<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NUMBER 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEAM COMMUNICATIONS GROUP, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3652 95-5419215
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
TEAM COMMUNICATIONS GROUP, INC.
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(310) 442-3500
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES.)
DREW S. LEVIN
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(310) 442-3500
(NAMES, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
BRUCE P. VANN, ESQ.
KELLY LYTTON MINTZ & VANN LLP
1900 AVENUE OF THE STARS, SUITE 1450
LOS ANGELES, CALIFORNIA 90067
TELEPHONE NO: (310) 277-5333
FACSIMILE NO: (310) 277-5953
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(d) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------------------------
Common Stock(2).................................
Common stock being sold by selling
shareholder................................... 150,000
-------------- ------------------- ------------------- --------------
TOTAL........................................... $30,000,000 $8,340
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</TABLE>
(1) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
(2) Includes shares which may be purchased by the underwriters to cover
the over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE OR COUNTRY.
SUBJECT TO COMPLETION. DATED , 1999.
[ ] SHARES
TEAM COMMUNICATIONS GROUP, INC.
-------------------------
TEAM Communications Group, Inc., is offering shares of its
common stock and, the selling shareholder identified in this prospectus is
offering an additional 150,000 shares, such shares initially being offered to
the general public and institutional investors in the Federal Republic of
Germany and to institutional investors located in jurisdictions other than the
United States. We will not receive any of the proceeds for the sale of shares by
the selling shareholder. We have applied to list the entirety of our common
stock on the Neuer Markt of the Frankfurt Stock Exchange. Our common stock
trades on The NASDAQ SmallCap Market under the symbol "TMTV." It is currently
estimated that the public offering price for the common stock offered pursuant
to this prospectus will be between and per share.
See "Risk Factors" beginning on page 10 to read about certain factors you
should consider before buying shares of the common stock.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial public offering price...............................
Underwriting discount.......................................
Proceeds, before expenses, to us............................
Proceeds, before expenses, to the selling shareholder.......
</TABLE>
-------------------------
The underwriters may, under certain circumstances, purchase up to an
additional shares from us at the public offering price less the
underwriting discount.
The underwriters expect to deliver the shares against payment in
, Germany on , 1999.
-------------------------
GONTARD & METALLBANK AG
VEM VIRTUELLES EMISSIONSHAUS AG
Prospectus dated October , 1999.
<PAGE> 3
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES
AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
General Information......................................... 2
Presentation of Financial Information....................... 3
Prospectus Summary.......................................... 4
The Offering................................................ 6
Risk Factors................................................ 10
Note Regarding Forward-Looking Statements................... 15
Use of Proceeds............................................. 15
Dividend Policy............................................. 16
Selected Consolidated Financial Data........................ 17
Unaudited Pro Forma Consolidated Financial Information for
Acquisition of
Dandelion Distribution Ltd................................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 30
Management.................................................. 37
Certain Relationships and Related Transactions.............. 40
Principal and Selling Shareholders.......................... 43
Description of Capital Stock and Other Securities........... 45
Shares Eligible for Future Sale............................. 49
The German Equity Market.................................... 50
German Tax Matters.......................................... 52
Statutory Information....................................... 53
Legal Matters............................................... 54
Experts..................................................... 54
Underwriting................................................ 55
Index to Consolidated Financial Statements of Team
Communications Group, Inc. ............................... F-1
Index to the Financial Statements of Dandelion Distribution
Ltd. ..................................................... F-21
</TABLE>
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES IN THE
UNITED STATES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO AN UNSOLD ALLOTMENT
OR SUBSCRIPTION.
1
<PAGE> 4
GENERAL INFORMATION
RESPONSIBILITY FOR THE CONTENTS OF THE OFFERING CIRCULAR
We, together with the underwriters Gontard & MetallBank AG, Frankfurt am
Main and VEM Virtuelles Emissionshaus AG, undertake, pursuant to sec. 13 of the
German Securities Trading Act (Verkaufsprospektgesetz), and in conjunction with
sec.sec. 45, 77 of the German Stock Exchange Act (Borsengesetz), responsibility
for the contents of this prospectus and hereby state that, to the best of our
knowledge, the information contained in this prospectus is correct and no
material information has been omitted. In making an investment decision, you
must rely on your own examination of our company and the terms of this offering,
including the merits and risks involved. See "Business" and "Risk Factors."
Pursuant to sec. 10 of the German Securities Prospectus Act, this
prospectus will be published on a preliminary basis and will be supplemented in
the future. The supplements and any terms of the offer that have been omitted in
this prospectus will be published in Germany in conformity with the provisions
of the German Securities Prospectus Act. The company report
(Unternehmensbericht), on the basis of which it is currently planned to seek
admission of our shares of common stock to the Frankfurt Stock Exchange's
regulated market (Geregelter Markt) with trading on the Neuer Markt, will also
be published in supplemented form after admission of the shares to exchange
trading in the Federal Republic of Germany.
AVAILABILITY OF DOCUMENTS FOR INSPECTION
Certain documents we refer to in this prospectus as well as future annual
and interim reports we prepare may be inspected during customary business hours
at our offices at 12300 Wilshire Boulevard, Suite 400, Los Angeles, California
90025, U.S.A., as well as at the offices of Gontard & MetallBank AG,
Flughafenstrasse 21, 63263 Neu Isenburg, Germany.
We filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act of 1933 for the shares of common
stock in this offering. This prospectus does not contain all of the information
in the registration statement and the exhibits and schedule that were filed with
the registration statement. For further information with respect to our company
and our common stock, we refer you to the registration statement and the
exhibits and schedule that were filed with the registration statement.
Statements contained in this prospectus about the contents of any contract or
any other document that is filed as an exhibit to the registration statement are
not necessarily complete, and we refer you to the full text of the contract or
other document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedule that were filed with the
registration statement may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of
the registration statement may be obtained from the Securities and Exchange
Commission upon payment of the prescribed fee. The Securities and Exchange
Commission maintains a website that contains reports, proxy and information
statements and other information regarding registrants that filed electronically
with the Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
We are subject to the information and periodic reporting requirements of
the Securities Exchange Act of 1934, and, in accordance with the requirements of
the Securities Exchange Act of 1934, file periodic reports, proxy statements and
other information with the Securities and Exchange Commission. These periodic
reports, proxy statements and other information are available for inspection and
copying at the regional offices, public reference facilities and website of the
Securities and Exchange Commission referred to above.
SUBJECT OF THIS OFFERING CIRCULAR
This prospectus has been filed with the Securities and Exchange Commission.
In the Federal Republic of Germany, this prospectus has been filed with the
Frankfurt Stock Exchange (FSE) and will serve (i) as a preliminary sales
prospectus (unvollstandiger Verkaufsprospekt) in relation to the sale of the
shares being offered by us, shares under the terms of an
over-allotment option we granted to the
2
<PAGE> 5
underwriters, and the 150,000 shares being offered hereby by the selling
shareholder, and (ii) as a listing prospectus (Unternehmensbericht) in relation
to our entire issued and outstanding share capital being shares of
common stock and shares of common stock reserved for issuance upon the
exercise of warrants and the conversion of convertible debt instruments and
shares of common stock reserved for issuance upon the exercise of options
under our 1999 Stock Option, Deferred Stock and Restricted Stock Plan. The
shares we are offering are issued pursuant to a resolution of our board of
directors, approved on October 8, 1999. Our current shareholders have no
preemptive or other subscription rights to the newly issued shares. See
"Description of Capital Stock."
Neither we, the selling shareholder, nor the underwriters have taken, or
will take any action in any jurisdiction other than Germany and the United
States of America that would permit a public offering of the shares or
possession or distribution of a prospectus in any jurisdiction where action for
that purpose is required. We, the selling shareholder and the underwriters
request that if this prospectus comes into your possession, you will acknowledge
these restrictions, and inform yourself about and observe any and all such
restrictions as to the offering and the distribution of this prospectus.
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise indicated, any reference in this prospectus to the
"Consolidated Financial Statements" refers to our consolidated financial
statements, including the notes thereto, for the years ended December 31, 1998,
1997 and 1996, audited by Stonefield Josephson, Inc., 1620 26th Street, Suite
400 South, Santa Monica, California 90404-4041. The Consolidated Financial
Statements contained in this prospectus have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP") with the
United States dollar as the functional currency. Unless otherwise indicated
herein, all information included in this prospectus refers to TEAM
Communications Group, Inc., and its subsidiaries on a consolidated basis and has
been presented in accordance with U.S. GAAP. Our fiscal year ends on December
31, and references in this prospectus to any specific fiscal year are to the
twelve-month period ended December 31 of such year.
3
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including "Risk Factors" and the Consolidated Financial
Statements, before making an investment decision.
We develop, produce and distribute a variety of television programming,
including dramatic and reality-based series, specials and made-for-television
movies for exploitation in the domestic and international television markets. We
derive substantially all of our revenues from the exploitation of our originally
produced programs and product acquired from others.
Our production activities are focused on programming produced for United
States cable and network television channels such as The Discovery Channel, The
Family Channel, Showtime Networks and USA Network. We have received a firm
commitment from Discovery's Animal Planet for the initial production of 13
one-hour drama episodes of "The Call of the Wild," based on Jack London's
classic novel. The series began pre-production in July 1999 with our Canadian
production partner. Delivery is expected to take place from December 1999
through February 2000. We are also developing and producing "Destination Style"
for Discovery's Travel Channel, "Conversations with Remarkable People" for the
Wisdom Network (a new US basic cable network), and "Robin Leach's Wildlife
Styles," which has been sold to Canada's Microtainment Productions. In March
1999, our co-production of 22 episodes of Total Recall 2070, a television series
based on the hit movie "Total Recall," began to air on Showtime Networks. We,
along with Alliance Atlantis, our co-financing partner, have extended the period
of time pursuant to which Showtime Networks must make a decision to order a
second season. We are currently negotiating with Alliance Atlantis to produce a
second season either for Showtime Networks, or directly for first run
syndication.
We have also completed production of a series of 48 half-hour episodes
entitled "Amazing Tails," a reality based series focusing on extraordinary pets,
which has been financed in conjunction with Friskies Pet Foods, a division of
Nestles Food, and advertising leader The Interpublic Group of Companies. All
episodes of Amazing Tales have been produced and delivered, and the series is
currently airing on Discovery's Animal Planet. In addition, we co-developed and
co-produced a reality based five-day per week ("strip") syndicated series,
called "Strange Universe," with United/Chris-Craft television stations and
Rysher Entertainment. This series, which aired on United/Chris-Craft stations,
involved the production of 130 episodes over its two, thirteen week commitments.
We maintain a development and production department which develops and
produces movies-of-the-week, drama and reality-based series for exhibition on
network television, cable or ad hoc networks of independent stations which
sometimes form to air special programming. We also currently have distribution
rights to approximately 3,000 hours of family, dramatic and reality-based series
and specials, and films.
RECENT EVENTS AND OUTLOOK
We are currently in discussions with a number of distribution and
production companies regarding possible business combinations. As of October 1,
1999, we completed the purchase of Dandelion Distribution Ltd., a 20 year old
United Kingdom ("UK") based television production and distribution company, for
$5,000,000 in cash and common stock. Dandelion Distribution Ltd., has over 2,500
hours of television programming in its library.
To address our short term financing needs, we have raised approximately
$11,550,000 since July 1999. This amount includes:
- $350,000 pursuant to the sale to 3 investors of 12% debentures and
warrants to purchase up to 35,000 shares of our common stock;
- $1,200,000 pursuant to a secured loan from Value Management & Research
A.G. ("VMR");
4
<PAGE> 7
- $4,000,000 pursuant to a loan from Hudson Investors, LLC, which matures
on November 30, 2002 and accrues interest at the rate of 12% per year.
Hudson Investors, LLC has the right to convert any outstanding balance on
its promissory note into equity after November 30, 1999. Hudson
Investors, LLC also received 340,000 warrants as part of the financing.
From the Hudson Investors, LLC loan, VMR was repaid $1,000,000 of its
loan; and
- $6,000,000 from Gontard & MetallBank AG, $2,000,000 from the sale of
500,000 shares of our common stock and $4,000,000 pursuant to a loan that
matures on the earlier of completion of this offering or December 31,
1999 and accrues interest at 10% per year. $2,500,000 of these proceeds
was used to fund the cash portion of the Dandelion acquisition.
On August 2, 1999, we purchased from DD Video, the worldwide rights outside
the UK of a library of approximately 11 television series (from 2 to 38 episodes
each) and 20 one-hour documentary specials. The purchase price was $3,400,000;
$1,187,500 of which has been paid; $737,500 which is due by December 15, 1999;
$737,500 which is due by March 5, 2000 and $737,500 which is due by June 15,
2000.
We continue to fulfill the increased demand for programming by implementing
our growth strategies, including strategic acquisitions of production and
distribution companies in the U.S. and Europe, acquisition of programming
libraries and development and production of our original television programming
for the domestic and international markets.
Our address is 12300 Wilshire Boulevard, Suite 400, Los Angeles, California
90025, and our telephone number is (310) 442-3500.
5
<PAGE> 8
THE OFFERING
SHARES OFFERED
Shares offered pursuant to this prospectus include:
- shares of our common stock, shares of which to be
newly issued by us for the purposes of this offering and 150,000 shares
of which are sold by a selling shareholder, and
- up to an additional shares of our common stock which will be
newly issued by us to the extent an over-allotment option granted to the
underwriters is exercised. For further details see "Underwriting."
PREFERENTIAL ALLOTMENT
At our request, the underwriters have reserved up to 10 percent of the
shares of common stock offered (excluding the shares included in the
over-allotment option and those being sold by the selling shareholder) for sale
to directors, officers, employees, persons having business relationships with us
and related persons at the public offering price. The number of shares available
for sale to other investors will be reduced to the extent these persons purchase
such reserved shares. For further details see "Underwriting."
UNDERWRITERS
The shares to be offered pursuant to this prospectus will initially be
purchased by Gontard & MetallBank AG for the account of the underwriters. See
"Underwriting."
PUBLIC OFFERING PRICE AND NUMBER OF SHARES ALLOTTED
It is currently expected that the period of time within which investors may
offer to purchase shares will be from , 1999 to , 1999. The
final purchase price per share payable by investors is currently expected to be
fixed by the underwriters together with us on 1999, and to be
published in the Borsen Zeitung on 1999. Such final
purchase price will be determined on the basis of the average moving share price
of our shares of common stock on The NASDAQ SmallCap Market and on the German
over-the-counter markets (Freiverkehr) of the ten trading days immediately prior
to the price fixing. It is currently expected that from , 1999,
investors who placed orders with an underwriter may enquire from such
underwriter the number of shares allotted.
DELIVERY OF SHARES, PAYMENTS, CLEARING AND TRANSFERABILITY OF SHARES
It is currently expected that the purchase price for shares offered will be
payable by investors on , 1999, against delivery of such allotted
shares in book entry form. The share certificates representing the offered
shares will be deposited by us and the selling shareholder, respectively, with
The Depository Trust Company of New York. The Depository Trust Company's
nominee, Cede & Co., will be the registered owner of such shares. At the closing
of the offering, The Depository Trust Company will electronically deposit the
offered shares in the account of Deutsche Borse Clearing AG with The Depository
Trust Company in book entry form for the benefit of Gontard & MetallBank AG
acting for the account of the underwriters, and Gontard & MetallBank AG will
thereby acquire beneficial ownership of the shares. Thereafter, Gontard &
MetallBank AG will electronically transfer, in book entry form, beneficial
ownership of the shares to the purchasers of the shares through their brokers
and other financial institutions that are Deutsche Borse Clearing AG
participants. Deutsche Borse Clearing AG will not hold any certificates for
common stock. Certificates representing shares of common stock held through
Deutsche Borse Clearing AG will not be issued unless such shares are withdrawn
from Deutsche Borse Clearing AG, in which case the shares will not be eligible
to trade on a German exchange unless such shares are re-deposited with The
Depository Trust Company for credit to Deutsche Borse Clearing AG's account with
The Depository Trust Company.
6
<PAGE> 9
Shares transferred from The Depository Trust Company to Deutsche Borse
Clearing AG may be freely transferred among market participants through the
Deutsche Borse Clearing AG clearing system. The shares to be offered and listed
for trading on the Frankfurt Stock Exchange's Neuer Markt are registered shares.
Accordingly, shareholders holding share certificates who desire to transfer
their shares outside The Depository Trust Company/Deutsche Borse Clearing AG
clearing system may effect the transfer by submitting such shares to our
transfer agent, and the transfer agent will issue a new certificate in the name
of the transferee. If shareholders holding share certificates wish to transfer
their shares to The Depository Trust Company/Deutsche Borse Clearing AG clearing
system, the shareholders must submit their share certificates to our transfer
agent, and the transfer agent will register the shares in the name of Cede & Co.
These shares will be credited to the account of Deutsche Borse Clearing AG at
The Depository Trust Company. Upon registration of the shares with The
Depository Trust Company for the benefit of Deutsche Borse Clearing AG and
fulfillment of any other requirements of The Depository Trust Company or
Deutsche Borse Clearing AG, beneficial ownership of the shares may be
transferred through the Deutsche Borse Clearing AG system.
TRANSFER AGENT, REGISTRAR AND PAYING AGENT
Our shares of common stock will be registered and transferred via a
transfer agent in the United States who will register the offered shares with
Cede & Co. The name of this U.S. transfer agent and registrar is U.S. Stock
Transfer Corporation. Gontard & MetallBank AG, Frankfurt am Main will act as the
paying agent in Germany.
NOTICES
We will publish any notices to shareholders in the German Federal Gazette
(Bundesanzeiger) and in at least one supra-regional newspaper approved by the
Frankfurt Stock Exchange.
VOTING RIGHTS
Each share of common stock entitles its holder to one vote at our general
shareholders' meeting.
DIVIDEND RIGHTS
Each of the holders of the shares offered hereby will be eligible to
receive dividends if and when declared by our Board of Directors. To date, we
have not paid cash dividends on our shares of common stock. We intend to retain
future earnings to fund growth of our business and do not anticipate paying any
cash dividends on shares of common stock in the foreseeable future. (See
"Dividend Policy")
FISCAL YEAR
Our fiscal year is the calendar year.
STOCK EXCHANGE LISTING
In connection with this offering, application will be made for the
admission of the entirety of our issued shares of common stock to the Regulated
Market with trading on the Neuer Markt of the Frankfurt Stock Exchange. It is
currently expected that the admission will take place on . The first
day on which the offered shares will be quoted on the Neuer Markt is currently
expected to be , 1999. In addition, our shares of common stock are
currently traded on The Nasdaq SmallCap Market under the symbol "TMTV."
SECURITIES IDENTIFICATION CODES
The German securities identification code (WKN) for our shares is ,
the international securities identification number (ISIN) for our shares is
, the common code is .
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<PAGE> 10
TRADING SYMBOL FOR THE NEUER MARKT
The expected trading symbol for the Neuer Markt is .
DESIGNATED SPONSORS FOR THE NEUER MARKT
Gontard & MetallBank AG and -- have been retained by us to act as
"designated sponsors" for the shares on the Neuer Markt. See "The German
Securities Market."
SHARE DATA
<TABLE>
<S> <C>
Number of shares outstanding as of October 11, 1999......... 6,284,806(1)(2)
Number of shares to be registered pursuant to this
offering..................................................
Total number of shares outstanding..........................
</TABLE>
- ---------------
(1) Does not include shares issuable upon exercise of warrants, options or
convertible debt.
(2) Does not include up to 166,038 shares which may be issued in connection
with the acquisition of the Film Libraries, Inc.'s, library. See
"Business -- Distributions."
USE OF PROCEEDS
We intend to use the proceeds from this offering for general corporate
purposes, principally working capital and capital expenditures, as well as for
the repayment of approximately $9,300,000 of outstanding loans, including
accrued interest. In addition, we may use a portion of the net proceeds to
acquire complementary products or businesses at some time in the future. Pending
use of the net proceeds of this offering, we intend to invest the net proceeds
in interest-bearing, investment-grade securities. We will not receive any
proceeds from the sale of the shares being sold by the selling shareholder.
------------------------------------
Neither we, the selling shareholder, nor the underwriters have taken, or
will take any action in any jurisdiction other than the Federal Republic of
Germany and the United States of America that would permit a public offering of
the shares or possession or distribution of a prospectus in any jurisdiction
where action for that purpose is required. No person has been authorized to give
any information or to make any representation other than those contained in this
prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized.
This prospectus has not been approved as an investment advertisement
pursuant to Section 57 of the Financial Services Act 1986 and may not be issued
or passed on in the UK except to a person who is of the kind described in
Article 11(3) of the Financial Services Act (Investment Advertisements)
(Exemptions) Order 1996 (as amended), or is a person to whom the prospectus may
otherwise lawfully be issued or passed on.
8
<PAGE> 11
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE FOR THE FOR THE
---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1996
----------- -------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $7,019,900 $3,215,900 $13,581,900 $6,875,600 $5,749,800
Cost of revenues................................. 4,136,200 836,700 9,076,000 2,355,300 2,895,900
---------- ---------- ----------- ---------- ----------
Gross profit..................................... 2,883,700 2,379,200 4,505,900 4,520,300 2,853,900
General and administrative expenses.............. 1,039,000 1,138,300 3,274,000 3,244,900 2,323,800
---------- ---------- ----------- ---------- ----------
Net income from operations....................... 1,844,700 1,240,900 1,231,900 1,275,400 530,100
Interest expense................................. 280,100 622,800 902,600 1,040,100 677,700
Interest income.................................. 69,600 91,500 202,900 211,800 58,300
Other income..................................... -- -- -- -- 90,100
---------- ---------- ----------- ---------- ----------
Net income before income taxes................... 1,634,200 709,600 532,200 447,100 800
Provision for income taxes....................... 581,700 70,000 57,500 -- --
Extraordinary loss from early extinguishment of
debt........................................... 248,200 -- 69,500 -- --
---------- ---------- ----------- ---------- ----------
Net income....................................... $ 804,300 $ 639,600 $ 405,200 $ 447,100 $ 800
========== ========== =========== ========== ==========
Net income per common share basic(1)............. $ 0.22 $ 0.57 $ 0.22 $ 0.40 $ --
========== ========== =========== ========== ==========
Weighted average number of shares outstanding
basic(1)....................................... 3,577,593 1,131,344 1,833,340 1,131,344 1,131,344
========== ========== =========== ========== ==========
Net income per common share diluted(1)........... $ 0.17 $ 0.35 $ 0.17 $ 0.25 $ --
========== ========== =========== ========== ==========
Weighted average number of shares outstanding
diluted(1)..................................... 4,762,511 1,821,800 2,434,017 1,821,800 1,821,800
========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(2) ADJUSTED(3)
----------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Liquidity capital (deficit)(4).............................. $(5,900,000) $(2,000,000) $24,700,000
Total assets................................................ 26,086,300 34,911,600 52,367,600
Notes payable............................................... 2,422,700 8,929,000 --
Line of credit.............................................. 850,000 -- --
Accrued interest............................................ 596,000 315,000 --
Shareholder loan and note payable........................... 450,000 -- --
Retained earnings........................................... 624,900 444,900 444,900
Shareholders' equity........................................ 11,596,700 15,496,700 42,196,700
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for information
regarding the calculation of net income per share.
(2) The "As Adjusted" column reflects: (i) the conversion of the $1,000,000 of
debentures into shares of common stock, as well as the related write-off of
the original issue discount associated with the initial sale of such
securities (the resulting adjustment to retained earnings reflects the
write-off of the discounts associated with the early extinguishment of such
debt); (ii) the sale of 175,000 shares of common stock in July 1999 to four
debenture holders and 500,000 shares of common stock to Gontard & MetallBank
AG; (iii) $1,200,000 of proceeds from a secured loan from VMR, $1,000,000 of
which was repaid; (iv) proceeds of $4,000,000 from the bridge financing with
Hudson Investors, LLC; (v) the exercise of warrants and $380,000 in proceeds
from their exercise; (vi) proceeds of $4,000,000 from the bridge financing
with Gontard & MetallBank AG; and (vii) the repayment of $850,000 on the
line of credit, $450,000 on the shareholder loan and note payable, $281,000
in accrued interest and $873,700 in notes payable.
(3) The "As Further Adjusted" column reflects the adjustments described in (2)
above and the use of the estimated net proceeds from the issuance of common
stock in this offering, see "Use of Proceeds."
(4) Represents (i) cash and cash equivalents plus accounts receivables (net),
and the amount due from officer, less (ii) accounts payable, accrued
expenses and other liabilities, deferred revenue, accrued participations,
notes payable, line of credit, shareholder loan and note payable, and
accrued interest.
9
<PAGE> 12
RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Additional risks
and uncertainties that are not yet identified or that we currently think are
immaterial may also materially adversely affect our business and financial
condition in the future.
GOING CONCERN ASSUMPTION.
Contained in the independent accountants' report included in our financial
statements for each of the fiscal years since our formation, and included in the
footnotes to the unaudited financial statements for the six months ended June
30, 1999, is an explanatory paragraph indicating that our financial condition
raises substantial doubt as to our ability to continue as a going concern. There
can be no assurance that future financial statements will not include a similar
explanatory paragraph if we remain unable to raise enough money or generate
sufficient cash flow from operations to cover the cost of running our business.
The existence of such an explanatory paragraph may have a material adverse
effect on our relationship with third parties who are concerned about our
ability to complete projects that we are contractually required to develop or
produce, and could also impact our ability to complete future financings.
WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT.
We were incorporated in February 1995, and have a limited operating
history. Although we have generated profitable operations during each of the
fiscal years ended December 31, 1998, 1997 and 1996, and for the six months
ended June 30, 1999, we have experienced a negative cash flow from operations
during such periods. We can not assure you that we will continue to be
profitable in the foreseeable future or that we will be able to generate
positive cash flow from our operations. Our business plan is subject to all the
risks associated with starting a new business, including operating losses. In
addition, we will be subject to certain factors affecting the entertainment
industry generally, such as:
- sensitivity to general economic conditions;
- critical acceptance of our products; and
- intense competition.
The likelihood of our success must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the formation of a new business.
LIQUIDITY DEFICIT.
As of June 30, 1999, we had retained earnings of $624,900 and a liquidity
deficit of ($5,900,000). Liquidity deficit is defined as:
- cash and cash equivalents plus accounts receivable (net), and the amount
due from officer, less
- accounts payable, accrued expenses and other liabilities, deferred
revenue, accrued participations, notes payable, line of credit,
shareholder loan and note payable, and accrued interest.
See "Risk Factors -- Need for additional capital, dilution and no assurance
of future financings," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and Note
12 of Notes to Consolidated Financial Statements.
10
<PAGE> 13
NEED FOR ADDITIONAL CAPITAL, DILUTION AND NO ASSURANCE OF FUTURE FINANCINGS.
The entertainment industry is highly capital intensive. Despite our initial
public offering, our operations have been hurt by ongoing capital shortages
caused by a slowness in collecting receivables and the inability to complete a
long term banking relationship. To address our short term financing needs, we
raised approximately $11,550,000 since July 1999. This amount includes:
- $350,000 pursuant to the sale to 3 investors of 12% debentures and
warrants to purchase up to 35,000 shares of our common stock;
- $1,200,000 pursuant to a secured loan from VMR;
- $4,000,000 pursuant to a loan from Hudson Investors, LLC, which matures
on November 30, 2002 and accrues interest at the rate of 12% per year.
Hudson Investors, LLC has the right to convert any outstanding balance on
its promissory note into equity after November 30, 1999. Hudson
Investors, LLC also received 340,000 warrants as part of the financing.
From the Hudson Investors, LLC loan, VMR was repaid $1,000,000 of its
loan; and
- $6,000,000 from Gontard & MetallBank AG, $2,000,000 from the sale of
500,000 shares of our common stock and $4,000,000 pursuant to a loan that
matures on the earlier of the completion of this offering or December 31,
1999 and accrues interest at 10% per year. $2,500,000 of these proceeds
was used to fund the cash portion of the acquisition of Dandelion.
These financings in general, and the convertible debt financing in
particular, are dilutive to our shareholders.
Despite the dilutive nature of these financings, we believe that completing
these offerings was critical to our short term financial needs. As of September
30, 1999 we had indebtedness and related accrued interest of $9,244,000,
including notes in the principal amount of $4,929,000, which mature within one
year.
Based on our current resources of cash, accounts receivable, available
credit line, and our recent financings, we will be able to operate at current
expenditure levels through March 31, 2000.
If this offering is not completed and additional financing is not
available, we will be required to:
- reduce or suspend our operations;
- seek an acquisition partner; or
- try other ways to sell securities (on terms that may be highly dilutive
or otherwise disadvantageous to current shareholders).
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 12 of Notes
to Consolidated Financial Statements.
OUR RELIANCE ON CERTAIN CUSTOMERS AND OUR ALLOWANCES FOR POSSIBLE UNCOLLECTIBLE
RECEIVABLES.
As of June 30, 1999, we had $7,481,600 in receivables. As of December 31,
1998, we had receivables of $4,736,700, of which $3,200,000 has been collected
as of September 30, 1999. To cover the possibility that one or more of our
customers could fail to pay monies due to us, we currently maintain a general
reserve of approximately $337,000. If we are required to make an additional
allowance for these receivables, our results of operations and financial
condition in future periods could be adversely affected. While we believe that
each of the licensees are reasonable credit risks, any failure to pay could have
a material adverse impact on our results.
11
<PAGE> 14
OUR DEPENDENCE ON EMERGING MARKETS AND ON FOREIGN SALES.
A considerable portion of our revenues are, and for the foreseeable future
will most likely be, derived from the sale or license of our products to
recently established US broadcasters, cable networks and syndicators such as:
- The Discovery Channel;
- Discovery's Animal Planet;
- The Learning Channel;
- The Travel Channel;
- The Fox Family Channel;
- the WB Network; and
- Showtime Network.
In addition to these, a substantial portion of our revenues are dependent
on sales to licensees and distributors in foreign markets. Collecting
receivables from these customers is subject to the risks associated with doing
business with foreign companies including rapid changes in the political and
economic climates of such countries. If we become involved in a long term
dispute over how our product is being distributed in a foreign country, or are
forced to initiate collection activities to enforce the terms of a license or
distribution agreement, the profitability of any particular product may be
adversely effected.
As of June 30, 1999, substantially all of our receivables are trade
receivables from entities domiciled outside the United States. These
receivables, totaling $7,481,600, represent 100% of all trade receivables and
29% of our total assets. Any difficulty or delay in the collection of these
receivables could have a material adverse effect on our financial condition or
results of operations. Changes in international economic conditions may impact
our future sales and collections.
BUSINESS COMBINATIONS.
We are currently in discussions with a number of distribution and
production companies regarding possible business combinations. No assurance can
be given that any such acquisitions will be consummated, even though we may
incur substantial costs related to such acquisitions.
As of October 1, 1999, we completed the purchase of Dandelion Distribution
Ltd., a UK based production and distribution company for $2,500,000 in cash and
386,847 shares of common stock. We may also be required to pay up to an
additional $250,000 if the shares of our common stock delivered as part of the
purchase price do not have a market value of at least $3,000,000 on October 1,
2001. See "Business -- Global Strategy." Even though the acquisition has been
completed, there can be no assurance that we will be successful in timely
integrating Dandelion into our operations or that they will remain profitable.
COMPETITION.
The entertainment industry is highly competitive. We compete with many
entertainment organizations, who are all seeking, in varying degrees;
- the rights to literary properties;
- the services of creative and technical personnel;
- the financing for production of film and television projects; and
- favorable arrangements for the distribution of completed films and
television projects.
Virtually all of our competitors are larger than we are, have been in
business longer than we have and have more resources at their disposal. The
entertainment industry is currently evolving into an industry in which certain
multi-national, multi-media entities, because of their control over key film,
magazine, and/or television content, as well as key network and cable outlets,
will be able to dominate certain communications industry activities in the U. S.
These competitors have numerous competitive advantages, including the ability to
acquire financing for their projects and attract superior properties, personnel,
actors and/or celebrity hosts.
12
<PAGE> 15
THE RISK THAT NOT ENOUGH EPISODES OF A SERIES WILL BE ORDERED TO ALLOW US TO
SYNDICATE THE SERIES.
There can be no assurance that once we commit to produce a series which has
been licensed to a network, that the network will order and broadcast enough
episodes so that we can syndicate the series in the U.S. Typically, there needs
to be at least 65 episodes of a series produced in order to "strip" or syndicate
the series in the daily re-run market. Networks can generally cancel a series at
stated intervals and, accordingly, do not commit in advance to exhibit a series
for more than a limited period. If a series is canceled before the minimum
number of shows necessary to syndicate or "strip" have been produced, there is a
chance that the production costs of the project will not be fully recovered.
Similar risks apply for a series produced for a non-network medium. See
"Business -- Operations" for a discussion of the financing of series and how
deficits are potentially recouped.
We presently have a commitment of 13 episodes for Call of the Wild, and
have completed 22 episodes for Total Recall 2070, which is not enough episodes
to syndicate or "strip" these series in the U.S. The syndication rights to Total
Recall 2070, for which we are a profit participant, are owned by Universal, by
virtue of Universal's 1998 acquisition of Polygram Filmed Entertainment. The
show will be shown on a once a week syndication basis in January 2000. If the
show is not renewed, there will only be one season of syndication, in which
event we would not expect to receive significant amounts relative to our profit
interests.
FLUCTUATIONS IN OPERATING RESULTS.
Our revenues and results of operations are significantly dependent upon the
timing and success of the television programming we distribute, which cannot be
predicted with certainty. Revenues for any particular program may not be
recognized until the program is produced and available for delivery to the
licensee. Production delays may impact the timing of when revenues may be
recognized under generally accepted accounting principles. Significant sales of
our product take place at the industry's major selling markets, the most
important of which are MIP-TV and MIPCOM-TV (the International Film and Program
Market for TV, Video, Cable & Satellite) which take place in France in the
second and fourth quarters, respectively and NATPE, which takes place in the
United States in January. Finally, production commitments are typically obtained
from networks in the spring (second quarter), although production activity and
delivery may not occur until later periods. We may experience significant
quarterly variations in our operations, and results in any particular quarter
may not be indicative of results in subsequent periods.
Our results will also be affected by the allocation of revenue between
product we produce and own as compared to product which are distributed on
behalf of third party producers and for which we are paid a sales commission.
Where we are paid a sales commission, our expenses as a percentage of revenue
will typically be higher, because we record, as an expense, the participations
owing to the copyright owners. Where we are exploiting product which we own
outright, we do not record such expenses, and our margins will typically be
higher.
THE SPECULATIVE NATURE OF THE ENTERTAINMENT BUSINESS.
Substantially all of our revenues are derived from the production and
distribution of television series and made-for-television movies. The
entertainment industry in general, and the development, production and
distribution of television programs, in particular, is highly speculative and
involves a substantial degree of risk. Since each project is an individual
artistic work and its commercial success is primarily determined by audience
reaction, which is volatile and unpredictable, there can be no assurance that
any entertainment property will make money. Even if a production is a critical
or artistic success, there is no assurance that it will be profitable.
THE ABILITY TO MANAGE OUR GROWTH.
Subject to obtaining sufficient financing, we intend to pursue a strategy
which management believes may result in rapid growth. As our anticipated
development, production and distribution activities increase, it is essential
that we maintain effective controls and procedures regarding critical accounting
and budgeting areas, as well as obtain and/or retain experienced personnel.
There can be no assurance that rapid growth will occur or that, if such growth
does occur, that we will be able to attract qualified personnel or successfully
manage such expanded operations.
13
<PAGE> 16
DEVELOPMENT COSTS.
Included in our assets as of June 30, 1999 and December 31, 1998 are
television program costs of approximately $257,500 and $1,017,400, respectively,
which represent aggregate costs of projects for which we are actively pursuing
production commitments, but which have not been set for principal photography.
We intend, as required by accounting standards, to write off the costs of all
development projects when they are abandoned or, even if still being developed,
if they have not been set for principal photography within three years of their
initial development activity. In this regard we wrote down our development costs
in the series LoCoMoTioN by approximately $450,000 in the second quarter of
1999.
PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS.
Certain provisions of our Articles of Incorporation and Bylaws and certain
other contractual provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire control of us. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of our common stock.
Certain of these provisions allow us to issue preferred stock with rights senior
to those of the common stock without any further vote or action by the
shareholders, and impose various procedural and other requirements which could
make it more difficult for shareholders to affect certain corporate actions.
These provisions could also have the effect of delaying or preventing a change
in control. The issuance of preferred stock could decrease the amount of
earnings and assets available for distribution to the holders of our common
stock or could adversely affect the rights and powers, including voting rights,
of the holders of our common stock. In certain circumstances, such issuance
could have the effect of decreasing the market price of our common stock.
VOLATILITY OF SHARE PRICE; LACK OF ACTIVE TRADING MARKET.
Our common stock has been listed on The NASDAQ SmallCap Market since July
29, 1998.
The market prices for securities of companies with limited operating
history, including us, have historically been highly volatile both on The NASDAQ
SmallCap Market and the Frankfurt Stock Exchange's Neuer Markt. Significant
volatility in the market price of our common stock may arise due to factors such
as:
- our developing business;
- a continued negative cash flow;
- relatively low price per share;
- relatively low public float;
- variations in quarterly operating results;
- general trends in the entertainment industry;
- the number of holders of our common stock; and
- the interest of securities dealers in maintaining a market for our common
stock.
As long as there is only a limited public market for our common stock, the
sale of a significant number of shares of our common stock at any particular
time could be difficult to achieve at the market prices prevailing immediately
before such shares are offered, and could cause a severe decline in the price of
our common stock.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.
We expect the net proceeds from this offering, cash on hand, cash
equivalents and commercial credit facilities to meet our working capital and
capital expenditure needs for the foreseeable future. To continue our expansion,
we may need to raise additional funds, and we cannot be certain that we would be
able to obtain additional financing on favorable terms, if at all. Further, if
we issue equity securities, shareholders may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
those of existing holders of common stock. If we cannot raise required funds on
acceptable terms, we may not
14
<PAGE> 17
be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements,
which could harm our business, financial condition and results of operations.
WE HAVE NEVER PAID A DIVIDEND AND DO NOT ANTICIPATE PAYING ONE IN THE
FORESEEABLE FUTURE.
We have not paid dividends since our formation and do not intend to pay any
dividends to our shareholders in the foreseeable future. No assurance can be
given that we will pay dividends at any time. We presently intend to retain
future earnings, if any, for the development and expansion of our business. See
"Dividend Policy."
SHARES ELIGIBLE FOR ADDITIONAL SALE AND EXERCISE OF REGISTRATION RIGHTS.
Sale of substantial amounts of our common stock in the public market or the
prospect of such sales could materially adversely affect the market price of our
common stock. Upon completion of this offering, we will have outstanding
approximately shares of common stock, including approximately
shares of common stock underlying outstanding warrants and options.
Of these shares, approximately shares are restricted shares under the
Securities Act of 1933. We intend to file a registration statement on Form S-8
under the Securities Act of 1933 to register the sale of approximately 1,100,000
shares of our common stock reserved for issuance under our 1999 Stock Option,
Deferred Stock and Restricted Stock Plan. Shares of our common stock issued upon
exercise of options after the effective date of the registration statement on
Form S-8 will be available for sale in the public market, subject in some cases
to volume and other limitations.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. We use words such as "may," "will," "should," "estimates,"
"predicts," "anticipates," "believes," "plans," "expects," "future," "intends,"
"potential" and similar expressions to identify forward-looking statements.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks described above and in other parts of this
prospectus.
Although we believe that the expectations reflecting the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. In
addition, these forward-looking statements apply only as of the date of this
prospectus. We are under no duty to update any of the forward-looking statements
after the date of this prospectus or to conform such statements to actual
results or to changes in our expectations.
USE OF PROCEEDS
The net proceeds from the sale of the shares of common stock
offered by us are estimated to be $26,700,000, or $29,370,000 if the
underwriters' share over-allotment option is exercised in full, at
an assumed initial public offering price of $ per share, after deducting the
estimated underwriting discounts and commissions payable to the underwriters as
well as estimated other offering expenses payable by us (approximately
$3,300,000).
We expect to use the net proceeds from this offering for general corporate
purposes, principally working capital and capital expenditures, as well as for
the repayment of approximately $9,300,000 of outstanding loans, including
accrued interest. In addition, we may use a portion of the net proceeds to
acquire complementary products or businesses at some time in the future.
15
<PAGE> 18
Set forth below, in tabular form, is a breakdown of our anticipated use of
proceeds.
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
NET PROCEEDS OF NET PROCEEDS
------------- ----------------
<S> <C> <C>
Repayment of all outstanding loans, including
accrued interest.................................. $ 9,300,000 35%
Development of our European operations, including
potential acquisitions of production and
distribution companies and programming............ 10,700,000 40%
Corporate overhead and general working capital...... 6,700,000 25%
</TABLE>
Pending use of the net proceeds of this offering, we intend to invest the
net proceeds in interest-bearing, investment-grade securities. We will not
receive any proceeds from the sale of the shares being sold by the selling
shareholder. See "Principal and Selling Shareholders."
DIVIDEND POLICY
We have never declared or paid cash dividends. We intend to retain and use
any future earnings for the development and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996 are derived from our
Consolidated Financial Statements included elsewhere in this prospectus that
have been audited by Stonefield Josephson, Inc., as indicated in their
respective reports which are also included elsewhere in this prospectus. The
selected consolidated financial data for the six months ended June 30, 1999 and
1998 have been derived from the unaudited consolidated financial statements of
the Company, included elsewhere in this prospectus, which, in the opinion of
management, have been prepared on the same basis as the audited financial
statements and includes all normal and required adjustments necessary for fair
presentation. The results for the six months ended June 30, 1999 are not
necessarily indicative of future results. Such selected consolidated financial
data should be read in conjunction with those Consolidated Financial Statements
and the Notes thereto.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE FOR THE FOR THE
---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1996
----------- -------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $7,019,900 $3,215,900 $13,581,900 $6,875,600 $5,749,800
Cost of revenues................................. 4,136,200 836,700 9,076,000 2,355,300 2,895,900
---------- ---------- ----------- ---------- ----------
Gross profit..................................... 2,883,700 2,379,200 4,505,900 4,520,300 2,853,900
General and administrative expenses.............. 1,039,000 1,138,300 3,274,000 3,244,900 2,323,800
---------- ---------- ----------- ---------- ----------
Net income from operations....................... 1,844,700 1,240,900 1,231,900 1,275,400 530,100
Interest expense................................. 280,100 622,800 902,600 1,040,100 677,700
Interest income.................................. 69,600 91,500 202,900 211,800 58,300
Other income..................................... -- -- -- -- 90,100
---------- ---------- ----------- ---------- ----------
Net income before income taxes................... 1,634,200 709,600 532,200 447,100 800
Provision for income taxes....................... 581,700 70,000 57,500 -- --
Extraordinary loss from early extinguishment of
debt........................................... 248,200 -- 69,500 -- --
---------- ---------- ----------- ---------- ----------
Net income....................................... $ 804,300 $ 639,600 $ 405,200 $ 447,100 $ 800
========== ========== =========== ========== ==========
Net income per common share basic(1)............. $ 0.22 $ 0.57 $ 0.22 $ 0.40 $ --
========== ========== =========== ========== ==========
Weighted average number of shares outstanding
basic(1)....................................... 3,577,593 1,131,344 1,833,340 1,131,344 1,131,344
========== ========== =========== ========== ==========
Net income per common share diluted(1)........... $ 0.17 $ 0.35 $ 0.17 $ 0.25 $ --
========== ========== =========== ========== ==========
Weighted average number of shares outstanding
diluted(1)..................................... 4,762,511 1,821,800 2,434,017 1,821,800 1,821,800
========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(2) ADJUSTED(3)
----------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Liquidity capital (deficit)(4).............................. $(5,900,000) $(2,000,000) $24,700,000
Total assets................................................ 26,086,300 34,911,600 52,367,600
Notes payable............................................... 2,422,700 8,929,000 --
Line of credit.............................................. 850,000 -- --
Accrued interest............................................ 596,000 315,000 --
Shareholder loan and note payable........................... 450,000 -- --
Retained earnings........................................... 624,900 444,900 444,900
Shareholders' equity........................................ 11,596,700 15,496,700 42,196,700
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for information
regarding the calculation of net income per share.
(2) The "As Adjusted" column reflects: (i) the conversion of the $1,000,000 of
debentures into shares of common stock, as well as the related write-off of
the original issue discount associated with the initial sale of such
securities (the resulting adjustment to retained earnings reflects the
write-off of the discounts associated with the early extinguishment of such
debt); (ii) the sale of 175,000 shares of common stock in July 1999 to four
debenture holders and 500,000 shares of common stock to Gontard &
17
<PAGE> 20
MetallBank AG; (iii) $1,200,000 of proceeds from a secured loan from VMR,
$1,000,000 of which was repaid; (iv) proceeds of $4,000,000 from the bridge
financing with Hudson Investors, LLC; (v) the exercise of warrants and
$380,000 in proceeds from their exercise; (vi) proceeds of $4,000,000 from
the bridge financing with Gontard & MetallBank AG; and (vii) the repayment
of $850,000 on the line of credit, $450,000 on the shareholder loan and note
payable, $281,000 in accrued interest and $873,700 in notes payable.
(3) The "As Further Adjusted" column reflects the adjustments described in (2)
above and the use of the estimated net proceeds from the issuance of common
stock in this offering, see "Use of Proceeds."
(4) Represents (i) cash and cash equivalents plus accounts receivables (net),
and the amount due from officer, less (ii) accounts payable, accrued
expenses and other liabilities, deferred revenue, accrued participations,
notes payable, line of credit, shareholder loan and note payable, and
accrued interest.
18
<PAGE> 21
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
FOR ACQUISITION OF DANDELION DISTRIBUTION LTD.
The unaudited pro forma consolidated financial information reflects
financial information with respect to the Company's acquisition of Dandelion
Distribution Ltd. ("Dandelion"). The acquisition of Dandelion was completed as
of October 1, 1999, and has been accounted for under the purchase method of
accounting.
The financial statements of Dandelion included in the unaudited pro forma
consolidated financial information were translated from British Pounds to U.S.
dollars at the rate of 1.58, 1.58 and 1.65 for the June 30, 1999 unaudited
consolidated balance sheet, the June 30, 1999 unaudited consolidated statement
of operations and the December 31, 1998 unaudited consolidated statement of
operations, respectively.
The unaudited pro forma consolidated statements of operations were prepared
as if the acquisition occurred as of January 1, 1998. The unaudited pro forma
consolidated balance sheet was prepared as if the acquisition occurred on June
30, 1999. The unaudited pro forma consolidated financial information should be
read in conjunction with the Company's historical financial statements and notes
thereto included elsewhere in this prospectus.
The unaudited pro forma consolidated financial information does not purport
to represent what the financial position or results of operations of the Company
would have been if the acquisition had in fact been consummated on such date or
at the beginning of the period indicated or to project the financial position or
results of operations for any future date or period. The pro forma adjustments
are based upon available information and upon certain assumptions that the
Company's management believe are reasonable. In the opinion of management, all
adjustments necessary to present fairly the unaudited pro forma consolidated
financial information have been made. The allocation of the purchase price to
the assets and liabilities acquired reflected in this proforma financial data is
preliminary. Accordingly, the actual financial position and results of
operations may differ from these pro forma amounts.
19
<PAGE> 22
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
FOR ACQUISITION OF DANDELION DISTRIBUTION LTD.
<TABLE>
<CAPTION>
PRO FORMA
TEAM DANDELION(1) ADJUSTMENTS COMBINED
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 937,600 $ 399,176 $ -- $ 1,336,776
Trade receivables, net.................. 7,481,600 1,089,339 1,250,000 (2) 9,820,939
Television programming costs, net....... 16,766,200 1,637,047 3,770,000 (3) 21,173,247
Due from officer........................ 170,400 -- -- 170,400
Fixed assets, net....................... 30,000 696,520 (175,000)(4) 551,520
Goodwill................................ -- -- 977,311 (5) 977,311
Prepaid and other assets................ 700,500 66,379 -- 766,879
----------- ---------- ----------- -----------
Total assets.................. $26,086,300 $3,888,461 $ 5,822,311 $35,797,072
=========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and
other liabilities..................... $ 6,313,800 $2,422,772 $ 2,288,000 (6) $11,024,572
Deferred revenue........................ 85,600 -- -- 85,600
Accrued participations.................. 3,771,500 -- -- 3,771,500
Bank line of credit..................... 850,000 -- -- 850,000
Notes payable........................... 2,422,700 -- 2,500,000 (7) 4,922,700
Accrued interest........................ 596,000 -- -- 596,000
Shareholder loan and note payable....... 450,000 -- -- 450,000
----------- ---------- ----------- -----------
Total liabilities............. 14,489,600 2,422,772 4,788,000 21,700,372
----------- ---------- ----------- -----------
Commitments and contingencies
Shareholders' equity.................... 11,596,700 1,465,689 1,034,311 (8) 14,096,700
----------- ---------- ----------- -----------
Total liabilities and
shareholders' equity........ $26,086,300 $3,888,461 $ 5,822,311 $35,797,072
=========== ========== =========== ===========
</TABLE>
20
<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR ACQUISITION OF DANDELION DISTRIBUTION LTD.
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
TEAM DANDELION(1) ADJUSTMENTS COMBINED
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenues............................ $7,019,900 $1,501,614 $ -- $8,521,514
Cost of revenues.................... 4,136,200 827,494 148,555 (9) 5,112,249
---------- ---------- --------- ----------
Gross profit........................ 2,883,700 674,120 (148,555) 3,409,265
General and administrative
expenses.......................... 1,039,000 615,583 24,433 (10) 1,679,016
---------- ---------- --------- ----------
Income from operations.............. 1,844,700 58,537 (172,988) 1,730,249
Interest expense.................... 280,100 44,466 125,000 (11) 449,566
Interest income..................... 69,600 18,112 -- 87,712
Other income........................ -- 16,636 -- 16,636
---------- ---------- --------- ----------
Income before income taxes.......... 1,634,200 48,819 (297,988) 1,385,031
Provision for income taxes.......... 581,700 17,920 (98,480)(12) 501,140
---------- ---------- --------- ----------
Income from continuing operations... $1,052,500 $ 30,899 $(199,508) $ 883,891
========== ========== ========= ==========
Income from continuing operations
per common share basic............ $ 0.29 $ 0.22
========== ==========
Weighted average number of shares
basic............................. 3,577,593 386,847 3,964,440
========== ========= ==========
Income from continuing operations
per common share diluted.......... $ 0.22 $ 0.17
========== ==========
Weighted average number of shares
diluted........................... 4,762,511 386,847 5,149,358
========== ========= ==========
</TABLE>
21
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR ACQUISITION OF DANDELION DISTRIBUTION LTD.
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
TEAM DANDELION(1) ADJUSTMENTS COMBINED
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues.............................. $13,581,900 $3,290,549 $ -- $16,872,449
Cost of revenues...................... 9,076,000 1,988,019 150,838 (9) 11,214,857
----------- ---------- --------- -----------
Gross profit.......................... 4,505,900 1,302,530 (150,838) 5,657,592
General and administrative expenses... 3,274,000 1,090,413 48,866 (10) 4,413,279
----------- ---------- --------- -----------
Income from operations................ 1,231,900 212,117 (199,704) 1,244,313
Interest expense...................... 902,600 86,272 250,000 (11) 1,238,872
Interest income....................... 202,900 37,008 -- 239,908
Other income.......................... -- 38,146 -- 38,146
----------- ---------- --------- -----------
Income before income taxes............ 532,200 200,999 (449,704) 283,495
Provision for income taxes............ 57,500 51,926 (60,126)(12) 49,300
----------- ---------- --------- -----------
Income from continuing operations..... $ 474,700 $ 149,073 $(389,578) $ 234,195
=========== ========== ========= ===========
Income from continuing operations per
common share basic.................. $ 0.26 $ 0.11
=========== ===========
Weighted average number of shares
basic............................... 1,833,340 386,847 2,220,187
=========== ========= ===========
Income from continuing operations per
common share diluted................ $ 0.20 $ 0.08
=========== ===========
Weighted average number of shares
diluted............................. 2,434,017 386,847 2,820,864
=========== ========= ===========
</TABLE>
22
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
FOR ACQUISITION OF DANDELION DISTRIBUTION LTD.
