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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 JUNE 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [ ] 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 July 24, 1998, 8,522,190 shares of common stock, par value
$.01 per share, were issued and outstanding.
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.......................................................................... 3
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998 (unaudited)........... 3
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1997 and June 30, 1998 (unaudited).............................................. 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and
June 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 4. Submission of Matters to a Vote of Security Holders........................................... 11
Item 5. Other Information............................................................................. 11
Item 6. Exhibits and Reports on Form 8-K.............................................................. 12
Signatures............................................................................................. S-1
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FILM ROMAN, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents....................................................... $ 15,986,250 $ 14,301,991
Accounts receivable............................................................. 1,228,142 1,132,252
Film costs, net of accumulated amortization of $212,107,777 (December
31, 1997) and $228,696,883 (June 30, 1998)...................................... 16,084,110 16,588,144
Property and equipment, net of accumulated depreciation and
amortization of $1,198,494 (December 31,1997) and $1,336,958 (June
30, 1998 )...................................................................... 535,200 799,053
Deposits and other assets....................................................... 544,927 532,523
------------ ------------
Total Assets.................................................................... $ 34,378,629 $ 33,353,963
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................................................ $ 1,009,586 $ 516,015
Accrued expenses................................................................ 2,204,414 2,253,977
Deferred revenue................................................................ 12,190,650 13,093,463
------------ ------------
Total liabilities............................................................... 15,404,650 15,863,455
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 at December 31, 1997 and
8,522,190 shares issued and outstanding at June 30, 1998....................... 84,548 85,223
Additional paid-in capital...................................................... 36,305,684 36,305,684
Retained deficit................................................................ (17,416,253) (18,900,399)
------------ ------------
Total stockholders' equity.................................................... 18,973,979 17,490,508
------------ ------------
Total liabilities and stockholders' equity.................................... $ 34,378,629 $ 33,353,963
============ ============
</TABLE>
See accompanying notes.
3
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FILM ROMAN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------- -----------------
1997 1998 1997 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue......................................... $7,145,840 $8,057,408 $19,241,502 $17,358,118
Cost of revenue................................. 6,273,489 7,620,311 17,930,856 16,589,106
Selling, general and
administrative expenses....................... 1,145,381 1,332,623 2,175,822 2,637,692
---------- ---------- ----------- -----------
Operating loss.................................. (273,030) (895,526) (865,176) (1,868,680)
Interest income................................. 113,174 177,087 264,892 384,534
Interest expense................................ ---- ---- ---- ----
---------- ---------- ----------- -----------
Net Loss........................................ $ (159,856) $ (718,439) $ (600,284) $(1,484,146)
========== ========== =========== ===========
Net loss attributable to common
stock.......................................... $ (159,856) $ (718,439) $ (600,284) $(1,484,146)
========== ========== =========== ===========
Net loss per common share basic
and diluted.................................... $(0.02) $(0.08) $(0.07) $(0.17)
========== ========== =========== ===========
Weighted average number of
shares outstanding basic and
diluted.................................. 8,454,690 8,522,190 8,452,190 8,491,610
========== ========== =========== ===========
</TABLE>
See accompanying notes.
4
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FILM ROMAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1997 1998
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................................................ $ (600,284) $ (1,484,146)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization....................................................... 113,140 138,463
Amortization of film costs.......................................................... 17,930,856 16,589,106
Changes in operating assets and liabilities:
Accounts receivable............................................................... 5,826,420 95,890
Film costs........................................................................ (19,248,810) (17,093,140)
Refundable income taxes........................................................... 800 ----
Deposits and other assets......................................................... (74,574) 12,404
Accounts payable.................................................................. (2,144,834) (493,571)
Accrued expenses.................................................................. (409,352) 49,563
Deferred revenue.................................................................. 44,489 902,813
------------ -----------
Net cash provided by(used in) operating activities................................ 1,437,851 (1,282,618)
INVESTING ACTIVITIES:
Additions to property and equipment................................................. (56,245) (402,316)
------------ ------------
Net cash used in investing activities............................................... (56,245) (402,316)
FINANCING ACTIVITIES:
Options exercised................................................................... 50 675
Borrowings under debt............................................................... ---- ----
Repayments on debt.................................................................. ---- ----
------------ -----------
Net cash provided by financing activities........................................... 50 675
Net increase(decrease) in cash...................................................... 1,381,656 (1,684,259)
------------ -----------
Cash and cash equivalents at beginning of period.................................... 13,738,927 15,986,250
Cash and cash equivalents at end of period.......................................... $ 15,120,583 $ 14,301,991
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest........................................................................ $ -- $ --
------------ -----------
Income taxes.................................................................... $ -- $ --
------------ -----------
</TABLE>
See accompanying notes.
5
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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 subsidiary Film Roman,
Inc., a California corporation ("Film Roman California"). 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 June 30, 1998 and the results of its operations for the three
and six months ended June 30, 1997 and 1998, and the cash flows for the six
months ended June 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 six months ended June 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.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 128, Earnings Per Share
("SFAS No. 128"), which is effective for annual and interim financial statements
issued for periods ending after December 15, 1997 and early adoption was not
permitted. SFAS No. 128 requires restatement of prior years' earnings per share
("EPS"). SFAS No. 128 was issued to simplify the standards for calculating EPS
previously in APB No. 15, Earnings Per Share. SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS. The new rules
also require dual presentation of basic and diluted EPS on the face of the
statement of operations for companies with a complex capital structure. For the
Company, basic EPS excludes the dilutive effects of stock options and warrants.
Diluted EPS for the Company would reflect all potential dilutive securities.
(3) - Film Costs
The components of unamortized film costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998 (unaudited)
----------- ---------------
<S> <C> <C>
Animated film productions released,
less amortization.............................................. $ 5,041,950 $ 4,204,572
Animated film productions in process.............................. 10,820,744 11,898,650
Animated film productions in development.......................... 221,416 484,922
----------- -----------
$16,084,110 $16,588,144
=========== ===========
</TABLE>
6
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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 "Family Guy" ordered by 20th
Century Fox Television and tentatively scheduled to air sometime in 1999, the 13
episodes of "The Mr. Potato Head Show" ordered by the Fox Kids Network to debut
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.
GENERAL
The Company creates, develops, produces and distributes high quality
animated television programming. Historically, the Company has produced
substantially all 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
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 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 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 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
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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 20th Century Fox Television to produce an
initial 13 episodes of a new half-hour animated comedy entitled "Family Guy".
The Company will produce this show on a "fee-for-services" basis. The new
series will portray a satirical slice of family life in the tradition of "The
Simpsons" and "King of the Hill". The date and time slot for airing the new
series have yet to be determined by 20th Century Fox Television. No assurance
can be given that "Family Guy" will actually be produced or that the episodes
will be aired by 20th Century Fox Television 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 scheduled to debut in
the fall 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
the 13 episodes of "Family Guy" mentioned above, which is tentatively scheduled
to air sometime in 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Total revenue increased by 14%, or $1.0 million, to $8.1 million for the
three months ended June 30, 1998, from $7.1 million for the comparable period
in the prior year. Total revenue increased primarily because of an increase in
"fee-for-services" revenue.
