiary. Executive will promptly
disclose to the Board and perform all actions reasonably requested by the Board
at Company's expense (whether during or after the Term) to establish and confirm
such ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).
7.3 Company shall have the right to use, disseminate, reproduce,
print and publish Executive's name, likeness, voice and approved biographical
material concerning Executive as news or informative matter in connection with
Company's business.
9
<PAGE>
7.4 Executive's services and rights herein granted are unique in
character and value such that the loss thereof could not reasonably compensable
in damages in an action at law. According, Company shall be entitled to seek
equitable relief by way of injunction or otherwise to prevent the breach or
continued breach of this Agreement. The sole right of Executive as to any breach
or alleged breach hereof by Company shall be the recovery of money damages, and
the rights herein granted by Executive shall not be terminated by reason of such
breach. The waiver by either party of any breach hereof shall not be deemed a
waiver of any prior or subsequent breach hereof. All remedies of either party
shall be cumulative and the pursuit of one remedy shall not be deemed a waiver
of any other remedy.
8. Federal Communications Act:
--------------------------
To the extent that the same may be deemed applicable to any product
hereunder, reference is hereby made to Section 507 of the Federal Communications
Act, making it a criminal offense for any person, in connection with the
production or preparation of any program intended for broadcasting, to accept or
pay any money, service or other valuable consideration for the inclusion of any
matter as part of any such program or program matter without disclosing in
advance the same to the employer of the person to whom such payment is made or
to the person for whom such program is being produced, or to the station over
which such program is broadcast. Executive understands that it is the policy of
Company not to permit any employee of Company to accept or pay any such
consideration, and Executive represents and agrees that Executive has not
accepted and will not accept, and has not paid and will not pay, any money,
services, or other valuable consideration for the inclusion of any "plug,"
reference or product identification, or any other matter in the programs
produced hereunder.
9. Confidential Information:
------------------------
Executive acknowledges that the information, observations, work product,
trade secrets and data obtained by Executive while employed by Company and its
subsidiaries concerning the business or affairs of the Company or any subsidiary
thereof ("Confidential Information") are the property of Company or such
subsidiary. Therefore, Executive agrees that Executive shall not disclose to any
unauthorized person or use for Executive's own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters (i) become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions to act or (ii) must be disclosed under a subpoena or other
governmental order or (iii) was possessed by Executive prior to Executive's
employment by the Company or (iv) are disclosed within scope of period, or at
any other time Company may request, all memoranda, notes, plans, records,
reports, computer tapes and software and other documents and data (and copies
thereof) relating to the Confidential Information, work product or the business
of Company or any subsidiary which Executive may then possess or have under
Executive's control; provided that Executive may retain his personal rolodex.
10
<PAGE>
10. Non-Compete, Non-Solicitation:
-----------------------------
10.1 Executive acknowledges that in the course of Executive's
employment with Company Executive has and will become familiar with Confidential
Information concerning Company and its subsidiaries and that Executive's
services have been and will be of special, unique and extraordinary value to
Company and its subsidiaries. Therefore, during the Term, Executive will not be
an employee, consultant, advisor, or director of any other person, firm or
corporation. Further, Executive shall not become financially interested or
associated with, directly or indirectly, a Competitive Business.
10.2 Notwithstanding anything to the contrary contained herein,
Executive may own up to five percent (5%) of any class of a Competitive
Business' outstanding securities which are listed on any national securities
exchange, registered under Section 12(g) of the Securities Exchange Act of 1934
or otherwise publicly traded, provided that the holdings of Executive of any
such security of a Competitive Business do not represent more than 10% of the
aggregate of Executive's investment portfolio at any time. For these purposes,
"Competitive Business" means all persons engaging in any business which directly
competes with that of the business of the Company.
10.3 During Executive's employment and for two (2) years after the
end of the Term Executive will not attempt to solicit (for Executive's own
purposes or for any other company) any employee of or independent contractor
rendering exclusive services to Company at the time of such attempt or
solicitation. Further, during Executive's employment and for two (2) years
after the end of the Term Executive will not (i) transfer or attempt to transfer
any projects in which Company is involved (whether in negotiation, development
or production) from Company to Executive or to any other company and/or (ii)
encourage any company or business with whom Company is doing business (e.g. a
network or other exhibitor) from ceasing to do business with Company with
respect to any project which is then in negotiation, development or production.