The following table sets forth the determination and allocation of the
purchase price of Dandelion. Per the terms of the agreement the Company will pay
$5 million, $2.5 million in cash and $2.5 million in the Company's common stock
by issuing 386,847 shares. In addition, if the 386,847 shares of common stock do
not have a market value of at least $3,000,000 on October 1, 2001, the Company
will be required to make a cash payment of up to $250,000.
<TABLE>
<S> <C>
Cash payment................................................ $ 2,500,000
Equity payment.............................................. 2,500,000
Contingent payment.......................................... 250,000
Transaction costs........................................... 100,000
-----------
Total purchase price........................................ 5,350,000
</TABLE>
The preliminary allocation of the pro forma purchase price is as follows:
<TABLE>
<S> <C>
Net assets.................................................. (1,465,689)
Increase in trade receivables............................... (1,250,000)
Increase in television programming costs.................... (3,770,000)
Decrease in fixed assets.................................... 175,000
Increase in deferred income taxes........................... 1,938,000
-----------
Cost in excess of fair market value of net assets
acquired.................................................. $ 977,311
===========
</TABLE>
(1) The financial statements of Dandelion included in the unaudited pro forma
consolidated financial information were translated from British Pounds to
U.S. dollars at the rate of 1.58, 1.58 and 1.65 for the June 30, 1999
unaudited consolidated balance sheet, the June 30, 1999 unaudited
consolidated statement of operations and the December 31, 1998 unaudited
consolidated statement of operations, respectively.
(2) Reflects an adjustment to record accounts receivable at fair market value.
(3) Reflects an adjustment to the Dandelion film and television program library
to record it on the books at fair market value.
(4) Reflects an adjustment to a building owned by Dandelion to record it on the
books at fair market value.
(5) Reflects the excess purchase price over the fair value of the assets
acquired and liabilities assumed.
(6) Reflects an adjustment to record the deferred tax effect of the pro forma
balance sheet adjustments and certain costs of the acquisition.
(7) Reflects an adjustment to record a bridge loan covering the cash portion of
the acquisition to be paid by this offering.
(8) The net increase to stockholder's equity results from the issuance of $2.5
million in equity and the elimination of Dandelion's historical net assets.
(9) Reflects an adjustment to cost of revenues resulting from the write-up of
the library and the amortization of those costs over the revenue life of
the programming.
(10) To reflect the amortization of goodwill over 20 years.
(11) Reflects an adjustment to record the increase to interest expense resulting
from the bridge loan used to cover the cash portion of the acquisition. The
borrowing rate used is 10% per year based on the Company's most recent debt
financing.
(12) To record the tax effect of the pro forma adjustments to amortization of
television programming costs and interest expense. The amortization of
goodwill is not deductible for tax purposes.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the notes thereto and the other financial information appearing
elsewhere in this prospectus. In addition to historical information, the
following discussion and other parts of this prospectus contain forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by such forward-looking information due
to factors discussed under "Risk Factors," "Business" and elsewhere in this
prospectus.
OVERVIEW
We derive substantially all of our revenues from production fees earned in
connection with our original programming, distribution fees from the licensing
of programming acquired from others, and the licensing of our original
programming. We were incorporated in February 1995 and began operations in March
1995.
We are engaged in developing concepts and acquiring literary and other
story properties, the most promising of which serve as the basis for our series,
pilot films, or made-for-television features. If a script is accepted for
production as a television feature or pilot, or if a pilot is accepted for
production as a series, we and the network or distributor negotiate a license
fee or distribution advance. This fee is a flat sum payment through which we
generally attempt to cover a significant portion of our production costs and
overhead. If programming is produced for an entity like PBS, which does not pay
significant license fees or distribution advances (and in fact, may not pay any
fee), we attempt to provide corporate sponsors or agreements for the license of
ancillary rights such as foreign or home video distribution.
With respect to series for the networks or pay cable channels, we generally
attempt to negotiate significant license fees for both series and
movies-of-the-week. In many cases, we may invest additional sums in excess of
network license fees to produce the best possible pilot, as such pilots are an
essential sales tool in gaining network acceptance of a proposed series, if
applicable. In these cases, we will attempt to cover the excess production costs
from working capital, third-party financing, sales of the episodes in the
foreign marketplace, or a combination of these financing techniques. Where
necessary or desirable, we may seek to obtain funding in excess of network
license fees from a studio or a third party who will provide such financing in
return for a share of the profits from the syndication of such programming.
Similarly, for television series, we may invest amounts in excess of network
license fees in order to gain audience acceptance for the series and to enhance
the potential value of future syndication rights.
We recognize revenues from licensing agreements covering entertainment
product when the product is available to the licensee for telecast, exhibition
or distribution, and other conditions of the licensing agreements have been met
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 53
"Financial Reporting by Producers and Distributors of Motion Picture Films."
As required by SFAS No. 53, we value our film cost at the lower of
unamortized cost or net realizable value on an individual title basis. Film
costs represent those costs incurred in the development, production and
distribution of television projects. These costs have been capitalized in
accordance with SFAS No. 53. Amortization of film cost is charged to expense and
third party participations are accrued using the individual film forecast method
whereby expense is recognized in the proportion that current year revenues bear
to an estimate of ultimate revenue. We anticipate that a majority of our
production or acquisition costs for our projects will be amortized within three
years from the completion or acquisition of such project, with the balance
amortized over an additional two years.
Our trade receivables historically increase as revenue increases. We, in
accordance with SFAS No. 5, record an allowance for doubtful accounts based, in
part, on historical bad debt experience. In 1998, the Company recorded $664,000
as a provision for an allowance for doubtful accounts. In 1997, the Company
recorded $1,115,600 as a provision for an allowance for doubtful accounts.
Typically, when we make a sale of a product, the purchaser of such product
agrees to a payment schedule, usually based upon a time table which is either
tied to milestones in the development of the product or the time period of the
contract. If customers fail
24
<PAGE> 27
to make scheduled payments, our license agreements provide that we can repossess
and resell such product. Because these payments often are spread out over a
period of time, up to two years, the payments to be made in the future are
recorded as discounted trade receivables. As sales increase, our trade
receivables balance will increase accordingly. We believe we have adequate
resources to collect our trade receivables.
RESULTS OF OPERATIONS
The six months ended June 30, 1999 versus the six months ended June 30,
1998.
For the six months ended June 30, 1999, the Company reported net income of
approximately $804,300 on total revenues of approximately $7,019,900 compared to
net income of approximately $639,600 on total revenues of approximately
$3,215,900 for the same period ended June 30, 1998. Net income increased by
approximately $164,700 for the six months ended June 30, 1999, versus the six
months ended June 30, 1998, primarily due to the sale of certain rights of a
library of twenty-eight movie-of-the-week titles. Revenue for the period ended
June 30, 1999 included approximately $3,300,000 on the sale of certain European
broadcast rights for twenty movies-of-the-week included in the acquired library.
Cost relating to revenues was $4,136,200 for the six months ended June 30,
1999 as compared to $836,700 for the six months ended June 30, 1998. The costs
relate to amortization of production costs of television programming for which
revenue was recognized during the period. Gross profit margin on sales of
television programming for the six months ended June 30, 1999 was 41 percent
compared to 74 percent for the period ended June 30, 1998. The lower gross
profit margin for the six months ended June 30, 1999 was due to the Company
selling more expensive television drama programming produced and owned by the
Company and its partners as opposed to distributing reality based programming
and programming previously produced and acquired by the Company in the six
months ended June 30, 1998. Included in cost of sales for 1999 is a charge of
approximately $450,000 as the Company wrote off development costs incurred on a
project which has been in development since 1995.
General and administrative expense was $1,039,000 for the six months ended
June 30, 1999 compared to $1,138,300 for the same period in 1998. Due to the
Company's increased activities related to film production, approximately
$1,185,000 of overhead was capitalized to film production costs for the six
months ended June 30, 1999 in accordance with SFAS No. 53. Before the effect of
the capitalization of overhead, the 1999 general and administrative costs
increased $315,000 due to consulting fees and the remaining increase is due to
additional staff primarily in production and development.
The Company also incurred an extraordinary loss of $248,200 related to the
conversion of $850,000 in debt to common stock.
Interest expense was $280,100 for the six months ended June 30, 1999, as
compared to $622,800 for the six months ended June 30, 1998. The decrease is due
to the retirement of debt.
Receivables at June 30, 1999 were $7,481,600, all of which are from
entities domiciled outside the United States. These receivables represent
approximately 29 percent of the total assets of the Company.
Year ended December 31, 1998 versus year ended December 31, 1997.
Revenues for the year ended December 31, 1998 of $13,581,900 were comprised
of approximately $6,672,700 on sales and availability for Total Recall 2070
produced by us and Alliance Atlantis, approximately $2,755,300 for the sale of a
movie-of-the-week produced by us, "Earthquake in New York" to Fox Family
Channel, approximately $1,527,900 on sales for our reality based series "Amazing
Tails," approximately $882,000 on sales of satellite rights of the Australian
television series "Water Rats," and approximately $1,744,000 on sales of other
library product acquired by us. For the year ended December 31, 1998,
approximately 26 percent of revenues were attributable to sales to customers
outside North America, i.e. United States and Canada. Revenues of $6,875,600 for
the year ended December 31, 1997, were comprised of approximately $1,975,500 on
sales of our reality based series "Amazing Tails," approximately $1,250,000 on
sales of "Water Rats," approximately $2,460,000 on sales of movies acquired by
us and approximately $1,190,100 on sales of other reality based programming
acquired by us. For the year ended December 31,
25
<PAGE> 28
1997, approximately 80 percent of revenues were attributable to sales to
customers outside North America. Within the foreign market, allocations among
the four principal geographic regions in which we do business, Europe, Asia and
Australia, South America and Africa, vary from period to period. The variations
in revenues relate to the type of product being offered, as well as local
economic trends and conditions, and the emergence of multiple broadcasting
channels in the applicable territory. See Note 9 to the Consolidated Financial
Statements for a breakdown of the geographic distribution of sales of our
product.
Cost of revenues was $9,076,000 for the year ended December 31, 1998 as
compared to $2,355,300 for the year ended December 31, 1997. The costs primarily
relate to amortization of production costs of television programming for which
revenue was recognized during the respective period. Cost of revenues increased
due to the increase in revenues.
Gross profit margin on sales of television programming for the year ended
December 31, 1998 was 33 percent compared to 66 percent for the period ended
December 31, 1997. The lower gross profit margin for the year ended December 31,
1998 was due to our producing and selling original programming as opposed to
primarily selling previously produced programming. We co-produced our first
drama series Total Recall 2070 with Alliance/Atlantis. Production of drama
series such as Total Recall 2070 are more expensive than the reality based
programming we had produced and acquired in 1997. Original programming generally
has higher amortization rates in its initial cycle until it demonstrates
audience acceptance. However, a successful drama series will be worth
substantially more than reality based programming in ancillary markets.
General and administrative expenses were approximately $3,274,000 for the
year ended December 31, 1998 as compared to $3,244,900 for the year ended
December 31, 1997. Included in general and administrative expenses was $664,000
as an allowance for doubtful accounts for the year ended December 31, 1998
compared to $1,115,600 for the year ended December 31, 1997. Subtracting the
effect from the allowance of doubtful, general and administrative expenses was
$2,610,000 for the year ended December 31, 1998 compared to $2,129,300 for the
year ended December 31,1997. The increase is primarily due to additional staff
hired in 1998 to focus on development of new television programming.
Interest expense was $902,600 for the year ended December 31, 1998, as
compared to $1,040,100 for the year ended December 31, 1997. The decrease is due
to the retirement of debt from the proceeds of our initial public offering.
Interest income was $202,900 for the year ended December 31, 1998 as
compared to $211,800 for the year ended December 31, 1997.
All $4,736,700 included in receivables as of December 31, 1998, are due
from entities domiciled outside the United States. These receivables represent
approximately 28 percent of our total assets. We have established $337,000 as an
allowance for doubtful accounts as of December 31, 1998. We believe the
allowance for doubtful accounts is adequate and we have adequate resources to
collect our trade receivables.
Year ended December 31, 1997 versus year ended December 31, 1996.
Revenues for the twelve months ended December 31, 1997 were $6,875,600
compared with $5,749,800 for the twelve months ended December 31, 1996. Revenues
for the year ended December 31, 1996 included: (i) $1,441,700 from the
recognition of revenues from Interpublic for the completion of the series
"Amazing Tails," which accounted for 25 percent of revenues during such period;
(ii) a revenue guarantee received from the sale of certain library rights; and
(iii) revenue from the sales generated by the existing library. Included in this
amount are revenues of approximately $680,000 arising from the license of a
certain portion of our film library to the Giniger Entities, with respect to the
sale of a certain portion of our library in certain Latin America countries and
Europe. These revenues were 12 percent of all revenues in such period. Finally,
revenues in the period included $618,000 from Eurolink representing additional
sales of "Amazing Tails," which was approximately 11 percent of our revenue
during such period. For the twelve month period ended December 31, 1997,
approximately 80 percent of our revenues were attributed to the exploitation of
product outside North America. The concentration relative to the foreign market
is attributable to less programming being produced by us directly for the North
American market in such period. In prior periods, revenues were
26
<PAGE> 29
generated approximately 40 percent from the North American market and 60 percent
from the foreign market.
Cost of revenues was $2,355,300 for the twelve months ended December 31,
1997, as compared to $2,895,900 for the twelve months ended December 31, 1996.
As a percentage of revenue, however, cost of revenue was 34 percent of revenue
for the twelve months ended December 31, 1997 compared to 50 percent of revenue
to the comparable period in 1996. This decrease is attributable to our deriving
more of our revenue from distribution activity relating to our own product
rather than product acquired from third parties under license agreements. Third
party distribution activity has a lower gross margin because distribution fees
of up to 70 percent are paid to the producers of the product. However,
amortization expense, as calculated under FASB 53, has comparatively lower
rates. For the period ended December 31, 1996, our revenue attributable to
product produced by others, for which producers are allocated a higher
percentage of revenue as a participation expense, was less than similar product
in the comparable period in 1997, when we distributed more product which we
either owned outright or which was produced by us. For this product, our margins
are typically higher as no participation expenses need be paid to the product's
copyright owners. For a discussion in how the product mix may affect quarterly
results, see "Risk Factors -- Fluctuations in Operating Results."
Gross profit margin improved from 50 percent for the twelve months ended
December 31, 1996 to 66 percent for the twelve months ended December 31, 1997,
primarily because of higher profit margins on produced and acquired product.
General and administrative expenses were $3,244,900 for the twelve months
ended December 31, 1997, as compared to $2,323,800 for the twelve months ended
December 31, 1996. The increase was principally attributable to a $1,115,600
provision for an allowance for doubtful accounts recorded in 1997.
The provision for allowance for doubtful accounts was $1,115,600 for the
twelve months ended December 31, 1997, as compared to a $71,300 provision for
the twelve months ended December 31, 1996. The 1997 provision consists of the
following: (i) $660,000 for the write off of the Eurolink receivable; (ii)
$170,600 for the write off of the Giniger Guaranty; and (iii) $285,000 for the
write off of the Alliance receivable. Regarding the Eurolink receivable, the
Company had sold the rights to "Amazing Tails" for a majority of the Western
European territories to Eurolink, a London based company. Eurolink subsequently
experienced financial difficulties and was unable to pay amounts due to us under
the contract for "Amazing Tails." We therefore reasserted our rights to "Amazing
Tails" and wrote off the entire receivable under the Eurolink contract. Eurolink
and us are unrelated entities and had an arms length relationship. The write
down of the Alliance Atlantis receivable occurred as a result of a restructuring
of our obligations to Alliance Atlantis. Pursuant to such agreements, Alliance
Atlantis and us agreed to: (i) extend the "Total Recall" promissory note; and
convert the minimum guarantee to a profit sharing arrangement, which allows
Alliance Atlantis to recoups its advance of $225,000, plus entitles Alliance
Atlantis to receive a 30 percent distribution fee and actual distribution
materials costs prior to our splitting the remaining receipts with Alliance
Atlantis. Although we believe that we will receive more than the $225,000 that
we have already received from licensing such programing, because of this new
structure, we will be unable to recognize any more revenue with respect to our
license agreements with Alliance Atlantis until Alliance Atlantis recoups its
advance and costs. The write down of the Giniger Guaranty was due to our selling
the rights to Water Rats I, prior to the Giniger Entities doing so.
Interest expense was $1,040,100 for the twelve months ended December 31,
1997, as compared to $677,700 for the twelve months ended December 31, 1996. The
increase was principally attributable to an increase in debt and the related
interest expense.
Interest income was $211,800 for the twelve months ended December 31, 1997,
as compared to $58,300 for the twelve months ended December 31, 1996. The
increase in interest income was due to the amortization of the discount taken
under the guidelines of APB 21.
Trade receivables increased to $6,740,800 for the twelve months ended
December 31, 1997, as compared to $3,342,100 for the twelve months ended
December 31, 1996, which increase was due to increased revenues. For a
description of our treatment of our trade receivables, see "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations -- Overview."
27
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
The entertainment industry is highly capital intensive. As of June 30,
1999, we had retained earnings of $624,900 and a liquidity deficit of
($5,900,000). Liquidity deficit is defined as:
- cash and cash equivalents plus accounts receivable (net), and the amount
due from officer, less
- accounts payable, accrued expenses and other liabilities, deferred
revenue, accrued participations, notes payable, line of credit,
shareholder loan and note payable, and accrued interest.
We continue to finance our operations from our own sales and production
activities, notes payables, lines of credit and loans from our shareholders.
Despite our public offering on July 29, 1998, our operations have been hurt by
ongoing capital shortages caused by a slowness in collecting receivables and the
inability to complete a long term banking relationship. To address our short
term financing needs, we raised approximately $11,550,000 since July 1999. This
amount includes:
- $350,000 pursuant to the sale to 3 investors of 12% debentures and
warrants to purchase up to 35,000 shares of our common stock;
- $1,200,000 pursuant to a secured loan from VMR;
- $4,000,000 pursuant to a loan from Hudson Investors, LLC, which loan
matures on November 30, 2002 and accrues interest at the rate of 12% per
year. Hudson Investors, LLC has the right to convert any outstanding
balance on its promissory note into equity after November 30, 1999.
Hudson Investors, LLC also received 340,000 warrants as part of the
financing. From the Hudson Investors, LLC loan, VMR was repaid $1,000,000
of its loan; and
- $6,000,000 from Gontard & MetallBank AG, $2,000,000 from the sale of
500,000 shares of our common stock and $4,000,000 pursuant to a loan that
matures on the earlier of this offering or December 31, 1999 and accrues
interest at 10% per year, $2,500,000 of these proceeds was used to fund
the cash portion of the acquisition of Dandelion.
As of September 30, 1999 we had indebtedness and related accrued interest
of $9,244,000, including notes payable of $8,929,000, of which $4,929,000
matures within one year. As of September 30, 1999, we had unrestricted cash and
accounts receivable due to be collected within one year of approximately
$6,200,000.
As we continue to pursue and work toward financing alternatives and search
for additional capital as described above, we also continue to explore a variety
of other financial alternatives to increase our working capital, including
increasing our line of credit with a commercial bank, or pursuing other types of
debt or equity financing. No assurance can be given that such financing can
ultimately be obtained or that it will be on reasonably attractive terms.
We believe that without this offering but solely with our current resources
of cash, accounts receivable, available credit line, and our recent financings,
we will be able to operate at current expenditure levels through March 31, 2000.
Our belief is based upon certain assumptions regarding the anticipated level of
operations and overhead, anticipated sales of programming, and anticipated
expenditures required for development and production of programming. If sales do
not materialize and this offering or alternative financings are not completed by
these dates, we will have to limit our development and production activities,
reduce our overhead spending, restructure debt pay outs and take other cost
reduction measures. Further, even with if we successfully raise additional
financing, there is no assurance that we will continue to be profitable or
maintain positive cash flow.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") was issued. SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. We have adopted
SOP 98-5 which did not materially effect our financial statements.
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In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal year beginning after
June 15, 2000. We anticipate that due to our limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a material effect on our
financial statements.
In October 1998, the FASB released an exposure draft of the proposed
statement on "Rescission of FASB Statement No. 53, Financial Reporting by
Producers and Distributors of Motion Picture Films." An entity that previously
was subject to the requirements of SFAS No. 53 would follow the guidance in a
proposed Statement of Position, "Accounting by Producers and Distributors of
Films." This proposed Statement of Position effects financial statements for
fiscal years beginning after December 15, 1999 and could have a significant
impact on our results of operations and financial position depending on its
final outcome. We have not concluded on its impact given the preliminary stages
of the proposed Statement of Position.
YEAR 2000 COMPLIANCE
As has been widely reported, many computer systems process dates based on
two digits for the year of a transaction and are unable to process dates in the
year 2000 and beyond. Since our formation in 1995, we have installed new
information systems which are year 2000 compliant. Although we do not expect
year 2000 to have a material adverse effect on our internal operations, it is
possible that year 2000 problems could have a significant adverse effect on our
suppliers and their ability to service us and to accurately process payments
received.
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BUSINESS
OVERVIEW
OUR HISTORY
We were formed in February 1995. We have focused our efforts on the
development, production and distribution of a variety of television programming,
including dramatic and reality-based series, specials and made-for-television
movies for exploitation in the domestic and international television markets. We
derive substantially all of our revenues from production fees earned from our
original productions, distribution fees from the exploitation of product
acquired from others, and the exploitation of our owned programming.
Our production activities have focused on (i) programming produced for U.S.
cable and network television channels such as The Discovery Channel, The Family
Channel, Showtime Networks and USA Network, and (ii) "how-to" instructional
series, such as "Simply Style," a 60-episode series which debuted during the
third quarter of 1995 on The Learning Channel. We have received a firm
commitment from Discovery's Animal Planet for the initial production of 13
one-hour drama episodes of "The Call of the Wild," based on Jack London's
classic novel. The series began pre-production in July 1999 with our Canadian
production partner. Delivery is expected to take place from December 1999
through February 2000. We are also developing and producing "Destination Style"
for Discovery's Travel Channel, "Conversations With Remarkable People" for the
Wisdom Network (a new U.S. basic cable network), and "Robin Leach's Wildlife
Styles," which has been sold to Canada's Microtainment Productions.
In March 1999 our co-production of 22 episodes of a television series based
on the hit movie "Total Recall" (Total Recall 2070) began to air on Showtime
Networks. We, along with Alliance Atlantis, our co-financing partner, have
extended the period of time pursuant to which Showtime must make a decision to
order a second season. The Company is currently negotiating with Alliance
Atlantis to produce a second season for Showtime or first run syndication.
In addition, we co-developed and co-produced a reality-based five-day per
week ("strip") syndicated series, called "Strange Universe," with
United/Chris-Craft television stations and Rysher Entertainment. This series,
which aired on United/Chris-Craft stations, involved the production of 130
episodes over its two, thirteen week commitments. We have also completed
production of a series of 48 half-hour episodes entitled "Amazing Tails," a
reality-based series focusing on extraordinary pets, which has been financed in
conjunction with Friskies Pet Foods, a division of Nestles Food, and advertising
leader The Interpublic Group of Companies. All episodes of Amazing Tales have
been produced and delivered, and the series is currently airing on Discovery's
Animal Planet.
We maintain a development and production department which produces
movies-of-the-week, drama and reality-based series for exhibition on network
television, cable or ad hoc networks of independent stations in the U.S. market
which sometimes form to air series and special programming. This latter process
is known as "syndication." We also maintain an international sales force and
currently have distribution rights to approximately 3,000 hours of family,
dramatic and reality-based series and specials, and films. We are also
developing a wide variety of original family, dramatic, reality-based and
children's programming.
GLOBAL STRATEGY
The global television market has experienced substantial growth since 1985
and we believe this market will continue to experience substantial growth during
the foreseeable future as foreign state television monopolies end and commercial
broadcast outlets expand to provide increasingly varied and specialized content
to consumers throughout the world. In the U.S. alone, there have been numerous
new television channels which have commenced operation since 1985. Such growth
has led to the development and commercialization of specialized cable and
satellite channels and distribution outlets, which, in turn, has led to
increased demand for top quality and cost efficient programming in many
categories and subjects. Europe, Latin America and the Pacific Rim are all
experiencing similar growth with respect to satellite and cable channels.
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Although we have been significantly impacted by recurring cash flow
problems, our operating strategy is to fulfill the demand for programming by:
(i) expanding the activities of our three operating departments, development and
production, distribution, and licensing and merchandising; (ii) implementing
strategic acquisitions of film, television and video libraries and production
companies; and (iii) entering into joint ventures with, or acquisitions of,
unaffiliated third parties, with the intention that such acquisitions or joint
ventures would lower our financial risk should we expand, as anticipated, into
related activities, such as direct marketing and interactive programming. We
intend, subject to financing, to acquire, co-produce and co-finance other
series, movies and specials from third party producers in order to increase our
programming library and self distribute such product on a worldwide basis.
The European marketplace currently represents 40 percent of our total
revenue. In the next 5 years, we anticipate this percentage to increase to as
much as 60 percent. To fully capitalize on this rapidly expanding market, we
have plans to grow through internally generated development and production,
international co-productions, acquisitions and strategic investments and the
establishment of fully staffed European operations. We have agreed with the
underwriters of this offering that we will use a minimum of 40 percent of the
total net proceeds of this offering to expand our European operations.
We have started a new company in Germany, Team Germany GmbH., based in
Munich, and have already funded it with $230,000. We anticipate another $800,000
will be spent in the next 12 months for start-up expenses and the securing of
the personnel to manage it. Team Germany GmbH., will develop formats, as well as
produce programming for both German speaking territories and the rest of the
world.
We also have plans to use Team Germany GmbH., to acquire other German
production and distribution companies, and to partner with established companies
for original German language co-productions.
In furtherance of our European strategy, on October 1, 1999 we completed
the acquisition of Dandelion Distribution Ltd., for the sum of $2,500,000 in
cash and 386,847 shares of our common stock. We may also be required to pay up
to an additional $250,000 if the shares of our common stock delivered as part of
the purchase price do not have a market value of at least $3,000,000 on October
1, 2001. This London based production and distribution company, formed over 20
years ago, has a library in excess of 2,500 hours of programming and is
considered one of the oldest independent distributors in the UK. Noel Cronin,
the founder and Managing Director of Dandelion, will remain as Managing Director
of the newly renamed entity, Team Dandelion, Ltd.
Team Dandelion Ltd., will further strengthen our presence in the
international media arena, and provide us with a solid foundation to create
European community content programming and co-production opportunities. In
addition, Team Dandelion, Ltd. will serve as the base for all European sales
except those in German speaking territories.
We believe that there are unique business opportunities to acquire other
emerging companies, as well as more established production and distribution
entities, which are engaged in programming development, production, distribution
(including the dissemination of product on and through the Internet) and other
related media investments. While the number of distribution channels has been
increasing, we believe there are economic incentives, including economies of
scale and depth of financial and programming capability, for programmers and
distribution entities to consolidate. No assurance can be given that we will be
successful in obtaining the financing necessary for these acquisitions or that,
if consummated, such acquisitions would prove financially successful. In
addition, a significant acquisition of product or another company could require
us to obtain financing for such acquisition. No assurance can be given that such
financing will be available at all, or that if available it will be on terms
that are favorable to us.
OPERATIONS
We currently have three principal operating groups: (i) development and
production; (ii) distribution; and (iii) licensing and merchandising.
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PRODUCTION
The production of television programming involves:
- the development of a creative concept into a television script or
teleplay;
- the selection of talent (including actors, directors, and other creative
personnel); and
- the filming, technical, and post-production work necessary to create a
finished product ready for exhibition.
Such programming, when initiated in the US, is generally produced for
prime-time exhibition on one of the major U.S. networks, which include CBS, NBC,
ABC and Fox. Such programming may also be produced for new networks such as the
United Paramount Network ("UPN") and the Warner Bros.'s "WB" Network, first-run
pay television exhibition or directly for syndication (i.e., independent or
non-network) television, including PBS, as well as numerous basic and pay cable
channels or services, including HBO, Showtime, the Disney Channel, The Learning
Channel, The Discovery Channel, Arts and Entertainment Network and the History
Channel.
We are engaged in developing concepts and acquiring literary and other
story properties, the most promising of which serve as the basis for the
production of series, pilot films, or made-for-television features. Once an idea
has been commissioned by us, it is presented to a network or other distributor
for acceptance. If a script is accepted for production as a television feature
or pilot, or if a pilot is accepted for production as a series, we negotiate a
license fee or distribution advance with the network or distributor. This fee is
a flat sum payment through which we generally attempt to cover a significant
portion of our production costs and overhead.
Entertainment companies in general attempt to finance the development costs
for television programming from their working capital and seek to cover a
substantial portion of their production costs, including overhead, through
license fees. If programming is produced for an entity like PBS, which does not
pay significant license fees or distribution advances (and in many instances,
may not pay any fee), we attempt to provide corporate sponsors or agreements for
the license of ancillary rights such as foreign or home video distribution. Even
without a fee or advance, we believe that we can defray a significant portion of
the production costs of PBS programming using these alternative financing
methods, thus availing ourselves of the key demographics of PBS viewership,
particularly in children's programming. For other specialty programming produced
for initial exhibition on cable networks like the Discovery Channel, or for
first run syndication, we do attempt to obtain license fees to partially offset
the production costs.
With respect to series for the networks or pay cable channels, we generally
attempt to negotiate significant license fees for both series and
movies-of-the-week. In many cases, we may invest additional sums in excess of
network license fees to produce the best possible pilot, as such pilots are an
essential sales tool in gaining network acceptance of a projected series, if
applicable. In these cases, we attempt to cover the excess of production costs
from working capital, third-party financing, sales of the episodes in the
foreign marketplace, or a combination of these financing techniques. Where
necessary or desirable, we may seek to obtain funding in excess of license fees
from a distributor or a third party who will provide such financing in return
for a share of the profits from the distribution of such programming. Similarly,
for television series, we may invest amounts in excess of U.S. license fees in
order to gain a global audience acceptance for the series and to enhance the
potential value of future syndication rights.
There can be no assurance, however, that once we commit to fund production
of a series licensed to a network, the network will order and exhibit sufficient
episodes to enable us to syndicate the series. Typically, at least 65 episodes
of a series must be produced for it to be "stripped" or syndicated in the daily
re-run market. Generally, networks can cancel a series at stated intervals and,
accordingly, do not commit in advance to exhibit a series for more than a
limited period. If a series is canceled (or not carried for the period necessary
to create enough episodes for syndication purposes), there is a significant
chance that the production costs of the project will not be fully recovered.
Similar risks apply even if the series is produced for a non-network medium. We
believe, however, that foreign pre-sales and international co-production
opportunities will
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provide sufficient options to obtain production financing and additional revenue
potential. Moreover, basic cable channels continue to provide outlets for series
of between 13 to 26 episodes per season. We intend to focus our production
activity in the following areas or genres: drama series, reality-based series,
game shows, comedy series, movies-of-the-week, and mini-series. It is our
intention to expand the production of our dramatic and reality-based
programming, over the next 24 months. Such programming, if any, will be licensed
in foreign markets through our sales personnel where we do not have foreign
partners.
We acquired the rights to produce a weekly dramatic television series based
on the motion picture "Total Recall," which generated over $320 million in
world-wide box office receipts in 1990. We entered into an agreement with
Alliance Atlantis, a leading Canadian production company, pursuant to which
Alliance Atlantis co-produced and co-financed the initial 22 episodes of the
series with us. The German rights have been licensed by Pro-Sieben, who is
acting as a co-producer of the series. We also entered into an agreement with
PolyGram Television (which was subsequently sold to Universal Pictures),
pursuant to which PolyGram co-financed and acquired U.S. television distribution
rights to the series. The agreement with PolyGram includes a 22 episode
commitment in exchange for a license fee and a percentage of the net profits of
the series. PolyGram sold the series, entitled Total Recall 2070, to the U.S.
pay television network, Showtime Network, where it debuted in March 1999. "First
run" domestic syndication is being handled by PolyGram for airing to begin in
January 2000. Miramax, which acquired the theatrical sequel rights to "Total
Recall," has also acquired worldwide (other than Canada, Japan and Spain) home
video rights to the series from us.
We, together with Alliance Atlantis, have agreed to extend the date
pursuant to which Showtime must elect to proceed with a second season, and are
currently providing interim financing so as to reserve production facilities and
retain the services of the appropriate actors. A second season is desirable as
Universal has sold 44 episodes (which would include a second season) in over 80%
of the U.S. television markets. No assurance can be given, however, that we will
be able to obtain financing for the second season, or if the decision is made to
proceed, that we will be able to hold the creative elements in place to
effectuate a second season. Moreover, if a second season is commenced, it will
not likely have a material impact on the Company's financial results for fiscal
1999. By co-producing the series with Alliance Atlantis, the series qualifies
for certain Canadian co-production and tax benefits. The proceeds from all
distribution of the series, after recoupment of production costs, will be
allocated 40% to us and 60% to Alliance. As part of the co-production agreement,
we are to assign our license agreements to the co-production and pay over to the
production account all deposits we have received to date.
We have also entered into agreements with the Fox Family Channel in the
U.S. for the production of two movies-of-the-week. The first, Earthquake in New
York is a story about an earthquake in New York City. The production was
financed by the Fox Family Channel. We have received our executive producing
fee. Earthquake in New York aired on the Fox Family Channel in October 1998, and
on ARD in Germany after that date. The second movie-of-the-week, Down Fall, is
about an avalanche at an exclusive ski resort. The script for Down Fall which
has already been written, was paid for by the Fox Family Channel. No funds have
been advanced for the Down Fall production as of this date, although we expect
this to occur in November so that production can be completed for an early 2000
U.S. air date.
We have received a firm commitment from Discovery's Animal Planet for the
initial production of 13 one-hour episodes of The Call of the Wild, based on
Jack London's classic novel. The series began pre-production in July 1999 with
our Canadian production partner. Delivery of the series is expected to take
place from December 1999 through February 2000. The Company has entered into a
letter of intent with Scanbox Asia Pacific Limited ("Scanbox") pursuant to which
Scanbox has agreed to a distribution guarantee of $310,000 per episode in
exchange for distribution rights outside the U.S. The agreement is subject to
numerous conditions, and no assurance can be given that the Scanbox transaction
will be effected.
LIVE ACTION AND ANIMATED CHILDREN'S PROGRAMMING. To take advantage of what
we believe is a significant television market for children's programming, we
intend to develop and produce inventive and original shows, including both
animated series and live-action series.
NON-FICTION/LIGHT ENTERTAINMENT PROGRAMMING. With the rapid expansion of
national cable and network programming outlets, consumer demand for non-fiction,
reality based "docudrama" programming has
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increased. Channels such as the Fox Network, UPN, The WB Network, TBS, The
Discovery Channel, The Learning Channel, Animal Planet, The Travel Channel and
Lifetime have found quality non-fiction programming to be a mainstay of their
programming portfolio. We intend to capitalize upon the programming expertise
developed by management prior to our formation.
We have an extensive slate of reality-based series which are currently
being sold in the international marketplace. Such programs include Strange
Universe, a 130 half-hour five day per week ("strip") syndicated series which
was produced in association with United/Chris-Craft television stations and
Rysher Entertainment. Amazing Tails, a weekly series of 48 half hours featuring
people and their pets, was initially financed by a presale for approximately
$1,441,700 to Interpublic for domestic distribution and broadcast.
We have sold, and are currently in production on, 26 half-hours of
"Destination: Style," to Discovery's Travel Channel. "Destination: Style" offers
a cinema verite look at today's most exotic faces in the world's most exotic
places. From the runway show to the seductive magazine spread, each episode
takes a behind-the-scenes peek at some of today's most recognizable and
desirable international models, including a personal look at their emotions, how
they cope with the locales, the elements, the time clock, how they rest and how
they play. The series is scheduled to debut in mid-October. "Destination: Style"
is being produced in association with Big Daddy Productions.
Additionally, we have sold "Conversations with Remarkable People," which is
hosted by Chantal Westerman, to the Wisdom Network. Two one-hour primetime
specials, one featuring Father Thomas Keeting and the other Quincy Jones, have
been completed. A third primetime special with former Texas Governor Anne
Richards is in pre-production and will be completed by year-end.
We have also sold to Canada's Microtainment Productions, which will act as
a co-producer with us, 26 episodes of a series entitled "Robin Leach's Wildlife
Styles." The primetime magazine focuses on the drama, mystery and majesty of the
animal kingdom. "Robin Leach's Wildlife Styles" travels the world with well
known celebrities bringing animal-loving viewers the most dramatic, amazing and
hilarious wildlife styles ever seen on television. The series begins production
shortly and is scheduled to broadcast worldwide by spring of 2000.
Other co-productions include America's Scenic Railway Journeys, a six hour
documentary mini-series devoted to famous railway journeys. We have co-produced
this series with Oregon Public Television for the PBS Network and have paid
Oregon Public Television an advance for the international distribution rights to
the mini-series.
DISTRIBUTION
An active part of our business is the presentation of our own product as
well as product acquired from third-party producers to the international
marketplace. Our current library includes approximately 3,000 hours of family,
dramatic, reality-based series and specials and films. With the rapid increase
of networks and channels, there is an expanding demand for top-quality
programming. To access these markets, our distribution personnel attend such
major international trade shows as MIPCOM-TV, MIP-TV and NATPE.
On June 25, 1999, we purchased from Film Libraries, Inc., a library of 28
made-for-television movies for a total purchase price of $2,200,000, $1,200,000
payable in cash and $1,000,000 payable in our common stock. Of the purchase
price, $200,000 in cash and $100,000 in our common stock are payable to 2
individuals as commissions. On June 28, 1999, we entered into a five year
license for 20 of the made-for-television-movies with Renown Pictures, Ltd., a
UK based company. For the license, we will receive $3,300,000, $400,000 of which
was received in August 1999 and $725,000 of which was received in October 1999,
with the balance due in three equal payments of $725,000 each on December 30,
1999, March 30, 2000 and June 30, 2000.
As of the date hereof, the Company has accepted 20 of the 28 titles. Eight
of the titles have delivery deficiencies which have not yet been cured. The
Company is negotiating with the seller regarding a reduction of the purchase
price if these rights are ultimately undeliverable. If the price is reduced,
either the cash or common stock purchase, or both, may be adjusted. As of the
date hereof, the Company has paid approximately $800,000 in respect of the
purchase, and has not yet issued any common stock.
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On August 2, 1999, we purchased from DD Video, the worldwide rights outside
the UK of a library of approximately 11 television series (from 2 to 38 episodes
each) and 20 one hour documentary specials. The purchase price was $3,400,000;
$1,187,500 of which has been paid; $737,500 which is due by December 15, 1999;
$737,500 which is due by March 5, 2000 and $737,500 which is due by June 15,
2000.
We have acquired the rights for distribution in all Latin American
countries, including Mexico and Puerto Rico, of the one hour dramatic series
Water Rats, a high suspense police action drama set in Sydney, Australia (116
episodes delivered for the first four seasons), and the one hour dramatic series
Cover Story,which takes place on the set of a television entertainment magazine
program (26 episodes delivered). These shows were acquired from the Australian
production company Southern Star. To date, we have cumulative sales of
approximately $700,000 for Mexican broadcast television and pan-Latin American
satellite broadcast television with the majority of terrestrial broadcast rights
remaining available for sale.
We have also acquired Latin American home video and television distribution
rights to 78 hours of dramatic films from Beyond Distribution PTY Ltd., a
leading Australian production company. Its acquisition brings the total hours of
dramatic programming available for license by us in Latin America to 220 hours.
In addition, we have an active "format" business overseas, where we
represent and "reformat" successful foreign shows for the domestic marketplace
and vice versa. We also currently represent several other custom formats which
are under consideration in numerous territories.
The acquisition of Dandelion Distribution Ltd., will enhance our
distribution capacity in England and Europe and bring us close to offering
approximately 3,000 hours of programming.
LICENSING AND MERCHANDISING
Our strategic objectives encompass the exploitation of additional revenue
streams through licensing and merchandising efforts. We hope to generate new
profit centers from toy, publishing, CD-ROM, housewares, stationary, video,
apparel, and other product category licenses. Although no assurance can be given
that this strategy can be successfully implemented, we and Alliance Atlantis,
the co-producer of Total Recall 2070, have begun to focus on the marketing and
merchandising rights that are available with respect to the Total Recall 2070
series. The financial importance of these rights will likely be impacted by the
decision to renew for a second season.
COMPETITION
The entertainment industry is highly competitive. We compete with, and will
compete with, many organizations, including major film studios, independent
production companies, individual producers and others, including networks, who
are seeking the rights to attractive literary properties, the services of
creative and technical personnel, the financing for production of film and
television projects and favorable arrangements for the distribution of completed
films. Many of our competitors are organizations of substantially larger size
and capacity, with far greater financial and personnel resources and longer
operating histories. Moreover, the entertainment industry is currently evolving
into an industry in which certain multinational, multi-media entities, including
Viacom/Paramount Pictures, The News Corporation/Twentieth Century Fox, The Walt
Disney Company/Cap Cities-ABC, Time Warner/Turner Broadcasting and CBS are
anticipated to be in a position, by virtue of their control over key film,
magazine, and/or television content and their control of key network and cable
outlets, to dominate certain communications industry activity. These competitors
have numerous competitive advantages, including the ability to acquire financing
for their projects and attract superior properties, personnel, actors and/or
celebrity hosts.
EMPLOYEES
We currently employ, including our newly acquired and formed European
operations, 16 full-time employees, six of whom are members of senior
management. From time to time, as projects go into production, temporary
employees are also employed by us. During the periods ended December 31, 1998,
December 31, 1997 and December 31, 1996 we had an average of 13, 11, and 8
employees, respectively.
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INVESTMENTS
During 1998, 1997, 1996 and the six months ended June 30, 1999 we made no
material investments in the acquisition of fixed assets and the acquisition of
financial assets, such as equity holdings or other investments.
For 1999, we currently expect to make aggregate investments in fixed assets
in the amount of approximately $500,000, which will be financed largely through
working capital. Approximately 60% of these investments will be made in the U.S.
and 40% in Europe. We currently have no definite plans for the acquisition of
financial assets.
DIVIDENDS
We currently intend to retain all earnings and thus will not be issuing
dividends. Moreover, certain of our notes restrict our ability to pay dividends,
and we anticipate similar prohibitions if we obtain a regular commercial line of
credit.
DESCRIPTION OF PROPERTY
We currently lease office space at 12300 Wilshire Boulevard, Los Angeles,
California from an unaffiliated third party, pursuant to a 36 month lease that
began on May 15, 1995 and was extended for an additional 12 months. The lease
terminated on May 14, 1999; however, we continue to be involved in discussions
to extend the lease. We continue to rent the space, which is approximately 4,700
square feet, on a month to month basis, at a monthly rate of $2.35 per square
foot. We believe that our current offices are no longer adequate for our
requirements, and that additional space, is available in the same building and
throughout the Los Angeles area at commercially reasonable rates.
LEGAL PROCEEDINGS
In January 1999, we were served with a complaint in a matter styled Mel
Giniger & Associates vs. Team Communications Group, Inc. et al filed in the
Superior Court of the County of Los Angeles. In the complaint, the Plaintiff, an
individual who served as a sales agent for us, alleges that he is owed
commissions for sales of certain of our programming and that we have failed to
pay in full the amounts Plaintiff alleges are owed to him. The complaint seeks
damages for breach of contract, services rendered, account stated and for
payment of value for services rendered. We have filed an answer in this action,
and intend to vigorously defend ourselves. The Plaintiff recently obtained a
writ of attachment in the amount of $100,000 and we have posted a bond with the
Superior Court of the County of Los Angeles with respect to this obligation.
In March 1999, we were served with notice of a Demand for Arbitration in a
matter styled Venture Management Consultant, LLC and TEAM Communications Group,
Inc. et al. with the American Arbitration Association. The demand stems from a
dispute between the parties concerning a consulting agreement to provide
investment banking services. We have filed an answer in this action, and intend
to vigorously defend ourselves.
In August 1999, Venture Management Consultant, LLC filed an action in the
superior court of Middlesex County in the Commonwealth of Massachusetts. This
action seeks to enjoin us to deliver to them 30,000 shares of our common stock
pursuant to a disputed agreement concerning the extension date of a previously
repaid promissory note. We have filed an answer, and placed $300,000 in escrow
with the court pending resolution of this matter. We intend to vigorously defend
ourselves.
At this time, the outcome of any of the above matters cannot be determined
with any certainty.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Chairman of the Board of Directors and Chief Executive
Drew S. Levin.............. 45 Officer
Jonathan D. Shapiro........ 44 President, Chief Operating Officer and Director
Timothy A. Hill............ 33 Senior Vice President, Chief Financial Officer, Secretary
Eric Elias................. 44 Senior Vice President, Business and Legal Affairs
Declan O'Brien............. 34 Senior Vice President, Development
Jane Sparango.............. 37 Senior Vice President, Development and Production
W. Russell Barry(1)(2)..... 63 Director
Michael Jay
Solomon(1)(2)............ 61 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Drew S. Levin has been our President, Chief Executive Officer and Chairman
of the Board of since we were formed in 1995. With the hiring of Mr. Shapiro in
January 1999, Mr. Levin relinquished the title of President. From 1987 through
1994, Mr. Levin was President of DSL Productions, Inc. ("DSP"), a privately held
company that was sold to The Producer's Entertainment Group, Inc. ("TPEG") in
1994. Through February 1995, he continued to act as president of DSP, which
operated as a subsidiary of TPEG. Mr. Levin has produced and co-produced
hundreds of hours of programming, including "Future Quest," for which Mr. Levin
received an Emmy Award, "Hollywood Stuntmakers," "FX Masters" and "Forces
Beyond" for the Discovery Network. Mr. Levin has extensive experience in
international co-productions, including co-producing a domestic and
international version of "Top of the Pops" with the British Broadcasting Company
for the CBS television network and the Montreux Rock Festival for the Showtime
Network.
Jonathan D. (Jody) Shapiro has been President, Chief Operating Officer and
a Director since January 1, 1999. Before joining the Company, Mr. Shapiro was
employed at Harmony Holdings Inc., where he was Executive Vice President, as
well as President of Harmony Entertainment, Inc., from 1998 to 1999. During
1997, Mr. Shapiro was an independent consultant. From 1993 to December 1996, he
was President and Chief Executive Officer of CST Entertainment, Inc., where he
executive produced the award winning made for television movie "Wyatt Earp:
Return to Tombstone", as well as other series. From 1990 to 1993, Mr. Shapiro
was President of RHI Television Sales (formerly New Line Television
Distribution). From 1986 to 1990, he was at Qintex Entertainment, Inc., where he
served as both Executive Vice President of Qintex Telecommunications Group and
President of Hal Roach Studios Syndication, Inc. Mr. Shapiro began his career at
Telepictures Corporation, attaining the position of Senior Vice President of
Domestic Television.
Michael Jay Solomon has been a member of the Board of Directors since
August 1998. Mr. Solomon has over 41 years experience in the entertainment
business. In 1978, Mr. Solomon founded Telepictures Corp., serving as its
Chairman of the Board and Chief Executive Officer. In 1985, Telepictures Corp.
merged with Lorimar Inc., with Mr. Solomon being appointed as the combined
companies' President. From 1989 to April 1994, Mr. Solomon was President of
Warner Bros. International Television, heading up that company's sales and
marketing to television, cable and satellite companies outside of the United
States. For the past four years, Mr. Solomon has been Chairman and Chief
Executive Officer of Solomon Broadcasting International, a television
communications company which he formed in April 1994. In 1997, Mr. Solomon
became the U.S. representative of Telefonica, Spain, in its new digital Pay TV,
Pay-Per-View and Basic Cable Television System -- Via Digital. Mr. Solomon
serves on the Boards of Directors of the International Council of the National
Academy of Television Arts and Sciences and the New York University Stern School
of Business.
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<PAGE> 40
W. Russell Barry has been a member of the Board of Directors since March
16, 1999. Mr. Barry has more than thirty years experience as a senior management
executive in broadcasting, television production, and worldwide distribution.
From 1961 to 1976, Mr. Barry worked for CBS and held various sales and
management positions including Vice President and General Manager of KNXT (CBS
owned station in Los Angeles). In 1976, he joined 20th Century Fox as Vice
President Network Sales and subsequently became President of 20th Century Fox
Television. Recruited in 1981 by Playboy Enterprises as President of their
production company, he negotiated a joint venture with Cablevision and launched
the Playboy Channel. From 1983 to 1986, he was President of Taft Entertainment
Television. In 1986, he was named President, and then in June of 1995, Chairman
of Turner Program Services, the television distribution company for Turner
Broadcasting. During those twelve years, his responsibilities included the
worldwide marketing and sales of CNN, the MGM library, Hanna Barbera and other
Turner programing. Currently, he is a partner in Bandit Films and consults for
several companies.
Timothy A. Hill has been Senior Vice President, Chief Financial Officer and
Secretary since August 18, 1998. Prior to joining the Company, Mr. Hill served
as Controller for Spelling Films, Inc. From 1994 to 1996, Mr. Hill was a Manager
for Price Waterhouse LLP, where he worked with entertainment, media and
communications clients. From 1989 to 1994, he was Manager with Arthur Andersen
LLP. Mr. Hill is a certified public accountant. He received a Bachelor's of
Science Degree in Accounting from Pepperdine University. Mr. Hill is a member of
the American Film Market Association, where he serves as Chairman of the Finance
Committee.
Eric Elias has served in the capacity as Senior Vice President, Business
and Legal Affairs since our formation in 1995. Mr. Elias has previously served
as corporate counsel and general manager for a retail and wholesale leisure
electronics firm and, for the past twelve years, has been in general private
practice of law, providing business and legal affairs services for television
production entities similar to the Company.
Declan O'Brien has been Senior Vice President, Development since April 13,
1998. For the past 5 years, Mr. O'Brien has worked for several television and
motion picture companies located at The Walt Disney Company Studios. From 1996
to 1998, Mr. O'Brien served as Director of Development at Goldenring
Productions. Prior to 1996, he was involved in production at Touchstone
Pictures. Mr. O'Brien holds a Bachelor of Arts degree from California State
University, Pomona, where he was graduated with honors.
Jane Sparango is Senior Vice President of Development and Production. Ms.
Sparango, who joined the Company in December 1998, manages the acquisition,
development and production of our reality-based and light entertainment
television series. In her seventeen-year career in broadcasting, Ms. Sparango
has produced over 550 hours of television. Before joining the Company, Ms.
Sparango was a producer on "Unsolved Mysteries" for CBS Television and
Cosgrove/Muerer Productions. Prior to that, Ms. Sparango produced "Zooventure",
a children's game show for the Discovery Network and Pearson/All American
Television. In 1988 she was appointed coordinating producer on the news magazine
program "Inside Edition" for King World Productions. Ms. Sparango worked on the
hit series "Lifestyles of the Rich and Famous" for over ten years at Television
Program Enterprises (TPE) in New York and was named producer in February
1990 -- a position she also held on another spin-off show -- "Runaway with the
Rich and Famous".