The Company delivered 11 "fee-for-services" episodes during the three
months ended June 30, 1998, compared to 10 episodes in the comparable period in
1997. Fee-for-services revenue increased 16%, or $0.9 million, to $6.5 million
for the three months ended June 30, 1998, from $5.6 million during the
comparable period in 1997.
The Company delivered no "proprietary" episodes during the three months
ended June 30, 1998 or 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
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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 43% or $0.3 million, to $0.4 million for the three months ended
June 30, 1998, from $0.7 million in the comparable three month period in 1997.
This decrease was a result of lower international sales of the Company's
proprietary programming in its library.
Other revenue increased by approximately $0.2 million during the three
months ended June 30, 1998, as compared to the same period of the prior year,
due primarily to a combined increase in revenue of approximately $0.9 million
from commercials and specials partially offset by a decrease of approximately
$0.7 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.
Total cost of revenue increased by 21%, or $1.3 million, to $7.6 million
for the three months ended June 30, 1998, from $6.3 million for the three months
ended June 30, 1997. Total cost of revenue, as a percentage of sales, increased
by 7% to 95%, primarily due to lower fee-for-service margins.
Total selling, general and administrative expenses for the three months
ended June 30, 1998 increased by $0.2 million to $1.3 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 partially offset by lower costs in licensing and merchandising and
lower general and administrative costs.
Operating loss was $0.9 million for the three months ended June 30, 1998,
as compared to a loss of $0.3 million for the three months ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.
Total revenue decreased by 10%, or $1.8 million, to $17.4 million for the
six months ended June 30, 1998, from $19.2 million for the comparable period in
the prior year. Total revenue decreased primarily because the Company delivered
significantly fewer episodes of programming in the first six months of 1998 as
compared to the first six months of 1997. The Company delivered a total of 25
episodes of programming for the six months ended June 30, 1998, as compared to
37 episodes for the six months ended June 30, 1997.
The Company delivered 25 "fee-for-services" episodes during the six months
ended June 30, 1998, compared to 27 episodes in the comparable period in 1997.
Fee-for-services revenue increased 1%, or $0.1 million, to $14.6 million for the
six months ended June 30, 1998, from $14.5 million during the comparable period
in 1997.
The Company delivered no "proprietary" episodes during the six months ended
June 30, 1998 compared to 10 episodes delivered during the comparable period for
1997. "Proprietary" revenue decreased by 63% or $1.5 million, to $0.9 million
for the six months ended June 30, 1998, from $2.4 million in the comparable six
month period in 1997. This decrease was a result of no "proprietary" episodes
being delivered partially offset by continued international sales of the
Company's proprietary programming in its library.
Other revenue decreased by approximately $0.5 million during the six months
ended June 30, 1998, as compared to the same period of the prior year, due
primarily to a combined decrease of approximately $1.7 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 $1.2
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 7%, or $1.3 million, to $16.6 million
for the six months ended June 30, 1998, from $17.9 million for the six months
ended June 30, 1997. Total cost of revenue, as a percentage of sales, increased
by 3% to 96%, primarily due to lower fee-for-service margins.
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Total selling, general and administrative expenses for the six months ended
June 30, 1998 increased by $0.4 million to $2.6 million from $2.2 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 $1.9 million for the six months ended June 30, 1998, as
compared to a loss of $0.9 million for the six months ended June 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. However, the
Company has begun to exploit, to a greater extent, the international
distribution rights associated with the proprietary programs in its library.
As a result, 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 six months ended June 30, 1998, net cash used in operating
activities was approximately $1.3 million due to cash used in connection with
film production activities and a decrease in accounts payable offset by an
increase in deferred revenue. Cash used in investing activities for the six
months ended June 30, 1998 was $402,316. Cash provided by financing activities
for the six months ended June 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 June
30, 1998, the Company had a balance in its Deferred Revenue account of $13.1
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 $870,000.
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.
USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING
The following information is provided pursuant to Rule 463 of the
Securities Act of 1933, as amended, which requires the Company to report the use
of proceeds from an offering of securities until the application of all of the
proceeds from such offering. In October 1996, the Company completed its initial
public offering pursuant to Registration Statement Number 333-03987 which became
effective on September 30, 1996 and which yielded $28,291,036 in net proceeds to
the Company after deducting total expenses.
For the six month period ended December 31, 1997, the Company's Form SR
reflected that the Company still had $5,308,223 of the proceeds in temporary
investments. As of June 30, 1998, the Company has used the balance of the
offering proceeds to fund production costs. For information on the Company's
current cash, please see the Company's Consolidated Balance Sheet and
Consolidated Statements of Cash Flows contained in Part I.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 Annual Meeting of Stockholders of the Company was held on June 16,
1998. The following matters were submitted to stockholders for a vote:
1. Election of Dr. Dennis Draper as a Class II director to serve until
the 2001 annual meeting of stockholders or until his successor is
elected and has qualified.
Shares Voted
For Withheld Authority
--- ------------------
8,242,807 95,840
Election of Peter Mainstain as a Class II director to serve until
the 2001 annual meeting of stockholders or until his successor is
elected and has qualified.
Shares Voted
For Withheld Authority
--- ------------------
8,242,807 95,840
2. To approve the Company's 1996 Stock Option Plan, including an
amendment (i) increasing the number of shares of Common Stock that
may be issued or sold under the Stock Option Plan from 1,227,695 to
1,750,000 shares (no more than 325,000 of which may be issued or
sold to non-employee directors) and (ii) increasing the maximum
number of shares of Common Stock with respect to which options may
be granted to any single participant under the Stock Option Plan
during any calendar year from 400,000 to 700,000 shares.
Shares Voted
For Against Abstentions Unvoted
--- ------- ----------- -------
5,788,277 263,440 7,700 2,279,230
3. Ratification of the appointment of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending
December 31, 1998.
Shares Voted
For Against Abstentions
--- ------- -----------
8,304,347 14,700 19,600
ITEM 5. OTHER INFORMATION
Effective June 17, 1998, the Board of Directors of the Company (the
"Board"), pursuant to the authority granted to it under the Company's 1996 Stock
Option Plan (the "Plan"), decided to offer to employees who hold stock options
granted prior to August 1997 (other than directors, the Chairman of the Board
and the President and Chief Executive Officer) a limited opportunity to
surrender their existing options in return for an equal number of new options.
The new options will have an exercise price of $1.438, which is the closing
price of the Common Stock of the Company on the Nasdaq National Market System on
June 16, 1998. The new options will have a revised and extended vesting schedule
of 20% per year for five years, and the first 20% will not vest until September
1, 1998.
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Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
+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
+*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
10.6 Intentionally Omitted
*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.