11. Notices:
-------
All notices required to be given hereunder shall be in writing and
shall be delivered personally, or by express, certified or registered mail to
the respective addresses of the parties hereto set forth elsewhere in this
Agreement, or at such other addresses as may be designated by written notice.
Delivery of any notice shall be deemed conclusively made (i) if personally
delivered at the time of delivery, (ii). if delivered by any private overnight
express mail service, twenty-four (24) hours after deposit with such service
(this period shall be seventy-two (72) hours if addressed to or from a party
outside the United States), and (iii) if mailed, properly addressed and postage
prepaid, three (3) business days from date of mailing (seven (7) business days
if mailed to or from a country other than U.S.). A copy of any notice hereunder
to Company shall also be given to the Law Offices of Dixon Q. Dern, P.C., 1901
Avenue of the Stars, Suite 400, Los Angeles, California 90067; a copy of any
notice to Executive shall also be given to Kenneth
11
<PAGE>
Kleinberg, Esq., Kleinberg Lopez Lange Brisbin & Cuddy, 2049 Century Park East,
Suite 3180, Los Angeles, California 90067.
12. Immigration:
-----------
Company's engagement of Executive is subject to Executive's compliance
with the terms and provisions of the Federal Immigration and Naturalization Act
which compliance has been effected. In that regard concurrently with the
execution of this agreement Executive shall provide Company with such proof of
Company's United States Citizenship or authorization to work in the United
States as may be required by the Immigration and Naturalization Service and
shall also complete and return to Company an I-9 Form or such other forms as may
be required.
13. Arbitration:
-----------
Any controversy or claim arising out of, or relating to, this
agreement, the breach thereof, or the coverage of this arbitration provision
shall be settled by arbitration pursuant to the provisions of Section 1280, et
seq. of the California Code of Civil Procedure (or such substitute provisions
therefor then in effect); provided, that any arbitrator(s) selected shall have
experience in or knowledge of the business(es) in which Company is engaged. Any
such arbitration shall be conducted in Los Angeles, California. The arbitration
of such issues, including the determination of the amount of any damages
suffered by any party hereof by reason of the acts or omissions of another shall
be to the exclusion of any court of law except as set forth below. The decision
of the arbitrators or a majority of them shall be final and binding on all
parties and their respective heirs, executors, administrators, successors and
assigns. Any action to secure a judicial confirmation of the arbitration award
may be brought in any state or federal court of competent jurisdiction. If the
parties or the arbitrators appointed by them are unable to agree upon the
selection of a neutral arbitrator then either party may, at its election,
require that the arbitration shall be conducted under the auspices and rules of
the American Arbitration Association (AAA) and that the neutral arbitrator shall
be selected by the AAA. Arbitration hereunder shall not, in any event, (i)
prevent any party from seeking and obtaining equitable relief, including, but
not limited to, prohibitory or mandatory injunctions, specific performance or
extraordinary writs, in any court of law or equity having jurisdiction, nor (ii)
prevent any party from joining any other party as defendant in any action
brought by or against a third party, nor (iii) prevent any party from filing
legal action hereunder to effectuate any attachment or garnishment, provided
that such party stipulates in such action, at any other party's request, to
arbitration on the merits of said case, nor (iv) prevent a party from filing
legal action to compel arbitration under the arbitration provisions hereof.
14. General Provisions:
------------------
14.1 Warranties: Executive warrants that he[she] is free to enter
----------
into this Agreement and will not knowingly do or permit any act which will
interfere with or derogate from the full performance of his services or
Company's exercise of the rights herein granted.
12
<PAGE>
14.2 Indemnity: Executive shall hold Company, its licensees and
---------
assigns, and the directors, officers, employees and agents of the foregoing,
harmless from all claims, liabilities, damages, costs and legal fees arising
from any breach by Executive of any warranty or agreement made by Executive
hereunder. Company will hold Executive harmless from all claims, liabilities,
damages, costs and legal fees arising from the use of any material supplied
Executive by Company or incorporated at Company's discretion or in connection
with or arising out of the performance of his duties pursuant to this agreement.