Our executive officer and directors can be reached at our principal
executive offices at 12300 Wilshire Boulevard, Suite 400, Los Angeles, CA 90025,
U.S.A.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
In January 1997, CST Entertainment, Inc., a publicly held company primarily
involved in the colorization of old "black and white" film material, filed for
federal bankruptcy protection in the Southern District of California. From 1993
to December 1996, Mr. Shapiro, our current President, Chief Operating Officer
and a director, was president, chief executive officer and a director of CST
Entertainment, Inc.
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<PAGE> 41
COMPENSATION OF DIRECTORS
Under the 1996 Directors Plan, which plan has been incorporated into the
1999 Stock Option, Deferred Stock and Restricted Stock Plan, Mr. Solomon and Mr.
Barry, who are non-employee directors, each received an option to purchase
30,000 shares of our common stock at the then effective exercise price of $2.50
per share and $2.00 per share, respectively.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
AGREEMENTS
Drew Levin. The Board of Directors approved, as of October 8, 1999, a new 5
year employment agreement with Mr. Levin (the "Levin Agreement") providing for
his services as Chairman of the Board of Directors and Chief Executive Officer.
The Levin Agreement, which is effective as of August 1, 1999, provides for the
payment to Mr. Levin of a base salary of $550,000 per year, with annual
increases of 4% on each anniversary date of the Levin Agreement (the "Annual
Salary"). On January 2, 2000, Mr. Levin will receive a one time bonus of
$250,000. Mr. Levin will also receive an annual bonus calculated for each fiscal
year as follows: if we have net pre-tax earnings of up to $2,000,000, Mr. Levin
will receive 5% of such net pre-tax earnings and if we have net pre-tax earnings
of greater than $2,000,000, Mr. Levin will receive 7.5% of such net pre-tax
earnings. Mr. Levin will also receive options to purchase an aggregate of
1,115,000 shares of our common stock pursuant to the 1999 Stock Option, Deferred
Stock and Restricted Stock Plan. 250,000 of such options were granted as of the
date of the Levin Agreement, vesting as of that date and are exercisable at
$6.063 per share (the closing bid price of our common stock on September 24,
1999, the last business date preceding the date the Board of Directors initially
considered Mr. Levin's employment agreement). 865,000 of such options are to be
granted on the date this offering closes, vesting at the time of grant and are
exercisable at the market price of our common stock on the date the offering
closes. All options being granted to Mr. Levin have a 5 year term. Mr. Levin
shall also receive a monthly car allowance of $1,500.
The Levin Agreement also provides that if Mr. Levin dies or becomes unable
to perform his duties, functions and responsibilities for a period of 3
consecutive months or shorter periods aggregating 4 months within any 12 month
period, the Company may terminate Mr. Levin, in which case Mr. Levin or his
beneficiary shall be entitled to receive all of Mr. Levin's base salary, accrued
share of bonus for that fiscal year and thereafter for an additional one year
period. If the Company were to terminate Mr. Levin without cause, Mr. Levin
would be entitled to receive (i) a lump sum payment equal to the Annual Salary,
as well as unpaid vacation pay, unreimbursed business expenses and any other
monies payable to Mr. Levin under any employee benefit plan; (ii) the right to
obtain a transfer of any life insurance policy existing for the benefit of Mr.
Levin; and (iii) 120% of the balance of the Annual Salary payable through the
end of term of the Levin Agreement, as due and scheduled under the Levin
Agreement as if Mr. Levin had not been terminated. If Mr. Levin is terminated
for cause, as defined in the Levin Agreement, Mr. Levin shall be entitled to
receive the amount of his Annual Salary accrued up to the date of termination,
his accrued bonus for that fiscal year, if any, and all fringe benefits which
have accrued up till that date.
Jonathan D. (Jody) Shapiro. We have entered into an employment agreement
with Mr. Shapiro (the "Shapiro Agreement") providing for his services as
President and Chief Operating Officer, effective as of November 22, 1998. The
term of the Shapiro Agreement commenced January 1, 1999 and continues until
December 31, 1999. If during such period Mr. Shapiro causes the Company to raise
a minimum of $3,000,000 in debt or equity financing through his efforts, the
Shapiro Agreement will be extended for an additional 2 years. Mr. Shapiro is to
be paid a base salary of $220,000 per year, plus a bonus to be determined by the
Compensation Committee of the Board of Directors based upon his performance. In
addition, applied against such bonus will be 2% of the gross dollars raised
through Mr. Shapiro's efforts in either debt or equity capital and 1% of the
Company's post tax profits. Mr. Shapiro's bonus, which shall be paid on a
quarterly basis, shall be a minimum of $25,000 for the first year. The minimum
bonus shall increase to $30,000 for the second year and $40,000 for the third
year. Mr. Shapiro has been granted 90,000 stock options at an exercise price of
$1.65 per share, such options to vest ratably over the first 2 years of his
employment.
Timothy A. Hill. We have entered into an employment agreement with Timothy
A. Hill (the "Hill Agreement") providing for his services as Senior Vice
President/Chief Financial Officer effective August 17,
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<PAGE> 42
1999. The term of the Hill Agreement is for 2 years. Mr. Hill is to be paid a
salary of $150,000 for the first year and $175,000 for the second year. Mr. Hill
shall be entitled to a minimum annual bonus of $15,000. Mr. Hill is to be
granted 40,000 stock options at the exercise price equal to the price of our
common stock on the grant date, to vest equally on a monthly basis over the term
of the Hill Agreement.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to us for the fiscal
years ended December 31, 1998, 1997 and 1996 by our Chief Executive Officer (the
"Named Executive Officer"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION
------------------------------ ---- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Drew S. Levin(5)........................ 1998 $220,000 $145,000 $13,400(4)
Chairman of the Board 1997 $220,000 $145,000
and Chief Executive Officer 1996 $350,000 $ 45,000(2) (3)
</TABLE>
- ---------------
(1) Other than salary described herein, the Company did not pay the Named
Executive Officer any compensation, including incidental personal benefits
in excess of 10% of the Named Executive Officer's salary.
(2) For the fiscal year ended December 31, 1996, Mr. Levin was entitled,
pursuant to the terms of his prior agreement, to a bonus equal to certain
producer's fees relating to the series Amazing Tails. During such period Mr.
Levin received $45,000 and, pursuant to the terms of his new employment
agreement (which became effective upon the closing of the public offering in
August 1998), has agreed to apply the balance of such accrued but unpaid
bonus ($175,000) to repay certain loans made to him by the Company. This
amount ($175,000) was reflected in Mr. Levin's compensation for fiscal 1998.
Mr. Levin will no longer receive production bonuses. The loan balance is
$179,400 as of the date hereof. Such amount is net of amounts owed to Mr.
Levin for accrued producer fees and the bonus effective April 1, 1998. See
"Certain Relationships and Related Transactions."
(3) Pursuant to the terms of Mr. Levin's prior employment agreement, Mr. Levin
was granted options to acquire 85,000 shares of our common stock at $5.50
per share, exercisable upon our initial public offering. These options are
fully vested.
(4) Mr. Levin was entitled to receive a car allowance of $1,250 per month for 8
months and $850 per month for 4 months.
(5) For the fiscal year ending December 31, 1998, the Company has granted Mr.
Levin a bonus, effective as of April 1, 1998, of $70,000 in respect of his
services for 1997. This amount is in addition to his agreed upon contractual
compensation. In addition, Mr. Levin received a bonus of $30,000 pursuant to
the terms of his prior employment agreement for the fiscal year ended
December 31, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHORT TERM BORROWINGS BY MR. LEVIN; TRANSACTIONS WITH ERIC ELIAS
Short Term Borrowings by Mr. Levin. The Company has currently due from
officer a balance of $179,400. The Company had due from officer balances of
$145,400, $195,500 and $11,300 at December 31, 1998, December 31, 1997 and
December 31, 1996, respectively, representing short-term interest free loans
made by the Company to Mr. Levin, less producer's fees earned for services on a
Company production. At December 31, 1998, December 31, 1997 and December 31,
1996, the amount of such loans owed by Mr. Levin to the Company (which also
represents the highest amount borrowed during such periods) was $145,400,
$195,500 and $11,300, respectively. As of June 30, 1999, the amount of such
loans is $170,400, with
40
<PAGE> 43
a majority of the disinterested members of the Board of Directors having
approved the additional $25,000 loan. Such amount is net of amounts owed to Mr.
Levin for accrued producer fees and bonus effective April 1, 1998. Borrowings by
any officer of the Company require the approval of a majority of the
disinterested members of the Board. There is no interest being charged on the
amount Mr. Levin owes the Company and there is no interest accruing on the
producer fees previously owed by the Company to Mr. Levin. Mr. Levin has agreed
to repay the outstanding balance with the proceeds of the sale of his common
stock offered hereunder, although he has reserved the right to repay the loan as
of January 2, 2000 with the proceeds of his guaranteed bonus under his new
employment agreement.
Transactions With Eric Elias. Mr. Elias, who serves as Senior Vice
President, Business and Legal Affairs, is paid through his private law firm. In
1997 Mr. Elias received approximately $125,000, including expense
reimbursements, for such legal services. In 1998, Mr. Elias received
approximately $170,000, including expense reimbursements, for such legal
services. On June 30, 1997, Mr. Elias was granted an option to purchase 12,500
shares of common stock at the Company's initial public offering price of $5.50
per share. On October 8, 1999, Mr. Elias was granted an option to purchase an
additional 50,000 shares of our common stock, exercisable at $6.25 per share.
Mr. Elias' option has a 5 year term and vests ratably on a monthly basis over a
2 year period.
We believe that the foregoing transactions were on terms no less favorable
to us than those available from unaffiliated parties. It is our current policy
that all transactions with officers, directors, 5% shareholders and their
affiliates will be entered into only if such transactions are approved by a
majority of the disinterested independent directors, and on terms no less
favorable to us than could be obtained from unaffiliated parties and are
reasonably expected to benefit us.
STOCK OPTION PLANS
As of May 26, 1999, our Board of Directors approved, and recommended for
adoption by the shareholders, who adopted such plan on June 11, 1999, the 1999
Stock Option, Deferred Stock and Restricted Stock Plan (the "1999 Stock Plan").
As part of the 1999 Stock Plan, we incorporated into it our 1996 Stock Awards
Plan and our 1996 Directors' Stock Option Plan. All outstanding awards under
those plans have been converted into equivalent awards under the 1999 Stock
Plan. Such awards will continue to have the same terms, conditions and exercise
prices as they had under the prior plans.
The 1999 Stock Plan increases the aggregate number of shares available for
the grant of options to an amount equal to 20% of then current outstanding
shares of our common stock, such figure to be adjusted as and when we increase
our outstanding shares of common stock. The initial number of shares shall be
approximately 1,100,000. The 1999 Stock Plan provides for the grant of qualified
incentive stock options ("ISOs") that meet the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended, stock options not so qualified
("NQSOs"), deferred stock and restricted stock awards ("Grants"). The 1999 Stock
Plan is administered by a committee of directors appointed by the Board of
Directors (the "Committee"). ISOs may be granted to our officers and key
employees or any of our subsidiaries. The exercise price for any ISO granted
under the 1999 Stock Plan may not be less than 100% (or 110% in the case of ISOs
granted to an employee who is deemed to own in excess of 10.0% of the
outstanding common stock) of the fair market value of the shares of common stock
at the time the option is granted. The exercise price for any NQSO granted under
the 1999 Stock Plan may not be less than 85.0% of the fair market value of the
shares of common stock at the time the option is granted. The purpose of the
1999 Stock Plan is to provide a means of performance-based compensation in order
to attract and retain qualified personnel and to provide an incentive to those
whose job performance affects us.
The number of shares reserved for issuance under the 1999 Stock Plan is
subject to anti-dilution provisions for stock splits, stock dividends and
similar events. If an option granted under the 1999 Stock Plan expires or
terminates, or a Grant is forfeited, the shares subject to any unexercised
portion of such option or Grant will again become available for the issuance of
further options or Grants under the 1999 Stock Plan.
Under the 1999 Stock Plan, we may make loans available to stock option
holders, subject to the Committee's approval, in connection with the exercise of
stock options granted under the 1999 Stock Plan. If
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<PAGE> 44
shares of common stock are pledged as collateral for such indebtedness, such
shares may be returned to us in satisfaction of such indebtedness. If so
returned, such shares shall again be available for issuance in connection with
future stock options and Grants under the 1999 Stock Plan.
Unless previously terminated by the Board of Directors, no options or
grants may be granted under the 1999 Stock Plan after May 25, 2009.
Options granted under the 1999 Stock Plan will become exercisable according
to the terms of the grant made by the Committee. Grants will be subject to the
terms and restrictions of the award made by the Committee. The Committee has
discretionary authority to select participants from among eligible persons and
to determine at the time an option or Grant is granted and in the case of
options, whether it is intended to be an ISO or a NQSO, and when and in what
increments shares covered by the option may be purchased. Under current law,
ISOs may not be granted to any individual who is not also an officer or employee
of ours or any of our subsidiaries.
The exercise price of any option granted under the 1999 Stock Plan is
payable in full:
- in cash;
- by surrender of shares of our common stock already owned by the option
holder having a market value equal to the aggregate exercise price of all
shares to be purchased including, in the case of the exercise of NQSOs,
restricted stock subject to a Grant under the 1999 Stock Plan;
- by cancellation of indebtedness owed by us to the option holder;
- by a full recourse promissory note executed by the option holder; or
- by any combination of the foregoing.
The terms of any promissory note may be changed from time to time by the Board
of Directors to comply with applicable Internal Revenue Service or Securities
and Exchange Commission regulations or other relevant pronouncements.
The Board of Directors may from time to time revise or amend the 1999 Stock
Plan and may suspend or discontinue it at any time. However, no such revision or
amendment may impair the rights of any participant under any outstanding option
or Grant without such participant's consent or may, without shareholder
approval, increase the number of shares subject to the 1999 Stock Plan or
decrease the exercise price of a stock option to less than 100% of fair market
value on the date of grant (with the exception of adjustments resulting from
changes in capitalization), materially modify the class of participants eligible
to receive options or Grants under the 1999 Stock Plan, materially increase the
benefits accruing to participants under the 1999 Stock Plan or extend the
maximum option term under the 1999 Stock Plan.
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<PAGE> 45
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our shares of common stock as of October 4, 1999, and as
adjusted to reflect the sale of shares of common stock offered hereby by (1)
each shareholder known by us to own beneficially more than 5% of our shares of
common stock, (2) each of the Named Executive Officers, (3) each director, (4)
all our directors and executive officers as a group, and (5) the selling
shareholder.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
SHARES OF COMMON STOCK BENEFICIALLY STOCK BENEFICIALLY
STOCK BENEFICIALLY OWNED AFTER SALE UNDER OWNED AFTER SALE UNDER
OWNED BEFORE SALE THIS PROSPECTUS WITHOUT THIS PROSPECTUS, AFTER
UNDER THIS EXERCISE OF OVER- EXERCISE OF THE OVER-
PROSPECTUS(2) ALLOTMENT OPTIONS(2) ALLOTMENT OPTIONS
NAME AND ADDRESSES OF ---------------------- SHARES TO ------------------------ ----------------------
BENEFICIAL OWNERS(1) NUMBER PERCENTAGE BE SOLD(3) NUMBER PERCENTAGE NUMBER PERCENTAGE
--------------------- --------- ---------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICERS AND DIRECTORS:
Drew S. Levin(3)....... 860,123 13.8% 150,000 710,123 710,123
Michael J.
Solomon(4)........... 50,000 * 50,000 50,000
W. Russell Barry(5).... 30,000 * 30,000 30,000
Jonathan D.
Shapiro(6)........... 45,000 * 45,000 45,000
All directors and
executive officers as
a group(7)........... 1,217,623 18.5% 1,217,623 1,217,623
5% SHAREHOLDERS:
Gontard & MetallBank
AG(7)................ 500,000 8.5% 500,000 500,000
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Unless otherwise indicated, the address of each listed stockholder is c/o
TEAM Communications, Inc., 12300 Wilshire Boulevard, Suite 400, Los Angeles,
California 90025.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person
that are currently exercisable or will become exercisable within 60 days
after October , 1999, are deemed outstanding, while such shares are not
deemed outstanding for purposes of computing percentage ownership of any
other person. Unless otherwise indicated in the footnotes below, the persons
and entities named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable.
The number and percentage of shares beneficially owned are based on the
aggregate of (i) 5,897,959 shares of Common Stock outstanding as of October
4, 1999, and (ii) shares of Common Stock outstanding after the
completion of this offering.
(3) Includes options to acquire 85,000 shares of common stock at an exercise
price of $5.50 per share which the Company granted to Mr. Levin concurrently
with the execution of his prior employment agreement. Also includes options
to purchase 250,000 shares of common stock issued pursuant to Mr. Levin's
new employment agreement, which are exercisable at $6.063 per share. Does
not include options to purchase 865,000 shares which are issuable contingent
on the closing of this offering.
(4) Includes an option to purchase 30,000 shares of common stock at an exercise
price $2.50 per share.
(5) Includes an option to purchase 30,000 shares of common stock at an exercise
price $2.00 per share.
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<PAGE> 46
(6) Pursuant to Mr. Shapiro's employment agreement, he has been granted options
to purchase 90,000 shares of common stock at an exercise price of $1.65 per
share, of which 45,000 shares are exercisable within 60 days.
(7) Includes shares issuable pursuant to the terms of a warrant to purchase
100,000 shares of common stock, exercisable at $2.20 per share, which are
exercisable within 60 days.
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<PAGE> 47
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES
COMMON STOCK
We are authorized to issue up to 40,000,000 shares of common stock, no par
value. As of October 4, 1999, there were 5,897,959 shares of common stock
outstanding which were held of record by 75 shareholders. Holders of common
stock are entitled to one vote for each share held of record on each matter
submitted to a vote of shareholders. There is cumulative voting for election of
directors. Subject to the prior rights of any series of preferred stock which
may from time to time be outstanding, if any, holders of common stock are
entitled to receive ratably, dividends when, as and if declared by the Board of
Directors out of funds legally available therefor and, upon the liquidation,
dissolution, or winding up of the Company, are entitled to share ratably in all
assets remaining after payment of liabilities and payment of accrued dividends
and liquidation preferences on the preferred stock, if any. Holders of common
stock have no preemptive rights and have no rights to convert their common stock
into any other securities. The outstanding shares of common stock are validly
authorized and issued, fully paid, and nonassessable.
PREFERRED STOCK
We are authorized to issue up to 10,000,000 shares of preferred stock. As
of October 4, 1999, there were no shares of preferred stock outstanding. The
preferred stock may be issued in one or more series, the terms of which may be
determined at the time of issuance by the Board of Directors, without further
action by shareholders and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion rights, redemption rights and sinking fund provisions.
We have no present plans for the issuance of shares of preferred stock. The
issuance of any preferred stock could adversely affect the rights of the holders
of common stock and therefore, reduce the value of the common stock. The ability
of the Board of Directors to issue preferred stock could also discourage, delay
or prevent a takeover. See "Risk Factors -- Preferred Stock; Possible
Anti-Takeover Effects of Certain Charter Provisions."
WARRANTS
At October 4, 1999, there were warrants outstanding to purchase a total of
1,374,126 shares of common stock. These warrants will remain outstanding after
the completion of this offering.
PRE-IPO WARRANTS
In connection with the issuance of prior secured notes, we have issued an
aggregate of 427,354 warrants, each warrant entitling the holder thereof to
acquire one share of common stock; 224,293 warrants are exercisable at an
exercise price equal to $0.43 per share, 29,191 warrants are exercisable at an
exercise price equal to $0.97 per share, 193,870 warrants are exercisable at
$0.97 per share, 20,000 warrants are exercisable at $2.45 and 10,000 warrants
are exercisable at $2.00, subject to adjustment as hereinafter provided. The
warrants may be exercised, at the option of the holder at any time. To date,
102,967 of such warrants have been exercised. Unless exercised during their
term, the right to exercise the warrants terminates on their expiration date.
CONSULTANT'S WARRANTS
Prior to 1998, we issued 147,924 warrants to other consultants and
investors in connection with prior financings. Of these warrants, 21,362 are
exercisable at $1.07 per share and 126,562 are exercisable at $0.43 per share,
all of which are currently exercisable. During 1998 and 1999, we granted
warrants to purchase our common stock to the following individuals and entities
for services provided to us: (i) 22,000 and 10,000 warrants, respectively, to
Mansion House International and Danny Chan, respectively, exercisable at $2.75
per share, (ii) 5,000 warrants to Hedblom Partners, exercisable at $3.50 per
share, (iii) 200,000 warrants to Glen Michael Financial; 100,000 exercisable at
$1.62 per share, 75,000 exercisable at $3.00 per share and 25,000 exercisable at
$3.25 per share, and (iv) 10,000 warrants to Ralph Olsen, exercisable at $2.00
per share. In
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<PAGE> 48
addition, we granted (x) 121,000 and 10,000 warrants, respectively, to Chase
Financing Ltd., and Robert Herskowitz, respectively, exercisable at $1.62 per
share and (y) an aggregate of 20,000 warrants, 5,000 each to Investor Relations
Services, Aurora Holdings, Amber Capital and Affiliated Services, respectively,
exercisable at $2.45 per share, in connection with debt that was raised. Century
City Securities, Inc., was issued 100,000 warrants exercisable at $2.20 per
share, for consulting services.
NATIONAL SECURITIES CORPORATION'S WARRANT
As part of our initial public offering, we issued to National Securities
Corporation a warrant to purchase for investment a maximum of 150,000 shares of
common stock. This warrant is exercisable for a four-year period commencing one
year from July 29, 1999. The exercise price is $7.425 per share (that being 135%
of the initial public offering price per share). The warrant is not saleable,
transferable, assignable or hypothecatable prior to its exercise date except to
officers of National Securities Corporation and members of their selling group
and officers and partners thereof. The warrant contains anti-dilution
provisions. The warrant does not entitle National Securities Corporation to any
rights as a shareholder until it is exercised and shares are purchased
thereunder. The warrant and the shares of common stock thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. We have agreed that, if we shall cause to be filed with the
Securities and Exchange Commission either an amendment to the Registration
Statement from our initial public offering or a separate registration statement,
National Securities Corporation shall have the right during the seven-year
period commencing on July 29, 1999 to include in such amendment or Registration
Statement the shares of common stock issuable upon exercise of the warrant at no
expense to National Securities Corporation. Additionally, we have agreed that
for a period of 5 years from the closing of the initial public offering, upon
written demand by a holder or holders of a majority of the warrant, we will, on
one occasion, register the shares of common stock issuable upon exercise of the
warrant at our expense. In addition, we have agreed, that during the same 5 year
period, upon the written demand of any holder of the warrant, to promptly
register the shares of common stock underlying such holder's warrant at the
expense of such holder.
POST-IPO BRIDGE WARRANTS
In connection with the sale of debentures made between January and March
1999, we also issued warrants to purchase 185,000 shares of common stock. The
warrants are exercisable at a price equal to 110% of the per share market value
as of the last trading day prior to the date of the issuance of the warrants.
The price is $2.16 per share for 85,000 of the warrants and $2.20 per share for
100,000 of the warrants.
In connection with the $350,000 bridge financing, we issued 35,000 warrants
which are exercisable at $7.61 per share. Finally, in connection with the
$4,000,000 bridge financing, we issued 340,000 warrants which are exercisable at
$7.088 per share.
WARRANT TERMS
The warrant holders have the opportunity to profit from a rise in the
market price of the common stock without assuming the risk of ownership of the
shares of common stock issuable upon the exercise of the warrants, with a
resulting dilution in the interests of the Company's shareholders by reason of
exercise of warrants at a time when the exercise price is less than the market
price for the common stock. Further, the terms on which we could obtain
additional capital during the life of the warrants may be adversely affected.
The warrant holders may be expected to exercise their warrants at a time when we
would, in all likelihood, be able to obtain any needed capital by an offering of
common stock on terms more favorable than those provided for by the warrants.
The holders of the warrants will not have any of the rights or privileges
of shareholders, including voting rights and rights to receive dividends, prior
to exercise of the warrants. We reserve out of its authorized but unissued
shares a sufficient number of shares of common stock for issuance on exercise of
the warrants. The common stock issuable on exercise of the warrants will be,
when issued, duly authorized and validly issued, fully paid, and nonassessable.
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For a holder to exercise the warrants, there must be a current registration
statement in effect with the Securities and Exchange Commission and registration
or qualification with, or approval from, various state securities agencies with
respect to the shares or other securities underlying the warrants, or an opinion
of our counsel that there is an exemption from registration or qualification.
ANTIDILUTION. In the event that we shall at any time:
- declare a dividend, or make a distribution, on the outstanding common
stock payable in shares of our capital stock;
- subdivide the outstanding common stock into a greater number of shares of
common stock;
- combine the outstanding common stock into a smaller number of shares; or
- issue any shares of its capital stock by reclassification of the common
stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing
corporation),
then, in each case, the exercise price per warrant share in effect at the time
of the record date for the determination of shareholders entitled to receive
such dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying such exercise price by a fraction, the numerator
of which shall be the number of shares of common stock outstanding immediately
prior to such action, and the denominator of which shall be the number of shares
of common stock outstanding after giving effect to such action. Upon such
adjustments to the exercise price, the number of warrant shares issuable upon
exercise of each warrant shall simultaneously be adjusted by multiplying the
number of warrant shares theretofore issuable upon exercise of such warrant by
the exercise price theretofore in effect and dividing the product so obtained by
the exercise price, as adjusted.
REORGANIZATIONS. In the event of any reclassification, capital
reorganization or other similar change of outstanding common stock, any
consolidation or merger involving the Company (other than a consolidation or
merger which does not result in any reclassification, capital reorganization, or
other similar change in the outstanding common stock), or a sale or conveyance
to another corporation of the property of the Company as, or substantially as,
an entirety, each warrant will thereupon become exercisable only for the kind
and number of shares of stock or other securities, assets or cash to which a
holder of the number of shares of common stock issuable (at the time of such
reclassification, reorganization, consolidation, merger or sale) upon exercise
of such warrant would have been entitled upon such reclassification,
reorganization, consolidation, merger or sale. In the case above, the effect of
these provisions would be that the holder of a warrant would thereafter be
limited to exercising such warrant at the exercise price in effect at such time
for the amount of cash per share that a warrant holder would have received had
such holder exercised such warrant and received common stock immediately prior
to the effective date of such cash merger or transaction. Depending upon the
terms of such cash merger or transaction, the aggregate amount of cash so
received could be more or less than the exercise price of the warrant.
EXERCISE PROCEDURE. Each holder of a warrant may exercise such warrant by
surrendering the certificate evidencing such warrant, with the subscription form
on the reverse side of such certificate properly completed and executed,
together with payment of the exercise price, to us at our executive offices. The
exercise price will be payable by cash or by certified or official bank check
payable in U.S. Dollars to the order of the Company. If fewer than all of the
warrants evidenced by a warrant certificate are exercised, a new certificate
will be issued for the remaining number of warrants. Certificates evidencing the
warrants may be exchanged for new certificates of different denominations by
presenting the warrant certificates at the office of the Company.
BRIDGE NOTES
At October 4, 1999, there was a $4,000,000 convertible note outstanding
with conversion rights into shares of common stock. The unpaid balance on this
note as of November 30, 1999 may be converted into common shares at the holders'
option. The conversion price is the lesser of 120% of the average per share
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market price for five consecutive trading days prior to August 5, 1999 or 88% of
the per share market price for the three days with the lowest per share market
price during the twenty-five days prior to conversion. We anticipate paying off
these instruments after the completion of this offering.
PRE-IPO BRIDGE NOTES
To finance our working capital needs, we have issued a series of bridge
notes. In February 1997, we commenced the placement of units consisting off
$50,000 principal amount of 10% Convertible Notes (the "February 1997 Notes")
and 10,000 common stock purchase warrants. We sold an aggregate of $969,350
principal amount of the February 1997 Notes. The principal amount of, and
interest on, the February 1997 Notes were due and payable on our initial public
offering. The February 1997 Notes were convertible into shares of common stock
during the period commencing 60 days after the closing date and continuing
through the effective date of the initial public offering. Substantially all of
the notes holders have waived their right to convert.
In June 1996 we commenced the placement of units consisting of $50,000
principal amount of 10% Secured Convertible Notes (the "June 1996 Notes") and
10,000 common stock purchase warrants. We sold an aggregate of $975,000
principal amount of the June 1996 Notes. The principal amount of, and interest
on, the June 1996 Notes were due and payable, if the holders thereof do not
otherwise notify us that they were converting their notes, on the completion of
our initial public offering. The June 1996 Notes are secured by substantially
all of our assets. To the extent not otherwise repaid, the June 1996 Notes
became convertible into shares of common stock, beginning 12 months after the
completion of our initial public offering, at a conversion price of $2.50 per
share, subject to an adjustment in certain events. Substantially all the holders
of these notes have waived their right to so convert.
In February 1996, we commenced the placement of units consisting of $50,000
principal amount of 12% Secured Notes (the "February 1996 Notes") and 10,000
common stock purchase warrants. We sold an aggregate of $900,000 principal
amount of the February 1996 Notes. The principal amount of, and interest on, the
February 1996 Notes were due and payable on the second anniversary of the
initial closing date thereof, and were secured by substantially all of our
assets. These notes were not convertible.
All but $588,750 of the February 1997 Notes, the June 1996 Notes and the
February 1996 Notes were repaid from the proceeds of our initial public
offering, other working capital, or subsequent conversions into our common
stock.
In December 1997, we obtained a loan in the amount of $315,000 from Venture
Management Consultants, LLC ("VMC"), affiliates of shareholders of the Company,
which accrues interest at 12% per year, and matured upon the earlier of the
closing of the initial public offering or July 15, 1998. As the loan was not
repaid by February 15, 1998, we were required to pay VMC an additional fee of
$15,000. Included in the principal to be repaid is a $15,000 loan origination
fee. This note has been repaid in full.
Between March 1998 and May 1998, we arranged for short term loans (the
"Interim Financing") of an aggregate of $1,642,000. A majority of such loans
were made by present shareholders and their affiliates. These loans matured as
follows: (i) $642,000 on July 15, 1998; (ii) $235,000 on June 15, 1998; (iii)
$115,000 on November 15, 1998; (iv) $150,000 on March 16, 1999; (v) $250,000 on
April 1, 1999; and (vi) $250,000 on April 18, 1999. These loans, other than the
$642,000, $115,000 and $235,000 loans accrue interest at 12% per year. The
$235,000 loan includes a $35,000 origination fee, and a $10,000 late fee as the
note was not paid at June 15, 1998. The note did not accrue interest. The
$642,000 loan has a fixed interest amount of $78,000 (which has not been paid
and is due upon the maturity of the loan) and includes a $42,000 loan
origination fee. The $115,000 loan includes a $15,000 loan origination fee.
In May, June and July 1998, we arranged for loans from 10 parties of an
aggregate of $715,000 for specific production financing. These loans mature as
follows: (i) $375,000 on January 10, 2000; and (ii) $340,000 on August 1, 1999.
The $375,000 loans accrue interest as 12% per year and the $340,000 loan accrues
interest at 16% per year. Of the $375,000, there are two loan origination fees,
one for $8,000 and one for $8,500. If any payments under the $340,000 loan are
not paid within three days of being due, a late fee of
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8% of the delinquent amount will be assessed for each month the payment is
delinquent. In addition, if the loan is in default, at the lender's option, the
unpaid principal and accrued interest shall thereafter bear interest at the
lessor of 25% per year or the maximum legal rate. The loan may be prepaid,
however, in order to prepay the loan, we will have to pay the lender the lesser
of all of the interest which would have accrued through the maturity of the loan
or $42,000. As of September 30, 1999, $75,000 remains outstanding and matures on
January 10, 2000.
POST IPO SECURITIES PLACEMENTS
Between January and March 1999, the Company sold to 5 investors an
aggregate principal amount of $1,850,000 of 8% convertible debentures and
warrants to purchase up to 185,000 shares of common stock. The holders of these
debentures have converted their debentures into common stock. In June 1999, four
of the debenture holders purchased an additional 175,000 shares of common stock
for an aggregate of $700,000.
In July 1999, we arranged for a short term loan of $1,200,000 for
production and distribution activities. The loan matures on November 30, 1999
and accrues interest at 12% per year. If the loan is not repaid by November 30,
1999, the principal and all accrued and unpaid interest convert into shares of
our common stock at the lesser of 85% of the market price on the date of
issuance or 110% of the current market price when converted. As of this date we
have repaid $1,000,000 of this note.
On August 5, 1995 we completed a $4,000,000 bridge financing with Hudson
Investors, LLC. The note matures on November 30, 2002 and accrues interest at
12% per year. All or part of the unpaid principal amount may be converted into
shares of common stock at the holder's option any time after November 30, 1999.
The conversion price is the lesser of 120% of the average per share market price
for five consecutive trading days prior to August 5, 1999 or 88% of the per
share market price for the three days with the lowest per share market price
during the twenty-five days prior to conversion. Connected with this financing,
we issued 340,000 warrants to purchase our common stock at 105% of the five-day
average closing price prior to the closing of the financing, which equals $7.00.
On August 5, 1999, we sold 500,000 shares of common stock for $2,000,000 to
Gontard & MetallBank AG. On September 29, 1999 we completed a bridge financing
with Gontard & MetallBank AG. Their note bears interest at 10% per year and
matures on the earlier of the completion of this offering or December 31, 1999.
TRANSFER AGENT
The transfer agent for our common stock is U.S. Stock Transfer Corporation,
1745 Gardena Avenue, Glendale, California 91204, telephone number (818)
502-1404, which also is responsible for record keeping functions in connection
with the same.
SHARES ELIGIBLE FOR FUTURE SALE
Our common stock trades on the NASDAQ SmallCap Market under the symbol
"TMTV." Sales of substantial amounts of our common stock in the public market or
the perception that such sales could occur could materially adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of the offering, we will have issued and outstanding
shares of common stock. The shares that have been registered are
freely tradeable without restriction under the Securities Act of 1933, unless
purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act of 1933.
The remaining shares of common stock outstanding upon completion of the
offering, determined as if all outstanding warrants have been exercised, will be
held by approximately holders and will be "restricted securities" as that term
is defined in Rule 144 as promulgated under the Securities Act ("Restricted
Stock"). Restricted Stock may be sold in the public market only if registered or
if qualified for an exemption from registration under Rule 144 or Rule 701 as
promulgated under the Securities Act, which rules are summarized
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below, or pursuant to another exemption from registration. Sales of the
Restricted Stock in the public market, or the availability of such shares for
sale, could materially adversely affect the market price of the common stock. In
general, under Rule 144, beginning 90 days after the date of the final
prospectus from our initial public offering, a person (or persons whose shares
are aggregated) who has beneficially owned Restricted Stock for at least one
year (including the holding period of any prior owner other than an affiliate of
the Company) would be entitled to sell within any three month period a number of
shares that does not exceed the greater of (i) one percent of the number of
shares of common stock then outstanding or (ii) the average weekly trading
volume of the common stock during the four calendar weeks preceding the filing
of notice of such sale. Sales under Rule 144 are also subject to certain manner
of sale provisions and notice requirements and to the availability of current
public information about us. Under Rule 144(k), a person who is not deemed to
have been an affiliate of ours at any time during the three months preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owner except an affiliate
of ours) is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Any employee, officer or director of or consultant to us who purchased his
or her shares of common stock pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates of ours to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144, as described above.
Rule 701 further provides that nonaffiliated shareholders may sell such shares
in reliance on Rule 144 without having to comply with the public information,
volume limitation or notice provisions of Rule 144. In both cases, a holder of
Rule 701 shares was required to wait until 90 days after the date of the final
prospectus from our initial public offering before selling his shares.
We intend to file a registration statement on Form S-8 under the Securities
Act of 1933 covering shares of common stock reserved for issuance under the 1999
Stock Plan. Based on the number of shares reserved for issuance under the 1999
Stock Plan, such registration statement would cover approximately 1,100,000
shares. Such registration statement will automatically become effective upon
filing. Accordingly, shares registered under such registration statement will,
subject to Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market, subject to vesting restrictions.
THE GERMAN EQUITY MARKET
GERMAN SECURITIES LAWS
As a United States company offering securities on a German stock exchange,
we are subject to various laws and regulations in both jurisdictions. Some of
these laws and regulations, in turn, can affect the ability of holders of our
securities to transfer or sell such securities.
At present, Germany does not restrict the export or import of capital,
except for investments in Iraq and Libya in accordance with applicable
resolutions adopted by the United Nations and the European Union. However, for
statistical purposes only, every individual or corporation residing in Germany
(hereinafter, a "Resident") must report to the German Central Bank (Deutsche
Bundesbank), subject only to certain immaterial exceptions, any payment received
from or made to an individual or a corporation resident outside Germany
(hereinafter, a "Non-resident") if such payment exceeds DM 5,000 (2,550 Euros,
or the equivalent in a foreign currency). In addition, Residents must report any
claims against or any liabilities payable to Non-residents if such claims or
liabilities, in the aggregate, exceed DM 3 million (1.53 million Euros, or the
equivalent in a foreign currency) during any one month. Residents must also
report any direct investment outside Germany if such investment exceeds DM
100,000 (51,000 Euros, or the equivalent in a foreign currency).
There are no limitations on the right of Non-resident owners to hold or
vote the shares imposed by German law or the Amended and Restated Articles of
Incorporation or the Amended and Restated Bylaws.
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THE FRANKFURT STOCK EXCHANGE AND THE NEUER MARKT
The Frankfurt Stock Exchange is the most significant of the eight German
stock exchanges and accounted for approximately 78% of the turnover in traded
shares in Germany in 1998. The aggregate annual turnover of the Frankfurt Stock
Exchange in 1998 of approximately DM 8,338 billion, based on the Frankfurt Stock
Exchange's practice of separately recording the sale and purchase components
involved in any trade, for both equity and debt instruments, made it the fourth
largest stock exchange in the world behind the New York Stock Exchange, London
and Tokyo in terms of turnover.
The Neuer Markt segment of the Frankfurt Stock Exchange is a trading
segment that was launched in March 1997. It is designed for innovative, small to
mid-size companies in high growth industries or in traditional industries that
have an international orientation and that are willing to provide active
investor relations. Issuers are requested to provide investors on an ongoing
basis with information such as annual and quarterly reports, including cash flow
statements, and a corporate action timetable. This information is required to be
submitted in English and German as well as in electronic form, thus enabling the
stock exchange to disseminate corporate information via the Internet.
TRADING ON NEUER MARKT
Trading of shares listed on the Neuer Markt takes place on the floor of the
stock exchange, but is computer-aided. Shares listed on the Neuer Markt can also
be traded on a computer-aided system called Xetra. Trading takes place on every
business day between 8:30 a.m. and 5:00 p.m., Frankfurt time. Trading within the
Xetra system is done by banks and securities dealers who have been admitted to
trading on at least one of Germany's stock exchanges. Xetra is integrated into
the Frankfurt Stock Exchange and is subject to its rules and regulations.
Markets in listed securities are generally of the auction type, but listed
securities also change hands in inter-bank dealer markets off the Frankfurt
Stock exchange. Price formation is determined by open bid by state-appointed
specialists (amtliche Makler) who are themselves exchange members, but who do
not, as a rule, deal with the public. Prices of shares traded on the Neuer Markt
are displayed continuously during trading hours. At the half-way point of each
trading day, a single standard quotation is determined for all shares. The
members' association of the Frankfurt Stock Exchange publishes a daily list of
prices which contains the standard prices of all traded securities, as well as
their highest and lowest quotations during the past year.
Transactions on the Frankfurt Stock Exchange, including transactions within
the Xetra system, are settled on the second business day following trading.
Transactions off the Frankfurt Stock Exchange, for large volumes or if one of
the parties is foreign, are generally also settled on the second business day
following trading, unless the parties have agreed upon a different date.
Following a recent amendment to the conditions of German banks for securities
trading (Sonderbedingungen fur Wertpapiergeschafte), customers' orders to buy or
sell listed securities must be executed on a stock exchange, unless the customer
instructs otherwise. Trading can be suspended by the Frankfurt Stock Exchange if
orderly stock exchange trading is temporarily endangered or if a suspension is
in the public interest.
A specific feature of the Neuer Markt is the introduction of the obligatory
"Designated Sponsor" i.e., an entity admitted for trading at the Frankfurt Stock
Exchange which provides additional liquidity by quoting prices for the buying
and selling of shares on request. Each issuer on the Neuer Markt is required to
nominate at least two Designated Sponsors which will not only ensure that there
is sufficient liquidity for its shares, but also serve as consultants on all
stock market related matters for the issuer.
Application will be made to have the shares admitted for listing on the
Neuer Markt. It is expected that trading in the shares on the Neuer Markt under
the symbol " " will commence on or about , 1999. The Neuer Markt
is still a relatively new market. Accordingly, there can be no assurance that an
active trading market for the shares will develop on the Neuer Markt or that the
Neuer Markt will not experience problems in settlement or clearance as trading
develops. Any such delays or problems could adversely affect the market price of
the shares. Persons proposing to trade the shares on the Neuer Markt should
inform themselves about the potential costs of such trading.
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GERMAN TAX MATTERS
The following is a summary of certain tax matters arising under German tax
law in force at the date of this prospectus. The summary does not purport to be
a comprehensive description of all of the tax considerations which may be
relevant as to the decision to acquire shares of common stock. The summary is
based on the tax laws of Germany in effect on the date of this prospectus, which
may be subject to changes, possibly with retroactive effect. The summary does
not address aspects of German taxation other than taxation of dividends, capital
gains taxation and gift and inheritance taxation, and does not address all
aspects of such German taxation. The summary does not consider any specific
facts or circumstances that may apply to a particular purchaser. The summary
assumes that the shareholder is subject to unlimited German income taxation and
is referred to as a "German Holder." Prospective investors should consult their
professional advisors as to the tax consequences of the acquisition, holding and
disposal of the shares of common stock, including in particular, the effect of
tax laws of any other jurisdiction.
INCOME TAXATION OF DIVIDENDS
Any dividends distributed to German Holders are, in principle, fully
subject to German income tax (Einkommensteuer) including a solidarity surcharge
(Solidaritatszuschlag) and possibly church tax (Kirchensteuer). An individual
German Holder will be entitled to a deduction of income-related expenses
(Werbungskosten) to be proved to the tax authorities or alternatively to a fixed
allowance of DM 100 per calendar year, and a tax exemption known as a savers
exemption of DM 6,000 per calendar year in relation to his or her total income
from capital investments including dividends. This savers exemption is reduced
to DM 3,000 per calendar year effective January 1, 2000.
Dividend withholding tax levied in the United States in accordance with the
U.S./German Double Taxation Treaty of August 29, 1989 can be credited against
the German income tax liability of the German Holder. Alternatively, a German
Holder may deduct the total amount of U.S. withholding tax from his or her
German taxable income. This tax credit or deduction is not available if the
savers exemption mentioned above is available to the German Holder.
A German corporation that has beneficial title to at least 10% of the
shares in a U.S. corporation, is entitled to a reduction or refund of U.S. tax
in excess of 5%, and all other German Holders are entitled to a refund or
reduction of U.S. tax in excess of 15% if the Treaty applies. If the shares are
held by German Holders through a partnership, the dividends, including the
withholding tax credit are allocated to the partners according to their interest
in the partnership.
German Holders that are corporate investors, or a German Corporate Holder,
holding at least 10% of the outstanding shares of common stock, and to whom the
Treaty applies, are exempt from German corporation tax in relation to dividends
received, and cannot claim any credit for, or deduction of, foreign withholding
taxes in Germany. Such dividends will be placed in the so-called "EKO1" equity
basket of the corporate investor. Upon distribution of dividends out of the EKO1
equity basket to its stockholders, the German Corporate Holder does not need to
establish the corporation tax distribution burden (which presently is 30% plus
the solidarity surcharge at a rate of 5.5% of the corporation tax distribution
burden).
In addition, distributions to a German Holder are subject to German
withholding tax at a rate of 25%, plus solidarity surcharge at a rate of 5.5%
thereon (resulting in an effective tax rate of 26.37%).
German Holders that are corporate investors holding less than 10% of the
shares in the Company will be entitled to a tax credit for U.S. withholding
taxes.
CAPITAL GAINS TAX
Capital gains on the disposal of shares held as a private asset of a German
Holder are only taxable if the disposal is (i) effected within a twelve-month
period after their acquisition or (ii) upon expiration of this speculation
period, if the shareholder at any time during the five years preceding the
disposal, directly or indirectly, held an interest of 10% or above in a company.
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Capital gains resulting from the disposal of shares of common stock by a
stockholder who is not a tax resident in Germany are not subject to German
capital gains tax unless the shares of common stock are part of the business
property of a permanent establishment or a fixed place of business of the
stockholder located in Germany.
GIFT AND INHERITANCE TAXES
Shares held by a person resident in Germany are subject to German
inheritance and gift tax upon transfer by reason of death or as a gift, based on
the market value at the time of the death or donation, respectively. Transfers
of shares of common stock held by a person who is not a tax resident in Germany
are not subject to German inheritance and gift tax, unless:
(i) the shares of common stock are part of the business property of a
permanent establishment or a fixed place of business of the
stockholder located in Germany; or
(ii) the heir, donee or beneficiary is tax resident in Germany or, if of
German nationality, has been resident in Germany within the five-year
period prior to the death or the gift (certain public officials
resident abroad are also covered).
TRADE TAX
A holder who is not a tax resident in Germany will not be subject to German
trade tax with respect to the shares of common stock, unless the shares of
common stock are part of the business property of a permanent establishment or a
fixed place of business of the stockholder located in Germany. If a German
resident taxpayer elects to deduct the foreign withholding taxes from his
taxable income in Germany such deduction would not be accepted for computing his
taxable income for trade tax purposes.
The trade tax on income is levied at rates varying from 13-20%. Trade tax
qualifies for a deductible business expense for income tax purposes in Germany.
OTHER GERMAN TAXES
There are no German transfer, stamp or other similar taxes which would
apply to the sale or transfer of the shares of common stock.
STATUTORY INFORMATION
We were incorporated as a corporation under the laws of the State of
California on February 1995 as DSL Entertainment Group, Inc. Our incorporator
was Anita Sobol. Our formation became effective on February 27, 1995, the date
our Articles of Incorporation were filed with the Secretary of State of the
State of California. We changed our corporate name to TEAM Communications Group,
Inc., effective January 22, 1997. Our statutory corporate purpose is to engage
in any lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of California, other than the banking
business, the trust company business or the practice of a profession permitted
to be incorporated by the California Corporation Code.
We own all of the capital stock of the following companies: Long Form
Entertainment, Inc., Simply Style Productions, Inc., Amazing Tails, Inc. Mary
Lou's Flip Flop Shop, Inc., Team Dandelion, and Team Germany GmbH. There are
other entities which we have a stock ownership interest in.
Other than Team Dandelion and Team Germany GmbH., our 4 other subsidiaries
are sole purpose corporations formed for the production of a specific project.
As all six of these entities are wholly owned subsidiaries, their financial
information is consolidated in our financial statements.
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LEGAL MATTERS
Certain legal matters in connection with the validity of the shares of
common stock being offered hereby will be passed upon for us by Kelly Lytton
Mintz & Vann LLP, 1900 Avenue of the Stars, Suite 1450, Los Angeles, California
90067. Bruce P. Vann, a member of Kelly Lytton Mintz & Vann LLP, is the
beneficial owner of 4,273 shares of common stock and options to acquire an
additional 10,000 shares of common stock.
EXPERTS
The consolidated financial statements as of December 31, 1998 included in
this prospectus have been so included in reliance on the report of Stonefield
Josephson, Inc., independent accountants, and are so included in reliance upon
their reports given on their authority as experts in auditing and accounting.
The financial statements of Dandelion Distribution Ltd., as of July 31,
1999 and 1998 included in this prospectus have been so included in reliance on
the report of Barnes Roffe, independent accountants, and are so included in
reliance upon their reports given on their authority as experts in auditing and
accounting.
54
<PAGE> 57
UNDERWRITING
We, the selling shareholder, as well as Gontard & MetallBank AG and VEM
Virtuelles Emissionshaus AG (the "Underwriters") have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each Underwriter has severally agreed to purchase the number
of shares indicated in the following table at the public offering price less the
underwriting discount of 10%.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ -----------
<S> <C>
Gontard & MetallBank AG..................................... [ ]
VEM Virtuelles Emissionshaus AG............................. [ ]
-----------
Total............................................. [ ]
===========
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
[ ] shares from the Company to cover such sales (the "Over-Allotment
Option"). They may exercise the Over-Allotment Option for 30 days after the day
on which the shares are first quoted on the Frankfurt Stock Exchange's Neuer
Markt. If any shares are purchased pursuant to the Over-Allotment Option, the
Underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the Underwriters by us and the selling
shareholder. Such amounts are shown assuming both no exercise and full exercise
of the Over-Allotment Option.
<TABLE>
<CAPTION>
PAID BY THE COMPANY
------------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................. $ $
Total..................................................... $ $
</TABLE>
<TABLE>
<CAPTION>
PAID BY THE SELLING SHAREHOLDER
--------------------------------
NO EXERCISE FULL EXERCISE
------------ --------------
<S> <C> <C>
Per Share................................................. $ $
Total..................................................... $ $
</TABLE>
We estimate that the total expenses of the offering to the Company,
excluding underwriting discounts and commissions, will be approximately
[$ ].
Shares sold by the Underwriters to the public will initially be offered at
the public offering price established in the book-building procedure described
under "Prospectus Summary -- The Offering -- Public Offering Price and Number of
Shares Allotted." If all the shares are not sold at the offering price, the
Underwriters may change the offering price and the other selling terms. The
public offering price will be negotiated among us and the Underwriters. Among
the factors to be considered in determining the public offering price of the
shares, in addition to the common stock's market price prevailing at the time of
the pricing and prevailing market conditions, will be our historical
performance, estimates of our business potential and earnings prospectus, an
assessment of our management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
We, our officers, our directors, and the selling shareholder and certain
significant shareholders have warranted to the Deutsche Borse AG and have agreed
with the Underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the six months from the date of this prospectus continuing through the first six
months after the date of admission of the shares of common stock to the
Regulated Market (Geregelter Markt) with trading on the Neuer Markt of the
Frankfurt Stock Exchange, except with the prior written consent of the Deutsche
Borse AG and Gontard & MetallBank AG acting on behalf of the Underwriters. In
addition, we, our officers, directors, the selling shareholder and certain
significant shareholders have agreed with the Underwriters not to dispose of or
hedge
55
<PAGE> 58
any common stock or securities convertible into or exchangeable for shares of
common stock during the six-month period from the end of the first six-month
lock-up period, except with the prior written consent of Gontard & MetallBank AG
acting on behalf of the underwriters. See "Shares Available for Future Sale" for
a discussion of certain transfer restrictions.
At our request, the Underwriters have reserved at the initial public
offering price up to 10 percent of the shares of common stock for sale to
directors, officers, employees, business associates and related persons. The
number of shares of common stock available for sale to other investors will be
reduced to the extent these individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the Underwriters
to other investors on the same basis as the other shares offered by this
prospectus.
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock after
the offering.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Neuer Markt,
in the over-the-counter market or otherwise.
We intend to apply for the listing of all of our outstanding shares of
common stock as well as for shares of common stock reserved for
issuance upon the exercise of options and the conversion of debt instruments to
the Regulated Market (Geregelter Markt) with trading on the Neuer Markt of the
Frankfurt Stock Exchange.