+10.11 Lease for Registrant's headquarters and studio in North Hollywood, California
10.12 Intentionally Omitted
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
+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 ("FCN") 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 Network and Film Roman, Inc.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
+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)
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)
21.1 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997)
27 Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
+ 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.
13
<PAGE>
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1998.
14
<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: August 4, 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 10.5
June 25, 1998
Mr. Jon F. Vein
c/o Patti Felker, Esq.
Nelson, Guggenheim, Felker & Levine
10880 Wilshire Blvd., Suite 2070
Los Angeles, CA 90024
Dear Mr. Vein:
Please refer to that certain agreement between you (therein and herein
"Executive") and us (therein and herein "Company") dated as of the first day of
August 1997 (the "Agreement").
For good and valuable consideration, the Agreement is amended and modified
as follows:
1. Effective immediately, in lieu of services described in paragraph 1.2
of the Agreement, Executive shall serve as Executive Vice President performing
(i) services overseeing feature development and production, (ii) services as
supervisor of the business affairs and internal legal areas, and (iii) services
involved in exploring and developing areas of activity in which the Company
might be involved, i.e. new development, and (iv) any other duties including
all activities incidental thereto which are consistent with Executive's title as
may be assigned to him by the Company's Chief Executive Officer or the Board of
Directors.
2. The Initial Term of the Agreement will be deemed to expire as of
August 2, 1998; the Term of the Agreement shall be and hereby is extended for a
period of two (2) additional contract years (as defined as the Agreement)
commencing August 3, 1998 and continuing through August 2, 2000 (which period
consists of the "second contract year" and the "third contract year"
respectively).
3. The base salary for the second contract year and the third contract
year shall be as follows:
(i) second contract year $235,000.00
(ii) third contract year $250,000.00
all payable in weekly or bi-weekly installments as Company elects.
<PAGE>
4. If Company's Board of Directors hereafter determines to establish a
bonus plan for senior executives, then Executive shall be entitled to
participate in said plan, as one of the senior executives, upon such terms as
may be determined by the Board of Directors, based upon recommendations of its
Compensation Committee and the Chief Executive Officer of Company.
5. With respect to paragraph to 6.2(a), it is agreed that in addition to
the shares of Film Roman, Inc., a Delaware corporation ("Delaware Company") as
to which Executive currently has options, i.e., 62,500 shares, Company shall
cause the Delaware Company to grant to Executive the right and option to
purchase from the Delaware Company all or any part of an aggregate of 50,000
additional shares upon the same terms and conditions as are set forth in the
Stock Option Agreement currently in force between the Delaware Company and
Executive. The purchase price of such additional shares shall be the fair
market value thereof (as defined in the Stock Option Plan) as of June 16, 1998.
Additionally, in response to an offer from the Delaware Company, Executive
has elected to cancel his existing stock options and exchange the same for
options to purchase 62,500 shares of the common stock of the Delaware Company at
a purchase price equal to the fair market value of such shares as of June 16,
1998. In this regard it is understood that the existing options and the options
granted hereunder shall vest, in the aggregate, as follows:
<TABLE>
<CAPTION>
OPTIONS SHALL BECOME EXERCISABLE
WITH RESPECT TO THE FOLLOWING
ON OR AFTER CUMULATIVE NUMBER OF SHARES
----------- ---------------------------
<S> <C>
September 1, 1998 20%, i.e. 20,500 shares
September 1, 1999 20%, i.e. 20,500 shares
September 1, 2000 20%, i.e. 20,500 shares
September 1, 2001 20%, i.e. 20,500 shares
September 1, 2002 20%, i.e. 20,500 shares
</TABLE>
No term or condition of the Agreement is amended or modified except as
herein expressly set forth and the Agreement as so modified shall be and hereby
is mutually confirmed and ratified.
<PAGE>
Please indicate your agreement with the foregoing by signing in the space
provided below.
Very truly yours,
FILM ROMAN, INC.
By: /s/ David Pritchard
--------------------------------
AGREED AND ACCEPTED
/s/ Jon F. Vein
- -------------------------------
JON F. VEIN
<PAGE>
EXHIBIT 10.10
FIRST AMENDMENT
TO
1996 STOCK OPTION PLAN
OF
FILM ROMAN, INC.
WHEREAS, Film Roman, Inc. (hereinafter the "Company"), a Delaware
corporation, maintains the 1996 Stock Option Plan of the Company, effective as
of September 9, 1996; (hereinafter the "Plan"); and
WHEREAS, pursuant to Section 13.1 of the Plan, the Board of Directors of
the Company (hereinafter the "Board") may amend the Plan from time to time;
NOW THEREFORE, BE IT RESOLVED, that the Plan be amended as follows,
effective June 16, 1998.
1. Section 3 shall be amended and restated in its entirety as follows:
The shares to be issued under the Plan shall consist of the Company's
authorized but unissued Common Stock. Subject to adjustment as provided in
Paragraph 12 hereof, the aggregate number of shares of Common Stock which may be
issued upon exercise of all Options granted under the Plan shall not exceed
1,750,000 shares of which no more than 325,000 may be issued or sold to non-
employee directors. If any Option granted under the Plan shall expire or
terminate for any reason, without having been exercised in full, the unpurchased
shares of Common Stock subject to such Option shall again be available for new
Options to be granted under the Plan.
2. Section 4.4 shall be amended and restated in its entirety as follows:
The maximum number of shares of Common Stock with respect to which Options
may be granted to any single Participant under the Plan during any calendar year
shall not exceed an aggregate of 700,000 shares, provided that if any such
Options expire, are repriced, or are canceled they shall, solely to the extent
required by Section 162(m) of the Code, be counted against this limitation.
RESOLVED FURTHER, that this First Amendment to the Plan shall be presented
to the stockholders of the Company for approval at the Annual Meeting to be held
on July 16, 1998.
<PAGE>
EXHIBIT 10.45
CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------
The asterisked portions of this document have been
omitted and are filed separately with the Commission
Dated: As of February 26, 1998
VIA FACSIMILE
818/752-1271
8645.15
Mr. Jon F. Vein
Senior Vice-President
Film Roman, Inc.
12020 Chandler Boulevard
Suite 200
North Hollywood, California 91607
RE: "MR. POTATO HEAD"/MIXED MEDIA TELEVISION SERIES
-----------------------------------------------
Dear Jon:
Set forth below are the terms of the agreement (the "Agreement") between
Claster Television ("Claster") and Film Roman, Inc. ("FRI") in connection with
the grant to FRI by Claster of the exclusive right to produce and distribute a
first quality (i.e., state-of-the-art) mixed CGI, robotics and puppetry
television series based on the "Mr. Potato Head" toy line and the treatment
written by Dan Clark (the "Series").