The party receiving notice of any claim or action subject to indemnity hereunder
shall promptly notify the other party. This indemnity shall survive any
termination or expiration of this Agreement. Company shall maintain directors
and officers liability coverage during the Term which coverage shall apply to
all officers of Company including Executive, to extent provided therein.
14.3 Waiver: A waiver by either party of any of the terms or
------
conditions of this agreement in any one instance shall not be construed to be a
waiver of such term or condition for the future, or any subsequent breach
thereof; all remedies, rights, undertakings, obligations and agreements
contained in this agreement shall be cumulative, and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.
14.4 Construction: This agreement shall be governed by and construed
------------
in accordance with the laws of the State of California applicable to contracts
entered into and fully to be performed therein. In view of the fact that this
agreement was in whole or in part negotiated and entered into in California, the
parties consent to and agree to submit to the jurisdiction of the courts of the
State of California (and/or the federal courts within California), and each
party agrees that service of process may be effected by mail (certified or
registered mail, return receipt requested), to or by personal service upon such
party (or any officer of a corporate party) at such party's address as set forth
in this agreement or such other address as such party may specify in writing.
Wherever the context of this agreement requires it, each gender
shall be deemed to embrace and include the others, and the singular shall be
deemed to embrace and include the plural.
14.5 Public Announcement. Subject to the Company's obligations as a
-------------------
public company, the Company shall provide Executive with the right to review and
approve any public announcement of the terms, provisions, or execution of this
Agreement; provided, however, that Executive shall not unreasonably withhold
-------- -------
such approval. Further, the Company and Executive shall mutually approve the
timing of the release of any public announcement made with respect to
Executive's employment; provided, however, that any such release shall be made
-------- -------
within ten days of the date of execution of this Agreement.
14.6 Severability of Provisions: If any provision hereof as applied
to either party or to any circumstance shall be adjudged by a court to be void
or unenforceable, the same shall
13
<PAGE>
in no way affect any other provisions hereof, the application of such provision
in any other circumstances or the validity or enforceability hereof.
14.7 Entire Understanding: This agreement and the Stock Option
--------------------
Agreement executed concurrently herewith contains the entire understanding of
the parties hereto relating to the subject matter herein contained and
supersedes any and all prior negotiations, understanding and agreements between
the parties (whether oral or in writing); this agreement cannot be changed,
rescinded or terminated except by a writing signed by the Company.
14.8 Successors and Assigns: Except where expressly provided to the
----------------------
contrary, this agreement, and all provisions hereof, shall inure to the benefit
of and be binding upon the parties hereto, their successors in interest,
assigns, administrators, executors, heirs and devisees.
14.9 Section Titles: The titles of the Sections of this agreement
--------------
are for convenience only and shall not in any way affect the interpretation of
any paragraphs of this agreement or of the agreement itself.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
FILM ROMAN, INC.
"Company"
By /s/ David Pritchard
-------------------
Its President and CEO
William Shpall
--------------
WILLIAM SHPALL, Executive
Soc. Sec. _____________________
14
<PAGE>
EXHIBIT 21.1
Subsidiaries of Film Roman, Inc., a Delaware Corporation
--------------------------------------------------------
1) Film Roman, Inc., a California corporation
2) Namor Productions, Inc., a California corporation (wholly owned by Film
Roman, Inc., a California corporation)
3) Chalk Line Productions, Inc., a California corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of Film Roman, Inc. as of and for the three month
and nine month periods ended September 30, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 12,410,657 12,410,657
<SECURITIES> 0 0
<RECEIVABLES> 939,502 939,502
<ALLOWANCES> 0 0
<INVENTORY> 20,899,417 20,899,417
<CURRENT-ASSETS> 0 0
<PP&E> 2,497,358 2,497,358
<DEPRECIATION> 1,461,131 1,461,131
<TOTAL-ASSETS> 35,775,955 35,775,955
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 85,223 85,223
<OTHER-SE> 36,305,684 36,305,684
<TOTAL-LIABILITY-AND-EQUITY> 35,775,955 35,775,955
<SALES> 5,273,605 22,631,723
<TOTAL-REVENUES> 5,273,605 22,631,723
<CGS> 6,119,261 22,708,367
<TOTAL-COSTS> 6,119,261 22,708,367
<OTHER-EXPENSES> 1,784,148 4,421,840
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 166,316 550,850
<INCOME-PRETAX> (2,463,488) (3,947,634)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,463,488) (3,947,634)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,463,488) (3,947,634)
<EPS-PRIMARY> (0.29) (0.46)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
SHPALL NAMED C.O.O. OF
FILM ROMAN, INC.