We, and the selling shareholder, have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
56
<PAGE> 59
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF TEAM COMMUNICATIONS GROUP, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at June 30, 1999 (unaudited),
December 31, 1998 and December 31, 1997................... F-3
Consolidated Statements of Income for the six months ended
June 30, 1999 (unaudited) and for the six months ended
June 30, 1998 (unaudited) and for the years ended December
31, 1998, December 31, 1997 and December 31, 1996......... F-4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 (unaudited) and for the six months
ended June 30, 1998 (unaudited) and for the years ended
December 31, 1998, December 31, 1997 and December 31,
1996...................................................... F-5
Consolidated Statements of Cash Flows and Supplemental
Schedule of Non Cash Activities for the six months ended
June 30, 1999 (unaudited) and for the six months ended
June 30, 1998 (unaudited) and for the years ended December
31, 1998, December 31, 1997 and December 31, 1996......... F-6
Consolidated Statements of Shareholders' Equity (Deficit)
for the six months ended June 30, 1999 (unaudited) and for
the years ended December 31, 1998, December 31, 1997 and
December 31, 1996......................................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Team Communications Group, Inc.
We have audited the consolidated balance sheets of Team Communications
Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for the
three years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects financial position of Team
Communications Group, Inc. and subsidiaries at December 31, 1998 and 1997 and
the consolidated results of its operations and its cash flows for the years
ended December 31, 1998, 1997, and 1996, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 12, the Company
has had significant cash used by its operating activities, and has been
dependent on outside equity investors and lenders to finance those operations,
and certain notes payable are past due. Continuation as a going concern will be
dependent upon continued outside financing. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans with respect to these matters are described in Note 12 to the financial
statements. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ STONEFIELD JOSEPHSON, INC.
STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
April 15, 1999
F-2
<PAGE> 61
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents............................. $ 937,600 $ 1,027,700 $ 174,400
Trade receivables, less allowance for doubtful
accounts of $337,000, $337,000 and $63,800,
respectively........................................ 7,481,600 4,736,700 6,740,800
Television programming costs, less accumulated
amortization of $12,295,000, $6,952,100 and
$2,846,600, respectively............................ 16,766,200 11,018,800 4,287,000
Due from officer...................................... 170,400 145,400 195,500
Fixed assets, net..................................... 30,000 16,400 29,000
Organizational costs and other assets................. 700,500 82,700 578,000
----------- ----------- -----------
Total Assets................................ $26,086,300 $17,027,700 $12,004,700
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other
liabilities......................................... $ 6,313,800 $ 1,679,400 $ 3,270,500
Deferred revenue...................................... 85,600 472,900 575,000
Accrued participations................................ 3,771,500 3,025,800 984,800
Line of credit -- Bank................................ 850,000 1,114,000 --
Notes payable......................................... 2,422,700 2,305,000 4,889,600
Accrued interest...................................... 596,000 530,900 898,300
Shareholder note payable.............................. 450,000 500,000 740,000
----------- ----------- -----------
Total Liabilities........................... 14,489,600 9,628,000 11,358,200
----------- ----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized; no shares issued and outstanding..... -- -- --
Common stock, no par value; 40,000,000 shares
authorized; 4,350,509, 2,816,135 and 1,131,344,
respectively, issued and outstanding............. 1,000 1,000 1,000
Paid in capital..................................... 10,970,800 7,612,700 1,230,100
Treasury Stock...................................... -- (34,600) --
Retained Earnings (Accumulated Deficit)............. 624,900 (179,400) (584,600)
----------- ----------- -----------
Total shareholders' equity.................. 11,596,700 7,399,700 646,500
----------- ----------- -----------
Total liabilities and shareholders'
equity.................................... $26,086,300 $17,027,700 $12,004,700
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 62
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS SIX MONTHS FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------- ------------- ----------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............. $7,019,900 $3,215,900 $13,581,900 $6,875,600 $5,749,800
Cost of Revenues..... 4,136,200 836,700 9,076,000 2,355,300 2,895,900
General and
administrative
expense............ 1,039,000 1,138,300 3,274,000 3,244,900 2,323,800
---------- ---------- ----------- ---------- ----------
Earnings from
operations......... 1,844,700 1,240,900 1,231,900 1,275,400 530,100
Interest expense..... 280,100 622,800 902,600 1,040,100 677,700
Interest income...... 69,600 91,500 202,900 211,800 58,300
Other income 90,100
---------- ---------- ----------- ---------- ----------
Earnings before
income taxes....... 1,634,200 709,600 532,200 447,100 800
Provision for income
taxes, all
current............ 581,700 70,000 57,500 -- --
---------- ---------- ----------- ---------- ----------
Earnings before
extraordinary
item............... $1,052,500 $ 639,600 $ 474,700 $ 447,100 $ 800
Extraordinary loss
from early
extinguishment of
debt............... 248,200 -- 69,500 -- --
---------- ---------- ----------- ---------- ----------
Net Earnings......... $ 804,300 $ 639,600 $ 405,200 $ 447,100 $ 800
========== ========== =========== ========== ==========
Basic earnings per
common share.......
Earnings before
extraordinary
item............... $ 0.29 $ 0.57 $ 0.26 $ 0.40 $ --
Extraordinary
(loss)............. (0.07) -- (0.04) -- --
---------- ---------- ----------- ---------- ----------
Net
Earnings -- Basic.. $ 0.22 $ 0.57 $ 0.22 $ 0.40 $ --
========== ========== =========== ========== ==========
Weighted average
number of shares
outstanding
basic.............. 3,577,593 1,131,344 1,833,340 1,131,344 1,131,344
========== ========== =========== ========== ==========
Diluted earnings per
share
Earnings before
extraordinary
item............... $ 0.22 $ 0.35 $ 0.20 $ 0.25 --
Extraordinary
(loss)............. (0.05) -- (0.03) -- --
---------- ---------- ----------- ---------- ----------
Net Earnings --
Diluted............ $ 0.17 $ 0.35 $ 0.17 $ 0.25 --
========== ========== =========== ========== ==========
Weighted average
number of shares
outstanding
diluted............ 4,762,511 1,821,800 2,434,017 1,821,800 1,821,800
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 63
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX FOR THE YEAR FOR THE YEAR FOR THE YEAR
MONTHS ENDED MONTHS ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------- ------------- ----------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.......................... $ 804,300 $ 639,600 $ 405,200 $ 447,100 $ 800
Adjustments to reconcile net
income to cash used for
operating activities:
Depreciation and amortization... 6,000 6,900 12,600 13,100 15,600
Amortization of television
programming costs............. 4,136,200 824,300 8,980,300 1,455,000 1,100,800
Allowance for doubtful
accounts...................... -- -- 664,000 1,115,600 63,800
Amortization of notes payable
discount...................... 17,500 131,000 -- 372,000 353,300
Changes in assets and liabilities:
Decrease (increase) in trade
receivables................... (2,744,900) (2,370,700) 1,340,100 (4,514,300) (3,352,900)
Additions to television
programming costs............. (9,883,700) (2,956,600) (15,712,000) (2,186,200) (4,060,600)
Decrease (increase) in other
assets........................ (617,800) (525,200) 495,300 (433,100) (123,000)
Increase (decrease) in accounts
payable, accrued expenses and
other liabilities............. 4,634,400 2,306,200 (1,553,700) 2,050,300 939,500
Increase (decrease) in deferred
revenue....................... (387,300) 113,700 (102,100) 570,500 (343,500)
Increase (decrease) in accrued
participations................ 745,700 (130,800) 2,041,000 (443,600) 1,302,300
Increase (decrease) in accrued
interest...................... 65,100 237,000 (367,400) 284,300 201,800
----------- ----------- ------------ ----------- ------------
Net cash used for operating
activities.................. (3,224,500) (1,724,600) (3,796,700) (1,269,300) (3,902,100)
----------- ----------- ------------ ----------- ------------
INVESTING ACTIVITIES:
Purchase of fixed assets............ (19,600) -- -- -- (36,900)
Decrease (increase) in due from
officer........................... (25,000) 49,600 50,100 (184,100) 30,900
----------- ----------- ------------ ----------- ------------
Net cash provided (used) for
investing activities........ (44,600) 49,600 50,100 (184,100) (6,000)
----------- ----------- ------------ ----------- ------------
FINANCING ACTIVITIES:
Proceeds from shareholder loan and
notes payable..................... -- -- -- 1,423,500 --
Proceeds from issuance of note
payable and warrants.............. 2,100,000 1,563,400 2,681,000 -- 4,747,00
Payments on bank line of credit..... (264,000) -- -- -- --
Proceeds from bank line of credit... 1,114,000 -- --
Principal payment on loan due to
shareholder....................... (50,000) -- (240,000) -- (10,000)
Purchase treasury stocks............ (34,600) -- --
Sale treasury stocks................ 34,600 -- -- -- --
Extraordinary charge for early
retirement
of debt........................... 248,200 -- 69,500 -- --
Principal payment of notes
payable........................... (2,247,900) (60,000) (5,372,600) (10,000) (748,600)
Waiver of interest on loan due to
shareholder....................... -- -- -- -- 95,000
Issuance of common stock............ 3,358,100 -- 6,382,600 -- --
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities.................. 3,179,000 1,503,400 4,599,900 1,413,500 4,083,400
----------- ----------- ------------ ----------- ------------
Net change in cash.................. (90,100) (171,600) 853,300 (39,900) 175,300
Cash at beginning of period......... 1,027,700 174,400 174,400 214,300 39,000
----------- ----------- ------------ ----------- ------------
Cash at end of period............... $ 937,600 $ 2,800 $ 1,027,700 $ 174,400 $ 214,300
=========== =========== ============ =========== ============
Supplemental disclosure of cash flow
information:
Interest paid....................... $ 175,200 $ 86,000 $ 1,270,000 $ -- $ 15,100
=========== =========== ============ =========== ============
Income taxes paid................... $ 17,400 $ 19,000 $ 93,200 $ 26,300 $ 4,000
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 64
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS SIX MONTHS FOR THE FOR THE FOR THE
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1996
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Extinguishment of TPEG settlement
payable by assignment of the
treasury stock receivable.......... -- -- -- 178,000 178,000
Issuance of warrants in conjunction
with notes payable................. -- -- 62,500 286,600 602,700
Issuance of shares in connection with
conversion of notes payable........ -- -- 53,600 -- --
Issuance of shares and warrants in
connection with services provided
to the Company..................... 1,235,900 -- 58,000 -- 24,700
Issuance of shares in connection with
extinguishment of debt............. 1,146,300 -- 458,000 -- --
Transfer of shares by principal
shareholder to notes payable
holder............................. -- -- -- -- 45,700
Issuance of shares in connection with
notes payable...................... -- -- -- -- 84,200
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 65
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
---------------------- EARNINGS
NUMBER PAID IN TREASURY ACCUMULATED/
OF SHARES PAR VALUE CAPITAL STOCK (DEFICIT)
---------- --------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... $1,024,059 $1,000 $ -- $(87,000) $(1,032,500)
Transfer of shares by principal
shareholder to notes payable
holder............................... -- -- 45,700 -- --
Exchange of treasury stock receivable
with related party for extinguishment
of TPEG settlement payable........... -- -- 91,000 87,000 --
Issuance of shares in connection with
notes payable........................ 79,708 -- 84,200 -- --
Issuance of warrants in connection with
private placements................... -- -- 602,700 -- --
Issuance of shares in connection with
anti-dilution provisions of
convertible promissory note.......... 4,292 -- -- -- --
Issuance of shares in connection with
services provided to the Company..... 23,285 -- 24,700 -- --
Waiver of interest on loan due to
shareholder.......................... -- -- 95,000 -- --
Net income for year ended December 31,
1996................................. -- -- -- -- 800
---------- ------ ----------- -------- -----------
Balance at December 31, 1996........... 1,131,344 $1,000 $ 943,300 $ -- $(1,031,700)
Net Income for the Year
ended December 31, 1997.............. -- -- -- -- 447,100
Issuance of warrants in connection with
private placement.................... -- -- 286,800 -- --
---------- ------ ----------- -------- -----------
Balance at December 31, 1997........... 1,131,344 $1,000 $ 1,230,100 $ -- $ (584,600)
Net Income for the Year
ended December 31, 1998.............. -- -- -- -- 405,200
Issuance of shares in connection with
the initial public offering.......... 1,500,000 -- 5,744,700 -- --
Issuance of shares in connection with
the extinguishment of debt........... 188,974 -- 458,000 -- --
Purchase of Treasury Stock............. (17,000) -- -- (34,600) --
Issuance of debt with beneficial
conversion feature................... -- -- 66,100 -- --
Conversion of debt to equity........... -- -- 50,000 -- --
Issuance of warrants for services...... -- -- 58,000 -- --
Exercise of warrants................... 12,817 -- 5,800 -- --
---------- ------ ----------- -------- -----------
Balance at December 31, 1998........... 2,816,135 $1,000 $ 7,612,700 $(34,600) $ (179,400)
Net Income for the six months ended
June 30, 1999 (unaudited)............ -- -- -- -- 804,300
Sale of Treasury Stock................. 17,000 -- -- 34,600 --
Issuance of shares in connection with
conversion of debt................... 655,617 -- 1,146,300 -- --
Issuance of stock for services......... 464,000 -- 1,032,400 -- --
Issuance of warrants................... -- -- 203,500 -- --
Issuance of debt with beneficial
conversion feature................... -- -- 185,000 -- --
Private placement of common stock...... 338,334 -- 765,300 -- --
Exercise of warrants................... 59,423 -- 25,600 -- --
---------- ------ ----------- -------- -----------
Balance at June 30, 1999 (unaudited)... $4,350,509 $1,000 $10,970,800 $ -- $ 624,900
========== ====== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE> 66
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF THE COMPANY:
Team Communications Group, Inc. (formerly known as DSL Entertainment Group,
Inc.) and its wholly owned subsidiaries (collectively, the "Company") are
primarily engaged in developing, producing, and distributing dramatic and
reality-based television series, mini-series, animated series, programs,
specials, and made-for-television movies for telecast, exhibition or
distribution in the domestic and foreign television and home video markets. The
Company's primary focus is on developing and producing family drama and children
programming and reality based programming for both domestic and international
broadcast networks and cable channels such as Discovery's Animal Planet, the
Learning Channel, the Showtime Networks, Fox Family Channel and the Discovery
Channel.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated statements include the accounts of Team
Communications Group, Inc. and subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
Revenue Recognition
Revenue from licensing agreements covering entertainment product owned by
the Company is recognized when the entertainment product is available to the
licensee for telecast, exhibition or distribution, and other conditions of the
licensing agreements have been met in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 53, "Financial Reporting by Producers and
Distributors of Motion Picture Films." The portion of recognized revenue which
is to be shared with the producers and owners of the license program material
(participations payable and due to producers) is accrued as the revenue is
recognized. Deferred revenues consist principally of advance payments received
on television contracts for which program materials are not yet available for
broadcast or exploitation. Such amounts are normally repayable by the Company
only if it fails to deliver the related product to the licensee.
Sales to three major customers accounted for approximately 79% of the
Company's total operating revenue for the six months ended June 30, 1999. Sales
to four major customers accounted for approximately 69% of the Company's total
operating revenue for the year ended December 31, 1998. Sales to four major
customers accounted for approximately 88% of the Company's total operating
revenue for the year ended December 31, 1997. Sales to six major customers
accounted for approximately 81% of the Company's total operating revenue for the
year ended December 31, 1996.
Cash
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. Cash equivalents consist of interest-bearing securities with
original maturities of less than 90 days.
Included in cash and cash equivalents as of June 30, 1999 and December 31,
1998, is an $860,000 certificate of deposit. This certificate of deposit is
restricted as it secures the Company's revolving line of credit of $850,000 with
Mercantile National Bank.
Television Program Costs
Television program costs are valued at the lower of unamortized cost or net
realizable value on an individual title basis. Television program costs
represent those costs incurred in the development, production and distribution
of television projects. These costs have been capitalized in accordance with
SFAS No. 53. Amortization of television program costs is charged to expense and
third-party participations are accrued using
F-8
<PAGE> 67
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the individual film forecast method whereby expense is recognized in the
proportion that current year revenues bear to an estimate of ultimate revenue.
Such estimates of ultimate revenue are prepared and reviewed by management, and
estimated losses, if any, are provided for in full. Development costs are
reviewed by management and charged to expense when abandoned or, even if still
being actively developed, if not set for principal photography within three
years of initial development activity.
During the six months ended June 30, 1999, as the Company increased its
activities related to film cost production, overhead was capitalized in
accordance with SFAS No. 53 based upon estimates of production related
activities as a percentage of anticipated film cost expenditures during 1999.
Management reviews the overhead rate throughout the year and will adjust the
overhead rate on a quarterly basis, if necessary. During the six months ended
June 30, 1999, overhead in the amount of approximately $1,185,000 was
capitalized to film production costs.
Fixed Assets
Fixed assets include office furnishings, fixtures and equipment. Office
furnishings, fixtures and equipment are depreciated over a useful life of five
years. All depreciation expense is calculated using Modified Accelerated Cost
Recovery System. Fixed assets are net of $51,300, $41,800 and $30,000 in
accumulated depreciation at June 30, 1999, December 31, 1998 and December 31,
1997, respectively.
Organizational Costs and Other Assets
The balance represents security deposits, prepaid expenses and the
unamortized portion of the original costs relating to the incorporation of the
Company.
Debt with Stock Purchase Warrants and Beneficial Conversion Features
The proceeds received from debt issued with stock purchase warrants is
allocated between the debt and the warrants, based upon the relative fair values
of the two securities and/or beneficial conversion features. Fair value of the
debt element of the financial instrument is determined by discounting the future
payments of principal and interest, based upon management's estimate of its
borrowing rate for similar financial instruments of this risk (generally 25%),
and the balance of the proceeds is accounted for as additional paid in capital.
The resulting debt discount is amortized to expense over the term of the debt
instrument, using the effective interest method. In the event of settlement of
such debt in advance of the maturity date, a loss is recognized based upon the
difference between the then carrying amount (i.e., face amount less unamortized
discount) and amount of payment.
Unclassified Balance Sheet
In accordance with the provisions of SFAS No. 53, the Company has elected
to present an unclassified balance sheet.
Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, short term accounts receivable, accounts payable, loans payable,
and deferred revenue approximated fair value as of June 30, 1999, December 31,
1998 and December 31, 1997, because of the relatively short maturity of these
instruments. The carrying value of long term accounts receivable and notes
payable approximated fair value as of June 30, 1999, December 31, 1998 and
December 31, 1997, because the instruments are valued at the Company's effective
borrowing rate.
F-9
<PAGE> 68
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Common Stock
In January and April of 1997, the Company effected a 2.2776 and 1.0277 for
one share reverse stock splits, respectively. All share and per share data in
the financial statements reflect the reverse stock split for all periods
presented.
Concentration of Credit Risk
Three customers represented approximately 90% of the trade receivable
balance at June 30, 1999.
Three customers represented approximately 83% of the trade receivable
balance at December 31, 1998.
Five customers represented approximately 95% of the trade receivable
balance at December 31, 1997.
Included in Accounts Receivable as of June 30, 1999, is $900,000 which is
held as security by a third-party for certain programming rights acquired by the
Company. Upon collection of this receivable the amounts will be placed in escrow
and recorded as cash, although the cash will be restricted as to withdrawal.
Net Earnings Per Common Share
For the six months ended June 30, 1999 and the years ended December 31,
1998, December 31, 1997 and December 31, 1996, the per share data is based on
the weighted average number of common and common equivalent shares outstanding.
For 1997, per share data is calculated in accordance with Staff Accounting
Bulletin of the Securities and Exchange Commission (SAB) No. 98 whereby common
stock, options or warrants to purchase common stock or other potentially
dilutive instruments issued for nominal consideration must be reflected in basic
and diluted per share calculations for all periods in a manner similar to a
stock split, even if anti-dilutive. Accordingly, in computing basic earnings per
share, nominal issuances of common stock are reflected in a manner similar to a
stock split or dividend. In computing diluted earnings per share, nominal
issuances of common stock and potential common stock are reflected in a manner
similar to a stock split or dividend.
A portion of convertible debt was not included in the calculation of
weighted average shares for the years ended December 31, 1997 and December 31,
1996, because the Chairman and CEO has personally guaranteed to the Company
that, on certain debt, he will assume any convertible debt where the debt holder
wishes to convert in exchange for his own personal shares. The total number of
shares that this convertible debt may convert into is approximately 199,748.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
On April 1, 1997, the Company adopted the provision of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair values of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of this statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
F-10
<PAGE> 69
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year 2000 Compliance
As has been widely reported, many computer systems process dates based on
two digits for the year of a transaction and are unable to process dates in the
year 2000 and beyond. Since the Company's formation in 1995, the Company has
installed new information systems which are year 2000 compliant. Although the
Company does not expect Year 2000 to have a material adverse effect on its
internal operations, it is possible that Year 2000 problems could have a
significant adverse effect on the Company's suppliers and their ability to
service the Company and to accurately process payments received.
New Accounting Pronouncements
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information". Adoption of these pronouncements did not materially affect the
financial statements.
Recent Pronouncements Effective Subsequent to 1998
In April 1998, Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") was issued. SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. The SOP is
effective for financial statements for fiscal years beginning after December 15,
1998. The Company does not anticipate that the adoption of this statement will
have a material effect on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 1999. The Company anticipates that due to its limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a material effect on its
financial statements.
In October 1998, the FASB released an exposure draft of the proposed
statement on "Rescission of FASB Statement No. 53, Financial Reporting by
Producers and Distributors of Motion Picture Films". An entity that previously
was subject to the requirements of SFAS No. 53 would follow the guidance in a
proposed Statement of Position, "Accounting by Producers and Distributors of
Films." This proposed Statement of Position would be effective for financial
statements for fiscal years beginning after December 15, 1999 and could have a
significant impact on the Company's results of operations and financial position
depending on its final outcome. The Company has not concluded on its impact
given the preliminary stages of the proposed Statement of Position.
Unaudited Interim Consolidated Financial Statement
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of June 30, 1999, and the results of operations and cash flows for
the six month period ended June 30, 1999 have been included. The results of
operations for the six month period ended June 30, 1999, are not necessarily
indicative of the results to be expected for the full fiscal year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's 10-KSB filed for the year ended December 31, 1998.
NOTE 3 -- TELEVISION PROGRAM COSTS:
Television program costs consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
In process and development..................... $ 257,500 $ 1,017,400 $1,502,000
Released, less accumulated amortization........ 16,508,700 10,001,400 2,785,000
----------- ----------- ----------
Total television program costs....... $16,766,200 $11,018,800 $4,287,000
=========== =========== ==========
</TABLE>
F-11
<PAGE> 70
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Based on management's estimates of future gross revenue as of June 30,
1999, approximately 60% of the $16,766,200 in unamortized released television
program costs will be amortized during the three years ending June 30, 2002 and
80% will be amortized during the five years ending June 30, 2004.
NOTE 4 -- INCOME TAXES:
Deferred taxes result from temporary differences in the recognition of
expense for tax and financial statement reporting purposes.
A reconciliation of the difference between the statutory federal income tax
rate and the Company's effective income tax rate applied to income (loss) before
income taxes are as follows for the periods ending:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal tax rate........................ 34% 34% 34%
State income tax provision........................ 3% 0% 0%
Benefits of operating loss carryforward........... (26)% (34)% (34)%
--- --- ---
Effective tax rate................................ 11% 0% 0%
=== === ===
</TABLE>
The Company accounts for taxes under SFAS No. 109, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in financial statements or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss (carryforward)........................... $ 61,156 $ 184,605
Valuation allowance......................................... $(61,156) $(184,605)
-------- ---------
Net deferred tax asset.................................... $ -- $ --
-------- ---------
Total current and deferred taxes payable.................... $ -- $ --
======== =========
</TABLE>
At December 31, 1998 and December 31, 1997, the Company has a federal net
operating loss carryforward of $180,000 and $542,958, respectively.
NOTE 5 -- RELATED PARTY TRANSACTIONS:
The due from officer balance of $170,400, $145,400 and $195,500 at June 30,
1999, December 31, 1998 and December 31, 1997, represents payments made by the
Company on behalf of and short-term interest free loans made to the Chairman and
CEO, less producer's fees earned by the Chairman and CEO for services on a
company production.
The shareholder loan and note payable balance are comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Promissory note:
14% secured promissory note due July 15,
1998(i)....................................... $ -- $ -- $240,000
12% secured promissory note due August 31,
1999(ii)...................................... 450,000 500,000 500,000
-------- -------- --------
$450,000 $500,000 $740,000
======== ======== ========
</TABLE>
(i) In August 1995, the Company entered into a $250,000 promissory
note with a shareholder. The note accrues interest at 12% through November
1, 1995 and at 14% thereafter. The note and all unpaid interest are due
July 15, 1998, as amended. The note is secured by all of the President and
principal
F-12
<PAGE> 71
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shareholder's shares and the assets of the Company. The shareholder has
waived all accrued interest relating to this note totaling $79,000 through
March 31, 1998. This interest expense, at fair value, was recorded as
either a corresponding credit to paid-in capital (1996) or accrued
liabilities (1997) which will be offset against paid-in capital upon
settlement of the obligations. The Company issued 48,743 warrants
exercisable at $0.43 in connection with the extension of the maturity date
of the loan to July 1, 1996. This promissory note was paid in full in
August 1998.
(ii) In April 1995, the Company entered into a $500,000 promissory
note with a shareholder. The note accrues interest at 10% through December
31, 1995 and at 12% thereafter. The note and all unpaid interest is due
August 31, 1999, as amended. The note is secured by all of the Chairman and
CEO's shares and the assets of the Company. The shareholder has waived all
accrued interest relating to this note totaling $165,000 through March 31,
1998. Interest subsequent to March 31, 1998 is accruing at prime plus two
percent, currently 9.5%. The promissory note was paid in full in August
1999 (unaudited).
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
In January 1999, the Company was served with a complaint in a matter styled
Mel Giniger & Associates vs. Team Communications Group, Inc. et al. filed in the
Superior Court of the County of Los Angeles. In the complaint, the Plaintiff, an
individual who served as a sales agent for the Company, alleges that he is owed
commissions for sales of certain of the Company's programming and that the
Company has failed to pay in full the amounts Plaintiff alleges are owed to him.
The complaint seeks damages for breach of contract, services rendered, account
stated and for payment of value for services rendered. The Company has filed an
answer in this action and intends to vigorously defend itself. The Plaintiff
recently obtained a writ of attachment in the amount of $100,000 and we have
posted a bond with the Superior Court of the County of Los Angeles with respect
to this obligation.
In March 1999, the Company was served with notice of a Demand for
Arbitration in a matter styled Venture Management Consultant, LLC and TEAM
Communications Group, Inc. et al. with the American Arbitration Association. The
demand stems from a dispute between the parties concerning a consulting
agreement to provide investment banking services. The Company has filed an
answer in this action and intends to vigorously defend itself.
In August 1999, Venture Management Consultant, LLC filed an action in the
superior court of Middlesex County in the Commonwealth of Massachusetts. This
action seeks to enjoin us to deliver to them 30,000 shares of our common stock
pursuant to a disputed agreement concerning the extension date of a previously
repaid promissory note. We have filed an answer, and placed $300,000 in escrow
with the court pending resolution of this matter. We intend to vigorously defend
ourselves.
At this time, the outcome of any of the above matters cannot be determined
by the Company with any certainty. The Company is subject to the above mentioned
litigation and other various claims and lawsuits in the ordinary course of
business. In the opinion of management, the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
The Company leases office space and certain office equipment. The total
lease expense was $61,200, $48,000, $118,400, 96,300 and $113,700, respectively,
for the periods ended June 30, 1999, June 30, 1998, December 31, 1998, December
31, 1997 and December 31, 1996, respectively. The various operating leases to
which the Company is presently subject require minimum lease payments for the
years ending December 31, as follows:
<TABLE>
<S> <C>
1999....................................................... 54,700
2000....................................................... 6,400
2001....................................................... 6,400
2002....................................................... 6,400
2003....................................................... 5,800
-------
$79,700
=======
</TABLE>
F-13
<PAGE> 72
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- LINE OF CREDIT -- BANK
The Company currently has a $850,000 line of credit with its bank, secured
by a certificate of deposit and certain receivables, which accrues interest on
the outstanding balance at 1.75% over Mercantile Bank's certificate of deposit
rate. The agreement expires June 15, 2000.
As of June 30, 1999, December 31, 1998 and December 31, 1997, the
outstanding balance of the line credit was $850,000, $1,114,000 and $0,
respectively.
NOTE 8 -- NOTE PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Debentures:
8% secured convertible debentures,
net of discounts due 2002........ $ 820,000 $ -- $ --
Private placements:
12% secured notes due August
1999(i).......................... 225,000 225,000 900,000
10% secured convertible notes due
August 1999(ii).................. 277,800 296,000 839,000
10% secured notes due August
1999(iii)........................ 80,000 80,000 788,700
Promissory notes:
10% secured promissory note due
August 1999(iv).................. 250,000 250,000 500,000
11% unsecured promissory note past
due(v)........................... 124,900 124,900 124,900
12% secured note due April 1999,
past due(vi)..................... -- 150,000 --
12% secured note due March 1999,
past due(vii).................... 150,000 150,000 --
12% secured note due April
1999(viii)....................... -- 350,000 --
18% secured note past due(ix)....... 115,000 115,000 --
12% secured note due January
2000(x).......................... 100,000 284,100 --
16% secured note due August
1999(xi)......................... 30,000 30,000 --
10% secured note due March 1999,
past due(xii).................... -- 250,000 --
12% secured notes due November
1999(xiii)....................... 250,000 -- --
12% convertible secured promissory
note due July 1998(xiv).......... -- -- 322,000
8% secured note due July 1998(xv)... -- -- 300,000
10% secured note due July
1998(xvi)........................ -- -- 150,000
10% secured note due July
1998(xvii)....................... -- -- 650,000
12% secured note due July
1998(xviii)...................... -- -- 315,000
---------- ---------- ----------
$2,422,700 $2,305,000 $4,889,600
========== ========== ==========
</TABLE>
On January 30, 1999, the Company sold $850,000 principal amount of 8%
convertible debentures and 85,000 warrants. On March 16, 1999, the Company sold
$500,000 principal amount of 8% convertible debentures and 50,000 warrants.
These convertible debentures have the same terms for conversion. The
F-14
<PAGE> 73
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
conversion price for each debenture will be the lesser of a) 90% of the average
per share market value for five consecutive days prior to the Initial Closing
date or b) 85% of the per share market value for the trading day having the
lowest per share market value during the five trading days prior to the
conversion date. If not otherwise converted, the debentures mature on January
27, 2002, and March 15, 2002, respectively. These beneficial conversion features
are included in additional paid in capital. The related discount is amortized
over the life of the note using the effective interest method. Debentures
representing $850,000 principal amount were converted to equity in May 1999. The
Company recognized a $248,200 extraordinary loss as a result of the conversion
of these notes. The extraordinary loss consisted of the write-off of the
associated debt discount.
On April 7, 1999, the Company sold an additional $500,000 principal amount
of 8% convertible debentures and 50,000 warrants. These debentures have the same
terms as described above and mature, unless converted prior, on March 30, 2002.
In 1998, the Company recognized a $69,500 extraordinary loss as a result of
the early redemption of certain notes. The extraordinary loss consisted of the
write-off of the associated debt discount, net of income tax benefits of
$37,500. These beneficial conversion features are included in additional paid in
capital. The related discount is amortized over the life of the note using the
effective interest method.
(i) During February - June 1996, the Company participated in a private
placement offering. The Company sold 18 placement units to the following
investors: Matthew and Barbara Geisser, Central Scale Co., Vijaya Kani
Rehala, Vijay-Kumar Rekhala, M.D., United Congregation Mesorah, Samuel
Marinelli, Mildred Geiss, Jon Kastendieck, Bank Leumi-Affida Bank,
Cooperative Holding Corporation, Aaron Wolfson, Abraham Wolfson, Arielle
Wolfson, and LEVPOL. Each unit consisted of a $50,000 note payable with
interest of 12% per annum, compounded quarterly, and 6,408 Common Stock
Purchase warrants. The accrued interest balance was $122,900 at December
31, 1998. Each warrant entitles the holder to buy one share of common stock
at an exercise price of $0.43. The warrants are exercisable commencing two
business days following the effective date of the registration statement
relating to an initial public offering, July 29, 1998, and terminating on
the July 29, 2001. Through this private placement, the Company raised
$900,000 and issued 115,351 warrants. Principal and interest were due no
later than July 15, 1998, $675,000 was redeemed at the initial public
offering. The remainder of the noteholders extended the maturity date to
August 1999. The notes are secured by substantially all of the assets of
the Company. The fair value of the notes and the carrying amount and fair
value of the associated warrants were determined by the market rate,
approximately 25%, based upon management's estimate of its borrowing rate
in an arm's length transaction for a financial instrument of this risk. The
notes were discounted at this market rate. The value of the warrants
amounted to $162,000 and is included in paid in capital. In August 1999,
the Company repaid $175,000 of the principal and extended $50,000 of the
remaining principal to November 23, 1999 (unaudited).
(ii) During June - October 1996, the Company participated in a second
private placement offering. The Company sold 19.5 placement units to the
following investors: Wellington Corporation, Crescent Capital Company, LLC,
Arthur Steinberg IRA Rollover, Robert Steinberg IRA Rollover, Robert Ram
Steinberg, A Partnership, Von Graffenried AG, Alpha Ventures, Tuch Family
Trust, Third World Trust Company LTD., Alfred Ross, Fred Chanowski, Allen
Goodman, Felix Paige, Rogal America, Mark Levine, Joseph Sullivan, Robert
Gopen, Colony Financial Services, John Carberry, Daniel and Thalia
Federbush, and Michael Berlin. Each unit consisted of a $50,000 senior
convertible note payable with interest of 10% per annum, compounded
quarterly, and 4,272 Common Stock Purchase warrants.
The notes are convertible at their principal amount into common stock
of the Company at any time one year after the initial public offering, July
29, 1998, through maturity at the conversion price of $5.00 per share
subject to adjustment in certain circumstances. Each warrant entitles the
holder to buy one share of common stock at an exercise price of $0.43. The
warrants are exercisable commencing two business days following the
effective date of the registration statement relating to an initial public
F-15
<PAGE> 74
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
offering, July 29, 1998, and terminating on July 29, 2001. As of December
31, 1996, the Company raised $975,000 and issued 83,308 warrants. Principal
and interest were due no later than July 15, 1998 and $679,000 was redeemed
at the initial public offering. The remainder of the noteholders extended
the maturity date to August 1999. The accrued interest balance was $108,500
at December 31, 1998. The notes are secured by substantially all of the
assets of the Company. The carrying amount and fair value of the notes and
associated warrants were determined by the market rate, approximately 25%,
for a financial instrument of this risk. The notes were discounted at this
market rate. The value of the warrants amounted to $381,928 and is included
in paid in capital.
(iii) During January 1997, the Company participated in a third private
placement offering. The Company sold 19.4 units to the following investors:
Alan Parness, Arab International Trust Co., Duck Partners, LP, Gary and
Paula Wayton, Michael Rosenbaum, RMK Financial LLC, Robert Bain, Robert
Frankel, Roger Triemstra, Roland McAbee, Swan Alley Limited, and Van Moer
Santerr & Cie. Each unit consisted of a $50,000 senior note payable with
interest of 10% per annum, payable at six month intervals, and 10,000
Common Stock Purchase warrants. In 1998 $889,000 was repaid. The maturity
date of the notes is August 1999. Each warrant entitles the holder to buy
one share of common stock at an exercise price of $0.97. The warrants are
exercisable commencing two business days following the effective date of
the registration statement relating to an initial public offering and
terminating on the third anniversary of that date. As of September 30,
1997, the Company raised $969,000 and issued 193,870 warrants. The accrued
interest balance was $41,100 at December 31, 1998. The notes are secured by
substantially all of the assets of the Company. The carrying amount and
fair value of the notes and associated warrants were determined by the
market rate, approximately 25%, for a financial instrument of this risk.
The notes were discounted at this market rate. The value of the warrants
amounted to $286,797 and is included in paid-in capital.
(iv) In April 1996, the Company entered into a $500,000 promissory
note with South Ferry #2, L.P., an outside investor, to finance a
television program. The note accrues interest at 10% per annum and is due
on August 20, 1999, as amended. At the initial public offering, $250,000
was repaid. The accrued interest balance was $124,200 at December 31, 1998.
The note is secured by certain assets and rights associated with the
television program. There were 29,906 warrants (exercisable at $0.43 per
warrant) issued in connection with this note. The fair value of the note
was estimated using discounted cash flow methods based on the Company's
borrowing rates, approximately 25%, for similar types of borrowing
arrangements with comparable terms and maturities. In August 1999, the
Company repaid $125,000 of the principal and extended the remaining
$125,000 to November 23, 1999 (unaudited).
(v) In September 1996, the Company entered into a $150,000 unsecured
promissory note with Time Life to repay an advance provided to the Company
in October 1995. The note bears interest at 11% per annum from October 1995
and required payments such that the note would be repaid by March 31, 1997.
As of December 31, 1998, there was $29,700 of accrued interest. During
1997, the Company made a $10,000 principal payment. During 1996, the
Company made a $30,250 payment, of which $15,125 was applied to the
principal balance, and $15,125 was applied to accrued interest. The holder
of the note has not filed a notice of default and the Company is
negotiating an extension of the payment terms.
(vi) In March 1998, the Company obtained a loan in the amount of
$150,000 from Arab Commerce Bank, which carries interest at 12% per annum
and matured on April 1, 1999. As of December 31, 1998 there was accrued
interest of $13,800. The note is secured by substantially all the assets of
the Company. This note was paid in full in June 1999 (unaudited).
(vii) In March 1998, the Company obtained a loan in the amount of
$150,000 from Nick Kahla, which carries interest at 12% per annum and
matures on March 16, 1999. As of December 31, 1998, there was accrued
interest of $14,100. The note is secured by substantially all the assets of
the Company. The Company is currently negotiating with Nick Kahala to pay
off this note.
F-16
<PAGE> 75
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(viii) Between March 1998 and May 1998, the Company arranged $650,000
in short-term loans. $300,000 was repaid at the initial public offering.
These loans bear an interest rate of 12%, and $100,000 matured in March
1999 and $250,000 matured in April 1999. At December 31, 1998, the accrued
interest was $29,400. These notes have been paid in full in June 1999
(unaudited).
(ix) In May 1998, the Company obtained a loan in the amount of
$115,000 from the High Bridge Fund. The loan includes a $15,000 loan
origination fee and begins to accrue interest at 18% per year if the loan
goes into default. At December 31, 1998, the accrued interest was $2,000.
The loan matured November 15, 1998 and management is currently negotiating
a settlement of this note.
(x) In May and June 1998, the Company arranged with nine parties for
$375,000 of long term loans. The loans mature January 2000. Of the
$375,000, there are two loan origination fees, one for $8,000 and one for
$8,500. Two notes are convertible at their principal and interest amount
into common stock of the Company at any time through maturity at the
conversion price of 50% of the current per share market value. One note is
convertible at its principal and interest amount into common stock of the
Company at the conversion price of 75% of the current per share market
value. These conversion features were valued at $62,500 and included in
paid in capital. The resulting discount on the notes payable is amortized
over the life of the note using the effective interest method. At December
31, 1998, $284,100 principal amount remained outstanding. The loans accrue
interest at 12% per annum. As of December 31, 1998, there was accrued
interest of $22,700. This loan was repaid in full in July 1999 (unaudited).
(xi) In July 1998, the Company arranged a loan for $340,000. The loan
matures August 1999. The loan bears an interest rate of 16% per annum. At
December 31, 1998, $30,000 principal amount remained outstanding. As of
December 31, 1998, there was accrued interest of $11,100.
(xii) On December 29, 1998, the Company arranged a loan for $250,000.
The loan accrues interest at 10% per annum. The loan matured on March 31,
1999. This note has been paid in full in August 1999 (unaudited).
(xiii) In May and June 1999, the Company sold notes for $250,000.
These notes mature in November 1999 and bear an interest rate of 12%
(unaudited).
(xiv) In January 1996, the Company entered into an agreement with AMAE
Ventures, an outside investor. The Company received $322,000 in exchange
for (i) a convertible secured promissory note, convertible into 3% of the
Company's outstanding stock on a fully diluted basis through an initial
public offering, and (ii) the transfer from the principal shareholder of 4%
of the Company's issued and outstanding stock on a fully diluted basis
through an initial public offering. The note accrues interest at 12% per
annum and is due July 15, 1998. The accrued interest balance was $121,000,
$93,000 and $36,200 at March 31, 1998, December 31, 1997 and December 31,
1996, respectively. The fair value of the note and carrying value and fair
value of the associated shares were determined by the market rate for a
financial instrument of this risk. This note was converted to equity in
August 1998.
(xv) In November 1996, the Company entered into a $300,000 promissory
note with Affida Bank. The note bears interest at 8% per annum, compounding
quarterly, and is due the sooner of an initial public Offering or July 15,
1998. The accrued interest balance was $34,200, $8,500, $27,700, and $2,800
at March 31, 1998, December 31, 1997 and December 31, 1996, respectively.
The note is secured by substantially all of the assets of the Company.
There were 25,634 Common Stock Purchase warrants issued in connection with
this note. Each warrant entitles the note holder to buy one share of common
stock at an exercise price of $.43. The warrants are currently exercisable
and terminate on the earlier to occur of the third anniversary of the
effective date of an initial public offering or June 30, 2000. The note is
secured by substantially all of the assets of the Company. The carrying
amount and fair value of the notes and associated warrants were determined
by the market rate, approximately 25%, for a financial instrument of this
risk. The notes were discounted at this market rate. The value of the
warrants amounted to $66,000 and is included in paid in capital. This note
was paid in full in August 1998.
F-17
<PAGE> 76
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(xvi) In December 1996, the Company entered into a $150,000 promissory
note with Phillip Tewel. The note bears interest at 10% per annum,
compounding quarterly, and was due the sooner of an initial public offering
or July 15, 1998. The accrued interest balance was $20,100, $16,050, and
$400 at March 31, 1998, December 31, 1997 and December 31, 1996,
respectively. The note is secured by substantially all of the assets of the
Company. There were 29,191 Common Stock Purchase warrants issued in
connection with this note. Each warrant entitles the note holder to buy one
share of common stock at an exercise price of $.43. The warrants are
currently exercisable and terminate on the earlier to occur of the third
anniversary of the effective date of an initial public offering or June 30,
2000. The note is secured by substantially all of the assets of the
Company. The carrying value of the warrants amounted to $26,500 and is
included in paid-in capital. This note was paid in full in August 1998.
(xvii) In June 1997, the Company entered into a $650,000 secured
promissory note with Alliance. The note bears interest at the prime rate
plus one per cent per annum from June 1996 and required payments such that
the note, as amended, would be repaid by July 15, 1998. As of March 31,
1998 and December 31, 1997 there was $50,800 and $34,500, respectively of
accrued interest. The note is secured by all the television rights and
interest owned with regards to the "Total Recall" project. This note was
paid in full in August 1998.
(xviii) In December 1997, the Company obtained a loan in the amount of
$315,000 from Venture Management Consultants LLC ("VMC"), which carries
interest at 12% per annum, and matures at the earlier of the closing of the
offering or July 15, 1998. As the loan was not repaid in full by February
15, 1998, the Company is required to pay VMC an additional $15,000.
Included in the principal balance is a $15,000 loan origination fee. As of
December 31, 1997 there was accrued interest of $2,000. As of March 31,
1998, $50,000 of the principal under this note has been repaid. The note is
secured substantially by all the assets of the Company. This note was paid
in full in August 1998.
NOTE 9 -- GEOGRAPHIC INFORMATION:
The Company operates in a single industry segment, the development,
production and distribution of television programming. All of the Company's
operations are conducted in the United States.
A summary of the Company's revenues by geographic area is presented below:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1996
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
North America.............. $2,626,000 $1,510,900 $ 9,844,500 $1,483,600 $2,221,900
Europe..................... 3,300,000 -- -- 307,100 1,332,900
South America.............. 645,900 1,705,000 1,351,800 3,798,900 732,400
Asia....................... 448,000 -- 1,412,900 136,000 1,306,500
Australia and Africa....... -- -- 972,700 1,250,000 156,100
---------- ---------- ----------- ---------- ----------
Total...................... $7,019,900 $3,215,900 $13,581,900 $6,975,600 $5,749,800
========== ========== =========== ========== ==========
</TABLE>
NOTE 10 -- STOCK OPTION PLANS:
The Company has established stock option plans for its employees and
consultants (the "1995 Stock Option Plan") and for its non-employee directors
(the "1995 Stock Option Plan for Non-Employee Directors").
The 1995 Stock Option Plan allows for options (including Incentive Stock
Options) to be granted to employees and consultants at less than fair market
value at date of grant. These options may be immediately exercisable and expire
over a period determined by the Stock Option Committee of the Board of Directors
F-18
<PAGE> 77
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(the "Committee"). The Committee is comprised of two members of the Board of
Directors. The total number of options available to grant under this plan is
270,000.
The 1995 Stock Option Plan for Non-Employee Directors allows for a set
number of immediately exercisable options to be granted at fair market value to
non-employee members of the Board of Directors. The total number of options
available to grant under this plan is 67,500. There were no options granted
exercised, forfeited, expired or outstanding pursuant to the Director Plan for
the year ended December 31, 1998.
A summary of the Key Employee Plan as of and for the periods December 31,
1998, December 31, 1997 and December 31, 1996, is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
KEY EMPLOYEE PLAN SHARES EXERCISED PRICE
----------------- ------- ----------------
<S> <C> <C>
Outstanding as of January 1, 1996.................... -- $ --
Granted............................................ 35,000 1.14
Exercised.......................................... -- --
Forfeited/Expired.................................. -- --
-------
Outstanding as of December 31, 1998, December 31,
1997 and December 31, 1996......................... 35,000
=======
Weighted-average fair value of options outstanding... $ 1.14
=======
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
SHARES EXERCISABLE AT
DECEMBER 31, 1998,
DECEMBER 31, 1997, DATE
TOTAL SHARES EXERCISE PRICE AND DECEMBER 31, 1996 OPTIONS EXPIRE
------------ -------------- --------------------- --------------
<S> <C> <C> <C> <C>
30,000 $1.00 10,000 July 1, 2006
5,000 $2.00 5,000 June 6, 2006
------ ------
35,000 15,000
====== ======
</TABLE>
The Company has elected, as permitted by SFAS No. 123, "Accounting for
Stock Based Compensation", to account for its stock compensation arrangements
under the provisions of APB No. 25, "Accounting for Stock Issued to Employees".
Accordingly, because the exercise price of the Company's employee stock options
equals or exceeds the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of such pronouncement.
The fair value for these options was estimated at the date of grant using the
binomial option pricing model with the following weighted average assumptions:
risk-free interest rate of 6.33%, no dividend yield, expected lives of two and a
half years, and volatility of 0%.
For purposes of pro forma disclosure, the estimated fair value of the
options is zero, hence neither pro forma net income nor earnings per share are
presented.
In January 1997, the Company's shareholders voted to freeze the 1995 Stock
Option Plans and adopt two new plans, the Team Communications Group, Inc. Stock
Awards plan (the "1996 Employee Plan") and the Team Communications Group, Inc.
Directors' Stock Option Plan (the "1996 Director's Plan").
The 1996 Directors Plan allows Directors who are not employees of the
Company, on the effective date of an initial public offering and each annual
anniversary thereof, to receive options to purchase 2,500 shares. The
F-19
<PAGE> 78
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
option price per share of Common Stock purchasable upon exercise of such stock
options shall be 100% of the fair market value on the date of grant. Such
options shall be exercisable immediately on the date of grant by payment in full
of the purchase price in cash. The aggregate number of shares of Common Stock
that may be granted pursuant to the 1996 Directors Plan is 20,000.
The aggregate number of shares of Common Stock that may be granted under
the 1996 Employee Plan is 180,000. The Employee Plan provides for the authority
by the Employee Plan Committee to grant ISO's to any key employee of the Company
or any affiliate of the Company and to determine the terms and conditions of
each grant, including without limitation, the number of shares subject to each
ISO. The ISO exercise price will also be determined by the Committee and will
not be less than the fair market value of the Common Stock on the date of grant.
The exercise price will not be less than 110% of such fair market value and the
exercise period will not exceed five years if the participant was the holder of
more than 10% of the Company's outstanding voting securities.
NOTE 11 -- SUBSEQUENT EVENTS (UNAUDITED):
In July 1999, we arranged for a short term loan of $1,200,000 for
production and distribution activities. The loan matures on November 30, 1999
and accrues interest at 12% per year. If the loan is not repaid by November 30,
1999, the principal and all accrued and unpaid interest convert into shares of
our common stock at the lesser of 85% of the market price on the date of
issuance or 110% of the current market price when converted. As of this date we
have repaid $1,000,000 of this note.
On August 5, 1999, the Company completed a $4,000,000 financing in
anticipation of the Company's public offering in Germany this fall. The Note
bears interest at 12% per annum and matures November 30, 2002. The Note is
subordinate to any of the Company's bank financing or senior debt. All or part
of the unpaid principal amount may be converted into shares of Common Stock at
the holder's option any time after November 30, 1999. The conversion price is
the lesser of 120% of the average per share market price for five consecutive
trading days prior to August 5, 1999 or 88% of the per share market price for
the three days with the lowest per share market price during the twenty-five
days prior to conversion. Connected with this financing, the Company sold
340,000 warrants to purchase Team common stock at $7.00, which is 105% of the
five-day average closing price prior to the closing of the financing.
On August 5, 1999, the Company completed a sale of 500,000 shares of common
stock for $2,000,000 to Gontard & MetallBank AG. On September 29, 1999, the
Company completed a $4,000,000 financing with Gontard & MetallBank AG. The Note
bears interest at 10% per annum and matures on the earlier of the completion of
this offering or December 31, 1999.
NOTE 12 -- GOING CONCERN:
The Company's financial statements for the six months ended June 30, 1999
and 1998 and the years ended December 31, 1998, December 31, 1997 and December
31, 1996, have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company expects to incur substantial expenditures
to produce television programs and/or acquire distribution rights to television
programs produced by third parties. The Company's working capital plus limited
revenue from the licensing of its current inventory of television programs will
not be sufficient to fund the Company's ongoing operations, including completing
projects that the Company is contractually required to develop or produce.
Management recognizes that the Company must generate additional resources
to enable it to continue operations. Management's plans include the sale of
additional equity securities. However, no assurance can be given that the
Company will be successful in raising additional capital. Further, there can be
no assurance, assuming the Company successfully raises additional equity, that
the Company will achieve profitability or positive cash flow.
F-20
<PAGE> 79
INDEX TO FINANCIAL STATEMENTS
OF DANDELION DISTRIBUTION LIMITED
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Directors' Report for the year ended 31 July 1999........... F-22
Report of Independent Auditors.............................. F-23
Profit and Loss Account for the year ended 31 July 1999..... F-24
Balance sheet at 31 July 1999............................... F-25
Notes to the Financial Statements........................... F-26
Directors' Report for the year ended 31 July 1998........... F-32
Report of Independent Auditors.............................. F-33
Profit and Loss Account for the year ended 31 July 1998..... F-34
Balance sheet at 31 July 1998............................... F-35
Notes to the Financial Statements........................... F-36
</TABLE>
F-21
<PAGE> 80
DANDELION DISTRIBUTION LIMITED
DIRECTORS' REPORT FOR THE YEAR ENDED 31 JULY 1999
The directors present their report and the financial statements for the
year ended 31 July 1999.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- follow applicable accounting standards, subject to any material
departures disclosed and explained in the accounts;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
DONATIONS
During the year the company made charitable donations of L1,170 (1998:
L1,523).
PRINCIPAL ACTIVITIES
The principal activities of the company are those of film distribution and
film production.