1. ORDER. Claster hereby grants to FRI the exclusive right to produce and
distribute the Series in accordance with the terms of this Agreement. FRI has
entered into an agreement with Fox Kids Worldwide ("FKW"), a copy of which is
attached hereto as Exhibit "A" (the "FRI-FKW Agreement"), pursuant to which FKW
has ordered thirteen (13) one-half (1/2) hour episodes of "Mr. Potato Head" for
airing on Fox Children's Network ("FCN") commencing September 1998. FRI shall
use its best efforts to deliver all episodes to FKW in accordance with the
delivery schedule set by FCN, and such timely delivery shall be of the essence
of this Agreement (subject to force majeure consistent with industry custom and
practice). Delivery of the episodes to FKW shall be in accordance with a list
of delivery requirements (attached hereto as Exhibit "B") that are customary for
series of this nature, including without limitation stills, photos and footage
and other material for the purpose of creating promotional materials, including
without limitation daily bumpers and interstitials, all of which shall be
provided by FRI at no additional charge to FKW. At the conclusion of the FKW
distribution term, all episodes and accompanying delivery materials delivered to
FKW hereunder shall be assigned and delivered to Claster immediately upon FRI's
receipt of the same from FKW (FRI acknowledges that, pursuant to the FRI-FKW
Agreement, FKW is contractually required to return such episodes and delivery
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -2-
- ------------------------------------
materials to FRI immediately upon the conclusion of the FKW distribution term).
In addition, at Claster's reasonable request, FRI will create a duplicate set of
delivery materials for Claster for which Claster shall reimburse FRI at FRI's
actual cost. Any material breach or default by FRI under the FRI-FKW Agreement
shall be deemed a material breach of this Agreement by FRI, and FRI shall
indemnify and hold harmless Claster and its successors and assigns from and
against any and all claims, demands, actions, liabilities, losses, penalties,
costs, damages and expenses (including reasonable attorneys' fees) arising from
any such breach.
2. FINANCIAL CONTRIBUTION. FKW has agreed to pay FRI a license fee of
**** Dollars ($****) per episode (with increases in subsequent years, if any, as
set forth in the FRI-FKW Agreement). The remainder of the production budget
will be paid as an advance against distribution by FRI over the course of
production (the "FRI Distribution Advance"). The budget shall consist of FRI's
actual out of pocket cost of production including the Claster rights payment set
forth below (and which budget may also include an appropriate allocation of
compensation for services provided by and/or persons employed by Film Roman for
positions that are customarily part of a production budget and not overhead),
U.S. residuals arising from the exploitation of the Series by FKW (which are not
reimbursed to FRI or otherwise paid by FKW), and a combined FRI
production/overhead fee of ****%. FRI will guarantee completion of production.
The budget will contain a **** Dollar ($****) per episode rights fee to Claster
which shall be paid to Claster upon the commencement of production of each
episode. Claster shall be granted (and FRI hereby grants to Claster) a first
position security interest and mortgage of copyright in the Series and the
physical elements pertaining thereto, and any proceeds thereof, to secure the
delivery of the Series to FKW and Claster's rights in and to the Series and the
elements thereof and all of Claster's other rights hereunder, and the parties
agree promptly to execute all paperwork necessary to effectuate and perfect such
security promptly following execution of this Agreement. The Series will be
produced in a first class quality suitable for U.S. network broadcast. FRI
shall be one hundred percent (100%) responsible for all residuals arising from
the exploitation of the Series by FKW (except to the extent otherwise agreed
between FRI and FKW) as well as from the exploitation of the Series by FRI
during the FRI Distribution Term (as defined in Paragraph 4 below). All other
residuals arising from the exploitation of the Series in the U.S. shall be the
responsibility of Claster. At the end of the FRI Distribution Term (defined in
Paragraph 4 below), all rights in and to the Series and all allied and ancillary
rights thereto, if any, that FRI may have, shall become the property of Claster
and FRI agrees to execute all documents necessary to effectuate such change
promptly upon request by Claster.
3. APPROVALS AND CONTROLS. FRI acknowledges that the property upon which
the Series is to be based, and the characters and trademarks associated
therewith, constitute a valuable and unique property of Claster and that it is
of the essence of this Agreement that the reputation and integrity thereof be
maintained. Accordingly, for such purpose the Series budget, executive
producers, writers, stories, bible, scripts, character and background design,
background music, and key art will be mutually approved by FRI and Claster. The
Series will be based on the treatment attached hereto as Exhibit "C." Claster
will exercise its approval rights promptly
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -3-
- -----------------------------------
following submission of material. With respect to video packaging, FRI shall use
only artwork that has been pre-approved by Claster for the specific purpose of
use on video packaging. FRI agrees to consult with Claster with regard to the
sell-through video distributor in each country in the FRI distribution territory
described below; provided, however, that if the distributor of the Series in a
particular territory is also the sell-through video distributor in that
territory, FRI shall only be required to consult with Claster on one (1)
occasion with regard to such distributor. All Claster approvals will be given
promptly (within 36 hours of Claster's receipt of the material for which
approval is being sought but only counting business days) and exercised in good
faith. Failure to timely disapprove shall be deemed approval.
4. DISTRIBUTION RIGHTS. The rights granted to FRI hereunder consist of a
license to produce one (1) television series based on the underlying "Mr. Potato
Head" property controlled by Claster and, subject to all the terms and
conditions of this Agreement, to distribute the Series in all forms of
television and home video distribution now known or hereafter devised and to
exploit the soundtrack and music publishing rights in and to the Series and all
elements therein for the duration of the FRI Distribution Term (as defined
below). Subject to the terms of the FRI-FKW Agreement, FRI hereby exclusively
and irrevocably assigns to Claster all U.S. distribution and exploitation rights
in and to the Series in any and all media in perpetuity. (For greater
certainty, in the event of any reversion or termination of FKW's distribution
rights under the FRI-FKW Agreement, all such rights shall be immediately,
automatically and irrevocably assigned to Claster.) FRI also hereby exclusively
and irrevocably assigns to Claster all non-U.S. distribution and exploitation
rights in and to the Series in any and all media in perpetuity following the
expiration of the FRI Distribution Term (as defined below). Claster retains all
merchandising rights (including the master toy license [including all toys,
games and puzzles of all kinds and descriptions]) and all interactive media
rights throughout the world, in perpetuity and outright except as set forth
below. FRI will have distribution rights in the Series outside the United
States, for a term of **** (****) years from delivery of the last episode of the
Series produced ( the "FRI Distribution Term"). The FRI Distribution Term may be
extended for an additional **** (****) years in the event that by the expiration
of the initial **** (****) years FRI has not recouped its actual cash out of
pocket FRI Distribution Advance taking into account for purposes of this
calculation revenue from all sources including without limitation distribution,
toy, merchandising, music and music publishing and royalty income related to the
Series. It is of the essence to this Agreement and a material term of this deal
that FRI shall fully and closely cooperate with 3D Licensing ("3D") to
coordinate the television distribution and licensing efforts. During the
"initial exhibition window" of FRI distribution, the Series shall not be
exhibited on pay television in any territory unless it is also being
concurrently exhibited on free over-the-air broadcast television in that
territory. FRI and Claster will enter into good faith negotiations to be
concluded within thirty (30) days of execution of this Agreement in order to
reach agreement on a list of fees (the "Buyout Fees") which would customarily be
payable by broadcasters for the national free over-the-air television broadcast
rights for programming similar to the Series (and taking into account any prior
or concurrently licensed exhibition) for a term of four (4) years for eight (8)
runs in each of the territories of the U.K., France, Germany, Italy, Spain,
Belgium,
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -4-
- ----------------------------------
Holland, Greece, Australia and New Zealand (the "Key Territories"). If FRI does
not provide Claster with a written commitment evidencing the sale of the
national free over-the-air television broadcast rights for the Series for any of
the Key Territories by November 15 of the year following the year in which the
applicable year's production first appeared on U.S. television, Claster will
have the option, on a territory-by-territory basis, to acquire such rights for
any unsold Key Territory by paying to FRI the Buyout License Fee for that Key
Territory and shall thereafter be entitled to license such rights for that
unsold Key Territory for eight (8) runs over four (4) years and to keep all the
revenue from such licensing. During such four (4) year term, FRI shall not
exploit any other television rights for any Key Territory for which FRI received
a Buyout License Fee. In addition, if FRI does not provide Claster with a
written commitment evidencing the sale of the national free over-the-air
television broadcast rights for the Series for any of FRI's other distribution
territory (excluding the Key Territories) by November 15 of the year following
the year in which the applicable year's production first appeared on U.S.