(October 6,1998)William Shpall was named Chief Operating Officer of Film Roman
Inc. it was announced today by David Pritchard President and Chief Executive
Officer. "I'm delighted to have Bill join me in shaping the company as we
continue to implement the new strategy at Film Roman. Bill brings an excellent
reputation and tremendous strategic and financial experience to the company. As
Film Roman continues to respond to the changes in the industry, Bill will be
working with me to guide the company into other areas of the industry including;
feature film, live action, television, and direct to home entertainment," stated
Pritchard. "The critical ingredient of a successful entertainment company is
financial planning and operating discipline and Bill brings us both," Pritchard
added..
Shpall has extensive experience as a financier and operator of independent media
and entertainment companies. For the past 2 1/2 years, Shpall has been a
principal in Inter.\comm Management, a strategic & financial consulting firm for
the entertainment, communications, and new media industries. For three years he
was the CFO of Carolco Pictures where he took a lead role in constructing the
revitalization strategy for that company. Shpall was responsible for all of
Carolco's non-film production and day to day operations.
Prior to joining Carolco in 1992, Shpall pursued a successful banking career,
having worked at Bankers Trust and BT Securities for 12 years. When he left BT
Securities to join Carolco, he was a Managing Director in the firm's Media and
Entertainment Finance Group.
-MORE-
<PAGE>
"I am excited at the prospect of working with David and the rest of the
management team at Film Roman. Building a broad based entertainment company is a
challenging and exciting business opportunity. Film Roman has a solid base of
revenue and is intent on expanding its production and distribution activities.
As a debt free public company, Film Roman should have access to a variety of
financing opportunities and markets to help accelerate its growth," stated
Shpall.
Founded in 1984, Film Roman, Inc. is one of the leading independent animation
studios in the country. Currently Film Roman produces top animated hits as "The
Simpsons" and "King of the Hill" and is in production on "The Mr. Potato Head
Show", which airs on the Fox Kids Network Saturday mornings at 8:00AM/ET, and
"Family Guy" for 20th Century Fox Television, which is tentatively scheduled
to air on FOX next year.
THIS PRESS RELEASE CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING
STATEMENTS RELATE TO, AMONG OTHER THINGS, THE DEBUT OF "THE MR. POTATO HEAD
SHOW" ON THE FOX KIDS NETWORK IN THE FALL OF 1998, THE NEW SERIES "FAMILY GUY"
FOR 20TH CENTURY FOX TELEVISION, WHICH IS TENTATIVELY SCHEDULED TO AIR ON FOX
NEXT YEAR, AND THE COMPANY'S STRATEGIC AND GROWTH PLANS. THESE FORWARD-LOOKING
STATEMENTS ARE BASED LARGELY ON FILM ROMAN'S CURRENT EXPECTATIONS AND ARE
SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. SUCH RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO, RISKS THAT THE EPISODES MAY NOT AIR IN THE
NUMBER OR TIME PERIOD CONTEMPLATED, OR AT ALL, THAT THE COMPANY MAY NOT BE
SUCCESSFUL IN IMPLEMENTING ITS GROWTH STRATEGIES AND OTHER RISKS DESCRIBED IN
FILM ROMAN, INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31,1997 AND OTHER SEC REPORTS AND FILINGS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THESE FORWARD-LOOKING STATEMENT.
Contact:
Michael Saltzman (323) 692-7887