DIRECTORS
The directors who served during the year and their beneficial interests in
the company's issued share capital were:
<TABLE>
<CAPTION>
ORDINARY SHARES OF L1 EACH
--------------------------
1999 1998
------- -------
<S> <C> <C>
N D Cronin Esq........................................ 198 198
Mrs J M Cronin........................................ 2 2
</TABLE>
AUDITORS
The auditors, Messrs. Barnes Roffe, will be proposed for reappointment in
accordance with section 385 of the Companies Act 1985.
SMALL COMPANY EXEMPTIONS
The report of the directors has been prepared in accordance with the
special provisions of Part VII of the Companies Act 1985 relating to small
companies.
This report was approved by the Board and signed on its behalf:
N D Cronin Esq
Director
Date: 15 October 1999
F-22
<PAGE> 81
DANDELION DISTRIBUTION LIMITED
AUDITORS' REPORT TO THE SHAREHOLDERS OF DANDELION DISTRIBUTION LIMITED
We have audited the financial statements on pages F-24 to F-31 which have
been prepared in accordance with the Financial Reporting Standard for Smaller
Entities (effective March 1999) under the historical cost convention and the
accounting policies set out on pages F-26 and F-27.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-22 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the
state of the company's affairs as at 31 July 1999 and of its profit for the year
then ended and have been properly prepared in accordance with the Companies Act
1985.
BARNES ROFFE
Registered Auditors
16-19 Copperfields
Spital Street
Dartford
Kent DA1 2DE
Date: 15 October 1999
F-23
<PAGE> 82
DANDELION DISTRIBUTION LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 JULY 1999
<TABLE>
<CAPTION>
1999 1998
NOTE L L
---- ---------- ----------
<S> <C> <C> <C>
TURNOVER.................................................... 1, 2 1,904,997 2,115,128
Cost of sales............................................... (1,049,786) (1,346,783)
---------- ----------
GROSS PROFIT................................................ 855,211 768,345
Selling and distribution costs.............................. (122,589) (135,362)
Administrative expenses..................................... (658,360) (453,314)
Other operating income...................................... 21,105 19,600
---------- ----------
OPERATING PROFIT............................................ 3 95,367 199,269
Loss on disposal of tangible fixed assets................... -- (4,664)
---------- ----------
95,367 194,605
Interest receivable and similar income...................... 22,978 22,730
Interest payable and similar charges........................ (35,977) (51,050)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 82,368 166,285
TAXATION ON PROFIT ON ORDINARY ACTIVITIES................... 5 (25,907) (38,369)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 56,461 127,916
DIVIDENDS................................................... 6 -- (50,000)
---------- ----------
RETAINED PROFIT FOR THE YEAR................................ 56,461 77,916
RETAINED PROFIT BROUGHT FORWARD............................. 890,312 812,396
---------- ----------
RETAINED PROFIT CARRIED FORWARD............................. 946,773 890,312
========== ==========
</TABLE>
The notes on pages F-26 to F-31 form part of these financial statements.
F-24
<PAGE> 83
DANDELION DISTRIBUTION LIMITED
BALANCE SHEET
AS AT 31 JULY 1999
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
NOTE L L L L
---- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible fixed assets................... 7 -- --
Tangible fixed assets..................... 8 441,714 452,758
Investments............................... 9 100 256,562
--------- ---------
441,814 709,320
CURRENT ASSETS
Stocks.................................... 1,038,406 1,267,583
Debtors................................... 10 650,986 563,008
Investments............................... 11 42,105 --
Cash at bank and in hand.................. 253,204 137,415
---------- ----------
1,984,701 1,968,006
CREDITORS: amounts falling due within
one year.................................. 12 (1,322,142) (1,593,505)
---------- ----------
NET CURRENT ASSETS.......................... 662,559 374,501
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES....... 1,104,373 1,083,821
CREDITORS: amounts falling due after more
than one year............................. 13 (154,964) (190,873)
PROVISIONS FOR LIABILITIES AND CHARGES...... 14 (2,436) (2,436)
--------- ---------
NET ASSETS.................................. 946,973 890,512
========= =========
CAPITAL AND RESERVES
Called up share capital................... 15 200 200
Profit and loss account................... 946,773 890,312
--------- ---------
SHAREHOLDERS' FUNDS......................... 946,973 890,512
========= =========
</TABLE>
The financial statements have been prepared in accordance with the special
provisions of Part VII of the Companies Act 1985 relating to small companies and
in accordance with the Financial Reporting Standard for Smaller Entities
(effective March 1999).
The financial statements were approved by the Board and signed on its behalf:
N D Cronin Esq
Director
Date: 15 October 1999
The notes on pages F-26 to F-31 form part of these financial statements.
F-25
<PAGE> 84
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 JULY 1999
1. ACCOUNTING POLICIES
1.1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared under the historical cost
convention.
The company is exempt from the requirements to prepare group accounts by
virtue of section 248 of the Companies Act 1985. These financial statements
therefore present information about the company as an individual undertaking and
not about its group.
1.2 TURNOVER
Turnover comprises the invoiced value of goods and services supplied by the
company, exclusive of Value Added Tax and trade discounts.
1.3 TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less depreciation. Depreciation is
provided at rates calculated to write off the cost of fixed assets, less their
estimated residual value, over their expected useful lives on the following
bases:
<TABLE>
<S> <C>
Freehold buildings............................. 2% p.a. straight line
Plant & machinery etc.......................... 15/25% p.a. reducing balance
</TABLE>
1.4 LEASING AND HIRE PURCHASE
Assets obtained under hire purchase contracts and finance leases are
capitalised as tangible fixed assets. Assets acquired by finance lease are
depreciated over the shorter of the lease term and their useful lives. Assets
acquired by hire purchase are depreciated over their useful lives. Finance
leases are those where substantially all of the benefits and risks of ownership
are assumed by the company. Obligations under such agreements are included in
creditors net of the finance charge allocated to future periods. The finance
element of rental payments is charged to the profit and loss account on a sum of
digits basis, so as to produce a constant periodic rate of charge on the net
obligation outstanding in each period.
1.5 OPERATING LEASES
Rentals applicable to operating leases where substantially all of the
benefits and risks of ownership remain with the lessor are charged to profit and
loss account on a straight line basis over the lease term.
1.6 STOCKS
Stocks of films rights are valued at the lower cost or net realisable
value. Costs are carried forward in proportion to the directors' estimate of
future revenue receivable. Where total costs exceed total estimated revenue, the
value carried forward is limited to the value of estimated future revenue.
The directors' projections for future revenues extend over the next three
years and revenue streams are based both on contracts secured and under
negotiation, anticipating that similar repeat business will be available. In
cases where contracts have yet to be secured the directors have used estimates
based on experience. In formulating projections, the directors consider that
they have taken in to account all information that could reasonably be expected
to be available, although there can be no certainty in respect of contracts
being negotiated in future of a similar value to those currently secured. The
financial statements do not include any adjustments that would result if future
revenues were not realised in line with directors' expectations.
F-26
<PAGE> 85
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1999
1.7 FOREIGN CURRENCIES
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange ruling at the balance sheet
date. Transactions denominated in foreign currencies are translated into
sterling at the rate ruling on the date of the transaction. Exchange differences
are taken into account in arriving at the operating profit.
1.8 DEFERRED TAXATION
Provision is made for deferred taxation as a result of material timing
differences between the incidence of income and expenditure for taxation and
accounts purposes, using the liability method, only to the extent that, in the
opinion of the directors, there is a reasonable probability that a liability or
asset will crystallise in the near future.
1.9 PENSIONS
The company operates a defined contribution (money purchase) pension
scheme. The assets of the scheme are held separately from those of the company
in an independently administered fund. Contributions are charged to the profit
and loss account as they become payable in accordance with the rules of the
scheme.
2. TURNOVER
43% of the company's turnover (1998: 57%) is attributable to geographical
markets outside the United Kingdom.
3. OPERATING PROFIT
The operating profit is stated after charging:
<TABLE>
<CAPTION>
1999 1998
L L
------ ------
<S> <C> <C>
Depreciation of tangible fixed assets....................... 13,832 14,985
Auditors' remuneration...................................... 8,000 8,000
Pension costs............................................... 500 500
====== ======
</TABLE>
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
1999 1998
L L
------- ------
<S> <C> <C>
Fees, salaries, benefits in kind and pension
contributions............................................. 393,542 125,538
------- ------
393,542 125,538
======= ======
</TABLE>
During the year, retirement benefits were accruing to two (1998: two)
directors in respect of money purchase pension schemes.
F-27
<PAGE> 86
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1999
5. TAXATION
<TABLE>
<CAPTION>
1999 1998
L L
------ ------
<S> <C> <C>
CURRENT YEAR TAXATION
UK corporation tax.......................................... 23,464 38,619
Transfer from deferred taxation............................. -- (250)
------ ------
23,464 38,369
PRIOR YEARS
UK corporation tax.......................................... 2,443 --
------ ------
25,907 38,369
====== ======
</TABLE>
6. DIVIDENDS
<TABLE>
<CAPTION>
1999 1998
L L
------ ------
<S> <C> <C>
Interim ordinary dividends paid............................. -- 50,000
====== ======
</TABLE>
7. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
GOODWILL
L
--------
<S> <C>
COST:
At 1 August 1998............................................ 15,000
------
At 31 July 1999............................................. 15,000
------
AMORTIZATION
At 1 August 1998............................................ 15,000
======
At 31 July 1999............................................. 15,000
======
NET BOOK VALUE
At 31 July 1999 and 31 July 1998............................ --
======
</TABLE>
F-28
<PAGE> 87
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1999
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FREEHOLD LAND PLANT &
& BUILDINGS MACHINERY ETC TOTAL
L L L
------------- ------------- -------
<S> <C> <C> <C>
COST
At 1 August 1998................................... 452,682 95,429 548,111
Additions.......................................... -- 2,788 2,788
------- ------ -------
At 31 July 1999.................................... 452,682 98,217 550,899
------- ------ -------
DEPRECIATION
At 1 August 1998................................... 37,861 57,492 95,353
Charge for year.................................... 7,696 6,136 13,832
------- ------ -------
At 31 July 1999.................................... 45,557 63,628 109,185
------- ------ -------
NET BOOK VALUE
At 31 July 1999.................................... 407,125 34,589 441,714
======= ====== =======
At 31 July 1998.................................... 414,821 37,937 452,758
======= ====== =======
</TABLE>
Included in land and buildings is freehold land valued at L67,900 (1998:
L67,900) which is not depreciated.
During the year, the freehold property was independently valued for the
purpose of securing bank borrowings at a figure materially lower than the
carrying value in the financial statements. However, in the opinion of the
directors, the open market value of this property is not significantly lower
than its carrying value in the financial statements.
9. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
SHARES
IN GROUP OTHER
UNDERTAKINGS INVESTMENTS TOTAL
L L L
------------ ----------- --------
<S> <C> <C> <C>
COST
At 1 August 1998.................................. 100 256,462 256,562
Additions......................................... -- 17,955 17,955
Disposals......................................... -- (232,312) (232,312)
Transfer to Current Asset Investments............. -- (42,105) (42,105)
--- -------- --------
At 31 July 1999................................... 100 -- 100
--- -------- --------
NET BOOK VALUE
At 31 July 1999................................... 100 -- 100
=== ======== ========
At 31 July 1998................................... 100 256,462 256,562
=== ======== ========
</TABLE>
The company owns 100% of the ordinary share capital of its dormant
subsidiary Baserem Limited, a company incorporated in England and Wales. The
aggregate capital and reserves as of 31st July 1999 is L100 (1998: L100).
F-29
<PAGE> 88
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1999
10. DEBTORS
<TABLE>
<CAPTION>
1999 1998
L L
-------- --------
<S> <C> <C>
DUE WITHIN ONE YEAR
Trade debtors............................................... 579,110 463,977
Other debtors............................................... 71,876 99,031
-------- --------
650,986 563,008
======== ========
</TABLE>
Included in trade debtors is a balance of L83,335 (1998: L112,500) which is
due after more than one year.
11. CURRENT ASSET INVESTMENTS
<TABLE>
<CAPTION>
1999 1998
L L
------- -------
<S> <C> <C>
Other investments at cost................................... 42,105 --
======= =======
</TABLE>
12. CREDITORS
AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
L L
--------- ---------
<S> <C> <C>
Bank loans and overdrafts (secured)......................... 208,460 534,604
Net obligations under finance lease and hire purchase
contracts................................................. -- 12,135
Trade creditors............................................. 869,597 839,700
Amounts owed to group undertakings.......................... 100 100
Corporation tax............................................. 23,464 52,497
Other taxation and social security.......................... 52,751 38,458
Directors' current accounts................................. 98,174 19,991
Other creditors and accruals................................ 69,596 96,020
--------- ---------
1,322,142 1,593,505
========= =========
</TABLE>
13. CREDITORS
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
L L
--------- ---------
<S> <C> <C>
Bank loans and overdrafts (secured)......................... 154,964 160,873
Other creditors and accruals................................ -- 30,000
--------- ---------
154,964 190,873
========= =========
</TABLE>
Included within the above are amounts falling due as follows:
<TABLE>
<S> <C> <C>
IN MORE THAN 5 YEARS:
Loan instalments.......................................... 112,763 87,373
========= =========
</TABLE>
F-30
<PAGE> 89
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1999
14. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1999 1998
L L
--------- ---------
<S> <C> <C>
DEFERRED TAXATION
At 1 August 1998.......................................... 2,436 2,686
Credit for the year....................................... -- (250)
--------- ---------
At 31 July 1999........................................... 2,436 2,436
========= =========
</TABLE>
The deferred tax balance above represents the maximum liability for
deferred tax in respect of accelerated capital allowances.
15. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1999 1998
L L
----- -----
<S> <C> <C>
AUTHORISED
1,000 ordinary shares of L1 each............................ 1,000 1,000
===== =====
ALLOTTED, ISSUED AND FULLY PAID
200 ordinary shares of L1 each.............................. 200 200
===== =====
</TABLE>
16. RELATED PARTIES
The company trades with String Of Pearls plc and String Of Pearls II plc,
companies in which N D Cronin Esq is a director and shareholder. No reportable
related party transactions with these companies took place during the year and
the balances outstanding as at 31 July 1999 are L83,335 debit (1998: L131,523
debit) and L39,964 debit (1998: L40,186 debit) respectively.
The company trades with Dande Racing, a business in which N D Cronin Esq is
a proprietor. During the year the company received rent from the business of
L4,000 (1998: L4,000) and paid for goods and services to the value of L42,598
(1998: L28,000). The company also purchased from Dande Racing a current asset
investment of L17,955. The amount owed from Dande Racing as at 31 July 1999 is
L85 (1998: Lnil).
N D Cronin Esq is a director of Leisureview Limited. During the year,
Dandelion Distribution Limited made sales to Leisureview Limited of L62,401
(1998: L44,468) and purchased goods and services to the value of L59,667 (1998:
L14,374). The amount owed to Leisureview Limited as at 31 July 1999 is L68,698
(1998: L8,623). The amount owed by Leisureview Limited at 31 July 1999 was
L19,248 (1998: L6,883).
N D Cronin Esq and Mrs J M Cronin are trustees of the Dandelion
Distribution Executive Pension Scheme. Contributions to the scheme amounted to
L500 (1998: L500). At 31 July 1999 the company owed the scheme L50,000 (1998:
L50,000).
All transactions took place at arms length.
17. TRANSACTIONS WITH DIRECTORS
The company transferred its ownership in its investment properties to
director N D Cronin in reward for his services to the company in the year.
18. ULTIMATE CONTROL
Ultimate control of the company lies with N D Cronin Esq.
F-31
<PAGE> 90
DANDELION DISTRIBUTION LIMITED
DIRECTORS' REPORT FOR THE YEAR ENDED 31 JULY 1998
The directors present their report and the financial statements for the
year ended 31 July 1998.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
PRINCIPAL ACTIVITY
The principal activities of the company are those of film distribution and
film production.
CHARITABLE DONATIONS
During the year, the company made charitable donations of L1,523
(1997 - L2,000).
THE YEAR 2000 ISSUE
In preparing these financial statements, the directors have considered the
impact of the year 2000 issue. The directors have reviewed software packages and
certain items of plant and machinery for millennium compliance. The directors
have not quantified the costs of modifications to non millennium compliant
software and plant because they do not consider that material liabilities will
crystallise. Any costs that do crystallise will be charged to the profit and
loss account in the period in which they are incurred.
DIRECTORS
The directors who served during the year and their beneficial interests in
the company's issued share capital were:
<TABLE>
<CAPTION>
ORDINARY SHARES OF L1 EACH
--------------------------
1998 1997
------- -------
<S> <C> <C>
N D Cronin Esq........................................ 198 198
Mrs J M Cronin........................................ 2 2
</TABLE>
AUDITORS
In accordance with Section 385 of the Companies Act 1985, the auditors,
Messrs Barnes Roffe, will be proposed for re-appointment for the ensuing year at
the general meeting.
SMALL COMPANY EXEMPTIONS
Advantage has been taken in the preparation of this report of the
exemptions applicable to small companies conferred by Part VII of the Companies
Act 1985.
This report was approved by the Board and signed on its behalf:
Mrs J M Cronin
Secretary
Date: 30 November 1998
F-32
<PAGE> 91
DANDELION DISTRIBUTION LIMITED
AUDITORS' REPORT TO THE SHAREHOLDERS OF DANDELION DISTRIBUTION LIMITED
We have audited the financial statements on pages F-34 to F-41 which have
been prepared under the historical cost convention and the accounting policies
set out on pages F-36 and F-37.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-32 the company's directors are responsible for the
preparation of the financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the
state of the company's affairs as at 31 July 1998 and of its profit for the year
then ended and have been properly prepared in accordance with the provisions of
the Companies Act 1985.
BARNES ROFFE
Registered Auditors
16/17 Copperfields
Spital Street
Dartford
Kent DA1 2DE
Date: 7 December 1998
F-33
<PAGE> 92
DANDELION DISTRIBUTION LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 JULY 1998
<TABLE>
<CAPTION>
1998 1997
NOTE L L
---- ---------- ----------
<S> <C> <C> <C>
TURNOVER.................................................... 1, 2 2,115,128 2,688,960
Cost of sales............................................... (1,346,784) (1,679,037)
---------- ----------
GROSS PROFIT................................................ 768,344 1,009,923
Distribution costs.......................................... (94,729) (180,182)
Administrative expenses..................................... (504,197) (494,846)
Other operating income...................................... 47,917 28,146
---------- ----------
OPERATING PROFIT............................................ 3 217,335 363,041
Interest payable and similar charges........................ 5 (51,050) (52,868)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 166,285 310,173
TAXATION.................................................... (38,369) (88,956)
---------- ----------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 127,916 221,217
DIVIDENDS................................................... 6 (50,000) (50,000)
---------- ----------
RETAINED PROFIT FOR THE YEAR................................ 77,916 171,217
RETAINED PROFIT BROUGHT FORWARD............................. 812,396 641,179
---------- ----------
RETAINED PROFIT CARRIED FORWARD............................. 890,312 812,396
========== ==========
</TABLE>
CONTINUING OPERATIONS
None of the company's activities was acquired or discontinued in the above
two financial years.
STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
There were no recognized gains and losses for the above two financial
periods other than those included in the profit and loss account.
The notes on pages F-36 to F-41 form part of these financial statements.
F-34
<PAGE> 93
DANDELION DISTRIBUTION LIMITED
BALANCE SHEET
AS AT 31 JULY 1998
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
NOTE L L L L
---- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible fixed assets................... 7 -- --
Tangible fixed assets..................... 8 452,757 479,129
Investments............................... 9 256,562 232,412
--------- ---------
709,319 711,541
CURRENT ASSETS
Stocks.................................... 1,267,583 1,366,441
Debtors................................... 10 563,008 708,052
Cash at bank and in hand.................. 137,415 144,563
---------- ----------
1,968,006 2,219,056
CREDITORS: amounts falling due within
one year.................................. 11 (1,593,504) (1,890,815)
---------- ----------
NET CURRENT ASSETS.......................... 374,502 328,241
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES....... 1,083,821 1,039,782
CREDITORS: amounts falling due after more
than one year............................. 12 (190,873) (224,500)
PROVISIONS FOR LIABILITIES AND CHARGES...... 13 (2,436) (2,686)
--------- ---------
NET ASSETS.................................. 890,512 812,596
========= =========
CAPITAL AND RESERVES
Called up share capital................... 14 200 200
Profit and loss account................... 890,312 812,396
--------- ---------
SHAREHOLDERS' FUNDS......................... 15 890,512 812,596
========= =========
</TABLE>
The directors have taken advantage of special exemptions conferred by Part VII
of the Companies Act 1985 applicable to small companies.
The financial statements were approved by the Board and signed on its behalf:
N D Cronin Esq
Director
Date: 30 November 1998
The notes on pages F-36 to F-41 form part of these financial statements.
F-35
<PAGE> 94
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 JULY 1998
1. ACCOUNTING POLICIES
1.1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared under the historical cost
convention and include the results of the company's operations which are
described in the Directors' Report and all of which are continuing.
The company is exempt from the requirement to prepare group accounts by
virtue of section 248 of the Companies Act 1985. These financial statements
therefore present information about the company as an individual undertaking and
not about its group.
The company has taken advantage of the exemption in Financial Reporting
Standard No. 1 from the requirement to produce a cash flow statement on the
grounds that it is a small company.
1.2 TURNOVER
Turnover comprises the invoiced value of goods and services supplied by the
company, net of Value Added Tax.
1.3 TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less depreciation. Depreciation is
provided at rates calculated to write off the cost of fixed assets, less their
estimated residual value, over their expected useful lives on the following
bases:
<TABLE>
<S> <C>
Land & buildings................................. 2% p.a. straight line
Plant & machinery etc............................ 15/25% p.a. reducing balance
</TABLE>
1.4 INVESTMENT PROPERTIES
In accordance with SSAP 19, investment properties are revalued annually and
no depreciation is provided in respect of freehold or leasehold investment
properties with over 20 years to run. This conflicts with the Companies Act 1985
which requires all properties to be depreciated. The directors consider that,
because these properties are not held for consumption, but for their investment
potential, to depreciate them would not give a true and fair view.
1.5 HIRE PURCHASE
Assets obtained under hire purchase contracts are capitalised as tangible
fixed assets, and are depreciated over their useful lives. Hire purchase
interest is charged to the profit and loss account on the basis of a sum of the
digits calculation.
1.6 STOCKS
Stock of film rights and production costs are valued on the basis of
estimated income profile from each particular title in order to match costs in
proportion to income over the expected revenue life of each title or library.
1.7 FOREIGN CURRENCIES
Assets and liabilities in foreign currencies are translated into sterling
at rates of exchange ruling at the balance sheet date. Transactions in foreign
currencies are translated into sterling at the rate ruling on the date of the
transaction. Exchange differences are taken into account in arriving at the
operating profit.
F-36
<PAGE> 95
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1998
1.8 DEFERRED TAXATION
Provision is made for deferred taxation as a result of material timing
differences between the incidence of income and expenditure for taxation and
accounts purposes, using the full liability method, only to the extent that, in
the opinion of the directors, there is a reasonable probability that a liability
or asset will crystallise in the near future.
1.9 PENSION SCHEME
The company operates a defined contribution pension scheme for the
directors. The accounting policy is to charge all contributions to the profit
and loss account in the year in which they are paid.
2. TURNOVER
57% of the company's turnover (1997 -- 29%) is attributable to geographical
markets outside the United Kingdom.
3. OPERATING PROFIT
The operating profit is stated after charging:
<TABLE>
<CAPTION>
1998 1997
L L
------ ------
<S> <C> <C>
Depreciation of tangible fixed assets
- -- Owned by the company..................................... 12,152 14,489
- -- Held under hire purchase contracts....................... 2,833 7,015
Auditors' remuneration...................................... 8,000 7,900
Pension costs............................................... 500 --
====== ======
</TABLE>
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
1998 1997
L L
------- -------
<S> <C> <C>
Fees, salaries, benefits and pension contributions.......... 125,538 154,137
======= =======
</TABLE>
The number of directors to whom benefits accrue under money purchase
pension schemes is two (1997 -- two).
5. INTEREST PAYABLE
Included in interest payable is interest on hire purchase contracts
amounting to L2,353 (1997 -- L4,857).
6. DIVIDENDS
<TABLE>
<CAPTION>
1998 1997
L L
------ ------
<S> <C> <C>
Interim dividends paid...................................... 50,000 50,000
====== ======
</TABLE>
F-37
<PAGE> 96
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1998
7. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
GOODWILL TOTAL
L L
-------- ------
<S> <C> <C>
COST
At 1 August 1997 and 31 July 1998........................... 15,000 15,000
------ ------
AMORTISATION
At 1 August 1997 and 31 July 1998........................... 15,000 15,000
------ ------
NET BOOK VALUE
At 31 July 1997 and 31 July 1998............................ -- --
====== ======
</TABLE>
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LAND & PLANT &
BUILDINGS MACHINERY ETC TOTAL
L L L
--------- ------------- -------
<S> <C> <C> <C>
COST
At 1 August 1997....................................... 452,682 111,153 563,835
Additions.............................................. -- 927 927
Disposals.............................................. -- (16,650) (16,650)
------- ------- -------
At 31 July 1998........................................ 452,682 95,430 548,112
------- ------- -------
DEPRECIATION
At 1 August 1997....................................... 30,782 53,924 84,706
Charge for year........................................ 7,080 7,905 14,985
On disposals........................................... -- (4,336) (4,336)
------- ------- -------
At 31 July 1998........................................ 37,862 57,493 95,355
------- ------- -------
NET BOOK VALUE
At 31 July 1998........................................ 414,820 37,937 452,757
======= ======= =======
At 31 July 1997........................................ 421,900 57,229 479,129
======= ======= =======
</TABLE>
Included within land and buildings is land of L67,900 which has not been
depreciated.
The cost of assets held under hire purchase agreements at 31st July 1998 is
L12,950 (1997 -- L32,550) and accumulated depreciation is L11,101
(1997 -- L11,506). The total depreciation charged in the year is L2,833
(1997 -- L7,014).
9. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
LAND & SHARES IN
BUILDINGS OTHERS OTHERS TOTAL(1)
--------- --------- ------ --------
<S> <C> <C> <C> <C>
COST
At 1 August 1997............................. 232,312 100 -- 232,412
Additions.................................... -- -- 24,150 24,150
------- --- ------ -------
At 31 July 1998.............................. 232,312 100 24,150 256,562
------- --- ------ -------
NET BOOK VALUE
At 31 July 1998.............................. 232,312 100 24,150 256,562
======= === ====== =======
At 31 July 1998.............................. 232,312 100 -- 232,412
======= === ====== =======
</TABLE>
F-38
<PAGE> 97
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1998
The company owns 100% of the ordinary share capital of its dormant
subsidiary Baserem Limited, a company incorporated in England and Wales. The
aggregate capital and reserves as at 31st July 1998 is L100 (1997 -- L100).
Investment properties were valued on 31 July 1998 by the directors on the
basis of open market value.
10. DEBTORS
<TABLE>
<CAPTION>
1998 1997
L L
------- -------
<S> <C> <C>
DUE WITHIN ONE YEAR
Trade debtors............................................... 463,977 622,955
Other debtors and prepayments............................... 99,031 85,097
------- -------
563,008 708,052
======= =======
</TABLE>
Included within trade debtors is a balance of L112,500 (1997 -- L112,500)
and included within other debtors is an amount of L30,000 (1997 -- L40,000)
which are due after more than one year.
11. CREDITORS
AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1988 1997
L L
--------- ---------
<S> <C> <C>
Bank loans and overdrafts................................... 534,603 512,563
Net obligations under hire purchase contracts............... 12,135 6,674
Trade creditors............................................. 839,703 967,919
Amounts owed to group undertakings.......................... 100 100
Corporation tax............................................. 52,497 102,500
Other taxes and social security............................. 38,457 102,653
Directors' current accounts................................. 19,991 37,315
Other creditors and accruals................................ 96,018 161,091
--------- ---------
1,593,504 1,890,815
========= =========
</TABLE>
Bank borrowings of L695,476 (1997 -- L679,943) are secured.
12. CREDITORS
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
L L
------- -------
<S> <C> <C>
Loans....................................................... 160,873 167,379
Net obligations under hire purchase contracts............... -- 17,121
Other creditors............................................. 30,000 40,000
------- -------
190,873 224,500
======= =======
</TABLE>
F-39
<PAGE> 98
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1998
Included within the above are amounts falling due as follows:
<TABLE>
<S> <C> <C>
IN 1 - 2 YEARS:
Loan instalments............................................ 9,750 9,000
Hire purchase obligations................................... 7,458 17,121
======= =======
IN 2 - 5 YEARS:
Loan instalments............................................ 33,750 --
Other creditors............................................. 30,000 40,000
======= =======
IN MORE THAN 5 YEARS:
Loan instalments............................................ 117,373 123,879
======= =======
</TABLE>
13. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1998 1997
L L
----- -----
<S> <C> <C>
DEFERRED TAX
At 1 August 1997............................................ 2,686 3,300
Credit for the year......................................... (250) (614)
----- -----
At 31 July 1998............................................. 2,436 2,686
===== =====
</TABLE>
The above represents the maximum potential liability to deferred tax in
respect of accelerated capital allowances.
14. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
L L
----- -----
<S> <C> <C>
AUTHORISED
1,000 Ordinary shares of L1 each............................ 1,000 1,000
===== =====
ALLOTTED, ISSUED AND FULLY PAID
200 Ordinary shares of L1 each.............................. 200 200
===== =====
</TABLE>
15. SHAREHOLDERS' FUNDS
RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
L L
------- -------
<S> <C> <C>
Profit for the year......................................... 127,916 221,217
Dividends................................................... (50,000) (50,000)
------- -------
77,916 171,217
Opening shareholders' funds................................. 812,596 641,379
------- -------
Closing shareholders' funds................................. 890,512 812,596
======= =======
</TABLE>
16. RELATED PARTY TRANSACTIONS
The company trades with Leisureview Limited, a company in which N D Cronin
Esq is a director and shareholder. During the year the company made net sales of
L44,468 (1997 -- L21,934) to Leisureview
F-40
<PAGE> 99
DANDELION DISTRIBUTION LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 JULY 1998
Limited and was recharged for goods and services to the value of L14,374
(1997 -- L1,000). The amount owed to the company as at 31 July 1998 was L8,623
(1997 -- L16,785).
N D Cronin Esq is also a director and shareholder of String Of Pearls I PLC
and String of Pearls II PLC. No transaction took place during the year and as at
31 July 1998 the net amount owed to the company by String Of Pearls I PLC was
L131,523 (1997 -- L131,523) and by String Of Pearls II PLC L40,186 (1997 --
L26,436).
N D Cronin Esq and Mrs. J M Cronin are trustees of the Dandelion
Distribution Limited Executive Pension Scheme.
The company trades with Dande Racing, a business in which N D Cronin Esq is
the proprietor. During the year the company received rent from the business of
L4,000 (1997 -- L4,000) and paid L28,000 (1999 -- L36,000) in respect of leasing
fees.
All the above transactions took place at arms length.
F-41
<PAGE> 100
Pursuant to the above Company Report (Unternchmensbericht), application will be
made to admit the
- ------------------ SHARES OF COMMON STOCK, NO PAR VALUE,
(ENTIRE SHARE CAPITAL CURRENTLY ISSUED)
and the
- ------------------ SHARES OF COMMON STOCK, NO PAR VALUE,
(SHARES RESERVED FOR ISSUANCE UPON THE EXERCISE OF OPTIONS AND CONVERSION OF
DEBT INSTRUMENTS INTO SHARES OF COMMON STOCK)
GERMAN SECURITIES IDENTIFICATION NO. (WKN):
- ------------------
of
TEAM COMMUNICATIONS GROUP, INC.,
Los Angeles, California, USA
to the Regulated Market (Geregelter Markt) with trading on the Neuer Markt of
the Frankfurt Stock Exchange.
Los Angeles, Frankfurt am Main,
- ------------------ 1999
GONTARD & METALLBANK AG VEM VIRTUELLES EMISSIONSHAUS AG
<PAGE> 101
TEAM COMMUNICATIONS GROUP, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
BALANCE ADDITIONS DEDUCTIONS BALANCE AT
AT BEGINNING CHARGED FROM OTHER END OF
DESCRIPTION OF YEAR TO INCOME RESERVE ADJUSTMENTS YEAR
----------- ------------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Deducted from accounts receivable for
doubtful accounts and returns........ $63,800 $ 664,000 $ (390,800) $0 $337,000
1997
------------------------------------------------------------------
Deducted from accounts receivable for
doubtful accounts and returns........ $63,800 $1,115,600 $(1,115,600) $0 $ 63,800
1996
------------------------------------------------------------------
Deducted from accounts receivable for
doubtful accounts and returns........ $ 0 $ 71,300 $ (7,500) $0 $ 63,800
</TABLE>
S-1
<PAGE> 102
PART II
EXHIBITS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Directors of the Company are presently entitled to indemnification as
expressly authorized under Section 317 of the California General Corporation Law
("Section 317") and the Bylaws of the Company (which generally authorize the
Company to indemnify its Agents where such indemnification is authorized by
Section 317). Section 317 provides a detailed statutory framework covering
indemnification of any agent of a corporation who is threatened to be made a
party to any legal proceeding by reason of his or her actions on behalf of the
corporation.
Article 5 of the Company's Articles of Incorporation (Exhibit 3.1) provides
that a director will not be liable for monetary damages arising out of the
director's breach of his or her fiduciary duties to the Company and the
shareholders to the fullest extent permissible under the California law.
Liability for breach of a director's fiduciary duty arises when the director has
failed to exercise sufficient care in reaching decisions or otherwise attending
to his responsibilities as a director and in other circumstances. Article V does
not eliminate these duties; it only eliminates monetary damage awards occasioned
by a breach of these duties. Accordingly, a breach of fiduciary duty is still a
valid basis for a suit seeking to stop a proposed transaction from occurring.
However, after a transaction has occurred, the shareholders do not have a claim
against directors for monetary damages based on a breach of fiduciary duty, even
if that breach involves negligence on the part of the directors. Additionally,
as a practical matter, equitable remedies such as rescission may not be
available after a transaction has already been consummated or in other
circumstances.
The Company intends to enter into indemnification agreements with the
Company that attempt to provide the maximum indemnification allowed under the
California law. The Indemnification Agreements will make mandatory
indemnification which is permitted by California law in situations in which the
Indemnitee would otherwise be entitled to indemnification only if the Board of
Directors, the Shareholders, independent legal counsel retained by the Company
or a court in which an action was or is pending made a discretionary
determination in a specific case to award such indemnification. However, in part
because the California law was only recently enacted, the extent to which the
indemnification permitted by the California law may be expanded by
indemnification agreements is unsettled and has yet to be the subject of any
judicial interpretation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered are as follows (estimated except as noted):
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $
NASDAQ filing fee (estimate)................................
Printing and engraving expenses (estimate)..................
Legal fees and expenses (estimate)..........................
Accounting fees and expenses (estimate).....................
Miscellaneous...............................................
-----------
Total............................................. $
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
1. A loan in the principal amount of $322,000 was made in January 1996 from
AMAE Ventures, an affiliate of Mr. Wolfson, which was used by the Company for
general overhead purposes and bears interest at 12%. This note is due on the
earlier to occur of July 15, 1998 or the closing of the Offering. The holder of
such note has the right to convert the principal amount into 3% of the Company's
Common Stock on a fully diluted basis through the completion of the Offering,
and has indicated that it intends to convert such note.
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<PAGE> 103
2. Mr. Cayre and Mr. Levin have agreed, subject to documentation, that as
of the closing of the Offering, Mr. Cayre will receive payment of $250,000 in
respect of the amounts owed to him, and the remaining debt, subject to adequate
collateralization (which may include cash collateral) shall be extended until
July 15, 1998. Subject to the foregoing, Mr. Levin and Mr. Cayre have also
agreed to restructure Mr. Cayre's investment in the Company. Mr. Cayre agreed
that upon the closing of the Offering, Mr. Cayre's interest in the Company would
be reduced to 164,874 shares of the Company's Common Stock by transferring to
Mr. Levin 195,774 shares of the Company's Common Stock held by Mr. Cayre. In
February 1996, in connection with a prior restructuring of this indebtedness,
Mr. Cayre received options to purchase 48,743 shares of Common Stock of $.43 per
share.
3. In June 1996, South Ferry #2, L.P., an entity controlled by Mr.
Wolfson's brother, advanced to the Company the sum of $500,000 in respect of
LoCoMoTioN in consideration of which such entity received options to acquire
29,906 shares of Common Stock at $.43 per share. This loan bears interest at 10%
and is due on the earlier to occur of July 15, 1998 or the closing of the
Offering.
4. The Chana Sasha Foundation, an entity controlled by Mr. Wolfson,
extended the Company a $400,000 line of credit on a secured basis in November
1996, which credit line has been used and subsequently repaid by funds from the
Company's operations In October 1996, Mr. Wolfson extended the Company
approximately $400,000 of credit on a secured basis, which credit line has been
used and subsequently repaid by funds from the Company's operations. Mr. Wolfson
received 6,408 shares of the Company's Common Stock with respect to such
extension of credit.
5. The July 1996 proceeds from the sale of the note in the Total Recall
Financing was used to acquire the rights to produce a television series based on
the motion picture "Total Recall." This note, which was sold to ACA Equities,
D&M Investments and Gilbert Karsentry, was secured by the Company's underlying
rights to the "Total Recall" series, bore interest at 10%. In addition, the
holders of this note received an aggregate of 53,403 shares of common stock,
warrants to acquire 14,954 shares of Common Stock at an exercise price of $.43
and a 13% net profit participation in the Company's interest in the series. As
of the date hereof, $1,200,000 has been repaid in respect to this obligation.
Mr. Wolfson received 8,544 shares of the Company's Common Stock and 2% of the
net profits of the series with respect to the Total Recall Financing.
6. The Company commenced two private placements under Rule 506 of
Regulation D of its Secured Notes in February and in May, 1996. In February
1996, the Company sold to 14 accredited investors $900,000 in principal amount
of secured promissory notes which bear interest at 12% and are due upon the
earlier to occur of the closing of the Offering or July 15, 1998. These notes
were sold to the following investors: Matthew and Barbara Geisser, Central Scale
Co., Vijaya Kani Rehala, Vijay-Kumar Rekhala, M.D., United Congregation Mesorah,
Samuel Marinelli, Mildred Geiss, Jon Kastendieck, Bank Leumi-Affida Bank,
Cooperative Holding Corporation, Aaron Wolfson, Abraham Wolfson, Arielle
Wolfson, and LEVPOL. Between June and November 1996, the Company sold to 22
accredited investors $975,000 in principal amount of secured notes which bear
interest at 10% and are due at the earlier of this Offering or July 15, 1998.
These notes were sold to the following investors: Wellington Corporation,
Crescent Capital Company, LLC, Arthur Steinberg IRA Rollover, Robert Steinberg
IRA Rollover, Robert Ram Steinberg, A Partnership, Von Graffenried AG, Alpha
Ventures, Tuch Family Trust, Third World Trust Company LTD, Alfred Ross, Fred
Chanowski, Allen Goodman, Felix Paige, Rogal America, Mark Levine, Joseph
Sullivan, Robert Gopen, Colony Financial Services, John Carberry, Daniel and
Thalia Federbush, and Michael Berlin. An aggregate of 198,659 warrants to
purchase a like number of shares of Common Stock at an exercise price of $.43
per share were issued in connection with such private placements. The holders of
these notes have waived all conversion rights with respect thereto.
7. During 1996, the Company issued 21,362 warrants (10,681 to William
Nesmith and 10,681 to Michael Sposato) exercisable at $1.07, 20,934 warrants
exercisable at $0.43 to Bristol Capital, 33,000 warrants, 13,000 of which were
issued at $1.00 and 20,000 of which were issued at $2.50, to Joseph Farber and
2,349 warrants exercisable at $0.43 to Robert Dorfman. The Company also issued
to Bristol Capital 2,777 shares of Common Stock. The warrants and shares were
issued in connection with consulting services provided to the Company, such
services relating primarily to advice regarding obtaining additional financing
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<PAGE> 104
and the structuring of securities issued by the Company, none of which were
directly or indirectly related to the Offering. The Company recognized $5,000 in
compensation related to these warrants during the year ended December 31, 1996.
In 1995, the Company issued 10,000 warrants exercisable at $1.00 to Bruce P.
Vann, Esq., for his services as legal counsel to the Company.
8. In October 1996, the Company obtained a loan from Affida Bank in the
amount of $300,000 and, in connection therewith, issued warrants to acquire
29,191 shares of Common Stock at an exercise price of $.97 per share.
9. In January, February and March 1997, the Company completed the sale of
$969,000 of convertible secured notes to 13 accredited investors (the "February
1997 Notes") pursuant to Rule 506 of Regulation D as promulgated under the
Securities Act. Each of the foregoing notes are secured, pro-rata and pari
passu, by liens on substantially all of the Company's assets, except that the
February 1997 Notes are junior to the prior notes. An aggregate of 193,970
warrants to purchase a like number of shares of Common Stock at an exercise
price of $1.00 per share were issued in connection with such placements. The
February 1997 Notes were sold to the following investors: Alan Parness, Arab
International Trust Co., Duck Partners, LP, Gary and Paula Wayton, Michael
Rosenbaum, RMK Financial LLC, Robert Bain, Robert Frankel, Roger Triemstra,
Roland McAbee, Swan Alley Limited, and Van Moer Santerr & Cie.
10. In March, April and May, 1998 the Company arranged for short term loans
of $1,642,000 from eight accredited investors. The notes issued pursuant to such
loans were sold to the following investors: HighBridge Fund Ltd., Nick Kahla,
David Tresley, Arab Commerce Bank, Charles Santerre, Philippe de Cock de
Rameyen, Anders Ulegard and Kevodrew Realty Inc.
11. In May, June and July 1998, the Company arranged for loans from 10
parties of an aggregate of $715,000 for specific production financing. The notes
pursuant to such loans were sold to the following investors: Charles E. and Ada
M. Miller Trust, Donald E. Stuck and Phyllis T. Stuck, Ryo & Jean S. Komae
Marital Trust U/A dated 11/14/91, Claudio Nessi, Carter Family Trust, MacAlister
Credit Trust U/A/D 11/25/88, Miyamoto Investment, Dr. Richard Bardowell, Sandel
Products and Chase Financing, Ltd.
12. Between September 1998 and January 1999 we issued 483,000 shares of our
common stock to the following individuals and entities: (i) 59,000 shares to
Delbert Reedy pursuant to the conversion of a certain promissory note, dated May
29, 1998, in the amount of Fifty Thousand Dollars ($50,000); (ii) 59,000 shares
to the Carter Family Trust, pursuant to the conversion of a certain promissory
note, dated May 29, 1998, in the amount of Fifty Thousand Dollars ($50,000);
(iii) 31,000 shares to Claudio Nessi pursuant to a certain promissory note,
dated June 18, 1998, in the amount of Fifty Thousand Dollars ($50,000); (iv)
1,000 shares for Dr. Michael Berlin in connection with certain accommodations
made by Dr. Michael Berlin; and (v) 80,000 shares to Marathon Consulting, Inc.,
30,000 of which were issued in connection with a consulting agreement dated May
1, 1999, and 50,000 of which were assigned by an affiliate, Investor Relations
Services, Inc., who had the right to receive such shares pursuant to a
consulting agreement dated as of November 17, 1998 and (vi) 283,000 shares to
Infusion Capital Investment Corporation, in connection with a consulting
agreement, dated as of November 17, 1998.
13. During 1998, we granted warrants to purchase our common stock to the
following individuals and entities for services provided to us: (i) 22,000 and
10,000 warrants, respectively, to Mansion House International and Danny Chan,
respectively, exercisable at $2.75 per share, (ii) 5,000 warrants to Hedblom
Partners, exercisable at $3.50 per share, (iii) 200,000 warrants to Glen Michael
Financial; 100,000 exercisable at $1.62 per share, 75,000 exercisable at $3.00
per share and 25,000 exercisable at $3.25 per share, and (iv) 10,000 warrants to
Ralph Olsen, exercisable at $2.00 per share. In addition, we granted (x) 121,000
and 10,000 warrants, respectively, to Chase Financial Limited and Robert
Herskowitz, respectively, exercisable at $1.62 per share and (y) an aggregate of
20,000 warrants, 5,000 each to Investor Relations Services, Aurora Holdings,
Amber Capital and Affiliated Services, respectively, in connection with debt
that was raised.
14. In January and March 1999, the Company sold to the following 5
investors: Austinvest Anstalt Balzers, Esquire Trade & Finance Inc., Amro
International, S.A., Nesher Inc., and VMR Luxembourg, S.A., 1,850,000 of 8%
convertible debentures and warrants to purchase up to 185,000 shares of common
stock. The
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<PAGE> 105
holders of $1,000,000 of the debentures have indicated they intend to convert
their debentures into common stock. All of the debentures are convertible into
shares of common stock at the option of the holder at any time after their
purchase. The conversion price for each debenture in effect on any conversion
date will be the lesser of (A) an amount equal to 90% of the average per share
market value for five consecutive trading days immediately prior to the initial
closing date or (B) an amount equal to 85% of the per share market value for the
trading day having the lowest per share market value during the five trading
days prior to the conversion date. Purchasers effect conversions by surrendering
the debentures to be converted to the Company, together with the form of
conversion notice attached thereto. If not otherwise converted, the debentures
mature three years from their original issue date. The warrants are exercisable
at an exercise price equal to 110% of the per share market value as of the last
trading day prior to the date of the issuance of the warrants. This price, which
is subject to adjustment in the event of certain dilutive events, was $1.96 and
$2.56, respectively, at the closing dates. The warrants expire three years after
their date of issuance. Pursuant to the terms of purchase agreements and the
related registration rights agreements, the Company is obligated to file a
registration statement with respect to the shares issuable upon conversion of
the debentures and the shares issuable upon exercise of the warrants within 75
days of the initial closing date.
In June 1999, four of the debenture holders purchased an additional 175,000
shares of common stock for an aggregate of $700,000.
15. In July 1999, the Company arranged for a short term loan from VMR
Luxembourg, S.A., of $1,200,000 for production and development.
16. In May and July 1999 we sold to three investors: Stellar Group Inc.,
Chun Sing Investment Limited and Dr. Michael Berlin, $350,000 of 12% debentures
and warrants to purchase up to 35,000 shares of common stock at $7.61 per share.
17. On June 30, 1999, we sold 57,000 shares of common stock to Anders
Ulegard for $114,000 and 112,534 shares of common stock to Van Moer Santerre &
Cie for $281,335.
18. On August 5, 1999, we sold to Hudson Investors, LLC, $4,000,000 of 12%
convertible debentures and warrants to purchase 340,000 shares of common stock
at $7.00 per share.
19. On August 9, 1999, we sold 500,000 shares of common stock to Gontard &
MetallBank AG for $2,000,000.
20. On August 18, 1999, we issued to Program Power Entertainment and Swan
Alley Limited, respectively, 1,000 and 20,000 shares of common stock,
respectively, pursuant to the settlement of their respective lawsuits. Also on
August 18, 1999, we issued to Premier Acquisition Corp., and DMT Technologies,
Inc., respectively, 97,000 and 3,000 shares of common stock, respectively,
pursuant to the settlement of certain disputes they had with us. We also sold to
Investor Resource Services, Inc., 104,000 of common stock for $208,000.
21. On September 29, 1999 we arranged for a $4,000,000 bridge loan from
Gontard & MetallBank AG.
22. We have granted to Michael Jay Solomon and Seth Wellenson, 30,000
options to purchase common stock at an exercise price of $2.50 per share for
agreeing to serve as members of our Board of Directors. Mr. Wellenson's options
were cancelled when he resigned as a director. On March 9, 1999, W. Russell
Barry was granted 30,000 options to purchase common stock at an exercise price
of $2.00 per share for agreeing to serve as a member of the Board of Directors.
The above securities were offered by the Registrant in reliance upon an
exemption from registration under either (i) Section 4(2) of the Securities Act
as transactions not involving any public offering, or (ii) Rule 701 under the
Securities Act. No underwriters were involved in connection with the sales of
securities referred to in this Item 15.
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<PAGE> 106
ITEM 27. (A) EXHIBITS
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation, as
amended(9)
3.2 By-laws of the Company(1)
4.1 Form of Warrant Agreement March 1996(1)
4.2 Form of Warrant Agreement May 1996(1)
4.3 Form of Warrant Agreement February 1997(1)
4.4 Gontard & MetallBank AG Promissory Note, dated as of
September 29, 1999(9)
4.11 Agreements re LoCoMoTioN Financing with South Ferry #2,
L.P.(1)
4.14 Form of Financial Advisory Agreement between National
Securities Corporation and the Company(1)
4.15 Specimen Certificate(1)
4.16 Form of National Securities Corporation's Warrant(1)
4.18 Form of Promissory Notes(1)
4.19 Securities Purchase Agreement between the Company and
Austinvest Anstalt Balzers; Esquire Trade & Finance Inc.;
Amro International, S.A. and Nesher Inc., dated as of March
19, 1999(3)
4.20 Form of Debenture re: Austinvest Anstalt Balzers, dated as
of March 19, 1999(3)
4.21 Form of Warrant re: Austinvest Anstalt Balzers, dated as of
March 19, 1999(3)
4.22 Form of Registration Rights Agreement between the Company
and Austinvest Anstalt Balzers; Esquire Trade & Finance
Inc.; Amro International, S.A. and Nesher Inc., dated as of
March 19, 1999(3)
4.23 Amendment to Securities Purchase Agreement with Austinvest
Anstalt Balzers; Esquire Trade & Finance Inc.; Amro
International, S.A. and Nesher Inc., dated June 28, 1999
(amends 4.19)(6)
4.24 Securities Purchase Agreement between the Company and VMR
Luxembourg, S.A., dated as of February 25, 1999(6)
4.25 VMR Debenture, dated as of February 25, 1999(6)
4.26 VMR Warrant, dated as of February 25, 1999(6)
4.27 VMR Registration Rights Agreement, dated as of February 25,
1999(6)
4.28 Securities Purchase Agreement between the Company and VMR
Luxembourg S.A., dated July 26, 1999(6)
4.29 VMR Debenture, dated as of July 26, 1999(6)
4.30 VMR Security Agreement, dated as of July 26, 1999(6)
4.31 VMR Registration Rights Agreement, dated as of July 26,
1999(6)
4.32 Securities Purchase Agreement between the Company and Hudson
Investors LLC, dated as of August 5, 1999(6)
4.33 Hudson Investors LLC Registration Rights Agreement, dated as
of August 5, 1999(6)
4.34 Hudson Investors LLC Debenture, dated as of August 5,
1999(6)
4.35 Hudson Investors LLC Warrant, dated as of August 5, 1999(6)
4.36 1999 Stock Option, Deferred Stock and Restricted Stock
Plan(7)
5.1 Opinion and Consent of Kelly Lytton Mintz & Vann LLP(10)
10.1 Agreement with Mel Giniger(1)
10.2 Agreement with Beyond Distribution PTY. Limited(1)
10.3 Interpublic Group of Companies Contract(1)
</TABLE>
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<PAGE> 107
<TABLE>
<C> <S>
10.4 Employment Agreement, dated as of August 1, 1999, between
the Company and Drew Levin(9)
10.5 Lease between the Company and TCW, amended as of March 20,
1998(1)
10.6 Agreement with Alliance Production Ltd. re Total Recall(1)
10.7 Interpublic -- Team Co-financing Agreement(1)
10.8 Miramax Term Sheet(1)
10.9 Agreement with Leucadia Film Corp.(1)
10.10 Agreement with DD Video, dated August 2, 1999(9)
10.11 Dandelion Distribution Ltd., Share Purchase Agreement dated
as of October 1, 1999(9)
10.12 Dandelion Distribution Ltd., Escrow Agreements dated as of
October 1, 1999(10)
10.13 Employment Agreement, dated as of October 1, 1999, between
Dandelion Distribution Ltd., and Noel Cronin(9)
10.14 Employment Agreement, dated as of October 11, 1999, between
Dandelion Distribution Ltd., and John Clutton(9)
10.16 Agreement between the Company and Gontard & MetallBank AG
re: secondary listing and public offering of the Company's
common stock in Germany(9)
10.18 Employment Agreement, dated as of August 17, 1999 between
the Company and Timothy A. Hill(8)
10.19 Employment Agreement dated as November 22, 1998, between the
Company and Jonathan D. Shapiro(4)
10.21 Investment Banking Agreement by and between the Company and
Glen Michael Financial(8)
10.22 Consulting Agreement, dated November 17, 1999 between the
Company, Investor Relations Services, Inc., and Infusion
Capital Investment Corporation(8)
10.23 Agreement with Film Libraries, Inc. dated June 25, 1999 and
Agreement with Film Brokers, Inc., dated June 25, 1999, re:
commission for purchase(6)
10.24 Agreement with Renown Pictures, Ltd., dated as of June 28,
1999(6)
10.25 Financial Consulting Agreement, dated March 15, 1999,
between the Company and Century City Securities, Inc., and
Letter from Company dated July 29, 1999 re: payment under
Financial Consulting Agreement(8)
10.26 Form of Consultants' Warrant for Ralph Olson, Investor
Resource Services, Inc., Aurora Holdings, Inc., Affiliated
Services, Inc., Amber Capital, Inc., and Hedblom Partners,
Ltd.(8)
10.27 Consulting Agreement, dated May 3, 1999 between the Company
and Marathon Consulting Corporation(8)
21 Subsidiaries of the Registrant(1)
23.1 Consent of experts and named counsel(9) (consent of Kelly
Lytton Mintz & Vann LLP included in Exhibit 5.1)
23.2 Consent of Barnes Roffe(9)
27 Financial Data Schedule(9)
</TABLE>
- ---------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, file No. 333-26307, effective July 29, 1998.