television, the parties will, at Claster's request, negotiate in good faith the
terms on which Claster may acquire such rights for the affected episodes of the
Series for any unsold territory on a territory-by-territory basis.
5. FRI DISTRIBUTION PROCEEDS. FRI will be entitled to a distribution fee
of ****%, except that on government subsidies, tax shelters and co-production
revenue, FRI will only be entitled to charge a ****% distribution fee. "Net
Receipts" shall be defined as gross receipts received by FRI from all sources,
including ancillary rights exploitation but excluding merchandising and
interactive revenue (which are covered below in Paragraphs 6, 7 and 8), less
applicable distribution fees; actual, direct, out-of-pocket distribution costs
capped at ****%, exclusive of residuals and the French dub; recoupment of FRI's
Distribution Advance (except to the extent any portion of the Distribution
Advance is considered part of distribution costs and therefore already recouped
as provided above, in which case such amounts may not be recouped more than
once) plus interest thereon at the rate charged by FRI's principal corporate
lender but in no event more than the prime rate charged by Union Bank plus two
percent (2%); and mutually-approved third-party participations, if any. Net
Receipts will be split **** percent/**** percent (****/****) between the
parties. FRI's recoupment of its Distribution Advance for all purposes under
this Agreement shall be limited to FRI's actual out-of-pocket contribution to
the production budget (i.e., the amount of the production budget described in
Paragraph 2 above less the FKW license fee). Claster shall have audit rights
consistent with industry custom and practice.
6. MERCHANDISING. With respect to the Series-related toys and
merchandising, 3D will act as the non-U.S. licensing agent and Hasbro as the
worldwide master toy licensee and U.S. merchandising agent in perpetuity on a
**** percent (****%) fee basis inclusive of sub-distributors with direct, actual
out-of-pocket verifiable costs capped at **** percent (****%). For purposes of
this Agreement, "Series related" shall mean all new characters and elements
which are created for the Series, together with the specific artwork iteration
of existing characters and existing characters and elements where specifically
identified in packaging or labeling as related to the Series. The period
commencing upon execution of this deal memo and continuing
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -5-
- ---------------------------------
until the earlier of (i) **** (****) years following the completion of
production of the last episode produced by FRI and broadcast; (ii) ****; or
(iii) only with respect to non-U.S. revenues, any period of **** (****)
consecutive years in which episodes of the Series are not being distributed on a
regularly-scheduled basis in at least **** (i.e., if episodes of the Series are
being distributed in at least****, then the Participation Term shall not expire
pursuant to the terms of this subsection [iii]), shall be deemed the
"Participation Term"; provided, however, that the Participation Term shall be
increased by **** (****) months for each additional year in which FRI produces a
minimum of eight (8) episodes of the Series pursuant to Paragraph 10 below. In
the event that at least twenty-one (21) episodes of the Series are produced by
FRI pursuant to the terms of this Agreement, the **** (****) year periods set
forth in (i) and (iii) above shall be extended to **** (****) years and the
outside date of **** set forth in (ii) above shall be extended until ****.
During the Participation Term and subject to the provisions of Paragraph 8 below
the following shall apply:
(a) Net merchandising proceeds received or accrued from worldwide Series-
related merchandising exploitation shall be split between the parties ****
percent (****%) to Claster and **** percent (****%) to FRI and shall be
separately accounted from any other revenue stream derived from the Series
(including without limitation the calculation of Net Receipts set forth in
Paragraph 5 above) except as provided in subparagraph (c) below;
(b) The royalty on U.S. Series-related toy exploitation shall be ****
percent (****%) and shall be separately accounted from any other revenue stream
derived from the Series (including without limitation the calculation of Net
Receipts set forth in Paragraph 5 above) except as provided in subparagraph (c)
below. (In other words, FRI shall not participate in non-Series related
merchandising of any kind nor be entitled to any royalty on non-Series related
toys in the United States.)
(c) In territories where the television sale will be materially enhanced by
linking the same with a licensing sub-agency agreement, 3D will coordinate with
FRI to maximize the value of both deals, provided that 3D shall have final
authority over whether and/or with whom to enter into a sub-agency agreement.
Music and music publishing will be owned and controlled by each party in its own
territory. All revenues derived by FRI from music and music publishing shall be
included in gross receipts pursuant to Paragraph 5 above. Notwithstanding the
provisions of Paragraph 5 above, all net revenues from music and music
publishing in the U.S., from U.S. home video and from post-FKW U.S. exploitation
(net in the latter case of customary Claster distribution fees and costs [which
shall be consistent with past practice and industry custom and practice] and
premium advertising dollar expenditures) shall go into Series gross receipts so
long as FRI remains un-recouped of its Distribution Advance, interest, residuals
and distribution costs on a direct, actual, cash out of pocket basis (e.g.,
excluding overhead) from all sources, including without limitation
merchandising, toy royalties, home video, soundtrack and music publishing.
Thereafter such net revenues from the U.S. will be split ****%/****% between the
parties on an un-crossed basis. FRI will have the right to do Series soundtrack
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -6-
- --------------------------------
albums on a worldwide basis and Claster will receive a royalty of **** percent
(****%) of net sales worldwide (the exact definition to be negotiated in good
faith consistent with industry custom and practice) in perpetuity in connection
therewith.
(d) Claster shall own and have the unlimited right to use the visual
images, characters, and other elements of the Series for merchandising, toys and
interactive media. Where possible, the images, computer models and the like
will be provided to Claster without charge on disc for easy transmission to
licensees.