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated March 29, 1999.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated February 5, 1999.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
dated April 15, 1999.
(5) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated June 8, 1999.
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<PAGE> 108
(6) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB dated August 19, 1999.
(7) Incorporated by reference to the Registrant's Definitive Proxy Statement on
Form 14A dated May 28, 1999.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, File No. 333-83217, effective August 27, 1999.
(9) Filed herewith.
(10) To be filed by amendment.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the California General Corporation Law, the Articles of
Incorporation of the registrant, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim of or indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement."
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<PAGE> 109
(2) That, for the purpose of determining any liability under the
Securities Act, each such posteffective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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<PAGE> 110
SIGNATURES
In accordance with the requirement of the Securities Act of 1933, the
registrant certifies that it has reasonable ground to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Los Angeles, State of California, on this 19th day of
October, 1999.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
------------------------------------
Drew S. Levin
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <C> <S>
/s/ DREW S. LEVIN Chairman of the Board and Chief October 19, 1999
- ------------------------------------- Executive Officer
Drew S. Levin
/s/ JONATHAN D. SHAPIRO President, Chief Operating Officer October 19, 1999
- ------------------------------------- and Director
Jonathan D. Shapiro
/s/ TIMOTHY A. HILL Senior Vice President, Chief October 19, 1999
- ------------------------------------- Financial Officer and Secretary
Timothy A. Hill
/s/ MICHAEL JAY SOLOMON Director October 19, 1999
- -------------------------------------
Michael Jay Solomon
/s/ W. RUSSELL BARRY Director October 19, 1999
- -------------------------------------
W. Russell Barry
</TABLE>
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<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation, as
amended(9)
3.2 By-laws of the Company(1)
4.1 Form of Warrant Agreement March 1996(1)
4.2 Form of Warrant Agreement May 1996(1)
4.3 Form of Warrant Agreement February 1997(1)
4.4 Gontard & MetallBank AG Promissory Note, dated as of
September 29, 1999(9)
4.11 Agreements re LoCoMoTioN Financing with South Ferry #2,
L.P.(1)
4.14 Form of Financial Advisory Agreement between National
Securities Corporation and the Company(1)
4.15 Specimen Certificate(1)
4.16 Form of National Securities Corporation's Warrant(1)
4.18 Form of Promissory Notes(1)
4.19 Securities Purchase Agreement between the Company and
Austinvest Anstalt Balzers; Esquire Trade & Finance Inc.;
Amro International, S.A. and Nesher Inc., dated as of March
19, 1999(3)
4.20 Form of Debenture re: Austinvest Anstalt Balzers, dated as
of March 19, 1999(3)
4.21 Form of Warrant re: Austinvest Anstalt Balzers, dated as of
March 19, 1999(3)
4.22 Form of Registration Rights Agreement between the Company
and Austinvest Anstalt Balzers; Esquire Trade & Finance
Inc.; Amro International, S.A. and Nesher Inc., dated as of
March 19, 1999(3)
4.23 Amendment to Securities Purchase Agreement with Austinvest
Anstalt Balzers; Esquire Trade & Finance Inc.; Amro
International, S.A. and Nesher Inc., dated June 28, 1999
(amends 4.19)(6)
4.24 Securities Purchase Agreement between the Company and VMR
Luxembourg, S.A., dated as of February 25, 1999(6)
4.25 VMR Debenture, dated as of February 25, 1999(6)
4.26 VMR Warrant, dated as of February 25, 1999(6)
4.27 VMR Registration Rights Agreement, dated as of February 25,
1999(6)
4.28 Securities Purchase Agreement between the Company and VMR
Luxembourg S.A., dated July 26, 1999(6)
4.29 VMR Debenture, dated as of July 26, 1999(6)
4.30 VMR Security Agreement, dated as of July 26, 1999(6)
4.31 VMR Registration Rights Agreement, dated as of July 26,
1999(6)
4.32 Securities Purchase Agreement between the Company and Hudson
Investors LLC, dated as of August 5, 1999(6)
4.33 Hudson Investors LLC Registration Rights Agreement, dated as
of August 5, 1999(6)
4.34 Hudson Investors LLC Debenture, dated as of August 5,
1999(6)
4.35 Hudson Investors LLC Warrant, dated as of August 5, 1999(6)
4.36 1999 Stock Option, Deferred Stock and Restricted Stock
Plan(7)
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
5.1 Opinion and Consent of Kelly Lytton Mintz & Vann LLP(10)
10.1 Agreement with Mel Giniger(1)
10.2 Agreement with Beyond Distribution PTY. Limited(1)
10.3 Interpublic Group of Companies Contract(1)
10.4 Employment Agreement, dated as of August 1, 1999, between
the Company and Drew Levin(9)
10.5 Lease between the Company and TCW, amended as of March 20,
1998(1)
10.6 Agreement with Alliance Production Ltd. re Total Recall(1)
10.7 Interpublic -- Team Co-financing Agreement(1)
10.8 Miramax Term Sheet(1)
10.9 Agreement with Leucadia Film Corp.(1)
10.10 Agreement with DD Video, dated August 2, 1999(9)
10.11 Dandelion Distribution Ltd., Share Purchase Agreement dated
as of October 1, 1999(9)
10.12 Dandelion Distribution Ltd., Escrow Agreements dated as of
October 1, 1999(10)
10.13 Employment Agreement, dated as of October 1, 1999, between
Dandelion Distribution Ltd., and Noel Cronin(9)
10.14 Employment Agreement, dated as of October 11, 1999, between
Dandelion Distribution Ltd., and John Clutton(9)
10.16 Agreement between the Company and Gontard & MetallBank AG
re: secondary listing and public offering of the Company's
common stock in Germany(9)
10.18 Employment Agreement, dated as of August 17, 1999 between
the Company and Timothy A. Hill(8)
10.19 Employment Agreement dated as November 22, 1998, between the
Company and Jonathan D. Shapiro(4)
10.21 Investment Banking Agreement by and between the Company and
Glen Michael Financial(8)
10.22 Consulting Agreement, dated November 17, 1999 between the
Company, Investor Relations Services, Inc., and Infusion
Capital Investment Corporation(8)
10.23 Agreement with Film Libraries, Inc. dated June 25, 1999 and
Agreement with Film Brokers, Inc., dated June 25, 1999, re:
commission for purchase(6)
10.24 Agreement with Renown Pictures, Ltd., dated as of June 28,
1999(6)
10.25 Financial Consulting Agreement, dated March 15, 1999,
between the Company and Century City Securities, Inc., and
Letter from Company dated July 29, 1999 re: payment under
Financial Consulting Agreement(8)
10.26 Form of Consultants' Warrant for Ralph Olson, Investor
Resource Services, Inc., Aurora Holdings, Inc., Affiliated
Services, Inc., Amber Capital, Inc., and Hedblom Partners,
Ltd.(8)
10.27 Consulting Agreement, dated May 3, 1999 between the Company
and Marathon Consulting Corporation(8)
21 Subsidiaries of the Registrant(1)
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
23.1 Consent of experts and named counsel(9) (consent of Kelly
Lytton Mintz & Vann LLP included in Exhibit 5.1)
23.2 Consent of Barnes Roffe(9)
27 Financial Data Schedule(9)
</TABLE>
- ---------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, file No. 333-26307, effective July 29, 1998.
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated March 29, 1999.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated February 5, 1999.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
dated April 15, 1999.
(5) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated June 8, 1999.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QB dated August 19, 1999.
(7) Incorporated by reference to the Registrant's Definitive Proxy Statement on
Form 14A dated May 28, 1999.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, File No. 333-83217, effective August 27, 1999.
(9) Filed herewith.
(10) To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DSL ENTERTAINMENT GROUP, INC.
The undersigned certifies that:
1. He is the president and the secretary of DSL Entertainment Group, Inc.
2. The Articles of Incorporation of this corporation are amended and
restated in their entirety to read as follows:
I
The name of this corporation is Team Communications Group, Inc.
II
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of California, other than the banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III
A. Capital Stock.
This corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is
authorized to issue is 20,000,000 of which 18,000,000 shares
shall be Common Stock and 2,000,000 shares shall be Preferred
Stock. All Common and Preferred shares shall have no par value.
B. Preferred Stock.
The Preferred Stock may be divided into such number of
series as the board of directors may determine. The board of
directors is authorized to determine and alter the rights,
preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock, and to fix
the number of shares of any series of Preferred Stock and the
designation of any series of Preferred Stock. The board of
directors, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally
fixing the number of shares constituting any series, may
increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
<PAGE> 2
C. Common Stock.
Upon the filing of these Amended and Restated Articles of
Incorporation, each outstanding share of Common Stock is hereby
converted into 0.439 share of Common Stock. In lieu of the
issuance of any fractional shares that would otherwise result
from the reverse stock split effected by the preceding sentence,
the corporation shall pay any shareholder that would otherwise
receive a fractional share, cash equal to the fair value of such
fraction.
IV
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
V
The corporation is authorized to indemnify the directors and officers of
the corporation to the fullest extent permissible under California law.
3. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the board of directors.
4. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902 of the California Corporations Code. The total number of
outstanding shares of the corporation is 2,672,525. The number of shares voting
in favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50%.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Date: January 21, 1997 /s/ DREW S. LEVIN
------------------------------
Drew S. Levin, President
Date: January 21, 1997 /s/ DREW S. LEVIN
------------------------------
Drew S. Levin, Secretary
-2-
<PAGE> 3
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
Team Communications Group, Inc.
The undersigned, Drew S. Levin, the Chairman of the Board and Chief
Executive Officer, and Timothy Hill, the Secretary, of Team Communications
Group, Inc., a corporation duly organized and existing under the laws of the
State of California (the "Company"), do hereby certify:
1. That they are the Chairman of the Board and Chief Executive Officer
and Secretary, respectively, of the Company.
2. Article III A of the Company's Amended and Restated Articles of
Incorporation is hereby amended to read in its entirety as follows:
"A. Capital Stock.
This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
50,000,000 of which 40,000,000 shares shall be Common Stock and
10,000,000 shares shall be Preferred Stock. All shares of Common and
Preferred Stock shall have no par value.
3. The foregoing amendment of the Company's Amended and Restated Articles
of Incorporation has been duly approved by the board of directors of the
Company.
4. The foregoing amendment of the Company's Amended and Restated Articles
of Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the Corporations Code. There are no outstanding
shares of Preferred Stock. The total number of outstanding shares of Common
Stock of the corporation is 3,468,860. The number of shares voting in favor of
the amendment was 2,680,178 shares, which amount equals or exceeds the vote
required. The percentage vote required was more than 50%.
<PAGE> 4
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our knowledge.
/s/ DREW S. LEVIN
--------------------------------------
Drew S. Levin, Chairman of the Board
and Chief Executive Officer
/s/ TIMOTHY HILL
--------------------------------------
Timothy Hill, Secretary
Dated: As of June 11, 1999
2
<PAGE> 1
EXHIBIT 4.4
PROMISSORY NOTE
THIS PROMISSORY NOTE (THE "NOTE") HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1)
A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS.
TEAM COMMUNICATIONS GROUP, INC.
US $4,000,000 PRINCIPAL AMOUNT AS OF SEPTEMBER 29, 1999
TEAM COMMUNICATIONS GROUP, INC. a California corporation (the
"Company"), for value received, hereby promises to pay Gontard & Metallbank, of
Guiollettstrasse 54, 60325 Frankfurt, Germany or registered assigns (the
"Holder"), the principal aggregate amount of US Four Million Dollars
(US$4,000,000.00) together with interest on the unpaid principal balance hereof
at the rate (calculated on the basis of a 360-day year consisting of twelve
30-day months) of ten per cent (10%) per annum, on the scheduled Maturity
Date(s) (as such term is defined below), or such earlier date as may be provided
herein. In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
SECTION 1 PAYMENTS.
(a) All unpaid principal and interest hereunder shall be due and
payable on the sooner of the completion of a public offering of the Company's
common stock in Germany, or December 31, 1999 (the "Maturity Date").
(b) Payments shall be applied first to any costs or expenses, then
to accrued interest and then to principal.
(c) If the Maturity Date falls on a day that is not a Business Day
(as defined below), the payment due on such date will be made on the next
succeeding Business Day with the same force and effect as if made on the
Maturity Date. "Business Day" means any day which is not a Saturday or Sunday
and is not a day on which banking institutions are generally authorized or
obligated to close in the City of Los Angeles, California.
<PAGE> 2
(d) Payments of principal of this Note shall be made by check sent
to the Holder's address set forth above or to such other address as the Holder
may designate for such purpose from time to time by written notice to the
Company, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts.
(e) The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment, or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit,
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of, and without any notice, diligence, act or
omission with respect to, the collection of any amount called for hereunder.
(f) The Company shall pay Holder a flat fee of five per cent (5%)
payable upon the receipt of the signed duplicate of the final credit agreement
between the Company and Holder concerning this Note and the Company's
unrestricted receipt of the principle sum hereunder.
SECTION 2 EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
(a) A default in the payment of the principal on the Note, more than
fourteen (14) calendar days after the same shall become due and payable.
(b) A default in the payment of any interest accrued on the Note,
when and as the same shall become due and payable, which default shall continue
for fourteen calendar days after the date fixed for the making of such interest
payment.
(c) A final judgment or judgments for the payment of money in excess
of $500,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals, or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company shall
not, within such 60-day period, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(d) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment, or composition of, or in respect of,
the Company, under federal bankruptcy law, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency, or other similar
law, and the continuance of any such decree or order unstayed and in effect for
a period of 60 days; or the commencement by the Company of a voluntary case
under federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by it to the institution of bankruptcy or insolvency proceedings
-2-
<PAGE> 3
against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under federal bankruptcy law or any other applicable
federal or state law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator, or
similar official of the Company or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the admission
by it in writing of its inability to pay its debts generally as they become due,
or the taking of corporate action by the Company in furtherance of any such
action.
(e) A default is declared under the terms of any collateral security
agreements.
(f) A default is declared under any other of the Company's
obligations in excess of $500,000 in the aggregate.
(g) A sale of all or substantially all of the assets of the Company.
then, and in every such case, during the continuance of the Event of Default,
the Holder may, without presentment, demand or notice declare the principal of
this Note, together with all unpaid accrued interest thereon, to be immediately
due and payable, and upon any such declaration the same shall become and be
immediately due and payable, anything in this Note to the contrary
notwithstanding. The Holder, if not paid promptly at maturity or acceleration of
this Note, shall be entitled to, and the Company covenants and agrees to pay to
the Holder, such additional amount as shall be sufficient to cover the cost and
expenses of collection of this Note, including, without limitation, reasonable
attorneys' fees and costs. Upon an Event of Default, the Holder may take such
action as it deems desirable for the enforcement and collection of the principal
of, and unpaid accrued interest on, this Note, as well as all additional sums to
which the Holder may be entitled as aforesaid. The Holder's rights hereunder
shall be in addition to any other rights the Holder may have at law or in
equity.
SECTION 3 REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default, the principal amount
then outstanding of, and the accrued and unpaid interest on, this Note shall
automatically become immediately due and payable without presentment, demand,
protest, or other formalities of any kind, all of which are hereby expressly
waived by the Company.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
SECTION 4 MISCELLANEOUS.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by
-3-
<PAGE> 4
Federal Express, Express Mail, or similar overnight delivery or courier service
or delivered (in person or by telecopy, telex, or similar telecommunications
equipment) against receipt to the party to whom it is to be given, (i) if to the
Company, at its address at 12300 Wilshire Boulevard, Suite 400, Los Angeles,
California 90025 Attention: President, (ii) if to the Holder, at its address set
forth on the first page hereof, or (iii) in either case, to such other address
as the party shall have furnished in writing in accordance with the provisions
of this Section 4(a). Any notice or other communication given by certified mail
shall be deemed given at the time of receipt. Any notice given by other means
permitted by this Section 4(a) shall be deemed given at the time of receipt
thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Note (and upon surrender of this
Note if mutilated), the Company shall execute and deliver to the Holder a new
Note of like date, tenor, and denomination.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers, or remedies. No right, power,
or remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power, or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) This Note may be amended only by a written instrument executed
by the Company and the Holder hereof. Any amendment shall be endorsed upon this
Note, and all future Holders shall be bound thereby.
(e) This Note shall be governed by, and construed in accordance
with, the laws of the State of California without giving effect to principles
governing conflicts of law.
(f) In any action or proceeding, the Company waives personal service
of any summons, complaint, or other process and agrees that service thereof may
be made in accordance with Section 5(a). Within 30 days after such service, or
such other time as may be mutually agreed upon in writing by the attorneys for
the parties to such action or proceeding, the Company shall appear or answer
such summons, complaint, or other process. Should the Company fail to appear or
answer within such 30-day period or such extended period, as the case may be,
the Company shall be deemed in default and judgment may be entered against the
Company for the amount as demanded in any summons, complaint, or other process
so served.
(g) Company represents and warrants that: (i) the Company has the
requisite power and authority to execute, deliver and perform each of its
obligations under this Note and to consummate the transactions provided for
herein. (ii) this Note has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of Company, enforceable
against it in accordance with its terms.
(h) If a dispute arises out of, or relates to, this Note, or the
breach thereof, and if said dispute cannot be settled through direct discussion,
the parties agree to first endeavor to settle the dispute in an amicable manner
by mediation under the Commercial Mediation Rules of the American Arbitration
Association before resorting to arbitration. Thereafter, any unresolved
controversy or
-4-
<PAGE> 5
claim arising out of, or relating to, this Note, or a breach thereof, shall be
settled by arbitration in accordance with the Rules of the American Arbitration
Association, and judgment upon the award rendered by the Arbitrator may be
entered in any court having jurisdiction thereof. Any provisional remedy which
would be available from a court of law shall be available to the parties to this
Note from the Arbitrator pending arbitration.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ JONATHAN D. SHAPIRO
--------------------------------------
Jonathan D. Shapiro
Chief Operating Officer
-5-
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of the 1st
day of August, 1999 by and between TEAM COMMUNICATIONS GROUP, INC, a California
company ("Company") and DREW S. LEVIN ("Executive"), in connection with
Company's engagement of Executive's personal services as Chairman of the Board
of Directors and Chief Executive Officer of Company.
1. EMPLOYMENT; DUTIES AND ACCEPTANCE:
(a) Employment by Company.
Company hereby engages Executive, and Executive hereby agrees to
provide to Company, his full-time services as Chairman of the Board of Directors
and Chief Executive Officer on the terms and conditions of this Agreement. In
such capacity Executive will report to, and serve under the direction and
subject to the control of Company's Board of Directors. Throughout the Term (as
hereinafter defined) of this Agreement, Executive shall devote substantially all
of his work time to the employment described hereunder; and Executive shall not
engage in or participate in the operation or management of, or render any
services to, any other business, enterprise or individual, directly or
indirectly.
(b) Acceptance of Employment by the Executive.
The Executive accepts such employment and shall render the
services described in Section 1.(a).
(c) Location of Employment:
Executive shall render his services at Company's offices in Los
Angeles, California; provided, however, that Executive agrees to render his
services at such other locations from time-to-time as the proper performance of
Executive's duties may reasonably require. Notwithstanding the foregoing,
Company's principal offices shall remain in Southern California and Executive
need not relocate to render his duties hereunder.
2. TERM:
The term of Executive's employment hereunder shall be for a
period of five (5) years commencing as of August 1, 1999 and ending on July 31,
2004 (the "Term") unless sooner terminated pursuant to Section 7 hereof
("Termination Sections").
3. COMPENSATION AND BENEFITS:
(a) Salary.
1
<PAGE> 2
During the Term, Executive shall receive a salary (the "Annual
Salary") at the rate of five hundred fifty thousand Dollars ($550,000.00) per
annum. Executive's Annual Salary shall be payable in equal installments on the
Company's normally scheduled pay cycle. Such salary shall be less such
deductions as shall be required to be withheld by applicable law and regulations
and shall be pro-rated for any period that does not constitute a full twelve
(12) month period.
The Annual Salary will increase by four per cent (4%) annually,
on the anniversary date of this agreement.
(b) Bonus.
(i) Executive will receive a one time special bonus of
$250,000 payable on January 2, 2000.
(ii) Beginning with the fiscal year for the period
ending December 31, 1999 (the twelve month period commencing January 1 and
ending December 31 hereinafter referred to as "Fiscal Year"), and continuing
thereafter for each such full or partial Fiscal Year of the Term hereof,
Executive shall receive a bonus in the sum calculated below based upon the "Net
Pre-Tax Earnings" of the Company (the "Bonus"). For any Fiscal Year of the
Company in which Net Pre-Tax Earnings are from one dollar ($1.00) up to, but
not greater than, two million dollars ($2,000,000), Executive shall receive
an amount equal to five percent (5%) of such Net Pre-Tax Earnings of the
Company. For any Fiscal Year of the Company in which Net Pre-Tax Earnings of the
Company are greater than two million dollars ($2,000,000) , Executive shall
receive an amount equal to seven and one half percent (7.5%) of such Net Pre-Tax
Earnings of the Company. For purposes hereof, the term "Net Pre-Tax Earnings"
shall mean that amount as determined by the Company's outside accountant in
accordance with generally accepted accounting principles and such amount shall
specifically be determined after the calculation of the Annual Salary.
(iii) Executive's Bonus shall be paid to Executive on a
quarterly basis, within thirty (30) days following the preparation and filing of
the company's quarterly statements (10Q or equivalents) of Company's accounts
for such relevant period. If such above described accounts are not finalized
within 30 days following the end of any fiscal quarter, then Company shall
within 30 days following the expiration of such 30 day period pay to Executive
his Bonus for such fiscal quarter based upon the most complete information then
available to Company at such date and any adjustment to such amount so paid
shall be made as soon as practical after the accounts are completed and approved
by Company.
(iv) Notwithstanding anything to the contrary contained
above, the Bonus shall be calculated prior to, and without regard to, any other
profit shares or bonus payable to other employees of the Company employed by
Company for such same fiscal quarter.
(c) The Company shall be further obligated to cause to be
granted to Executive 250,000 options to purchase shares of the Companies common
stock under the companies employee stock option plan as in effect as of the date
of this agreement, such options to vest in full as of the date of this
agreement. The Company will also issue 865,000 options to purchase shares of the
2
<PAGE> 3
Companies common stock at the then current market price concurrently with the
closing of the offering in Germany of the Company's common stock that Gontard &
Metallbank is underwriting. Provided however that this grant is subject to
reduction in the event that it exceeds the maximum number of options available
under the plan. All such options will have a term of five (5) years.
(d) Executive will receive on screen credit as Executive
Producer in productions produced or co-produced by the Company, or its
affiliates on which Executive renders such or similar services.
4. PARTICIPATION IN EXECUTIVE BENEFIT PLANS;
(a) Fringe Benefits.
Executive shall be permitted during the Term to participate in
any group life, medical, hospitalization, dental, and disability plans, to the
extent that Executive is eligible under the provisions of such plans, and in any
other plans and benefits, if any, generally maintained by Company for executives
of the stature and rank of Executive during the Term hereof, each in accordance
with the terms and conditions of such plans (collectively referred to herein as
"Fringe Benefits"); provided, however, that Company shall not be required to
establish or maintain any such Fringe Benefits.
(b) Vacation.
Executive shall accrue, in addition to sick days and days in
which Company is closed, paid vacation days at the rate of one and two thirds
(12/3) days per month up to a maximum of twenty (20) work days (four [4] work
weeks). Under no circumstances can Executive accrue more vacation than twenty
(20) work days (the "Ceiling"). Thus, once the maximum amount of paid vacation
time is accrued or earned, no further vacation time is accrued or earned until
after vacation is taken and the amount of Executive's accrued vacation time goes
below the Ceiling as stated above. At that point, Executive will start to accrue
vacation time again until Executive reaches the Ceiling.
Subject to the requirements of Executive's office, Executive shall be entitled
to annual vacation in accordance with the vacation policy of Company.
(c) Expenses.
(i) Company will reimburse Executive for actual and
necessary travel and accommodation costs, entertainment and other business
expenses incurred as a necessary part of discharging the Executive's duties
hereunder, subject to receipt of reasonable and appropriate documentation by
Company. Guidelines for reasonable and normal expenses will be determined by the
compensation committee of the board of directors.
3
<PAGE> 4
(ii) Company shall pay all business related operating
expenses of Executive's automobile, pursuant to Company policy, and shall
further provide Executive with a monthly automobile allowance of $1500.00.
5. CERTAIN COVENANTS OF EXECUTIVE:
Without in any way limiting or waiving any right or remedy
accorded to Company or any limitation placed upon Executive by law, Executive
agrees as follows:
(a) Non-Compete.
Provided that Company is at all times relevant hereto, carrying
on the Business of the Company (as defined below), Executive agrees that during
the Term of this Agreement and for an additional period of one (1) year after
the Term hereof, Executive shall not within the United States directly or
indirectly, in any form, capacity or manner, participate in activities which are
competitive with the Business of the Company (as defined below), or of those
divisions, subsidiaries and affiliated companies of Company (each of which,
including Company, is referred to as a "Protected Company") or have a direct
monetary interest in or invest capital in any competitive company of Company,
whether such interest be by way of (i) ownership, (ii) stock interest, (iii)
financing, (iv) lending arrangements, or (v) in any other form or of any other
nature. Upon the execution of this Agreement and during the Term hereof,
Executive shall disclose to Company any stock owned by him and his family in any
company competitive with a Protected Company; provided, however, Executive shall
not be prohibited from investing in any competitive company, as aforesaid, the
stock of which is publicly traded so long as his and his family's ownership
collectively is nominal and for investment purposes only. For purposes hereof,
the term "Business of the Company" shall mean television production and
distribution. Notwithstanding the foregoing, in the event that a court of
competent jurisdiction determines that the foregoing restriction is invalid,
Executive hereby agrees to indemnify and hold Company harmless from any and all
damages, liabilities, costs, losses and expenses (including legal costs and
reasonable attorneys' fees) arising out of or connected with any claim, demand
or action which is based upon a breach by Executive of the foregoing
restriction. This section shall not be operative in the event that Executive is
terminated by the Company without cause.
(b) Confidential Information.
Executive agrees that, neither during the Term nor at any time
thereafter shall the Executive (i) disclose to any person, firm, or corporation
not employed by any Protected Company or not engaged to render services to any
Protected Company or (ii) use for the benefit of himself, or others, any
confidential information of any Protected Company obtained by the Executive
prior to the execution of this Agreement, during the Term or any time
thereafter, including, without limitation, "know-how" trade secrets, details of
supplier's, manufacturer's, distributor's contracts, pricing policies, financial
data, operational methods, marketing and sales information or strategies,
product development techniques or plans or any strategies relating thereto,
4
<PAGE> 5
technical processes, designs and design projects, and other proprietary
information of any Protected Company; provided, however, that this provision
shall not preclude the Executive from (x) upon advice of counsel, making any
disclosure required by any applicable law or (y) using or disclosing information
known generally to the public (other than information known generally to the
public as a result of any violation of this Section 5.(b) by or on behalf of the
Executive).
(c) Property of Company.
Any interest in trademarks, service marks, copyrights, copyright
applications, patents, patent applications, slogans, developments and processes
which the Executive, during the Term, may develop relating to the Business of
the Company in which the Company may then be engaged and any memoranda, notes,
lists, records and other documents (and all copies thereof) made or compiled by
the Executive or made available to the Executive concerning the business of any
Protected Company shall belong and remain in the possession of any Protected
Company, and shall be delivered to the Company promptly upon the termination of
the Executive's employment with Company or at any other time on request.
(d) Executive will not, for a period of one (1) year after the
Term hereof, induce any person who is an executive, officer or agent of the
Company, to terminate their relationship with the Company.
6. OTHER PROVISIONS;
(a) Rights and Remedies Upon Breach.
If the Executive breaches, or threatens to commit a breach of,
any of the provisions of Section 5. hereof (the "Restrictive Covenants"), the
Company shall have the following rights and remedies, each of which rights and
remedies shall be independent of the other and severally enforceable, and all of
which rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company at law or in equity.
(b) Accounting.
The right and remedy to require the Executive to account for and
pay over to the Company all compensation, profits, monies, accruals, increments
or other benefits (collectively "Benefits") derived or received by the Executive
as a result of any transactions constituting a breach of any of the Restrictive
Covenants, and the Executive shall account for and pay over such Benefits to the
Company.
(c) Severability of Covenants.
If any court determines that any of the Restrictive Covenants,
or any part thereof, is invalid or unenforceable, the remainder of the
Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
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<PAGE> 6
(d) Blue-Pencilling.
If any court construes any of the Restrictive Covenants, or any
part thereof, to be unenforceable because of the duration or geographic scope of
such provision, such court shall have the power to reduce the duration or scope
of such provision and, in its reduced form, such provision shall then be
enforceable.
(e) Enforceability in Jurisdictions.
The parties intend to and hereby confer jurisdiction to enforce
the Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants. If the courts of any one or
more of such jurisdictions hold the Restrictive Covenants unenforceable by
reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect Company's right to
the relief provided in this Section 6 in the courts of any other jurisdiction
within the geographical scope of such Restrictive Covenants, as to breaches of
such Restrictive Covenants in such other respective jurisdictions, such
Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
(f) Executive agrees and understands that the remedy at law for
any breach by Executive of the provisions of Paragraph 5 hereof may be
inadequate and that damages resulting from such breach may not be susceptible to
being measured in monetary terms. Accordingly, it is acknowledged that upon
Executive's breach of any provision of Paragraph 5 hereof, the Company shall be
entitled to seek to obtain from any court of competent jurisdiction injunctive
relief to prevent the continuation of such breach. Nothing contained herein
shall be deemed to limit the Company's remedies at law or in equity for any
breach of the provisions of Paragraph 5 hereof which may be available to the
Company.
7. TERMINATION:
(a) Termination Upon Death or Disability.
If during the Term, Executive should (i) die or (ii) Executive
becomes so physically or mentally disabled whether totally or partially, that
Executive is unable to perform the duties, functions and responsibilities
required hereunder for (aa) a period of three (3) consecutive months or (bb)
shorter periods aggregating to four (4) months within any period of twelve (12)
months ("Disability"), then in such event, Company may, at any time thereafter,
by written notice to Executive, terminate Executive's employment hereunder.
Executive agrees to submit to reasonable medical examinations upon the request
of Company. The existence of Executive's disability for the purposes of this
Agreement shall be determined by a reputable physician selected by Company who
is experienced in the relevant field of medicine. If Executive's services are
terminated, as aforesaid, Executive or the designated beneficiary of Executive,
shall be entitled to receive Executive's base salary, accrued share of the Bonus
for that Fiscal Year and unused vacation (hereinafter collectively referred to
as "Fringe Benefits"), if any, earned through the date of Executive's
termination and continuing thereafter for an additional period of one year.
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<PAGE> 7
(b) Termination for Cause.
Company may terminate this Agreement and Executive's employment
hereunder, without any further obligation to Executive after the date of
termination (except as expressly provided herein) for "cause" which includes,
and shall be limited to, any of the following; (i) a material breach of this
Agreement by Executive; (ii) the failure of Executive to perform services and
duties exclusively for Company (excluding any passive income or unrelated
activities); (iii) a material failure by Executive to comply with any material
rule or regulation of Company reasonably related to his employment (which rule
or regulation has been previously disclosed in writing to Employer); (iv)
Executive's willful insubordination; or (v) Executive's commission of a felony.
Any termination of Executive's services hereunder shall be effected by notice in
writing stating the reason therefor, which notice shall be given to Executive as
provided in Paragraph 11 hereof. To the extent practicable, Executive shall have
the opportunity to cure any breach within forty five (45) days after receiving
written notice thereof from Company. The foregoing cure provision will not be
applicable to conduct which had previously been the subject of such
notification. In the event Executive is terminated for "cause", Company's
obligations to Executive shall be limited to the payment to Executive of the
base salary through such effective date of termination, Executive's accrued
share of the Bonus for that Fiscal Year and all of Executive's Fringe Benefits.
(c) Termination Without Cause.
If the Company terminates this Agreement without cause by
written notice to the Executive:
(i) Executive shall be entitled to receive from the
Company within seven (7) days from the effective date specified in the Company's
notice of termination, a lump sum payment equal to the Annual Salary, unpaid
vacation pay, unreimbursed business expenses, and any other monies payable to
the Executive under any employee benefit plan, in each case earned through the
date of the Executive's termination, and;
(ii) Executive shall have the right to obtain a transfer
of any life insurance policy existing for the benefit of Executive from and
after the effective date specified in the Company's notice of termination
through the last day of the Term, and
(iii) Executive will be paid, as due and scheduled under
this Agreement, as if Executive had not been terminated, one hundred twenty per
cent (120%) of the balance of the Annual Salary payable through the end of the
then current term.
(d) No Duty to Mitigate.
In the event that Executive's services to Company are terminated
for any reason other than as provided in Paragraph 7(b) above prior to the
completion of the Term hereof, or in the event that Executive terminates this
Agreement based upon the Company's material failure to perform its obligations
hereunder, Executive shall have no duty, either express or implied, to mitigate
any damages hereunder and the Company shall remain liable for all compensation
(whether salary, bonus or other benefits) provided for under the terms of this
Agreement. Any compensation earned by Executive in any capacity after the date
of such termination shall not reduce or mitigate
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<PAGE> 8
the amounts payable by the Company hereunder. Nothing herein shall be deemed to
imply that the Company has the right to terminate Executive's services without
cause.
(e) Designation of Beneficiary.
The parties hereto agree that the Executive shall designate, by
written notice to the Company, a beneficiary to receive the payments described
in Section 7. in the event of his death and the designation of any such
beneficiary may be changed by the Executive from time to time by written notice
to the Company. In the event the Executive fails to designate a beneficiary as
herein provided, any payments which are to be made to the Executive's designated
beneficiary under Section 7. shall be made to the Executive's widow, if any,
during her lifetime. If the Executive has no designees or widow, such payments
shall be paid to the Executive's estate.
8. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES:
(a) Right to Enter Into Agreement.
Executive has the unfettered right to enter into this entire
Agreement on all of the terms, covenants and conditions hereof; and Executive
has not done or permitted to be done anything which may curtail or impair any of
the rights granted to Company herein.
(b) Breach Under Other Agreement or Arrangement.
Neither the execution and delivery of this Agreement nor the
performance by Executive of any of his obligations hereunder will constitute a
violation or breach of, or a default under, any agreement, arrangement or
understanding, or any other restriction of any kind, to which Executive is a
party or by which Executive is bound.
9. USE OF NAME:
Company shall have the right during the Term hereof to use
Executive's name, biography and approved likenesses in connection with Company's
business, including advertising their products and services; and Company may
grant such rights to others, but not for use as a direct endorsement.
10. ARBITRATION:
(a) Jurisdiction.
Any dispute whatsoever arising out of or referable to this
Agreement, including, without limitation, any dispute as to the rights and
entitlements and performance of the parties under this Agreement or concerning
the termination of Executive's employment or of this Agreement or its
construction or its validity or enforcement, or as to the arbitrator's
jurisdiction, or as to the arbitrability of any such dispute, shall be submitted
to final and binding arbitration in Los Angeles, California by and pursuant to
the Labor Arbitration Rules of the American Arbitration
8
<PAGE> 9
Association with discovery proceedings pursuant to Section 1283.05 of the
California Code of Civil Procedure. The arbitrator shall be entitled to award
any relief which might be available at law or in equity, including that of a
provisional, permanent or injunctive nature. The prevailing party in such
arbitration as determined by the arbitrator, or in any proceedings in respect
thereof as determined by the person presiding, shall be entitled to receive its
or his reasonable attorneys' fees incurred in connection therewith.
11. NOTICES:
(a) Delivery.
Any notice, consent or other communication under this Agreement
shall be in writing and shall be delivered personally, telexed, sent by
facsimile transmission or overnight courier (regularly providing proof of
delivery) or sent by registered, certified, or express mail and shall be deemed
given when so delivered personally, telexed, sent by facsimile transmission or
overnight courier, or if mailed, two (2) days after the date of deposit in the
United States mail as follows: to the parties at the following addresses (or at
such other address as a party may specify by notice in accordance with the
provisions hereof to the other):
(i) If to Executive, to his address at:
Drew S. Levin
16715 Monte Alto Place
Pacific Palisades CA 90272
(ii) If to Company, to its address at:
TEAM Communications Group, Inc.
12300 Wilshire Boulevard Suite 400
Los Angeles CA 90025
(b) Change of Address.
Either party may change its address for notice hereunder by
notice to the other party in accordance with this Section 11.
12. COMPLETE AGREEMENT; MODIFICATION AND TERMINATION:
This Agreement contains a complete statement of all the
arrangements between the parties with respect to Executive's employment by
Company and supersedes all existing agreements between them concerning
Executive's employment. This Agreement may be amended, modified, superseded or
canceled, and the terms and conditions hereof may be waived, only by a written
instrument signed by the parties or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any such right or remedy, nor any single or
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<PAGE> 10
partial exercise of any such right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.
13. GOVERNING LAW:
This Agreement shall be governed by and construed in accordance
with the law of the State of California applicable to agreements entered into
and performed entirely within such State.
14. HEADINGS:
The headings in this Agreement are solely for the convenience of
reference and shall not affect its interpretation.
WHEREFORE, the parties hereto have executed this Agreement as of the day
and year first above written.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ JONATHAN D. SHAPIRO
---------------------------------
Jonathan D. Shapiro
Agreed to and Accepted:
/s/ DREW S. LEVIN
- ------------------------
Drew S. Levin
10
<PAGE> 1
EXHIBIT 10.10
ACQUISITION AGREEMENT
DATE: August 2, 1999
LICENSOR: DD Video
5 Churchill Court
58 Station Road
North Harrow, Middlesex
ENGLAND HA2 7SA
Tel (44) 181 863 1888
Fax (44) 181 863 0463
LICENSEE: TEAM Communications Group, Inc.
12300 Wilshire Boulevard Suite 400
Los Angeles CA 90025
Tel (310) 442-3500
Fax (310) 442-3501
PROPERTY: The programs listed on the attached schedule 1, collectively
referred to as the "Series".
RIGHTS: Exclusive right for the length of the Term to distribute,
license, sub-license, lease, rent, promote, advertise,
manufacture, publicize, and by manners and forms of electronic
signal, video or consumer goods to exploit the Series in the
Territory, and authorize others to do so, by means of cable,
telephone wire, satellite or any other television (including
interactive), electronic signal through fiber-optic or other
means of transmission to a home video viewing screen, or
telephonic transmission methods, and videogram devices in all
forms and configurations, including without limitation laser
discs, whether now known or invented during the term hereof
TERRITORY: Worldwide outside the United Kingdom.
ACQUISITION
PRICE: In consideration of the Rights to be acquired hereunder, Licensee
will pay to Licensor the sum of US$3,400,000.00, payable as
follows:
a. US$450,000 on or before August 13, 1999.
b. US$737,500 by September 15,1999
c. US$737,500 by December 15, 1999
d. US$737,500 by March 15, 2000
e. The balance of US$737,500 payable by June 15, 2000.
TERM: Commencing on August 2, 1999 and continuing through August 1,
2009. Any sales, or renewals of existing sales made before
cancellation or termination of the agreement would remain in
place until they expire under their own terms, and would continue
to be commissionable to Licensee throughout their respective
terms or
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<PAGE> 2
renewals.
COPYRIGHT
OWNERSHIP:
Licensor will retain ownership of the copyright of the Series
Episodes.
COPYRIGHT AND
TRADEMARK
REGISTRATION:
Licensor will execute an Instrument of Transfer indicating
Licensee's exclusive distribution rights which may be recorded in
the United States Copyright or other pertinent office. The
Licensor will copyright the Series, as well file a trademark
application for the title and title treatment of the Property, if
same has not already been accomplished, and provide documentation
of such registrations.
DISTRIBUTION
AND MARKETING
COSTS: All costs of distribution and marketing the Series within the
Licensee's Territory shall be paid by Licensee.
TITLE TO CREATIVE:
Licensee shall retain ownership to all and any creative work done
relative to advertising or marketing of the Property for which it
advances costs, even after the expiration of the term hereof,
unless the actual and verifiable cost of same has been recouped
by Licensee, in which case title will revert to Licensor.
Licensee will not use such materials in derogation of Licensor's
rights, and Licensor shall have meaningful consultation rights as
to any creative materials developed.
FOREIGN LANGUAGE
TRACKS:
Licensor shall obtain and retain title to any and all foreign
language tracks made by Licensee during the Term hereof.
ACCESS TO
CREATIVE:
Licensor shall have a right to the access and use of Licensee's
creative materials as they relate to the Property during the Term
hereof, provided that Licensor pays the actual cost of the
materials supplied upon its request.
Licensee may have access to any creative materials owned and
previously produced by Licensor for purposes of marketing the
Property, in order to reduce its marketing costs.
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<PAGE> 3
CREDITS:
Licensee shall use the credit block provided by Licensor on the
packaging boxes and advertising materials. Licensee shall not
alter the copyright on the Properties but may add its own logo in
all advertising and promotion. Licensee shall include Licensor's
logo in all advertising and promotion of the Property.
REPRESENTATIONS
AND WARRANTIES:
1. Licensor controls, and throughout the Term hereof shall
control, performance, exhibition, advertising and all other
rights granted to Licensee hereunder in and to all literary,
dramatic and musical material contained in the Property or upon
which the Property is based and Licensor has obtained all
necessary licenses and permissions as may be required for the
full and unlimited exercise of Licensee throughout the Territory
for the Term.
2. All obligations with respect to the Series and the production,
prior distribution and exploitation thereof, including but not
limited to, all salaries, royalties, license fees service charges
and laboratory charges will be fully paid by Licensor and
Licensor does hereby indemnify Licensee therefor according to the
Indemnifications provision set forth herein. Licensee shall not
have any obligation for past, current or future salaries,
royalties and residuals.
3. All obligations with respect to the Series and the production
thereof, including but not limited to, all salaries, royalties,
license fees, service charges and laboratory charges were fully
paid and Licensor does hereby indemnify Licensee against any and
all residuals or royalties payable therefor.
4. Licensor shall deliver, or cause to be delivered, at
Licensee's office, or such other place as Licensee may designate,
all delivery materials specified herein below in a timely
fashion.
5. Licensor shall deliver the Property, and each portion thereof,
to Licensee free of liens in the Territory, and does specifically
represent and warrant that there are no liens on the Property and
Licensor will fully indemnify Licensee against any breach of this
representation.
6. The Property has never before been exploited exhibited in the
Territory as to any Rights granted herein.
7. Licensor specifically represents and warrants Schedules 1 and
2 to be accurate and complete, and does hereby indemnify and hold
harmless Licensee from any inaccuracies of such Schedules,
knowing and intending that Licensee will rely on said Schedules
in exploiting its rights hereunder.
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<PAGE> 4
8. Licensor have specifically obtained the requisite releases and
permission as to name, image, voice and likeness of talent
appearing in the Series and on any or all marketing and
advertising materials therefor.
NAME, IMAGE AND
LIKENESS:
Licensor have secured permission to use the name, voice, image
and likeness of all talent (as long as same is not for promotion
of a particular consumer product) and directly represents it has
the right to license such usage to Licensor under the terms
hereof, and subject only to limitations of the written
requirements submitted (if any) by Licensor to Licensee
simultaneous with the execution hereof
INDEMNIFICATIONS:
Each party (the "Indemnifying Party") shall indemnify and hold
the other party, its affiliates and their respective employees,
officers, agents, attorneys, stockholders and directors, and
their respective successors, licensee and assigns ("indemnified
Parties") harmless from and against (and shall pay, as incurred)
any and all claims, proceedings, actions, damages, costs,
expenses and other liabilities and losses of whatever kind or
nature ("Claim(s)") incurred by, threatened against, imposed or
filed against any Indemnified Party caused by any breach (or,
with respect to third party claims, any alleged breach by the
Indemnifying Party of any representation, materials term,
warranty or agreement hereunder. Neither party shall settle,
compromise or consent to the entry of any judgment in or
otherwise seek to terminate any pending or threatened Claim in
respect of which the Indemnified Party is entitled to
indemnification hereunder, without the prior written consent of
the other party; provided, however, that the Indemnifying Party
shall be entitled to settle any claim without the written consent
of the Indemnified Party so long as such settlement only involves
the payment of money by the Indemnifying Party and in no way
affects any rights of the Indemnified Party.
INSURANCE:
Licensor will arrange to secure an Errors and Omissions policy of
insurance with respect to the Property which has limits of not
less than $1,000,000/$3,000,000, with a deductible of not more
than $10,000. Licensor agrees that Licensee shall be named as an
insured on said policy. If Licensor does not purchase such
policy, then Licensee may purchase same and recoup the actual and
direct cost of same from Licensor's share of Gross Receipts,
together with interest thereon at a rate which is 2% above the
then prime lending rate.
DELIVERY
MATERIALS:
Timely delivery of technically satisfactory version of the
following constitute
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<PAGE> 5
Delivery hereunder, which Delivery is a condition precedent to
all other terms and conditions of this Deal Memo:
(i) Lab Access to, and successful transfer of, one NTSC or PAL
version of the Property, with comp. audio on channel 1 and music
and effects on channel 2.
(ii) Lab Access to, and successful quality controlled transfer of
One PAL or NTSC of the trailer of the Series.
(iii) Credit requirements of the Property.
(iv) Music Cue Sheet of the Property;
(v) Errors and Omissions Insurance Certificate, according to the
Insurance paragraph.
(vi) Synopsis of the Property;
(vii) Right to access audio track elements at audio vault/labs,
if requested by Licensee, as necessary,
(viii) U.S. copyright certificate, or application therefor, and
assignment of copyright to Licensee.
(ix) English language script of the Property.
(x) Certificate of Origin of the Property.
REPORTING:
Licensee will render, or cause to be rendered to Licensor
quarterly accounting statements, within forty-five (45) days of
the last day of the respective quarterly calendar accounting
period. The first such accounting period for which reporting is
required hereunder is that quarter within which the commencement
of this Agreement falls. All monies due and payable to Licensor
pursuant to this Agreement will be paid to Licensor
simultaneously with the rendering of such statement.
AUDIT RIGHTS:
Licensor may audit the books and records of Licensee, at
reasonable times and places (i.e., during normal business hours)
after giving Licensee thirty (30) days prior written notice of
its intention to do so. Licensor may audit such records, entirely
at Licensor's sole cost and expense no more frequently than once
every twelve (12) months. and owing to third parties. If two or
more consecutive audits show a discrepancy of 10% or more,
Licensor shall have the right to terminate the Agreement, subject
to a settlement of accounts in connection with the exploitation
of the Property up to the date of such termination.
NOTICES:
All notices hereunder shall be in writing, addressed to the party
as indicated below. Any written notice (a "Notice") shall be
effective one day after delivery of same. A Notice may be
communicated by facsimile, with printed receipt for transmission
thereof, by federal express or other overnight courier
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<PAGE> 6
service with proof of personal delivery thereof, or by certified
mail, return receipt requested with proof of delivery thereof.
All Notices shall be sent:
If to Licensee:
TEAM Communications Group, Inc.
12300 Wilshire Boulevard Suite 400
Los Angeles CA 90025
Tel: (310) 442-3500
Fax: (310) 442-3501
If to Licensor:
DD Video
5 Churchill Court
58 Station Road
North Harrow, Middlesex
ENGLAND HA2 7SA
Tel: (44) 181 863 1888
Fax: (44) 181 863 0463
ARBITRATION
PROVISION:
In the event of any dispute hereunder, the parties will submit
the issued in controversy to binding arbitration at an impartial
hearing conducted by an arbitration panel according to the
American Arbitration Association and the rules thereby
prescribed.
LIEN ON FILM
ELEMENTS UNTIL
RECOUPMENT:
Licensee shall have a sole and first priority lien on all
elements of the Series until such time as Advanced costs paid
hereunder is recouped, at which time such lien will be released.
ASSIGNMENT:
The right to payment and/or recoupment hereunder may be assigned,
with prior written notice to Licensor, by Licensee, but the
obligations hereby undertaken may not be assigned by any party
without the prior written consent of all others.
FORCE MAJEURE:
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Neither company nor distributor will be liable for failure to
perform its part of this agreement when the failure is due to
fire, flood, strikes, or other industrial disturbances,
inevitable accident, war, riot, insurrection, or other causes
beyond the reasonable control of the parties.
CANCELLATION FOR CAUSE:
Either party may cancel this agreement in the event the other
party is in default of any of the material provisions of this
agreement, and such default is not cured within thirty (30)
[number of days allowed to cure default] days of receipt by such
other party of written notice from the party giving notice
specifying the nature of such default and corrective action that
may be taken, if any.
FOR: Renown Pictures, Ltd.
"Licensee"
BY: /s/ DREW S. LEVIN
--------------------------------
Drew S. Levin
FOR: TEAM Communications Group, Inc.
"Licensor"
BY: /s/ B. SMITH
---------------------------------
B. Smith
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Schedule 1-1
1. COMBAT IN THE AIR (35 X 26')
US STRIKE FORCE CARRIER
CLOSE AIR SUPPORT IN THE GULF
STEALTH WARPLANES
MIRAGE 2000
SUPERFIGHTERS
ANTI-SHIP STRIKE
RUSSIAN AIR FORCES
AIR WAR NORTH VIETNAM
GULF STRATEGIC AIR CAMPAIGN
U8 STRATEGIC BOMBERS
FRENCH CARRIER OPERATIONS
AIR WAR EUROPE 1944-46
COLD WAR INTERCEPTORS
CARRIER AIR DEFENCE
CLOSE AIR SUPPORT IN VIETNAM
HELICOPTER GUN SHIPS
BOMBERS OVER GERMANY
HI-TECH AIR WAR
NORTH AMERICAN FIGHTER DEFENCE
AIR ASSAULT
WORLD WAR TWO DOGFIGHTS
EUROPE'S ATOMIC BOMBERS
ISRAELI AIR POWER IN ACTION
VIETNAM -- HELICOPTER WAR
LIFE ON A SUPERCARRIER
AIR WAR IN THE PACIFIC
DASSAULT DYNASTY
RED FLAG
WORLD WAR II NIGHT HEAVY BOMBERS
ANTI-SUBMARINE WARFARE
SEARCH AND RESCUE
AIR WAR OVER KOREA
LIFE OF A SUPERWING
TOP GUN
DASSAULT RAFALE
<PAGE> 9
Schedule 1-2
2. FAMOUS PLANES (38 episodes - total series)
SPITFIRE
HURRICANE
HARRIER
TORNADO
LANCASTER
B17 FLYING FORTRESS
MOSQUITO
P51 MUSTANG
B25 MITCHELL
B29 SUPERFORTRESS
P47 THUNDERBOLT
HELLCAT
P88 LIGHTNING
P-40 WARHAWK
WELLINGTON
BLENHEIM
B24 LIBERATOR
B20 MARAUDER
F4 PHANTOM
BUCCANEER
VICTOR
VULCAN
HUNTER
LIGHTNING INTERCEPTOR
JAGUAR
TSR2
F14 TOMCAT
FA18 HORNET
F15 EAGLE
F16 FALCON
F117 STEALTH
B2 SPIRIT
CANBERRA
B36 PEACEMAKER
F105 THUNDERCHIEF
F111 AARDVARK
B52 STRATOFFORTRESS
B1 LANCER
<PAGE> 10
Schedule 1-3
3. AIRBORNE (4 x 48')
ALL THE WAY
DESTINATION BERLIN
LEARNING THE HARD WAY
UNDER EASTERN SKIES
4. BATTLE FOR THE SKIES (7 x 52')
A VICIOUS STING
BY AIR, BY SEA
STRIKE HARD, STRIKE SURE
SUPPLIES FROM THE SKIES
THE SKY'S THE LIMIT
UNDER DISTANT SKIES
USELESS FOR THE PURPOSE OF WAR
5. BATTLE FOR THE SKIES SPECIALS (4 X 60')
BRITAIN'S V-BOMBERS
LIGHTNING INTERCEPTOR
SPITFIRE: POWER, GRACE AND GLORY
VICKERS SUPERMARINE
6. AIRSTRIKE (3 x 82')
AIR TO AIR COMBAT
AIR TO GROUND COMBAT
MISSILE AND CHOPPER ATTACK
7. WINGTIP TO WINGTIP (6 x 26')
BLUE ANGELS
CANADIAN SNOW BIRDS
FRECCE TRICOLORI
PATROUILLE DE FRANCE
RED ARROWS
THUNDERBIRDS
8. ULTIMATE PROFILE (5 x 62')
HARRIER
PHANTOM
CONCORDE (80')
JAGUAR Available October '99
CANBERRA Available October '99
<PAGE> 11
Schedule 1-4
9. AIRSHOW WORLD (6 x 48') Monthly delivery from August '99
10. CENTURY OF FLIGHT (2 x 52') Available September '99
11. SECOND WORLD WAR (2 x 52') Available September '99
Documentary Single Hour Specials
1. AIRBUS
2. ARK ROYALS
3. BATTLE FOR THE ATLANTIC
4. BATTLE OF THE BULGE
5. BEHIND THE BALACLAVA
6. BERLIN AIRLIFT
7. BLENHEIM AT WAR AND AT PEACE
8. BOSNIA AIR WAR
9. BRITAIN'S VICTORY IN EUROPE
10. BRITISH AIR TRAVEL
11. BUCCANEER
12. DAMBUSTERS
13. D-DAY HEROES
14. D-DAY SECRET BATTLE
15. ENGLISH ELECTRIC LIGHTNING
16. GULF AIR WAR
17. ON TIME ON TARGET
18. OVER THERE
19. SPITFIRE STORY
20. SUKHOI SU 27
<PAGE> 1
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
BY AND AMONG
TEAM COMMUNICATIONS GROUP, INC.
A CALIFORNIA CORPORATION,
DANDELION DISTRIBUTION LTD.
A UNITED KINGDOM CORPORATION,
AND
NOEL CRONIN
DATED AS OF OCTOBER 1, 1999
<PAGE> 2
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (the "AGREEMENT") is made the 1st day
of October 1999 between Noel Cronin (the "SELLING SHAREHOLDER"), Team
Communications Group, Inc. ("PURCHASER"), and Dandelion Distribution Ltd. (the
"COMPANY").
RECITALS
A. The Selling Shareholder owns an aggregate of 200 ordinary shares of
Pound Sterling 1 each in the capital of the Company (the "COMPANY SHARES"),
representing, as included on Schedule A hereto, the entire issued share capital
of the Company.
B. The Selling Shareholder wishes to sell, and Purchaser wishes to
purchase, the Shares for the consideration set forth in Article III hereof (the
"PURCHASE PRICE").
C. The Company, the Selling Shareholder and Purchaser desire to make
certain representations and warranties and other agreements in connection with
the transactions contemplated hereby.
D. At the Closing (as hereinafter defined), the Company shall enter into
an employment and non-competition agreements substantially in the form attached
hereto as Schedule B (respectively the "CRONIN EMPLOYMENT AGREEMENT" and the
"CLUTTON EMPLOYMENT AGREEMENT").
E. At the Closing, the appropriate parties hereto shall execute: (a) the
stock indemnification escrow agreement with Chase Manhattan Bank, Citibank or a
London clearing bank substantially in the form attached hereto as Schedule C
(the "Indemnification Escrow Agreement") relating to the common stock portion of
the Purchase Price, and (b) the cash indemnification escrow agreement with Chase
Manhattan Bank, Citibank or a London clearing bank substantially in the form
attached hereto as Schedule D (the "Cash Escrow Agreement") hereto relating to
the cash portion of the Purchase Price to be used in respect of any adjustments
required by Section 3.3 hereof.
F. All references to dollars in this Agreement shall mean U.S. dollars.
NOW, THEREFORE, in consideration of the covenants, representations,
warranties and other provisions set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"ACCOUNTS DATE" shall mean 31st July, 1999.
"AFFILIATE" shall mean any other person or entity controlling,
controlled by or under common control with the Company.
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<PAGE> 3
"COMPANY EMPLOYEE PLAN" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for bonuses,
severance, termination pay, performance awards, share options, stock or
stock-related awards, fringe benefits or other employee benefits of any kind,
whether formal or informal, funded or unfunded and whether or not legally
binding, pursuant to which the Company or any Affiliate has or may have any
material liability, contingent or otherwise.
"COMPANY SHARES" shall have the meaning set forth in Recital A.
"DISCLOSURE LETTER" shall mean the disclosure letter from Graham Harvey
to Marriott Harrison of even date.
"EMPLOYEE" shall mean any current, former, or retired employee, officer,
or director of the Company or any Affiliate.
"EMPLOYEE AGREEMENT" shall refer to each employment, severance,
consulting or similar agreement or contract between the Company or any Affiliate
and any Employee.
"FILM" shall mean any and every motion picture or television tape
(including cartoons or other animated features) or other recording of moving
images by any means, manner, process or device now known or hereafter devised.
"FILM ASSETS" shall mean all rights and interests granted to or acquired
by the Company in connection with or related to the distribution or exploitation
of, or otherwise respecting, any Film, including, but not limited to: any
distribution rights, license rights, and rights as a subdistributor or
sublicensee; all rights to distribute, sublicense, copy, exhibit, transmit,
broadcast, package, edit, reformat, advertise or exploit a Film, in any and all
media, and any syndication, television or cable television rights; all
copyrights or interests in any copyright on or relating to a Film; and any
collateral, allied, subsidiary or merchandising rights appurtenant or related to
a Film. Film Assets shall include, with respect to any Film whether produced or
in development (as such term is understood in the entertainment industry as
conducted as of the date hereof in London) the following: all scenarios,
screenplays or scripts upon which any Film is based, all of the properties
thereof, tangible and intangible, whether now in existence or hereafter to be
made or produced and whether or not in possession of Company, and any rights
therein and thereto, of every kind and character, including, without limiting
the foregoing language, each and all of the following particular rights and
properties:
(i) all scenarios, screenplays and/or scripts at every stage of
the development of the Film;
(ii) all common law and statutory copyright and other rights in
all literary and other properties ("Literary Properties") that form the basis of
the Film or which are or will be incorporated into the Film, all component parts
of the same Film consisting of the Literary Properties and other properties, all
Film rights in and to the story, all treatments of said story and other literary
material, together with all preliminary and final screenplays used and to be
used in connection with the Film, and all other literary material upon which the
Film is based or from which it is adapted;
(iii) all Film rights in and to all music and musical
compositions connected with the Film, including, without limitation, all rights
to record, re-record, produce, reproduce, or synchronize all of said music and
musical compositions in and in connection with Films; and
(iv) all Physical Properties.
"NET ASSETS" shall have the meaning set forth in Section 3.3.
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<PAGE> 4
"PHYSICAL PROPERTIES" shall mean all film negatives, prints, pre-print
and/or soundtrack materials and other physical materials relating to any Film;
"REAL PROPERTY" shall mean the property as described in Schedule F;
"RECEIVABLES" shall mean all of the Company's trade debtors,
receivables, note receivables and other accounts receivable including all
written contracts, orders and arrangements between the Company and third parties
respecting the purchase of goods or services from the Company as the same may
exist at the time of Closing;
"RELATED AGREEMENTS" shall mean the Indemnification Escrow Agreement,
Cash Escrow Agreement, the Cronin Employment Agreement and the Clutton
Employment Agreement.
"SUBSIDIARY" shall have the meaning set forth in Section 4.3.
"TAX" and "TAXATION" means all forms of taxation, duties, imposts,
contributions levies, charges or withholdings of whatever nature (including
without limitation PAYE, national insurance, social security and other similar
contributions), imposed by any Tax Authority and whether now in force or
hereinafter imposed or hitherto imposed and any payment whatsoever which the
Company may be or become bound to make to any person as a result of the
discharge by that person of any tax which the Company has failed to discharge,
and any interest, surcharge, penalty or fine in connection therewith or in
connection with any late or incorrect form, record, return or computation in
respect of any of them and regardless of whether any such taxes, duties,
imposts, contributions, levies, charges, withholdings, interest, penalties or
fines are chargeable directly or primarily against or attributable directly or
primarily to the Company or any other person and of whether any amount in
respect of any of them is recoverable from any other person;
"TAX AUTHORITY" and "TAXATION AUTHORITY" means any authorized
governmental regulatory or administrative body agency authority or official
whether local, municipal, state, federal, provincial, national or supranational
(whether of the United Kingdom or elsewhere) competent to impose, assess,
collect or administer Taxation and without prejudice to the generality of the
foregoing shall include the Inland Revenue, HM Customs and Excise and the
Contributions Agency;
"TAXES ACT" means the Income and Corporation Taxes Act 1988;
"TAX COVENANT" means the tax covenant set out in Schedule G;
"TAX LIABILITY" has the same meaning as is attributed thereto in
Schedule G;
"TCGA" means the Taxation of Chargeable Gains Act 1992;
"TEAM SHARES" shall have the meaning set forth in Section 3.1(b) below;
"VATA" means the Value Added Tax Act 1994.
ARTICLE II
THE SALE OF THE SHARES
2.1 The Sale of the Company Shares. (a) At the Closing (as defined in
Section 2.2) and subject to and upon the terms and conditions of this Agreement,
the Selling Shareholder agrees to sell to
3
<PAGE> 5
the Purchaser with full title guarantee, and the Purchaser agrees to purchase
from the Selling Shareholder, all of the Company Shares, as described on
Schedule A hereto, which constitute all of the issued and outstanding capital
stock of the Company for the consideration (the "PURCHASE PRICE") set forth in
Article III hereof, subject to the provisions contained herein.
2.2 Closing; Closing Date. Unless this Agreement is earlier terminated
pursuant to Section 10.1, the closing of the transactions contemplated hereby
(the "CLOSING") will take place as promptly as practicable, but no later than
five (5) business days following satisfaction or waiver of the conditions set
forth in Article VII, at the offices of Marriott Harrison, London, England,
unless another place or time is agreed to in writing by Purchaser and the
Selling Shareholder. The date upon which the Closing actually occurs is herein
referred to as the "CLOSING DATE."
2.3 Delivery. At the Closing, the Selling Shareholder will deliver to
the Purchaser, against delivery of the Purchase Price in accordance with Article
III hereof, each of the following:
(a) duly executed transfers in respect of the Company Shares in
favor of the Purchaser or such person as the Purchaser may nominate and share
certificates for the Company Shares in the name of the relevant transferors and
duly executed transfers for any shares in any subsidiary of the Company
beneficially owned by the Company which are not registered in the name of the
Company, in favor of the Purchaser or such person as the Purchaser may nominate;
(b) the statutory books (which shall be written up to but not
including the Closing Date), the Certificate of Incorporation (and any
Certificate of Incorporation on Change of Name) and common seal (if any) of the
Company and each Subsidiary and share certificates in respect of all the issued
share capital of each Subsidiary and Associated Company which is owned directly
or indirectly by the Company;
(c) the title deeds relating to the Real Property;
(d) copies of the signed audited accounts of the Company as at
the Accounts Date and copies (signed by the auditors) of the letters from the
auditors of the Company referred to in Clause 2.3(g) below;
(e) a certificate from each of the banks at which the Company or
any Subsidiary maintains an account, stating the amount standing to the credit
or debit of each such account as at the close of business on the business day
prior to the Closing Date together with reconciliation statements prepared by
the Selling Shareholder, reconciling such amounts with the cash book balances of
the Company at the close of business on the last business day prior to the
Closing Date;
(f) resignations of the present directors and secretary of the
Company (other than any director or secretary whom the Purchaser may wish should
continue in office) of their offices as such in which they also relinquish any
rights which they have under any contract of employment with the Company or
under any statutory provision including any right to damages for wrongful
dismissal, redundancy payment or compensation for loss of office or unfair
dismissal, such resignations to be tendered at the board meeting referred to at
Clause 2.3(h) below;
(g) resignations of the present auditors of the Company of their
office as such in the form of a letter to be deposited at the registered office
of the Company notifying their resignation, acknowledging that they have no
claim against the Company and containing a statement pursuant to Section 394(l)
of the Companies Act 1985 that there are no circumstances connected with their
ceasing to hold office which they consider should be brought to the attention of
any members or creditors;
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<PAGE> 6
(h) minutes of a board meeting of the Company to be held
immediately prior to the Closing at which:
(aa) it shall be resolved that the transfer relating to the
Company Shares shall be approved for registration and (subject
only to the transfer being duly stamped) each transferee
registered as the holder of the Company Shares concerned in the
register of members;
(bb) each of the persons nominated by the Purchaser shall be
appointed directors and/or secretary, as the Purchaser shall
direct;
(cc) all existing instructions to banks shall be revoked and new
instructions shall be given to such banks in such form as the
Purchaser may direct;
(dd) the situation of the registered office shall be changed to
such address as the Purchaser may nominate and (subject to the
provisions of the Companies Acts) the accounting reference date
shall be changed in accordance with any instructions given by
the Purchaser;
(ee) the resignations referred to in Clauses 2.3(f) and 2.3(g)
shall be tendered and accepted so as to take effect at the close
of the meeting;
2.4 Related Agreements. At the Closing, the parties hereto shall execute
and deliver the Related Agreements.
2.5 Book Value as at Closing. The Selling Shareholder represents that
the Net Assets of the Company (as defined in Section 3.3), at Closing Date is
not less than Pound Sterling 929,711, being the Net Book Value of the Company on
the same basis as shown in the draft audited accounts of the Company, for the
period ended 31st July, 1999 (save in respect of a bonus of Pound
Sterling 150,000 payable to John Clutton as agreed by the Company on 30th
September 1999) provided that nothing contained in this Section 2.5 shall be
construed as any waiver by Purchaser of any breach by the Selling Shareholder of
any other representation or warranty contained herein.
ARTICLE III
CONSIDERATION TO BE PAID
AND RELATED MATTERS
3.1 Conditions Precedent. On or before the Closing Date, the Company
will transfer to the Selling Shareholder (or such person as he nominates) each
of the assets listed on Schedule E the ("Transferred Assets"). Such transfer
shall be in form and substance satisfactory to Purchaser and its counsel, and
shall have no adverse tax liability or financial impact to the Purchaser.
3.2 Closing Purchase Price; Other Matters. Subject to the terms and
conditions set forth herein, in consideration for the sale of the Shares,
Purchaser will deliver at the Closing the following consideration (collectively,
the "CLOSING PURCHASE PRICE"):
(a) An aggregate of $2,500,000 in cash, (i) $625,000 which shall
be paid by wire transfer of immediately available U.S. Dollars to the Selling
Shareholder's bank account pursuant to the wire instructions set forth on
Schedule A hereto, and (ii) $1,875,000 which shall be paid into the Cash Escrow
Account (as defined below in this Section 3.1); and
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<PAGE> 7
(b) A certificate or certificates representing such number of
shares (the "TEAM SHARES") of the Purchaser's Common Stock registered in the
name of the Selling Shareholder, as is determined by reference to the following
formula: number of shares = $2,500,000/Share Price. "Share Price" equals the
average of the bid and ask price for each of the five business days immediately
preceding the Closing Date, as determined on the principal stock exchange on
which the Team Shares trade which shall be delivered to the Escrow Agent, as
defined in and pursuant to the Indemnification Escrow Agreement.
(c) The Purchaser hereby undertakes to the Selling Shareholder
that if on the date which is the second anniversary of the Closing Date ("the
Valuation Date") the Value of the Team Shares is less than $3,000,000 ("the
Target Value"), it shall pay to the Selling Shareholder the sum of $250,000;
provided that if any of the Team Shares have been withdrawn from the
Indemnification Escrow Account in order to satisfy a claim under this Agreement
or if for any other reason by agreement between the parties the number of Team
Shares in the Indemnification Escrow Account has been reduced (all as provided
in the Indemnification Escrow Agreement) then the Target Value shall be reduced
by a proportion equal to the proportion which the number of Team Shares in
remaining in the Indemnification Escrow Account is of the number of Team Shares
placed in such account on Closing and the amount to be paid shall be the same
proportion of $250,000. For the purposes of this Section 3.2(c) "the Value" of
the relevant Team Shares shall calculated as an average of the bid and ask price
for each of the five business days immediately preceding the Valuation Date, as
determined on the principal stock exchange on which the Team Shares trade.
3.3 On the Closing Date, Purchaser, Selling Shareholder and the Escrow
Agent shall execute the Cash Escrow Agreement, substantially in the form
attached hereto as Schedule D, relating to the $1,875,000 (collectively, the
"ESCROW AMOUNT") to be deposited in an escrow account (the "CASH ESCROW
ACCOUNT") at the Closing and the Indemnification Escrow Agreement, substantially
in the form attached hereto as Schedule C relating to the Team Shares so that
the holding of the Escrow Amount and the Team Shares shall be administered in
accordance with the Cash Escrow Agreement and the Indemnification Escrow
Agreement, respectively. The Escrow Agent shall administer the Indemnification
Escrow Account, as it may exist from time to time, on behalf of the Purchaser
and the Selling Shareholder, subject to the Indemnification Escrow Agreement,
for the purposes of securing Selling Shareholder's indemnity obligations under
Article VIII and Section 3.3.
3.4 Cash Amount Adjustment.
(a) Preparation of Net Asset Report. Within 28 days after
Closing, the Selling Shareholder will cause the Dartford office of Barnes Roffe
(the "Selling Shareholder's Accountants"), to furnish, at the Selling
Shareholder's sole cost and expense, to Purchaser and Selling Shareholder a
report (the "Barnes Roffe Net Asset Report"), which shall set forth the "Net
Assets" (as defined below) of the Company as of the Closing Date. The Barnes
Roffe Net Asset Report shall indicate the procedures employed by the Selling
Shareholder's Accountants in preparing the Barnes Roffe Net Asset Report and
shall contain such other financial information and methods of calculation as may
be reasonably necessary for the Purchaser to evaluate the accuracy thereof.
The Purchaser shall have a period of ten (10) days after receipt
of the Barnes Roffe Net Asset Report to notify the Selling Shareholder and the
Company of its election to accept the Barnes Roffe Net Asset Report or to
request that F W Stephens, the Purchaser's Accountant, prepare an alternate Net
Asset Report (the "F W Stephens Net Asset Report"). In the event no notice is
received by the Company and the Selling Shareholder during such ten (10) day
period, the Barnes Roffe Net Asset Report shall be deemed accepted by Purchaser.
If so requested, F W Stephens shall have thirty (30) days in which to prepare
the F W Stephens Net Asset Report. The Selling Shareholder shall have ten (10)
days after
6
<PAGE> 8
receipt of the F W Stephens Net Asset Report in which to notify Purchaser of its
decision to accept or reject the F W Stephens Net Asset Report (and in the case
of rejection, there shall be included in such notice the reasons for such
rejection in reasonable detail). In the event no notice is received by the
Purchaser during such ten (10) day period, the F W Stephens Net Asset Report
shall be deemed accepted by the Selling Shareholder. In the event the Selling
Shareholder shall timely reject the F W Stephens Net Asset Report, Purchaser and
the Selling Shareholder shall use all reasonable efforts to resolve all
disagreements as to the respective Net Asset Report Reports in good faith. If no
settlement is reached within fifteen (15) days after the timely rejection of the
F W Stephens Net Asset Report by Selling Shareholder, Purchaser and Selling
Shareholder shall arbitrate a determination of Net Asset Report for the
Evaluation Period, in London. The arbitration shall be conducted by one
arbitrator mutually and reasonably acceptable to both Selling Shareholder and
Purchaser. The arbitrator shall have at least ten (10) years accounting and
financial experience in the Company's industry. In the event that an arbitrator
cannot be selected, one of the remaining big five (5) international firms shall
be selected at random. In any event, the arbitrator shall be selected in five
(5) days. The arbitration shall commence within five (5) business days from the
selection of an arbitrator, and, the parties shall use their best efforts to
conclude the arbitration within ten (10) days. The arbitrator shall then deliver
a preliminary decision, detailing findings of fact and conclusions as to the
calculation of Net Asset Report to each of the parties (the "Preliminary
Decision"). Within five (5) days after receipt of the Preliminary Decision, the
Purchaser and Selling Shareholder may object, in writing, to any of the contents
of the Preliminary Decision. The arbitrator shall take into account any
objection so received, and shall deliver within an additional five (5) days a
final decision, specifying the facts relied upon and conclusions as to the
calculation of Net Asset Report (the "Final Decision") to the parties. The
decision of the arbitrator contained in the Final Decision shall be binding and
conclusive upon the parties. All costs of the arbitrator shall be borne by the
Company, and the parties shall bear their individual costs and expenses,
including any attorneys' fees. The date on which the Net Asset Report is
accepted by the Purchaser or Selling Shareholder, deemed accepted by virtue of
expiration of any applicable Net Asset Report rejection period, or deemed
accepted by virtue of resolution of any disagreement regarding the Net Asset
Report in accordance with this Section 3.3 shall be referred to hereinafter as
the "Report Date." Assuming the timely delivery of the Barnes Roffe Net Asset
Report, in the event there has been no final decision on or before January 1,
2000, Selling Shareholder shall be entitled to receive the First Installment
Amount, and all installment amount adjustments will be made against subsequent
Installment Amounts.
The calculation of Net Asset Report hereunder by Barnes Roffe
and F W Stephens shall be made in a manner consistent with UK GAAP and, to the
extent not inconsistent therewith, the Company's past accounting policies and
practices provided that in any event (i) there shall be no revaluation of fixed
assets, (ii) the amounts due from String of Pearls PLC and String of Pearls II
PLC shall be included at the same value as in the draft audited accounts of the
Company for the year ended 31st July, 1999 and (iii) the liability in relation
to Four Star shall be treated in the same manner as in such draft audited
accounts.
(b) Net Asset Report-Based Adjustments to Installment Amounts.
If the aggregate dollar value of Net Assets in the final report
is less than Pound Sterling 929,711, then the cash portion of the Purchase Price
shall be reduced on a by an amount (expressed in dollars) equal to such the
amount by which the Net Asset Value is less than Pound Sterling 929,711 (and for
these purposes the pound to dollar exchange rate shall be the spot rate of
exchange for the purchase of US dollars with sterling quoted by Barclays Bank
PLC (or such other bank as may be agreed between the parties) at or about 11.00
a.m. on the Closing Date).
3.5 Tax Adjustment. Notwithstanding any other provision of this
Agreement or the Cash Escrow Agreement to the contrary and after taking account
of any adjustments provided for in Section 3.3, if Seller's application to H M
Inland Revenue for clearance pursuant to section 103 Taxation of Chargeable
Gains Act 1992 and section 703 Income and Corporation Taxes Act 1988 is refused
then:-
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<PAGE> 9
3.5.1 Seller shall be entitled to receive from the Cash Escrow
Account an amount (not exceeding in aggregate US$1,000,000 or if less the amount
then standing to the credit of the Cash Escrow Account) equal to the tax payable
in respect of the sale of those of the Company Shares as are sold in
consideration for the Team Shares (other than any Tax which arises solely as a
result of the sale of any of the Team Shares);
3.5.2 any amount paid from the Cash Escrow Account to Seller
pursuant to Section 3.5.1 shall be paid in a sum equal to the relevant
installment of tax due and no later than five business days before such tax is
due to be paid by Seller.
3.6 Restrictions on Transferability. The Team Shares and any other
securities issued in respect of the Team Shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event
(collectively, the "PURCHASER SECURITIES"), shall not be sold, assigned,
transferred or pledged except in compliance with the provisions of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), all other applicable
securities laws and the provisions of this Agreement. Each holder of Purchaser
Securities ("HOLDER") will cause any proposed purchaser, assignee, transferee,
or pledgee of any such shares held by the Holder to agree in writing for the
benefit of Purchaser and with a copy of such writing to be delivered to
Purchaser to take and hold such Purchaser Securities subject to the restructure
and other terms and conditions specified in this Agreement with respect to the
Selling Shareholder's ownership of Purchaser Securities, as a condition to
Purchaser permitting such transfer.
3.7 Restrictive Legend. Each certificate representing the Purchaser
Securities shall be stamped or otherwise imprinted with a legend in
substantially the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE UNITED STATES OR TO A U.S. PERSON IN THE ABSENCE OF
SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
Each Holder consents to the Purchaser's making a notation on its records
and giving instructions to any transfer agent for the Purchaser Securities in
order to implement the restrictions on transfer established in this Agreement.
3.8 Notice of Proposed Transfers. The holder of each certificate
representing Purchaser Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 3.6. Prior to any proposed sale,
assignment, transfer or pledge of any Purchaser Securities in the United States
or to a U.S. Person (as defined in Rule 901 promulgated under the Securities
Act), (other than a transfer not involving a change in beneficial ownership, or
(ii) in transactions involving the distribution without consideration of
Purchaser Securities by a shareholder to any of its partners or members, or
retired partners or members, or to the estate of any of its partners or members
or retired partners or members),
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<PAGE> 10
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written notice to
the Purchaser of such holder's intention to effect such transfer, sale,
assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail, and shall be accompanied, at such holder's expense by an unqualified
written opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Purchaser addressed to the Purchaser, to the
effect that the proposed transfer of the Purchaser Securities may be effected
without registration under the Securities Act and in compliance with all other
applicable securities laws, whereupon the holder of such Purchaser Securities
shall be entitled to transfer such Purchaser Securities in accordance with the
terms of the notice delivered by the holder to the Purchaser. It is agreed that
the Purchaser will not request an opinion of counsel from the holder for
transactions made in reliance on Rule 144 under the Securities Act except as
determined in good faith by the Board of Directors of the Purchaser to be
necessary for the compliance of applicable laws. Each certificate evidencing the
Purchaser Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144, the appropriate restrictive legend set
forth in Section 2.6 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for such holder and the
Purchaser such legend is not required in order to establish compliance with any
provision of the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLING SHAREHOLDER ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLING SHAREHOLDER
The Selling Shareholder represents and warrants to Purchaser, subject to
the exceptions specifically disclosed in the Disclosure Letter, as set forth
below. Except for Sections 4.2(a) and 4.3, all references to the Company
contained in this Article IV shall refer to the Company, all Subsidiaries, as
defined in Section 4.3, and all other Affiliates of the Company or any
Subsidiary.
4.1 Organization of the Company. The Company and each of its
subsidiaries is a limited liability company duly organized, validly existing and
in good standing under the laws of England. The Company has the power to own its
properties and to carry on its business as now being conducted. The Company is
not, and is not required to be, duly qualified to do business as a foreign
corporation in any other jurisdiction. The Company has delivered a true and
correct copy of its Memorandum and Articles of Association, as amended to date,
to Purchaser or its counsel.
4.2 Company Capital Structure.
(a) The authorized share capital of the Company consists of
Pound Sterling 1,000 divided into 1,000 ordinary shares of Pound Sterling 1
each, of which 200 shares are issued and fully paid. All of the Company's issued
share capital is held by the Selling Shareholder.
(b) The Shares are the entire issued share capital of the
Company are fully paid and have been issued in accordance with the Companies Act
1985 and the Articles of Association of the Company; and are not subject to
preemptive rights created by statute, the Articles of Association of the Company
or any agreement to which the Selling Shareholder or the Company are a party or
by which either of them is bound.
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(c) There are no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement regarding its
capital stock.
4.3 Subsidiaries. Paragraph 4.3 of the Disclosure Letter sets forth all
of the Company's subsidiaries, partnerships, joint ventures and other entities
in which the Company has an equity interest (individually, a "SUBSIDIARY" and
collectively, the "SUBSIDIARIES"), the authorised and issued share capital of
each Subsidiary and the number of shares of each Subsidiary owned by the
Company. On the Closing Date, the Company will be the sole shareholder of each
Subsidiary. Other than the Subsidiaries listed on Schedule 4.3 of the Disclosure
Letter, the Company does not own and has not owned any interest, beneficially or
of record, in any corporation, partnership, joint venture or other entity or
organization, whether incorporated or unincorporated.
4.4 Authority. The Company and the Selling Shareholder have all
requisite power and authority to enter into this Agreement and the Related
Agreements (collectively, the "TRANSACTION AGREEMENTS"), as applicable, and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of the Transaction Agreements and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Company. The Company's Board of Directors and the Selling
Shareholder have duly approved the Transaction Agreements, as applicable. This
Agreement has been duly executed and delivered, and the other Transaction
Agreements, when delivered, will have been duly executed and delivered by the
Company and the Selling Shareholder, as applicable, and constitute the valid and
binding obligation of the Company and the Selling Shareholder, as applicable,
enforceable in accordance with their terms except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The execution and delivery of this Agreement by the Company
does not, and, as of the Closing Date will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit (any such event, a
"CONFLICT") under: (i) any provision of the Articles of Association of the
Company, as amended; and (ii) any material mortgage, indenture, lease, contract
or other material agreement or instrument applicable to the Company or its
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or Commission ("GOVERNMENTAL ENTITY") or any
third party, including a party to any agreement with the Company (so as not to
create or cause any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of the Transaction Agreements or the
consummation of the transactions contemplated hereby, except for such filings as
will have been made as of the Closing Date.
4.5 Company Financial Statements. Schedule 4.5 of the Disclosure Letter
includes the Company's audited consolidated financial statements (balance
sheets, income statements and statements of cash flows) as of and for the
financial year ended 31st July, 1999 (the "7/31 STATEMENTS") and the Company's
unaudited consolidated financial statements (balance sheets, income statement
and statement of cash flow) as of and for the one month ended 31st August, 1999
(the "8/31 Statements" and collectively with the 7/31 Statements, the "FINANCIAL
STATEMENTS"). The 7/31 Statements were prepared in accordance with accounting
practices generally accepted in the United Kingdom at the time they were audited
and show a true and fair view of the state of affairs of the Company as at the
Accounts Date are complete and correct and have been prepared in accordance with
UK GAAP applied on a basis consistent throughout the period indicated and are
consistent with each other. The 8/31 Statements and are subject to
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normal year-end adjustment, present fairly the financial condition and operating
results of the Company as of the date and during the period indicated therein.
The 8/31 Statements are true, complete and correct in all material respects and
have been prepared in a manner not inconsistent with UK GAAP and utilizing the
same accounting principles as were applied in the preparation of the 7/31
Statements. The audited balance sheet of the Company as of 31st July, 1999 is
hereinafter referred to as the "AUDITED BALANCE SHEET." The unaudited balance
sheet of the Company as of July 31, 1999 is hereinafter referred to as the
"UNAUDITED BALANCE SHEET."
4.6 No Undisclosed Liabilities.
(a) Except for obligations incurred in the ordinary course of
business which are not material and not required under UK GAAP to be set forth
or reflected on a balance sheet or the notes thereto, the Company does not have
any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting principles), which
individually or in the aggregate, (i) has not been reflected in the Unaudited
Balance Sheet, or (ii) has not been specifically described in this Agreement or
in the Disclosure Letter and specifically identified herein or therein as not
being included in the Unaudited Balance Sheet, or (iii) has not arisen in the
ordinary course of the Company's business since the date of the Unaudited
Balance Sheet.
(b) The Company's Financial Statements reflect appropriate
reserves for all material amounts to be paid to all grantors and/or producers
all amounts payable under all contracts with such grantors and/or producers in
compliance with the provision in the respective contracts. The Company will not
lose any rights to any Films or suffer any damages as a result of the failure to
timely issue any producer's report.
4.7 Deferred Compensation. Paragraph 4.7 of the Disclosure Letter lists
the names of Company employees, directors and consultants and the amount of
money each is entitled to receive from the Company as of the Closing Date as a
result of deferred compensation, bonuses, profit participation by employees of
the Company or Company expenses payable to the employee, director or consultant.
Other than the names and amounts listed in Paragraph 4.7 of the Disclosure
Letter, no other compensation is owed by the Company to the employees, directors
or consultants of the Company other than ordinary payroll payable by the Company
at the end of each pay period.
4.8 No Changes. Except as disclosed on Paragraph 4.8 of the Disclosure
Letter, since 31st July, 1999, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) individual capital expenditure or commitment by the Company
exceeding $25,000, it being acknowledged and agreed that the term "capital
expenditure" does not include expenditures on Film Assets;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance) which
individually exceeds $25,000;
(d) employment disputes or claim of unfair or wrongful dismissal
of which the Company has received written notice or of which the Company's
senior management is aware or other unlawful employment practice or action;
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(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets other than
depreciation as required by UK GAAP and as reflected through July 31, 1999 on
the Unaudited Balance Sheet;
(g) declaration, setting aside or payment of any dividends on or
any other distribution (whether in cash, stock or property) in respect of any of
the Company's capital stock, or any split, combination or reclassification of
any of the Company's capital stock or the issuance or authorization of the
issuance of any securities in respect of, in lieu of or in substitution for
shares of the capital stock of the Company, or the repurchase, redemption or
other acquisition, directly or indirectly, of any shares of the Company's
capital stock (or options, warrants, or other rights exercisable therefor);
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
(i) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date;
(j) material amendment, termination or violation, or any threat
thereof, of any distribution agreement, sales agency agreement or any material
contract, agreement or license to which the Company is a party or by which it is
bound other than amendment or termination by the Company pursuant to the terms
thereof in the ordinary course of business;
(k) loan by the Company to any person or entity, other than
advances to employees for travel and business expenses in the ordinary course of
business and consistent with past practices, or incurring by the Company of any
indebtedness other than trade debt in the ordinary course of business consistent
with past practices, guaranty of the Company of any indebtedness, issuance or
sale of any debt securities of the Company or guaranteeing of any debt
securities of others;
(l) waiver or release of any material right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company;
(m) issuance or sale by the Company of any shares, or securities
exchangeable, convertible or exercisable therefor, or of any other securities;
(n) transactions by the Company with any of its officers,
directors or employees (other than payment of compensation paid in the ordinary
course) or with any persons or entities affiliated with any of its officers,
directors or employees;
(o) any notice of the occurrence of any of the things described
in the preceding clauses (a) through (n);
(p) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (n) (other than by negotiations with Purchaser and its representatives
regarding the transactions contemplated by this Agreement).
4.9 Tax and Other Returns and Reports.
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(a) The Company has no liability in respect of Taxation (whether
actual or contingent) that is not adequately disclosed or provided for in the
7/31 Statements and, in particular, has no outstanding liability for:
(i) Taxation in any part of the world assessable or
payable by reference to profits, gains, income or distribution earned, received
or paid or arising or deemed to arise on or at any time prior to the Accounts
Date or in respect of any period starting before the Accounts Date, or
(ii) for purchase, value added, sales or other similar
Tax in any part of the world referable to transactions effected on or before the
Accounts Date that is not provided for in full in the 7/31 Statements.
(b) The amount of the provision for deferred Taxation in respect
of the Company contained in the 7/31 Statements was, at the Accounts Date
adequate and fully in accordance with accountancy practices generally accepted
in the United Kingdom and commonly adopted by companies carrying on businesses
similar to those carried on by the Company and, in particular, was in accordance
with SSAP 15.
(c) If the 7/31 Statements were to be drawn up at the date of
this Agreement and in the light of factors known to the Company or the Selling
Shareholder at the date of this Agreement, the provision for deferred Taxation
that would be contained in the 7/31 Statements would be no greater than the
provision which is so contained.
(d) Since the Accounts Date:
(i) the Company has not declared made or paid any
distribution within the meaning of the Taxes Act;
(ii) no accounting period of the Company has ended;
(iii) there has been no disposal of any asset (including
trading stock) or supply of any service or business facility of any kind)
(including a loan of money or the letting, hiring or licensing of any property
whether tangible or intangible) in circumstances where the consideration
actually received or receivable for such disposal or supply was less than the
consideration which could be deemed to have been received for Tax purposes;
(iv) no event has occurred which will give rise to a Tax
Liability on the Company calculated by reference to deemed (as opposed to
actual) income, profits or gains or which will result in the Company becoming
liable to pay or bear a Tax Liability directly or primarily chargeable against
or attributable to another person, firm or company;
(v) no disposal has taken place or other event occurred
which will or may have the effect of crystallizing a liability to Taxation which
should have been included in the provision for deferred Taxation contained in
the 7/31 Statements if such disposal or other event had been planned or
predicted at the Accounts Date;
(vi) the Company has not made any payment or incurred
any obligation to make a payment which will not be deductible in computing
trading profits for the purposes of corporation tax, or be deductible as a
management expense of an investment company;
(vii) the Company has not been a party to any
transaction for which any Tax clearance provided for by statute has been or
could have been obtained;
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(viii) the Company has not paid or become liable to pay
any interest or penalty in connection with any Tax, has otherwise paid any Tax
after its due date for payment or owes any Tax the due date for payment of which
has passed or will arise in the 30 days after the date of this Agreement.
(e) The Company has paid all Taxation which has become due for
payment by it.
(f) The Company has properly and punctually made all returns,
given all notices, maintained all records and supplied all information in
relation to Taxation which it is required to make, give, maintain or supply and
all such returns, notices, records and information were complete and accurate.
(g) There is no dispute or disagreement outstanding nor is any
contemplated at the date of this Agreement with any Tax Authority regarding
liability or potential liability to any Tax recoverable from the Company or
regarding the availability of any relief from Tax to the Company. Any past
dispute is disclosed in the Disclosure Letter.
(h) The Company has sufficient records relating to past events
to calculate the Tax liability or relief which would arise on any disposal or on
the realization of any asset owned at the Accounts Date by the Company since
that date but before Completion.
(i) The Company has duly submitted all claims, notices and
disclaimers which have been assumed to have been made for the purposes of the
7/31 Statements.
(j) The amount of Tax chargeable on the Company during any
accounting period ending on or within six years before the Accounts Date has
not, to any material extent, depended on any concession, agreement or other
formal or informal arrangement with any Tax Authority.
(k) The Company has not received any notice from any Tax
Authority which required or will or may require it to withhold Tax from any
payment made since the Accounts Date or which will or may be made after the date
of this Agreement and the Company has complied with all its obligations to
deduct taxation from payments made by it and to account for such Taxation to any
Tax Authority.
(l) The Company has complied with all its obligations in
relation to national insurance contributions, the PAYE system and the reporting
of benefits provided to employees and former employees.
(m) All documents which are necessary to establish the title of
the Company to any asset or in the enforcement or production of which the
Company may be interested and which, in the UK or elsewhere, either attract
stamp duty or require to be stamped with a particular stamp denoting that no
duty is chargeable or that the document has been produced to the appropriate Tax
Authority have been properly stamped and no such document which is outside the
UK would attract stamp duty if it were brought into the UK. The Company has duly
complied with all its obligations under Part IV of the Finance Act 1986 (stamp
duty reserve tax) and with all regulations made thereunder and any comparable
provisions in any other jurisdiction and neither the Company nor a nominee of
the Company is a party to any agreement which falls within section 87(1) and in
relation to which the conditions referred to in section 87(2) have not been
fulfilled. If there is any breach of the warranties in this clause 33 then the
amount recoverable by the Purchaser from the Vendor for the said breach shall be
equal to any unpaid stamp duty or stamp duty reserve tax or comparable duty or
tax in any other jurisdiction together with any fines, penalties or interest in
respect thereof.
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(n) The Company is registered for the purposes of the VATA and
has made, given, obtained and kept full, complete, correct and up-to-date
records, invoices and other documents appropriate or required for those purposes
and is not in arrears with any payments or returns due and has not been required
by the Commissioners of Customs & Excise to give security under paragraph 4 of
Schedule 11 to the VATA.
(o) The Company has never been treated as a member of a group
under Section 43 of the VATA and no application has ever been made for the
Company so to be treated.
(p) The Company has not within the 12 months ending on the
Accounts Date been in default in respect of the prescribed accounting period as
mentioned in Section 59(1) VATA.
(q) Full details of any claim for bad debt relief under Section
36 of the VATA made by the Company have been disclosed in writing to the
Purchaser.
(r) The Company has not made exempt supplies of such amount that
it is unable to obtain full credit for input tax paid or suffered by it.
(s) The Company does not own any assets to which Part XV Value
Added Tax Regulations 1995 applies.
(t) Neither the Company nor any body corporate in relation to
which the Company is a "relevant associate" (as defined in paragraph 3 Schedule
10 VATA) has made any election under paragraph 2 Schedule 10 VATA (buildings and
land - election to waive exemption) in relation to any interest in or right over
land or any licence to occupy land of the Company and the Company does not own
the fee simple in any building or work such as is referred to in item 1(a) Group
1 Schedule 9 VATA.
(u) No interest in or right over land or any licence to occupy
land of the Company constitutes or is subject to a developmental tenancy,
developmental lease or development licence such as is referred to in item 1 (b)
Group 1 Schedule 9 VATA.
(v) The Company is not bound and has not agreed to become bound
by any contract, lease, tenancy or licence under the terms of which, or in
respect of which by virtue of section 89 VATA the Company is or could become
liable to pay any increased consideration as a result of the making the future
of an election under paragraph 2 Schedule 10 VATA (election to waive exemption).
(w) There are no circumstances by reason of which the Company is
or could become liable to account for value added tax under paragraphs 5 and 6
Schedule 10 VATA (developers) or under the Value Added Tax (Self- Supply of
Constructions Services) Order 1989.
(x) All Value Added Tax, import duty and other Taxes or charges
payable to H.M. Customs & Excise in respect of any assets (including trading
stock) imported or owned by the Company have been paid in full.
(y) On a disposal of all its assets by the Company for:
(i) in the case of each asset owned by the Company at
the Accounts Date, a consideration equal to the value attributed to that asset
in preparing the 7/31 Statements; or
(ii) in the case of each asset acquired since the
Accounts Date, a consideration equal to the consideration given for the
acquisition then either:
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(A) in respect of any asset falling within
(y)(i) above, the liability to Tax (if any) which would be incurred by the
Company in respect of that asset would not exceed the amount taken into account
in respect of that asset in computing the maximum liability to deferred Taxation
as stated in the 7/31 Statements; or
(B) in respect of any asset within (y)(ii)
above, no liability to Tax would be incurred by the Company in respect of that
asset.
(z) Full particulars of each claim under Section 247, 152, 153
or 175 of the TCGA made prior to the date of this Agreement to which Section 154
of the TCGA applies and which affects any asset which was owned by the Company
or the Company on or after the Accounts Date (except where the held over gain is
treated as having accrued prior to the Accounts Date) have been disclosed in
writing to the Purchaser.
(aa) Since 6th April 1964 The Company has not made any repayment
of share capital to which Section 210(1) of the Taxes Act applies or issued any
share capital as paid up otherwise than by the receipt of new consideration
within the meaning of Part VI of the Taxes Act.
(bb) The Company has not made any transfer to which the
provisions of section 125 TCGA apply.
(cc) The Company has no outstanding loan to which the provisions
of Section 419 of the Taxes Act would apply (loans to participators etc.) or
incurred any such expense as is referred to in section 418 of the Taxes Act.
(dd) The Company has not made a transfer of value within section
94 Inheritance Tax Act 1984.
(ee) The Company is not under any obligation to make any future
payment which will be prevented (whether on the grounds of being a distribution,
or for any other reason) from being deductible for corporation tax purposes,
whether as a deduction in computing the profits of a trade or as an expense of
management or as a charge on income, by reason of any statutory provision, other
than Section 74(f) of the Taxes Act (capital).
(ff) The Company has not acquired any asset from any other
company which was, at the time of the acquisition, a member of the same group of
companies as the Company for the purposes of any Tax within the last six years.
(gg) The United Kingdom is the only country whose Tax
Authorities seek to charge Tax on the worldwide profits or gains of the Company
and the Company has never paid Tax on income profits or gains to any Tax
Authority in any other country.
(hh) The Company has not without the prior consent of HM
Treasury caused, permitted or entered into any transaction specified in section
765 Taxes Act (migration of companies) or agreed to do so nor has it failed to
give proper notice to the Inland Revenue as required by Section 765A(2) Taxes
Act.
(ii) The Company is not and has never been a member of a group
of companies or a consortium or associated with any other company for any
Taxation purpose and the Company is not under any liability to Taxation,
contingent or otherwise, in respect of any other company which at any time has
been a member of the same group or consortium as the Company or is an associated
company of the Company for any Taxation purpose.
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(jj) The Company has not been concerned in an exempt
distribution (as defined in Section 214(4) of the Taxes Act).
(kk) The Company is not a party to any transaction or
arrangement under which it may be required to pay for any asset or any services
or facilities of any kind an amount which is in excess of the market value of
that asset or services or facilities or will receive any payment for an asset of
any services or facilities of any kind that it has supplied or provided or is
liable to supply or provide which is less than the market value of that asset or
service.
(ll) The Company has not at any time entered into or been a
party to a transaction or series of transactions either:-
(i) containing steps inserted without any commercial or
business purpose apart from the reduction, avoidance or deferral of a Tax
liability;
(ii) being transactions to which any of the following
provisions could apply: Taxes Act sections 703, 729, 730, 739, 770, 774, 776,
779, 780, 781 or 786 or sections 132 - 139 inclusive TCGA, without, in the
appropriate cases, having received clearance in respect thereof from the Inland
Revenue and all transactions for which such clearances were obtained have been
carried out in accordance with the terms of the clearances given and the
applications made for them.
(mm) The Company has never been requested to furnish information
pursuant to notices under sections 745 or 778 of the Taxes Act.
(nn) The Company will not have any Tax Liability in respect of:
(i) any event occurring after Completion in pursuance of
a legally binding obligation or arrangement (whether conditional or not) entered
into on or before Completion, otherwise than in the ordinary course of business
of the Company;
(ii) any event occurring before Completion outside the
ordinary course of business of the Company as carried on at any time before
Completion and which forms part of a combination of events which include any
event occurring after Completion which is inside the ordinary course of business
of the Company.
4.10 Restrictions on Business Activities. Other than Film financing
agreements entered into in the ordinary course of business and except as
provided in Paragraph 4.10 of the Disclosure Letter, there is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company.
4.11 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment and Inventory.
(a) The Real Property comprises all real property currently
owned or leased by the Company (collectively, the "REAL PROPERTY"), and the
details in Schedule F set out, in respect of leased property, the name of the
lessor, the date of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease. All such leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such
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leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, including the Film Assets, as defined below in Section
4.12(a), free and clear of any Liens (as defined in Section 4.9(b)(vii)), except
(i) as reflected in the Company Financial Statements, (ii) for liens for taxes
not yet due and payable, (iii) for such imperfections of title, for
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use of the property subject thereto or affected thereby, (iv) for Liens
on any asset of the Company, including the Film Assets, as set forth on
Paragraph 4.11 of the Disclosure Letter, (v) liens in favor of production
lenders, completion guarantors, distributors, guilds and laboratories entered
into in the ordinary course of business and (vi) liens on Films for which the
Company has entered into sales agency relationships.
(c) Paragraph 4.11 of the Disclosure Letter sets forth a list of
each laboratory ("LABORATORY") where all film negatives, prints, pre-print
and/or soundtrack materials and other tangible Film Assets (the "PHYSICAL
PROPERTIES") are located. The Company has access to all of the Physical
Properties used in the business of the Company as currently conducted. The
Company is not in material violation of any agreement with any Laboratory
("LABORATORY AGREEMENT") which would prevent the Company from obtaining access
to any of the Physical Properties. The execution and delivery of this Agreement
by the Company, and the consummation of the transactions contemplated hereby (i)
will not cause the Company to be in material violation or default under any
Laboratory Agreement, (ii) entitle any Laboratory to terminate or modify any
Laboratory Agreement or (iii) prevent Purchaser from access to the Physical
Properties after consummation of the transactions contemplated hereby.
4.12 Intellectual Property; Film Assets.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use all intangible Film Assets, patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, (the "COMPANY INTELLECTUAL PROPERTY RIGHTS").
(b) With respect to the Film Assets, Paragraph 4.12 of the
Disclosure Letter sets forth:
(i) all Films which have been produced or are in
production in which the Company has an ownership interest (the "PRODUCED
FILMS");
(ii) all Films currently in development in which the
Company has an ownership interest (the "FILMS IN DEVELOPMENT"); and
(iii) all Films with respect to which the Company has
entered into sales and licensing agency agreements (the "AGENCY FILMS") and
together with the Produced Films, the Films in Development and the Agency Films
collectively, the "DANDELION FILMS").
The Dandelion Films constitute all of the Film Assets of the Company. Except for
the Liens set forth on Paragraph 4.12 of the Disclosure Letter, no Liens exist
on any of the Film Assets.
(c) Paragraph 4.12 of the Disclosure Letter sets forth a
complete list of all registered copyrights, and any applications therefor in
respect of any of the foregoing, included in the Company Intellectual Property
Rights, and specifies, where applicable, the jurisdictions in which each such
Company Intellectual Property Right has been issued or registered or in which an
application for such issuance and registration has been filed, including the
respective registration or application numbers and
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the names of all registered owners. The Company owns no patents, trademarks or
service marks, nor has the Company licensed or sublicensed any patents,
trademarks or service marks. No claims with respect to the Company Intellectual
Property Rights have been asserted against the Company, nor to the knowledge of
the Selling Shareholder are threatened against the Company or have been asserted
or threatened against a third party, nor is the Company aware, except as
disclosed on Schedule 4.16, of any reasonable basis for any claims (i) against
the use by the Company of any distribution rights, trademarks, service marks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted; or (ii) challenging the validity, effectiveness, or
ownership by the Company of any of the Company Intellectual Property Rights. All
registered patents, trademarks, service marks and copyrights held by the Company
are valid and subsisting. To the knowledge of the Selling Shareholder, there is
no unauthorized use, infringement or misappropriation by any third party,
including any employee or former employee of the Company, of any of the Company
Intellectual Property Rights owned by the Company other than the unauthorized
duplication and distribution by third parties of the Company's Films from time
to time in certain territories. No Company Intellectual Property Right or
product of the Company is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by the Company. The
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its products to any
class of customers, in any geographic area, during any period of time or in any
segment of the market other than the Company's distribution agreements and
acquisition agreements, as set forth in Section 4.13 of the Disclosure Letter.