7. NON-U.S. TOY ROYALTY.
(a) FRI shall receive a **** percent (****%) royalty on all "Mr. Potato
Head" toys except "Toy Story" related (and sequels thereto), whether or not
Series related, in the non-U.S. territories set forth in subparagraph (b) below,
which royalty shall be separately accounted from any other revenue stream
derived from the Series (including without limitation the calculation of Net
Receipts set forth in Paragraph 5 above) except as provided in Paragraph 6(c)
above. The term of FRI's non-U.S. toy royalty participation (the "Non-U.S. Toy
Royalty Term") shall commence upon execution of this deal memo and continue
until the earlier of (i) **** (****) years following the initial exhibition in
any non-U.S. territory of the last episode of the Series produced by FRI and
broadcast; (ii) any period of **** (****) consecutive years in which episodes of
the Series are not being distributed on a regularly-scheduled basis in at least
****(i.e., if episodes of the Series are being distributed in at least ****,
then the Non-U.S. Toy Royalty Term shall not expire pursuant to the terms of
this subsection [ii]); or (iii)****; provided, however, that the Non-U.S. Toy
Royalty Term shall be increased by **** (****) months for each additional
consecutive year in which FRI produces a minimum of eight (8) episodes of the
Series pursuant to Paragraph 10 below. In the event that at least twenty-one
(21) episodes of the Series are produced by FRI pursuant to the terms of this
Agreement, the **** (****) year periods set forth in (i) and (ii) above shall be
extended to **** (****) years and the outside date of **** set forth in (iii)
above shall be extended until ****.
(b) During the Non-U.S. Toy Royalty Term, FRI shall be entitled to receive
the non-U.S. toy royalty in **** and in all other non-U.S. territories in which
episodes of the Series are being distributed on a regularly-scheduled basis on
free over-the-air broadcast television (or another outlet approved by Claster).
In addition, during the Non-U.S. Toy Royalty Term, if episodes of the Series are
being distributed on a regularly-scheduled basis on free over-the-air broadcast
television (or another outlet approved by Claster) in ****, FRI shall be
entitled to receive the non-U.S. toy royalty in all of the **** region; if
episodes of the Series are being distributed on a regularly-scheduled basis on
free over-the-air broadcast television (or another outlet approved by Claster)
in at least **** (****) ****, FRI shall be entitled to receive the non-U.S. toy
royalty in all of ****; and if episodes of the Series are being distributed on
a regularly-scheduled basis on free over-the-air broadcast television (or
another outlet approved by Claster) in at least **** (****) ****, FRI shall be
entitled to receive
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -7-
- ----------------------------------
the non-U.S. toy royalty on a worldwide basis outside the U.S. If FRI presents
Claster with a bona fide offer for meaningful, regularly-scheduled exhibition of
the Series on **** (****) **** (****) non-terrestrial distribution outlets in
terms of kids ratings in any territory (contrary to the requirement of free
over-the-air television broadcast set forth in Paragraph 4 above), and if
Claster rejects the deal on the basis that it is not for free over-the-air
television broadcast, FRI shall nevertheless be deemed to be distributing
episodes of the Series in such territory on a distribution outlet approved by
Claster for the sole purpose of determining FRI's entitlement to the non-U.S.
toy royalty pursuant to this subparagraph (b) .
8. INTERACTIVE MEDIA. Claster shall own and control the interactive media
rights (including without limitation games, on-line, and all products in the CD-
ROM, CD-I, and all new media formats) in and to the Series and the underlying
property; provided, however, that Claster agrees to consult with FRI in good
faith as to the appropriate exploitation of such rights. During the
Participation Term, FRI shall be entitled to a royalty of **** percent (****%)
of Claster's net receipts worldwide (the exact definition to be negotiated in
good faith consistent with industry custom and practice) for any interactive
game or product based in whole or in material part on the Series; provided,
however, that if Claster or any affiliated or related entity sublicenses the
publishing of the interactive game or product to an unrelated third party and
receives a royalty from such sublicensee, FRI's royalty shall be calculated on
the same royalty base as Claster's and shall be paid to FRI by Claster from
those royalties actually earned and received by Claster (e.g., if Claster
receives an ****% royalty, FRI shall be entitled to receive a percentage of the
royalties actually earned and received by Claster equal to ****% divided by
****%).
9. RESERVATION OF RIGHTS. All rights not specifically granted in this
instrument are reserved to Claster.
10. SUBSEQUENT PRODUCTIONS.
(a) The grant of rights contained herein is a license to do one television
series (i.e., thirteen [13] episodes). Provided this Agreement remains in full
force and effect and that neither party has terminated by reason of any material
breach hereunder, then if Claster elects in its sole discretion to proceed with
the production of additional episodes of the Series in subsequent production
year(s), and provided FRI has not previously dropped out with respect to the
production of additional episodes, FRI shall be locked as the producer and
distributor of such additional episodes on the same material terms as are
contained herein; provided, however, that (if FRI has not dropped out) such
additional episodes shall be treated as Subsequent Productions as defined in
subparagraph (d) below if the period of time between the end of production of
one season and the beginning of production of the next season exceeds ****
(****) months.
(b) In the event that FKW does not renew the Series for the immediately
following broadcast season, Claster may elect to (i) contribute **** Dollars
($****) per episode for eight (8) additional episodes of production in such
broadcast season; or (ii) give FRI the
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -8-
- ---------------------------------
opportunity to contribute such financing for such season (minimum of eight (8)
episodes per season) in exchange for acquiring U.S. distribution rights to the
affected episodes of the Series for the duration of the FRI Distribution Term,
subject to all the terms and conditions of this Agreement .
(c) If FKW does renew the Series, or if Claster elects as set forth in
subparagraph (b)(i) above, then provided that FRI has not previously dropped out
with respect to the production of additional episodes of the Series and that the
period of time between the end of production of the last season for which
episodes were produced and the beginning of production of the next season for
which episodes will be produced does not exceed **** (****) months, FRI will
have the right to go forward as the financier/producer/distributor of the Series
for such season by written notice to Claster within ten (10) business days of
receipt of written notice of the FKW pickup or of Claster's election to proceed
to production in the absence of an FKW pickup. If FRI elects not to go forward,
then (i) FRI shall immediately so advise Claster in writing; (ii) FRI's rights
with respect to the production of additional episodes of the Series (or any
other Subsequent Production as defined in subparagraph (d) below) shall
terminate; (iii) FRI's related royalties and merchandising participation, if
any, during the remainder of its Participation Term and/or Non-U.S. Toy Royalty
Term, as applicable, as set forth in Paragraphs 6 and 7 above shall be reduced
by participations therein granted to a replacement
producer/financier/distributor to a floor of **** percent (****%) of the
applicable royalties and/or merchandising participation if more than twenty-six
(26) episodes were produced by FRI or **** percent (****%) of the applicable
royalties and/or merchandising participation if twenty-six (26) or fewer
episodes were produced by FRI; and (iv) FRI shall have no further rights
hereunder or in connection with the Series except as distributor of the episodes
theretofore produced, and in such event, FRI will negotiate in good faith with
Claster for Claster's acquisition of such distribution rights in the Series. In
addition, if FKW renews the Series and FRI elects not to go forward, FRI shall,
at Claster's request, assign to Claster (and Claster shall assume) all of FRI's
prospective obligations under the FRI-FKW Agreement. Claster shall indemnify
and hold harmless FRI and its successors and assigns from and against any and
all claims, demands, actions, liabilities, losses, penalties, costs, damages and
expenses (including reasonable outside attorneys' fees) arising from any breach
by Claster of such prospective obligations to FKW. FRI shall similarly
indemnify and hold harmless Claster and its successors and assigns in connection
with any breach by FRI of the FRI-FKW Agreement as provided in Paragraph 1
above.
(d) Except as expressly set forth in the foregoing, the grant of rights
contained herein does not include spin-off, remake, sequel, feature or direct-
to-video rights; provided, however, that if Claster elects in its sole
discretion to proceed with a spin-off, remake, sequel, feature or direct-to-
video production based on the Series (a "Subsequent Production") and if FRI is
then in the business of producing and distributing animated television
productions, and provided FRI's rights hereunder have not terminated as provided
above, then FRI shall have the right of first negotiation for thirty (30) days
in connection with such rights, at the end of which period FRI shall make its
final best offer. If FRI makes such a final best offer, then FRI shall have the
further
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -9-
- -----------------------------------
right of last refusal (only in the event Claster intends to accept an offer on
equal or less favorable financial terms than those in FRI's final offer to
Claster) in connection with such rights. If Claster ultimately licenses such
rights to another party (i.e., Claster enters into an arrangement whereby it
licenses such rights to a third party and receives a royalty or other
compensation in exchange therefor, but Claster is not a partner or co-venturer
in the exploitation of such rights), then provided that such Subsequent
Production is based primarily on characters and/or other elements created for
the Series, FRI shall be entitled to receive a passive participation in such
Subsequent Production equal to **** percent (****%) of the compensation paid to
Claster by such other party for the licensing of such rights. In the event that
Claster is a partner or a co-venturer in such Subsequent Production, FRI shall
receive an amount equal to **** percent (****%) of the amount allocated in good
faith consistent with industry custom and practice by Claster for the licensing
of the right to produce additional episodes of the Series; provided, FRI shall
have no rights of any kind in any "Mr. Potato Head" production that is not
Series related.
11. COPYRIGHT AND OWNERSHIP. The copyright in episodes of the Series
produced pursuant to this Agreement will be held by Claster, and, of course,
Claster will retain copyright in and ownership of the underlying property and
any characters and other elements created for the Series. We acknowledge,
however, that copyright may be required for certain types of financing and
Claster agrees to convey the copyright in the Series if required to maximize the
value of the Series so long as such conveyance is subject to all of Claster's
rights hereunder and in the Series and the underlying property. In the event
the copyright is so utilized, FRI will hold same as trustee only and shall
ensure that the copyright is reconveyed to Claster at the end of the FRI
Distribution Term.
12. ASSIGNMENT. FRI shall make no assignment of any of its rights to
produce the Series except to an entity acquiring all or substantially all of
FRI's assets, nor shall FRI make any other assignment or delegation of any of
its rights or duties hereunder except as are customarily made in the ordinary
course of business. In no event shall any such assignment relieve FRI of
liability hereunder or affect any of the financial terms set forth herein. Any
purported assignment or delegation in violation hereof shall be void. Claster
may assign its rights and obligations as appropriate but no such assignment will
relieve it of liability hereunder.
13. INSURANCE. Claster shall be covered under FRI's errors and omissions
and general liability insurance policies for the Series as an additional insured
(except for claims arising as a result of a breach by Claster of any provision
of this Agreement), subject to the exclusions and limitations set forth in such
policies. The policies shall be subject to the approval of Claster not to be
unreasonably withheld. FRI shall make no material modification in such policies
without Claster's consent. FRI shall be covered under Claster's product
liability insurance policy for the property as an additional insured (except for
claims arising as a result of a breach by FRI of any provision of this Agreement
or the FRI-FKW Agreement), subject to the exclusions and limitations set forth
in such policy.
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -10-
- ----------------------------------
14. FURTHER DOCUMENTS. Each party shall, upon the other party's
reasonable request, execute, acknowledge and deliver to the other party any and
all documents consistent with the terms of this Agreement which such other party
may reasonably deem necessary to evidence and effectuate all or any of such
other party's rights hereunder (subject to a reasonable opportunity for the
signing party to review and negotiate in good faith the terms of any such
document).
15. MISCELLANEOUS. The parties shall enter into a more formal agreement
incorporating and elaborating on all of the provisions hereof as well as those
additional terms and conditions customarily included in agreements of this type
(including Claster's standard representations and warranties with respect to
underlying rights) which such terms shall be incorporated herein by this
reference, subject to good faith negotiation within customary industry
parameters, including, without limitation, representations and warranties.
However, unless and until such an agreement is actually executed, this Agreement
constitutes the sole, entire and binding understanding of the parties; replaces
and supersedes any and all prior oral or written agreements, promises or
representations; and can be modified only in a writing signed by both parties.
Please indicate your agreement to and acceptance of the foregoing by
signing below in the space provided.
Very truly yours,
LEIGH BRECHEEN
of BLOOM, HERGOTT, COOK, DIEMER and KLEIN, LLP
AGREED TO AND ACCEPTED BY:
CLASTER TELEVISION FILM ROMAN, INC.
By: _____________________________ By: _____________________________
Its: _____________________________ Its: _____________________________
<PAGE>
Mr. Jon F. Vein
Dated: As of February 26, 1998
Page -11-
- ---------------------------------
EXHIBIT "A"
Agreement dated as of February 26, 1998 between Film Roman, Inc. and Fox Kids
Worldwide (filed as Exhibit 10.46 to Film Roman, Inc.'s Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998)
EXHIBIT "B"
Delivery Requirements
(not yet finalized)
EXHIBIT "C"
Treatment Written by Dan Clark
(not yet finalized)
<PAGE>
EXHIBIT 10.46
CONFIDENTIAL TREATMENT REQUESTED
- --------------------------------
The asterisked portions of this document have been
omitted and are filed separately with the Commission
LICENSE AGREEMENT
-----------------
This Agreement is made and entered into as of February 26, 1998 between
Film Roman, Inc. ("FRI") and Fox Kids Worldwide, Inc. ("FKW") in connection with
a television series intended for initial broadcast on the Fox Children's Network
("FCN") based on the "Mr. Potato Head" property (the "Property") controlled by
Claster Television ("Claster"), the production and certain distribution rights
to which have been licensed by Claster to FRI pursuant to an agreement of even
date herewith (the "FRI-Claster Agreement").
1. FKW hereby orders the production of at least thirteen (13) original
episodes of a weekly television series (format to be mutually agreed) based on
the Property (the "Series"). FKW will pay or reimburse FRI for the preparation
of a bible or mini-bible (as mutually determined by the parties) for the Series,
provided FKW has pre-approved the cost thereof in writing. The episodes of the
Series will be of U.S. network broadcast quality and will comply with FKW's
broadcast standards and practices. FKW will have approval over all creative
elements and key production personnel, including the executive producer (Andi
Copley is pre-approved), director (Chuck Cirino is pre-approved), writer(s) and
story editor(s) (Doug Langdale is pre-approved as writer/story editor), and key
talent. Chiodo Bros. Productions is pre-approved for puppet designs and
fabrications. The episodes will be delivered for initial broadcast on FCN
commencing in September 1998 pursuant to a mutually-approved production and
delivery schedule. Delivery of the episodes will be in accordance with a list
of delivery requirements (attached hereto as Exhibit "A") that are customary for
series of this nature, including without limitation stills, photos and footage
and other material for the purpose of creating promotional materials, including
without limitation daily bumpers and interstitials, all of which shall be
provided by FRI at no additional charge to FKW. At the conclusion of the FKW
Distribution Term (as defined in Paragraph 6 below), all episodes and
accompanying delivery materials delivered to FKW hereunder shall be immediately
returned to FRI. FKW agrees that two (2) of the thirteen (13) episodes will be
combined into a one (1) hour episode which must be exhibited in primetime on the
Fox Family Channel ("Cable").
-1-
<PAGE>
2. The Series must initially be aired on FCN on Saturday mornings between
the hours of ****. The primetime special referred to in Paragraph 1 above must
be exhibited on ****. FCN must broadcast the regular Saturday morning episodes
on the full scope of FCN, which must achieve a minimum national NTI clearance
(measured on an annual basis as an average of all shows on FCN) of **** (****%)
of U.S. television households for free over-the-air broadcast (i.e., excluding
cable and DBS).
3. FKW will have the option, exercisable in writing no later than December
1, 1998, to order the production and delivery by FRI of a minimum of thirteen
(13) new episodes of the Series for the 1999/2000 broadcast season. FKW agrees
that two (2) of the episodes of the Series ordered and produced for the
1999/2000 season, if any, will be combined into a one (1) hour episode which
must be broadcast in primetime on ****.
4. FKW will have **** (****) additional, consecutive, dependent annual
options, exercisable in writing no later than December 1 of the preceding
broadcast season, to order a minimum of eight (8) new episodes of the Series for
the subsequent broadcast season. In the event FKW elects not to exercise any
annual option to order additional episodes of the Series, FRI or Claster
(subject to the terms of the FRI-Claster Agreement) will have the unrestricted
right to produce new episodes of the same and distribute them in all media
throughout the world in perpetuity without further obligation to FKW, FCN or
Cable.
5. In consideration for the rights granted by FRI to FKW hereunder, FKW
will pay FRI a license fee of **** Dollars ($****) for each of the first
thirteen (13) one-half (1/2) hour episodes of the Series ordered by FKW and
produced and delivered by FRI and accepted by FKW for the 1998/99 broadcast
season. Said license fee will be payable one-third (1/3) on commencement of the
script for the applicable episode, one-third (1/3) on commencement of principal
photography of the applicable episode, and one-third (1/3) on delivery of the
applicable episode and all mutually-agreed customary delivery materials to FKW,
and will increase by **** percent (****%) on a cumulative annual basis.
6. FKW will have exclusive U.S. television rights in and to all episodes
of the Series produced hereunder and all elements contained therein for a term
continuing until **** (****) years after the end of the last broadcast season
for which new episodes of the Series were ordered, produced and broadcast (the
"FKW Distribution Term"). FKW will have the right to unlimited exhibitions of
the episodes during the FKW Distribution Term, provided that the initial
exhibition of all episodes must occur on FCN and all subsequent exhibitions must
occur on FCN and/or Cable. Provided the episodes are of U.S. network broadcast
quality and comply with FKW's broadcast standards and practices, FKW agrees that
each episode of the Series produced and delivered by FRI will actually be
exhibited on FCN at least once (in accordance with all of the terms and
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-2-
<PAGE>
conditions of this Agreement, including without limitation those set forth in
Paragraph 2 above). In addition, FKW agrees that if the Series is not being
aired on a regularly-scheduled basis for any consecutive **** (****) month
period during the FKW Distribution Term, then all rights granted to FKW
hereunder (including, without limitation, all U.S. television rights) in
connection with the Series will revert to FRI immediately (subject to the terms
of the FRI-Claster Agreement) and FKW will have no further rights in connection
therewith. Except as expressly provided herein, FRI or Claster (subject to the
terms of the FRI-Claster Agreement) will retain all other rights (including,
without limitation, all non-U.S. distribution rights) in and to the Series and
the Property in all media throughout the world in perpetuity.
7. All residuals arising from the exploitation of the Series for the first
ten (10) runs on FCN shall be the sole responsibility of FRI. FKW agrees to
execute an assumption agreement in connection with all other residuals arising
from FKW's exploitation of the Series (i.e., all subsequent FCN runs and all
Cable runs).
8. Additional standard terms and conditions consistent with industry
custom and practice for agreements of this type will be negotiated by the
parties in good faith. In addition, FRI will execute FKW's standard
indemnification agreement, a copy of which is attached hereto as Exhibit "B" and
the terms of which will be subject to good faith negotiations between the
parties.
AGREED TO AND ACCEPTED BY:
FILM ROMAN, INC. FOX KIDS WORLDWIDE, INC.
By: __________________________ By: _______________________________
Title: _______________________ Title: ____________________________
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
-3-
<PAGE>
EXHIBIT "A"
Delivery Requirements
(not yet finalized)
EXHIBIT "B"
Form of Indemnification Agreement
(not yet finalized)
-4-
<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 SIX MONTH PERIODS ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 14,301,991 14,301,991
<SECURITIES> 0 0
<RECEIVABLES> 1,132,252 1,132,252
<ALLOWANCES> 0 0
<INVENTORY> 16,588,144 16,588,144
<CURRENT-ASSETS> 0 0
<PP&E> 2,136,011 2,136,011
<DEPRECIATION> 1,336,958 1,336,958
<TOTAL-ASSETS> 33,353,963 33,353,963
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 85,223 85,223
<OTHER-SE> 17,405,285 17,405,285
<TOTAL-LIABILITY-AND-EQUITY> 33,353,963 33,353,963
<SALES> 8,057,408 17,358,118
<TOTAL-REVENUES> 8,057,408 17,358,118
<CGS> 7,620,311 16,589,106
<TOTAL-COSTS> 7,620,311 16,589,106
<OTHER-EXPENSES> 1,332,623 2,637,692
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 177,087 384,534
<INCOME-PRETAX> (718,439) (1,484,146)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (718,439) (1,484,146)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (718,439) (1,484,146)
<EPS-PRIMARY> (0.08) (0.17)
<EPS-DILUTED> 0 0
</TABLE>