The Company has no outstanding or future financial commitments or obligations in
respect of Produced Films.
4.13 Agreements, Contracts and Commitments. Except as set forth in
Paragraph 4.13 of the Disclosure Letter, the Company does not have continuing
obligations under, is not a party to nor is it bound by:
(a) any collective bargaining agreements;
(b) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations, other than as contemplated
herein;
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements;
(d) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(e) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement, except as provided herein;
(f) any fidelity or surety bond;
(g) any lease of personal property having annual lease payments
individually in excess of $25,000;
(h) any agreement of indemnification or guaranty other than in
the ordinary course of business;
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(i) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
(j) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000;
(k) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Company's business;
(l) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof.
(m) any purchase order or contract for the purchase of raw
materials involving $25,000 or more;
(n) any construction contracts;
(o) any agreement, contract or commitment with any party which,
during the last two fiscal years of the Company, accounted for, or is expected
to account during the Company's current fiscal year, for more than 5% of the
Company's revenue or trade payables;
(p) any agreement for the acquisition of any sales agency or
distribution rights by the Company to any motion picture;
(q) any agreement for the granting of any distribution right by
the Company to any other party.
The Company has not breached, violated or defaulted under, or received
notice that it has breached, violated or defaulted under, any of the material
terms or conditions of (i) any agreement, contract or commitment set forth in
Paragraph 4.13 of the Disclosure Letter, or (ii) any other material agreement,
contract or commitment to which it is a party or by which it is bound (any such
agreement, contract or commitment, a "CONTRACT"). Each Contract is in full force
and effect and, except as otherwise disclosed in Paragraph 4.13 of the
Disclosure Letter, is not subject to any default thereunder of which the Company
is aware by any party obligated to the Company pursuant thereto. The Company has
obtained, or will obtain prior to the Closing Date, all necessary consents,
waivers and approvals of parties to any Contract as are required in connection
with the transactions contemplated by this Agreement, or as are required or
advisable in order to remain in effect without modification after the
transactions contemplated by this Agreement. Each Contract requiring any
consent, waiver or third-party approval as a result of the transaction
contemplated by this Agreement is disclosed in Paragraph 4.13 of the Disclosure
Letter. Neither the execution of this Agreement nor consummation of the
transactions contemplated hereby will cause any default or breach under any
Contract, including without limitation any key man clause in any Contract, or
the acceleration of any payment obligation of the Company.
4.14 Interested Party Transactions. Except as set forth in Paragraph
4.14 of the Disclosure Letter, no officer, director or, to Selling Shareholder's
knowledge, employee or stockholder (nor to Selling Shareholder's knowledge, any
ancestor, sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services or products to the
Company, or (ii) any interest in any entity that purchases any goods or services
from the
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Company, or (iii) a beneficial interest in any contract or agreement set forth
in Paragraph 4.14 of the Disclosure Letter.
4.15 Governmental Authorization. Paragraph 4.15 of the Disclosure Letter
accurately lists each material consent, license, grant or other authorization
issued to the Company by a governmental entity (i) pursuant to which the Company
currently operates or holds any interest in any of its properties or (ii) which
is required for the operation of its business or the holding of any such
interest (herein collectively called "COMPANY AUTHORIZATIONS"), which Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
4.16 Litigation. Other than as set forth in the Financial Statements or
on Paragraph 4.16 of the Disclosure Letter, there is no action, suit, claim or
proceeding of any nature pending, or to Selling Shareholder's knowledge,
threatened against the Company, its properties or any of its officers or
directors, in their capacities as agents of the Company. There is no
investigation pending or, to Selling Shareholder's knowledge, threatened against
the Company, its properties or any of its officers or directors, in their
capacities as agents of the Company by or before any governmental entity. No
governmental entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.
4.17 Accounts Receivable; Inventory.
(a) Set forth in Paragraph 4.17 of the Disclosure Letter is a
list of all accounts receivable of the Company reflected on the Unaudited
Balance Sheet ("ACCOUNTS RECEIVABLE").
(b) All Accounts Receivable of the Company arose in the ordinary
course of business, are carried at values determined in accordance with UK GAAP
consistently applied and are collectible except to the extent of reserves
therefor set forth in the Unaudited Balance Sheet. No person has any Lien on any
of such Accounts Receivable, and no request or agreement for deduction or
discount has been made with respect to any of such Accounts Receivable.
4.18 Minute Books. The minute books of the Company and the Subsidiaries,
made available to counsel for Purchaser, are the only minute books of the
Company and contain an accurate summary of all meetings of directors (or
committees thereof) and shareholders or actions by written consent since the
time of incorporation of the Company.
4.19 Brokers' and Finders' Fees. The Company has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
4.20 Employee Benefit Plans and Compensation.
(a) Schedule. Paragraph 4.20 of the Disclosure Letter contains
an accurate and complete list of (i) each Employee of the Company and each
Employee's salary as of July 31, 1999, and (ii) each Company Employee Plan and
each Employee Agreement. The Company does not have any plan or commitment,
whether legally binding or not, to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Purchaser in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Employee Agreement,
nor does it have any intention or commitment to do any of the foregoing.
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(b) Documents. The Company has provided to Purchaser (i) correct
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including all amendments thereto and copies of all forms
of agreement and enrollment used therewith; (ii) the most recent annual
actuarial valuations, if any, prepared for each Company Employee Plan; (iii) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (iv) the most recent summary plan
description together with the most recent summary of material modifications, if
any, with respect to each Company Employee Plan; and (vi) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company.
(c) Employee Plan Compliance. The Company has performed in all
material respects all obligations required to be performed by it under each
Company Employee Plan and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations;
(ii) there are no actions, suits or claims pending, or, to the knowledge of the
Selling Shareholder, threatened or anticipated (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan; and (iii) each Company Employee Plan can be amended, terminated
or otherwise discontinued after the Closing Date in accordance with its terms,
without liability to the Company, Purchaser or any of its Affiliates (other than
ordinary administration expenses typically incurred in a termination event).
(d) Pension Plans. The Company is not paying nor is it under any
liability (actual or contingent) to pay or secure (other than by payment of
employers' contributions under national insurance or social security
legislation) any pension or other benefit on retirement death or disability or
on the attainment of a specified age or on the completion of a specified number
of years' service.
(e) No Post-Employment Obligations. No Company Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except to
the extent required by statute.
(f) Effect of Transaction. The execution of this Agreement and
the consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(g) Employment Matters. The Company (i) is in compliance in all
material respects with all applicable foreign, federal and state laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice).
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(h) Employment Disputes. No work stoppage or strike against the
Company is pending or, to the best knowledge of the Selling Shareholder,
threatened. The Company is not involved in or, to the knowledge of the Selling
Shareholder, threatened with, any employment dispute, grievance, or litigation
relating to employment, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair employment practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company. Neither the Company nor
any of its Subsidiaries has engaged in any unfair employment practices which
would, individually or in the aggregate, directly or indirectly result in a
liability to the Company. The Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
4.21 Insurance. Paragraph 4.21 of the Disclosure Letter lists all
insurance policies and fidelity bonds, if any, covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company. There is no claim by the Company pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company is otherwise in material
compliance with the terms of such policies and bonds. The Selling Shareholder
has no knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies.
4.22 Permits. The Company has all material permits (including without
limitation those relating to the occupancy or use of real property) that are
required for the Company to conduct its business as presently conducted and as
currently proposed to be conducted, except for those the absence of which would
not have a Material Adverse Effect. Each such permit is in full force and effect
and, to the best knowledge of the Selling Shareholder, no suspension or
cancellation of such permit is threatened, and the Selling Shareholder is not
aware of any basis for believing that such permit will not be renewable upon
expiration.
4.23 Compliance with Laws. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation.
4.24 Complete Copies of Materials. Each document (or summary of same)
that has been provided by the Company in response to a request by Purchaser or
its counsel is true and complete provided that if any such copy is of an
unsigned document, then either such document has nevertheless been duly executed
by the relevant parties thereto or the parties thereto have entered into a
course of conduct so that the terms of such document constitute the terms of the
agreement in operation between the parties.
4.25 Consents. There are no consents, waivers, approvals, orders or
authorizations of, or registrations, declarations or filings with, any court,
administrative agency or commission or other federal, state, county, local or
other foreign governmental authority, instrumentability, agency or commission
("GOVERNMENTAL ENTITY") required by or with respect to the Company in connection
with the execution and delivery of this Agreement and Related Agreements or the
consummation of the transactions contemplated hereby and thereby, or in order to
avoid the creation of a Conflict except for such consents, waivers, approvals,
orders, authorizations, registrations, declarations, and filings as may be
required under applicable securities laws.
4.26 Distribution of Pictures
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(a) Paragraph 4.26 of the Disclosure Letter sets forth all of
the Film titles to which the Company has distribution rights.
(b) As required by Section 4.13(e) above, Paragraph 4.26 of the
Disclosure Letter lists all of the agreements pursuant to which the Company has
granted distribution rights to certain Films (such agreements, the "DISTRIBUTION
AGREEMENTS") as of the Closing Date. Paragraph 4.26 of the Disclosure Letter
also sets forth the name of the party receiving the distribution rights, the
territory for which such rights were granted, the title of the Films for which
distribution rights are received, and the commitment and termination dates of
such agreements.
4.27 Film Production. Paragraph 4.27 of the Disclosure Letter sets forth
(a) all of the Films for which the Company participated in the production
financing (the "PRODUCED FILMS"), (b) whether or not such Produced Films have
been completed and delivered for distribution, (c) the names of the entities
providing financing for the Produced Films (the "LENDERS") and (d) whether any
obligation remains outstanding and unpaid to any of the Lenders. The Lenders
have prepared, delivered and filed, or promptly after the execution of this
Agreement shall prepare, deliver and file, any and all papers, reports and
termination statements required to evidence release of any interest any Lender
may have in any of the Films for which no obligation remains outstanding and
unpaid.
4.28 Real Property
(a) Short particulars of the Real Property are correctly set out
in Schedule F and the Real Property comprises all the lands and buildings owned,
used or occupied by the Company and, in this Section 4.28, the expression "the
Real Property" shall include where the context so admits the individual Real
Property comprising the same and subject to the rights of prior mortgagees the
Company has in its possession or control all the deeds and documents duly
executed, stamped and registered to show a good and marketable title to the Real
Property.
(b) The Company has (and will at Completion have) a good and
marketable title to the Real Property.
(c) Save in respect of the charges in favour of Barclays Bank
plc and the lease in favour of Leisureview Limited ("the Lease") each of which
is referred to in the Disclosure Letter the Real Property is free from
mortgages, charges (fixed or floating), liens, encumbrances and third party
rights of any kind whatsoever and are not subject to any outgoings other than
uniform business rates and leasehold rent and services charges.
(d) There are no matters or things which prejudicially or
adversely affect the Real Property for the purposes of the Company's business or
the existing use of the Real Property or which may subject the owner or occupier
of the Real Property to any charge or liability or which may cast any doubt on
the said title of the Company or which should be revealed to a buyer for value.
(e) Save in respect of the Lease the Company is entitled to and
has full vacant possession of the Real Property and the Company is in physical
possession and actual occupation of the whole of the Real Property on an
exclusive basis.
(f) All agreements, obligations, restrictions, covenants,
conditions, statutes, bye-laws and regulations affecting the Real Property or
their use or the owner or occupier of the Real Property have been observed and
performed and all outgoings of whatsoever nature in respect of the Real Property
have been paid to date.
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(g) All licences affecting the Real Property for the purposes of
the Company's business and the existing use are in full force and effect and are
not personal or limited in time and there are no circumstances which could cause
the same to be revoked or not renewed.
(h) There are no outstanding notices, complaints or disputes
with any person or authority (including neighbouring owners or occupiers).
(i) There are no works being carried on or outstanding in
respect of the Real Property.
(j) There are no contingent liabilities on the part of the
Company including liabilities by privity of contract whether as tenant or surety
in respect of Real Property which have been disposed of.
(k) The current actual use of the Real Property is the lawful
permitted use and is not subject to any restrictions or conditions and the Real
Property comply (as to buildings and use) with the Town and Country Planning
legislation and the requirements and recommendations of the insurers and all
applicable statutory and bye-law requirements including fire precautions, public
health and health and safety at work and each of the Real Property has a current
fire certificate.
(l) There are no outstanding or anticipated complaints,
proposals, schemes, resolutions, notices, orders, requirements or
recommendations of any local county or other authority affecting the Real
Property or their use or the owner or occupier of the Real Property and there
are no pending applications (including applications for planning and building
regulation consent) in respect of the Real Property.
(m) No agreement has been entered into with any planning
authority, statutory undertaking or other public body or authority regulating
the Real Property including its use or development.
(n) The means of access to and egress from the Real Property is
over roads which have been taken over by the local authority and are
maintainable at public expense.
(o) The Real Property enjoy mains water, gas, electricity and
telephone and they drain into a public sewer and all pipes and other conducting
media serving the Real Property connect directly to the mains without passing
through land in the possession or occupation of a third party and all the
services are in good and proper working order.
(p) The Real Property is in good and substantial repair,
condition and decorative order and do not contain high alumina cement, calcium
chloride, wood wool slaps, asbestos, calcium silicate bricks or tiles, sea
aggregates, urea formaldehyde, crocodilite or other deleterious substances and
have not been affected by flooding, subsidence, structural, building or drainage
defects, rising or penetrating damp, woodworm, dry or other rot or other
infestation and have been soundly constructed in accordance with good and proper
building practice and are fit for the purpose for which each is used. There are
no obligations on the Company to remedy any latent or inherent defects.
(q) The Company does not anticipate that any substantial
expenditure will be required in respect of the Real Property within the next
three (3) years.
(r) All rents, licence fees, service charges and payments due
from the Company in respect of the Real Property have been paid to date and the
Real Property is not subject to any commutation or agreement for the commutation
of rent or payment of rent in advance of the due dates of
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payment of such rent.
(s) There are no outstanding or anticipated monetary claims or
liabilities, contingent or otherwise, in respect of the Real Property including
compensation for disturbance or improvements in respect of any past or present
tenancy and there are no obligations to reinstate any of the leasehold Real
Property by removal or dismantling of any alterations.
(t) There are no circumstances which would entitle a lessor or
any other person to exercise any right of re-entry or taking possession of the
Real Property or which would otherwise restrict or terminate the continued
possession and occupation of any part of the Real Property.
4.29 Representations Complete. None of the representations or warranties
made by the Company or the Selling Shareholder (as modified by the Disclosure
Letter), nor any statement made in any Schedule or certificate furnished by the
Company or of the Selling Shareholder pursuant to this Agreement or in the
disclosures made by the Disclosure Letter, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASE ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company and the Selling
Shareholder as follows:
5.1 Organization, Standing and Power. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of California.
Purchaser has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the ability of Purchaser to consummate the
transactions contemplated hereby.
5.2 Authority. Purchaser has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly executed
and delivered by Purchaser and constitutes the valid and binding obligations of
Purchaser, enforceable in accordance with its terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
5.3 Capital Structure.
(a) As of 30th September 1999, the authorized capital stock of
Purchaser consisted of 40,000,000 shares of common stock, of which 5,897,959
shares of common stock were issued and outstanding as at that date. All such
issued and outstanding shares have been duly authorized, validly issued and are
fully paid and non-assessable.
(b) The shares of Purchaser Capital Stock to be issued pursuant
to the terms of this Agreement will, when so issued, be duly authorized, validly
issued, fully paid, non-assessable.
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5.4 No Conflict. The execution and delivery of this Agreement and any
Related Agreements by Purchaser do not, and, the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (i) any provision of the Articles of Amendment and Bylaws of the
Purchaser, (ii) any material mortgage, indenture, or lease to which Purchaser or
any of its properties or assets are subject, (iii) any material permit,
concession, franchise, or license to which Purchaser or any of its properties or
assets are subject, or (iv) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Purchaser or its properties or
assets.
5.5 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party, including a party to any agreement with the Purchaser, is required
by or with respect to the Purchaser in connection with the execution and
delivery of this Agreement and any Related Agreements or the consummation of the
transactions contemplated hereby and thereby, except for such consents, waivers,
approvals, orders, authorizations, registrations, declarations, and filings as
may be required under applicable securities laws and the requirements of the
NASD.
5.7 Ongoing Filing Requirements. Purchasers shall file any documents
required to be filed when and as required by said Securities Exchange Act and
the rules and regulations promulgated thereunder.
5.8 Brokers' and Finders' Fees. The Purchaser has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
ARTICLE VI
CONDUCT PRIOR TO THE CLOSING DATE
6.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, both the Company and the Selling Shareholder
agree (except to the extent that Purchaser shall otherwise consent in writing)
to carry on the Company's business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay the Company's
debts and Taxes when due, to pay or perform other obligations when due, and, to
the extent consistent with such business, use all reasonable efforts consistent
with past practice and policies to preserve intact the Company's present
business organizations, keep available the services of the Company's present
officers and key employees and preserve the Company's relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired the
Company's goodwill and ongoing businesses at the Closing Date. The Company shall
promptly notify Purchaser of any event or occurrence not in the ordinary course
of business of the Company and of any material event involving the Company.
Except as expressly contemplated by this Agreement, the Company shall not,
without the prior written consent of Purchaser:
(a) Enter into any commitment or transaction not in the ordinary
course of business or any commitment or transaction of the type described in
Section 4.8 hereof;
(b) Transfer to any person or entity any rights to the Company
Intellectual Property;
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(c) Except in the ordinary course of business, enter into or
amend any agreements pursuant to which any other party is granted marketing,
distribution or similar rights of any type or scope with respect of the
Company's Film Assets;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Disclosure Letter;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to its
business;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practices;
(k) Except for borrowings consistent with past practices, incur
any indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others;
(l) Grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement, except in the
ordinary course of business and consistent with past practices.
(m) Grant any severance or termination pay (i) to any director
or officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof;
(n) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees, except in connection with annual pay adjustment consistent
with past practices which increases in the aggregate have been approved by
Purchaser in writing and which for the Shareholder has been approved by
Purchaser in writing;
(o) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
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(p) Pay, discharge or satisfy, in an amount in excess of $25,000
(in any one case) or $100,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business;
(q) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(r) Enter into any strategic alliance or joint marketing
arrangement or agreement; or
(s) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 6.1(a) through (r) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
6.2 No Solicitation. Until the earlier of the Closing Date or the date
of termination of this Agreement pursuant to the provisions of Section 10.1
hereof, neither the Company nor the Selling Shareholder will (nor will the
Company or the Selling Shareholder permit any of the Company's officers,
directors, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Purchaser and its
designees: (a) solicit, conduct discussions with or engage in negotiations with
any person, relating to the possible acquisition of the Company (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets, (b) provide information with
respect to the Company to any person, other than Purchaser, relating to the
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
capital stock or assets, (c) enter into an agreement with any person, other than
Purchaser, providing for the acquisition of the Company (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets, or (d) make or authorize any
statement, recommendation or solicitation in support of any possible acquisition
of the Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
capital stock or assets by any person, other than by Purchaser.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Non-Competition and Employment Agreements. At or before the Closing,
Noel Cronin and the Company will enter into the Cronin Employment Agreement in
the form attached hereto as Schedule B-1 and John Clutton and the Company will
enter into the Clutton Employment Agreement in the form attached hereto as
Schedule B-2.
7.2 Legal Requirements. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all reasonable actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings and to remove
any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by the Transaction
Agreements for the purpose of securing to the parties hereto the benefits
contemplated by the Transaction Agreements.
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7.3 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts as may be necessary or desirable
for effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
7.4 Board of Directors and Officers of the Company. Effective as of the
Closing Date:
(a) The Company's Board of Directors shall consist of Mr. Drew
Levin, Mr. Jonathan Shapiro, Mr. Tim Hill and Mr. N Cronin.
(b) The company secretary of the Company shall be Mr. Noel
Cronin, (although the secretary may be replaced as the holder of such office at
a later date).
(c) The Company shall cause, as soon as practicable after the
Closing, all of its Subsidiaries to change their respective Boards of Directors
and officers in a manner parallel with the foregoing.
7.5 Expenses. All fees and expenses incurred in connection with the
transaction contemplated in any of the Transaction Agreements including, without
limitation, all legal, accounting, financial advisory, consulting and all other
transaction fees and expenses ("TRANSACTION EXPENSES") incurred by the Selling
Shareholder, the Company or Purchaser in connection with the negotiation and
closing of the Transaction Agreements, shall be the obligation of (i) the
Selling Shareholder, with respect to the Transaction Expenses incurred by the
Company or the Selling Shareholders and (ii) the Purchaser, with respect to the
Transaction Expenses incurred by the Purchaser.
7.6 Release of Claims. The Selling Shareholder agrees that the
consideration to be received by Selling Shareholder pursuant to this Agreement
will on the Closing Date represent settlement in full of all outstanding
obligations owed to Selling Shareholder by the Company or Purchaser, except
those obligations pursuant to the terms set forth in Article VIII hereof, the
Cash Escrow Agreement and the Indemnification Escrow Agreement, including
without limitation any obligations to Selling Shareholder pursuant to Selling
Shareholder's (or any officer, agent or trustee of the Selling Shareholder) role
as an officer or director of the Company, as applicable.
7.7 Post-Closing Operations and Business Plan. Promptly after Closing,
Noel Cronin, on behalf of the Company, and the Chairman and Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer of the Purchaser,
shall meet to formulate an operations and business plan (the "BUSINESS PLAN")
which shall, among other things, set forth the principles, policies and
procedures by which Mr. Cronin shall operate the Company. The Business Plan
shall be presented to the Board of Directors of the Purchaser as soon as
practicable and shall be subject to its approval. The parties hereby agree that
the Company's operating budget and all other material financial and business
decisions not pre-approved in the Business Plan shall be subject to Purchaser's
normal and customary reasonable corporate approvals. The Purchaser and the
Company acknowledge that they intend for Mr. Cronin to assist in developing
Purchaser's overall business plan, including branding strategy, target clientele
and introduction of products in various formats.
7.8 Integration of Business. The Company hereby acknowledges that the
Purchaser is subject to public reporting requirements in the United States of
America, and therefore the Company will be subject to internal control, audit
and corporate governance procedures generally required by publicly-traded
corporations, as reasonably determined by Purchaser in its sole discretion.
7.9 Name Change. The Selling Shareholder shall procure that on
Completion the name of the Company shall be changed to Team Dandelion Limited
and shall ensure that all business activity of the
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Company is conducted under the name Team Dandelion or Team Dandelion Limited as
soon as practicable, and in any event, no later than within six months from the
Closing Date.
7.10 Company Key Employees. As soon as practicable, Purchaser shall
identify the employees of the Company who are key to the Company's business and
operations (the "KEY EMPLOYEES"), and offer such Key Employees continued
employment with the Company following the Closing.
7.11 Tax Covenant. The Tax Covenant shall come into full force and
effect upon Closing.
ARTICLE VIII
CONDITIONS TO THE SALE OF THE SHARES
8.1 Conditions to Obligations of Each Party. The respective obligations
of each party to this Agreement shall be subject to the satisfaction at or prior
to the Closing Date of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transaction contemplated by the Transaction
Agreements shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the transaction contemplated
hereby, which makes the consummation of such sales illegal.
(b) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Selling
Shareholder, Purchaser or the Company, their respective properties or any of
their officers or directors, arising out of, or in any way connected with, the
transactions contemplated by the terms of this Agreement.
(c) Government Approvals. Company and the Selling Shareholder
shall have obtained all other consents and approvals required from governmental
authorities for the consummation of the transactions contemplated by this
Agreement.
(d) Related Agreements. Each of the appropriate parties shall
have executed the Related Agreements.
8.2 Additional Conditions to the Obligations of Purchaser. The
obligations of Purchaser to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by Purchaser:
(a) Representations, Warranties, and Covenants. The
representations and warranties of the Company and the Selling Shareholder in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date as though such representations and warranties were made on and
as of the Closing Date and the Company and the Selling Shareholder shall have
performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by them
as of the Closing Date.
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(b) Third Party Consents. Any and all material consents,
waivers, and approvals listed in the Disclosure Letter shall have been obtained.
(c) Related Agreements. Each of the parties to each of the
Related Agreements shall have executed and delivered such and each Related
Agreement shall be in full force and effect.
(d) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), results of operations, liabilities (contingent or accrued), financial
condition or prospects of the Company since 31st July, 1999.
(e) Certificate of the Company and the Selling Shareholder.
Purchaser shall have been provided with a certificate executed by the Selling
Shareholder and executed on behalf of the Company by its Chief Executive Officer
to the effect that, as of the Closing Date:
(i) all representations and warranties made by the
Company and the Selling Shareholder in this Agreement are true and correct in
all material respects on and as of the Closing Date as though made on and as of
such date; and
(ii) all covenants and obligations of this Agreement to
be performed by the Company on or before such date have been so performed in all
material respects.
(iii) the provisions set forth in Section 8.2(b) and (e)
have been satisfied.
(f) Due Diligence Investigation. Purchaser shall have completed
its due diligence investigation of the Company to Purchaser's satisfaction in
its unfettered discretion, including, but not limited to, a review and
evaluation of the businesses and finances of the Company and the Subsidiaries to
determine the accuracy of the Financial Statements.
(g) Necessary Approvals. Purchaser shall have received all
requisite board, shareholder and creditor approvals of the transaction
contemplated by this Agreement including (without limitation) the consent of
Barclays Bank plc to the transfer of the Transferred Assets and confirmation
that the facilities will remain unaffected by closing.
(h) Audited Accounts. The 7/31 Statements shall have been
audited and a copy delivered to Purchaser.
8.3 Additional Conditions to Obligations of Company and the Selling
Shareholder. The obligations of the Company and the Selling Shareholder to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, by the Company
and the Selling Shareholder:
(a) Representations, Warranties and Covenants. The
representations and warranties of Purchaser in this Agreement shall be true and
correct in all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such time, and Purchaser
shall have performed and complied in all material respects with all covenants
and obligations of this Agreement required to be performed and complied with by
it as of the Closing Date.
(b) Certificate of the Purchaser. Company and the Selling
Shareholder shall have been provided with a certificate executed on behalf of
the Purchaser by an authorized officer to the effect that, as of the Closing
Date:
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(i) all representations and warranties made by the
Purchaser in this Agreement are true and correct in all material respects on and
as of the Closing Date as though made on and as of such date; and;
(ii) all covenants and obligations of this Agreement to
be performed by the Purchaser on or before such date have been so performed in
all material respects.
8.4 Each of the parties shall use his or its best endeavours to procure
that the conditions (which in the case of each of them is within his or its
control or expressed to be his or its responsibility) in Sections 8.1, 8.2 and
8.3 shall be satisfied as soon as reasonably practicable after the date hereof
and in any event within twenty-one (21) days failing which this Agreement shall
terminate and be of no further force or effect and no party shall have any
liability to any other save in respect of any breach of this Section 8.4.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
9.1 Indemnification.
(a) If the Closing has occurred, subject to the terms and
conditions of this Article IX, but notwithstanding anything to the contrary
contained herein, the Selling Shareholder shall indemnify the Purchaser, and its
respective officers, directors, agents and representatives (collectively, the
"INDEMNITEES"), from and in respect of, and hold the Indemnitees harmless
against, any and all damages, fines, penalties, losses, liabilities, judgments,
deficiencies and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, reasonable fees and
expense of attorneys and accountants and other expenses of litigation), offset
or reduced by the amount of any insurance proceeds received by Purchaser in
respect of any of the foregoing without the insurer becoming subrogated to the
indemnities clause against the Purchaser hereunder, incurred or suffered by any
of the Indemnitees ("DAMAGES") resulting from, relating to or in connection with
(i) any misrepresentation, breach of warranty or failure to perform any covenant
or agreement of the Company or the Selling Shareholder contained in this
Agreement (disregarding, for purposes of determining the existence of a
misrepresentation or breach of warranty under this Section 9.1(a), any
requirement in a representation or warranty that an event or fact be material or
meet a certain minimum dollar threshold or have a Material Adverse Effect, in
order for such event or fact to constitute a misrepresentation or breach of
warranty) (ii) the transfer by the Company of the Transferred Assets, and (iii)
the repayment of Pound Sterling 100,000 made by the Company to the Selling
Shareholder and the repayment of Pound Sterling 50,000 made by the Company to
the executive pension scheme referred to in the Disclosure Letter, the bonuses
totalling Pound Sterling 150,000 payable to Mr Clutton.
(b) To secure the indemnification obligations of the Selling
Shareholder to the Indemnitees, the Team Shares will be deposited into the
Indemnification Escrow Account with the Escrow Agent in accordance with Section
3.3(a)(vi) hereof and the Indemnification Escrow Agreement. Indemnitees' Damages
shall be limited as set forth in Section 9.5.
(c) The Selling Shareholder acknowledges that its
indemnification obligations hereunder are solely in its capacity as a former
shareholder of the Company, and, accordingly, the indemnification obligations in
this Article IX shall not entitle any current or former officer, director or
employee of the Company to any indemnification from the Company pursuant to its
Articles of Association, or any agreement with the Company (notwithstanding any
insurance policy).
9.2 Method of Asserting Claims.
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(a) Each Indemnitee shall give prompt written notice (the "CLAIM
NOTICE") to the Escrow Agent as provided in the Indemnification Escrow
Agreement, which agreement shall cover all disbursement of Escrowed Funds (as
described therein).
If the Claimed Amount exceeds the Escrow Amount remaining in escrow
("EXCESS DAMAGES"), then the Selling Shareholder shall be liable for the Excess
Damages; provided that in no event shall the sum of the Escrow Amount and the
Excess Damages exceed the maximum indemnity set forth in Section 9.5. Payment of
Excess Damages shall be made (i) to the extent the Claim is not contested, then
within thirty days after delivery of the Claim Notice, (ii) to the extent the
Claim is contested or if the Claimed Amount is not yet fixed, then within ten
days after the amount of the Claim is determined by the procedures set forth in
Section 9.2(c) below or, if a Third Party Claim, pursuant to Section 9.3.
Payment of Excess Damages shall be made in cash.
(c) Resolution of Conflicts.
(i) The Purchaser and the Selling Shareholder shall
attempt to resolve any dispute as to Joint Instructions in good faith in a
person to person meeting. Each party agrees that it will not initiate any
litigation against any other party regarding the subject matter of this Article
IX for at least sixty (60) days following such person to person meeting except
for (i) motions for a temporary restraining order or the other preliminary
equitable relief and (ii) circumstances in which a delay for such period would
result in such action being barred as a result of the relevant statute of
limitations expiring. In the event any litigation is initiated in compliance
with this Section 9.2(c)(i), the parties agree jointly to stipulate to the court
that all proceedings in such action to be kept confidential. The Escrow Agent
shall be entitled to act in accordance with any decision of the court and make
or withhold payments out of the Escrow Account in accordance therewith.
(ii) If no agreement shall have been reached within 15
days after the person to person meeting, the parties shall seek mediation by a
person mutually acceptable to the parties. The parties will use their best
efforts to resolve conflicts in good faith by mediation.
(iii) Any litigation initiated pursuant to Section
9.2(c)(i) shall be brought in the High Court in London. The non-prevailing party
to any litigation shall pay its own expenses and the expenses, including without
limitation, attorneys' fees and costs, incurred by the other party to the
litigation.
9.3 Third Party Claims.
(a) Except as otherwise provided in paragraph (c) below, the
Selling Shareholder, may elect to compromise or defend, at the Selling
Shareholder's own expense and by the Selling Shareholder's own counsel
reasonably satisfactory to the Indemnitee, any Third-Party Claim; provided that
(i) the Representative provides the Indemnitee with reasonable evidence that the
Selling Shareholder will have the financial resources to defend against such
claim and fulfill its indemnification obligations hereunder; and (ii) the giving
of a Defense Notice (as defined below) by the Representative shall constitute an
acknowledgment by the Selling Shareholder of its obligation to indemnify the
Indemnitee with respect to such Third-Party Claim in accordance with the terms
of this Article IX. If the Representative, as agent for the Selling Shareholder,
elects to compromise or defend a Third-Party Claim, the Representative shall,
within thirty (30) days of its receipt of the notice provided pursuant to
Section 9.2(a) hereof (or sooner, if the nature of such Third-Party Claim so
requires), provide written notice to the related Indemnitee of its intent to do
so (a "DEFENSE NOTICE"), and such Indemnitee shall reasonably cooperate in the
compromise of, or defense against, such Third-Party Claim. The Selling
Shareholder shall be responsible for the payment of such Indemnitee's
reasonable, actual out-of-pocket expenses incurred in connection with such
cooperation, and such expenses shall constitute Damages incurred or suffered by
Purchaser within the
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meaning of Section 9.1(a) hereof. After notice from the Selling Shareholder, to
an Indemnitee of its election to assume the defense of a Third-Party Claim, the
Selling Shareholder shall not be liable to such Indemnitee under this Article IX
for any legal expenses subsequently incurred by such Indemnitee in connection
with the defense thereof; provided that such Indemnitee shall have the right to
employ one counsel of its choice to represent such Indemnitee if, in such
Indemnitee's reasonable judgment, a conflict of interest between such Indemnitee
and the Selling Shareholder exists in respect of such claim, and in that event
the reasonable fees and expenses of such separate counsel shall be the
responsibility of the Selling Shareholder (and shall constitute Damages incurred
or suffered by Purchaser within the meaning of Section 9.1(a) hereof). If the
Selling Shareholder, elects not to compromise or defend against a Third-Party
Claim, or fails to notify an Indemnitee of its election as provided in this
Section 9.3, such Indemnitee may pay, compromise or defend such Third-Party
Claim on behalf of and for the account and risk of the Selling Shareholder (and
any amount paid or expenses incurred in connection therewith shall constitute
Damages incurred or suffered by Purchaser within the meaning of Section 9.1(a)
hereof). The Selling Shareholder may not consent to entry of any judgment or
enter into any settlement without the written consent of each related Indemnitee
(which consent shall not be unreasonably withheld), unless such judgment or
settlement provides solely for money damages or other money payments for which
such Indemnitee is entitled to indemnification hereunder and includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect of such Third-Party Claim.
(b) In respect of any claim, action, suit or proceeding brought
by a taxing authority in respect of Taxes (a "TAX CLAIM"), the Selling
Shareholder, shall have the sole right to control any Tax Claim, provided,
however, that the Selling Shareholder shall provide the Indemnitee with copies
of all correspondence with any taxing authority in connection with any such Tax
Claim and shall keep the Indemnitee reasonably informed of all progress with
such taxing authority, and provided further that the Selling Shareholder shall
consult with the Indemnitee in good faith in contesting any proposed adjustment
and shall consider any reasonable advice from the Indemnitee concerning such Tax
Claim so long as the Selling Shareholder, shall ultimately be entitled to
control any such Tax Claim concerning any indemnity obligation of the Selling
Shareholder. The Selling Shareholder shall not be entitled to compromise or
settle any Tax liability of the Company for any Pre-Closing Date period that
would have the effect of materially decreasing the Company's deductions for
credits or materially increasing the Company's taxable income for any taxable
year or period subsequent to the Pre-Closing Date period without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld.
(c) If there is a reasonable likelihood that a Third-Party Claim
may have a material adverse effect on an Indemnitee, other than as a result of
money damages or other money payments for which such Indemnitee is entitled to
indemnification hereunder, such Indemnitee will have the right, after
consultation with the Selling Shareholder, and at the cost and expense of the
Selling Shareholder (which costs and expenses shall constitute Damages within
the meaning of Section 9.1(a) hereof), to defend such Third-Party Claim. If the
Third-Party Claim involves a third party with whom Purchaser has a significant
on-going or prospective relationship, the Indemnitee will have the right, after
consultation with the Selling Shareholder, and at the cost and expense of the
Selling Shareholder (which costs and expenses shall constitute Damages within
the meaning of Section 9.1(a) hereof), to defend such Third-Party Claim;
provided that the Selling Shareholder shall not be obligated to pay Damages to
the extent it is determined (by agreement between the Selling Shareholder and
Indemnitees or by arbitration or court judgment) that the Third-Party Claim was
settled on terms that were not fair and reasonable to the Indemnitees.
9.4 Survival. The representations and warranties of the Selling
Shareholder set forth in this Agreement (other than in Section 4.9) shall
survive the Closing and shall continue until three (3) years after the Closing
Date; and the representations and warranties in Section 4.9 hereof shall survive
until ten (10) days after the expiration of the relevant statutes of
limitations. This Section 9.4 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Closing.
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Other than as set forth in the Disclosure Letter, the representations and
warranties shall not be affected by any examination made for or on behalf of
Purchaser or the knowledge of any of Purchaser's officers, directors,
stockholders, employees or agents. Notwithstanding anything to the contrary
herein, if a claim for indemnification is made before the expiration of the
periods of survival set forth above in this Section 9.4, then (notwithstanding
the expiration of such time period) the representation or warranty applicable to
such claim shall survive until, but only for purposes of, the resolution of such
claim.
9.5 Limitations.
(a) Except as otherwise expressly provided herein, the Selling
Shareholder shall not be liable under this Article IX unless and until the
aggregate amount of Damages incurred or suffered by Indemnitees with respect to
Damages exceeds $50,000, at which point the Selling Shareholder shall become
liable for any and all additional Damages not exceeding in the aggregate the
Purchase Price.
(b) Nothing in this Article IX shall limit, in any manner
(whether by time, amount, procedure or otherwise), any remedy at law or in
equity to which Purchaser may be entitled as a result of actual fraud or willful
misrepresentation or misconduct by the Selling Shareholder.
(c) The Purchaser shall not be entitled to claim that any fact
renders any of the representations or warranties untrue or misleading or causes
them to be breached if it has been fully, fairly and specifically disclosed to
the Purchaser in the Disclosure Letter.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. Except as provided in Section 10.2 below, this
Agreement may be terminated at any time prior to the Closing Date:
(a) by mutual consent of the Company, Selling Shareholder and
Purchaser;
(b) by Purchaser or the Selling Shareholder if: (i) there shall
be a final nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated in this Agreement; or (ii) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the transactions contemplated in this Agreement by any
governmental entity that would make consummation of the transactions
contemplated in this Agreement illegal;
(c) by Purchaser or if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated in this Agreement by any
Governmental Entity, which would: (i) prohibit Purchaser's ownership or
operation of any material portion of the business of the Company or (ii) compel
Purchaser or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Purchaser as a result of the
transactions contemplated in this Agreement;
(d) by Purchaser if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company or the Selling Shareholder and such breach has not been
cured within five (5) calendar days after written notice to the Company
(provided that no cure period shall be required for a breach which by its nature
cannot be cured);
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(e) by the Company if neither it nor the Selling Shareholder is
in material breach of their respective obligations under this Agreement and
there has been a material breach of any representation, warranty, covenant or
agreement contained in this Agreement on the part of Purchaser and such breach
has not been cured within five (5) calendar days after written notice to
Purchaser (provided that no cure period shall be required for a breach which by
its nature cannot be cured); or
(f) by Purchaser if an event having a Material Adverse Effect on
the Company shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this
Section 10.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
10.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Purchaser, the
Selling Shareholder or the Company, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination.
10.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
10.4 Extension; Waiver. At any time prior to the Closing Date,
Purchaser, on the one hand, and the Company and the Selling Shareholder, on the
other, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given and received if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Purchaser, to: Team Communications Group, Inc.
12300 Wilshire Boulevard, Suite 400
Los Angeles, CA 90025
Attention: Chief Operating Officer
Facsimile: 310\ 442-3502
Telephone: 310\ 442-3500
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with a copy to: Kelly Lytton Mintz & Vann LLP
1900 Avenue of the Stars, Suite 1450
Los Angeles, CA 90067
Attention: Bruce P. Vann, Esq.
Facsimile: 310\ 277-5953
Telephone: 310\ 277-5333
with an additional copy to Marriott Harrison
12 Great James Street
London WC1N 3DR
Attention Jonathan Pearce, Esq.
Facsimile: 0171 209 2001
Telephone: 0171 209 2000
(b) if to the Company, to: Dandelion Distribution Ltd.
5 Churchill Court
58 Station Road
North Harrow, Middlesex HA2 7SA
Attention: Noel Cronin
Facsimile: 011-181-863-0463
Telephone: 011-181-863-1888
with a copy to: Graham Harvey
Northway House
1379 High Road
Whetstone
Attention: Harvey Shulman, Esq.
Facsimile: 0181 445 0979
Telephone: 0181 343 7382
11.2 Interpretation. The words "INCLUDE," "INCLUDES" and "INCLUDING"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; Assignment. This Agreement, the Disclosure
Letter, the Schedules hereto, and the documents and instruments and other
agreements among the parties hereto referenced herein: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder except that the
Representative and the Escrow Agent shall have the express rights articulated in
Articles IX hereof and in the Escrow Agreement hereto; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided, except that Purchaser may assign its rights and delegate its
obligations hereunder to any of its affiliates.
11.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the
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remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
11.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of England regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof. Each of the
parties hereto irrevocably consents to the exclusive jurisdiction and venue of
the High Court in London, England or, at the option of the claimant, the
appropriate County Court, in connection with any matter based upon or arising
out of this Agreement or the matters contemplated herein, agrees that process
may be served upon them in any manner authorized by the laws of England for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction, venue and such process.
11.8 Amendment. Except as is otherwise required by applicable law, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
11.9 Extension; Waiver. At any time, Purchaser, the Selling Shareholder
and the Company may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE XII
RESTRICTIVE COVENANT
12.1 Agreement of Selling Shareholder. The Selling Shareholder, in
consideration of and as a condition of the Purchaser entering into this
Agreement, undertakes with the Purchaser (both for itself and as trustee for any
subsidiary) that he will not and, in the case of sub-clauses (ii), (iii) and
(iv) below, will procure that any body corporate of which he has for the time
being control and/or any partnership and/or business in which he may be engaged
will not, directly or indirectly:
(i) within the United Kingdom be employed by, concerned or interested in, or
provide technical or commercial advice to any business which supplies goods or
services of a type similar to the goods or services supplied by any Group
Company for a period of three years after the Closing Date;
(ii) for a period of three years after the Closing Date, supply or seek to
supply, to a client or prospective client, goods or services of a type similar
to the goods or services supplied by any Group Company within the 12 month
period prior to the Closing Date;
(iii) for a period of three years after the Closing Date, induce or endeavour
to induce a client or prospective client not to enter into any contract or
arrangement with any Group Company for the supply
39
<PAGE> 41
of goods or services by any Group Company of a type similar to any supplied by
any Group Company within the 12 month period prior to the Closing Date;
(iv) for a period of three years after the Closing Date, solicit or entice
away or endeavour to solicit or entice away from any Group Company any director
and/or senior employee of any Group Company who was such a director or senior
employee prior to the Closing Date.
12.2 Definitions: The following expressions shall have the following meanings
for the purposes of this Section 12:- "client" any person to whom the Selling
Shareholder or any employee of any Group Company reporting directly to the
Selling Shareholder supplied services or goods on behalf of any Group Company at
any time during the period of one year prior to the termination of the Selling
Shareholder's employment with the Company;
"Group Company" means the Company and any parent undertaking or
subsidiary undertaking of the Company as defined in Section 262 of the Companies
Act 1985;
"prospective client" any person to whom the Selling Shareholder or any
employee of any Group Company reporting directly to the Selling Shareholder was
actively seeking to supply services or goods on behalf of any Group Company at
any time during the period of six months prior to the termination of the Selling
Shareholder's employment with the Company;
"seek" shall where the context so admits extend to the expression "solicit
canvass or otherwise approach with a view to the supply of".
12.3 Construction: In this Clause references to acting directly or indirectly
include (without prejudice to the generality of that expression) references to
acting alone or jointly with or on behalf of or by means of any other person.
12.4 Separate Covenant: The Selling Shareholder acknowledges that each of the
restrictions in this Section 12 hereof constitutes an entirely separate and
independent restriction on him and is no greater than is necessary to protect
the legitimate business interests (including business connections) of the
Company and any Group Company and the parties consider the restrictions to be
reasonable in all the circumstances. If any such restriction shall be held by
any Court to be void as going beyond what is reasonable in all the circumstances
for the protection of the interests of the Company the said restrictions shall
apply with such modifications as may be necessary to render them valid and
effective.
12.5 Exception: Notwithstanding anything contained in this Section 12 the
Selling Shareholder shall not be prevented from fulfilling existing obligations
under contracts with Leisureview Limited, String of Pearls plc, String of Pearls
2 plc and Renown Pictures Limited or as a director of such companies named
herein but only for such time as the nature and scope of such companies are
conducted as at present.
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<PAGE> 42
IN WITNESS WHEREOF, the Purchaser, the Company and the Selling Shareholder have
entered into this Agreement on the date first written above.
PURCHASER
TEAM COMMUNICATIONS GROUP, INC.
By:
--------------------------------------
Name:
Title:
COMPANY
DANDELION DISTRIBUTION LTD.
By:
--------------------------------------
Name:
Title:
SELLING SHAREHOLDER
-----------------------------------------
NOEL CRONIN
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<PAGE> 43
SCHEDULE A
SCHEDULE OF SELLING SHAREHOLDER
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
SHARES ESCROWED
BEING TEAM
NAME AND ADDRESS SOLD SHARES CASH
- ---------------------------------------------------------------
<S> <C> <C> <C>
Noel Cronin 200 As $625,000
ordinary calculated
shares of pursuant
Pound to Section
Sterling 1 3.2(b)
each
- ---------------------------------------------------------------
</TABLE>
42
<PAGE> 44
SCHEDULE B
B - 1 THE CRONIN EMPLOYMENT AGREEMENT
AND
B - 2 THE CLUTTON EMPLOYMENT AGREEMENT
43
<PAGE> 45
SCHEDULE C
INDEMNIFICATION ESCROW AGREEMENT
44
<PAGE> 46
SCHEDULE D
CASH ESCROW AGREEMENT
45
<PAGE> 47
SCHEDULE E
TRANSFERRED ASSETS
A Part of the land adjoining Highcroft, Langley Road, Chipperfield, Herts.
B 12 A St Andrews Street, St Ives, Cornwall
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<PAGE> 48
SCHEDULE F
REAL PROPERTY
5 Churchill Court, North Harrow, Middlesex
47
<PAGE> 49
SCHEDULE G
TAX COVENANT
1 INTERPRETATION
1.1 Words and expressions defined in the Agreement to which this is a
Schedule have the same meanings in this Schedule (unless a contrary
intention appears or the context requires otherwise).
1.2 The following expressions have the following meanings in this Schedule
(unless a contrary intention appears or the context requires
otherwise):-
"CLAIM" means the issue of any notice, letter or other document by or on
behalf of any Tax Authority or the taking of any other action by or on
behalf of any Tax Authority from which notice, letter, document or
action it appears that a Tax Liability is to be, or may come to be,
imposed on the Company;
"COMPANY" means either or both of Dandelion Productions Limited and
Baserem Limited;
"COMPLETION" means completion of the sale and purchase of the Company
Shares pursuant to the Agreement;
"EVENT" shall include (without limitation) any arrangement, transaction,
action or omission, the payment of a dividend, any change in the
residence of any person for the purposes of any Tax, the death or the
winding up or dissolution of any person, the Company ceasing or being
deemed to cease to be treated as a member of any group or associated
with any other company for the purposes of any taxation and a failure to
take any action which would avoid an apportionment or deemed
distribution of income (regardless of whether the taking of any such
action after Completion could have avoided such apportionment or deemed
distribution), and shall also include Completion and any reference to an
event occurring on or before a particular date shall include events
which for Tax purposes are deemed to have or are treated or regarded as
having occurred on or before that date and shall include the transfer to
the Selling Shareholder of any asset of the Company by way of a benefit
in kind;
"GROUP RELIEF" means (i) relief surrendered or claimed pursuant to
Chapter IV of Part X of the Taxes Act, (ii) advance corporation tax
surrendered or claimed pursuant to Section 240 of the Taxes Act; and
(iii) any tax refund surrendered or claimed pursuant to Section 102
Finance Act 1989;
"PURCHASER'S RELIEF" means any Relief which arises in consequence or in
respect of any Event occurring after Completion whether or not in the
ordinary course of business of the Company;
"RELIEF" means any relief, allowance, exemption, set off or credit in
respect of any Tax or any deduction in computing income, profits or
gains for the purposes of any Tax and (i) any reference to the use or
set off of Relief shall be construed accordingly and shall include use
or set off in part; and (ii) any reference to the loss of a Relief shall
include the absence or non-existence of any such Relief or to such
Relief being available only in a reduced amount;
"REPAYMENT OF TAX" includes any repayment supplement or interest in
respect of Tax and any reference to loss of a right to repayment of Tax
includes its non-existence, reduction, cancellation or set off in whole
or in part; and
"TAX ASSESSMENT" means any assessment, demand or other similar formal
notice of a Tax Liability issued by or on behalf of any Tax Authority by
virtue of which the Company either is
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<PAGE> 50
liable to make a payment of Tax or will, with the passing of time,
become so liable (in the absence of any successful application to
postpone any such payment).
1.3 In this Schedule reference to any "TAX LIABILITY" means any liability of
the Company to make actual payments of Tax (or amounts in respect of
Tax) and also:-
1.3.1 the loss, reduction, use or set off of any Relief which would
(were it not for the said loss, reduction, use or setting off)
have been available to the Company and which has been taken into
account in computing (and so reducing) any provision for deferred
Tax which is reflected in the 7/31 Statements (or which, but for
the presumed availability of such Relief, would have been
reflected in the 7/31 Statements) and any Relief which was
treated as an asset of the Company in the 7/31 Statements;
1.3.2 the loss of a right to repayment of Tax or the setting off of any
such right to repayment of Tax against any actual Tax Liability
in respect of which the Purchaser would, ignoring the use of any
Purchaser's Relief, but for that setting off, have been able to
make a claim against the Selling Shareholder under this Schedule;
and
1.3.3 the use or setting off against income, profits or gains earned,
accrued or received on or before Completion or against Taxation
of any Purchaser's Relief in circumstances where, but for such
use or setting off, the Company would have had an actual Tax
Liability in respect of which the Purchaser would have been able
to make a claim against the Selling Shareholder under this
Schedule.
1.4 In any case falling within any of sub-clauses 1.3.1, 1.3.2 and 1.3.3,
the amount that is to be treated for the purposes of this Schedule as a
Tax Liability of the Company (the "Deemed Tax Liability") shall be
determined as follows:-
1.4.1 in a case which falls within sub-clause 1.3.2, the Deemed Tax
Liability shall be the amount of the repayment that would have
been obtained but for the loss or setting off mentioned in that
sub-paragraph;
1.4.2 in a case which falls within sub-clause 1.3.1 or 1.3.3 and where
the Relief that is the subject of the loss, use or setting off
mentioned in those sub-paragraphs is a deduction from or offset
against Tax, the Deemed Tax Liability shall be the amount of that
Relief so lost, used or set off;
1.4.3 in a case which falls within sub-clause 1.3.1 or 1.3.3 and where
the Relief that is the subject of the loss, use or setting off
mentioned in those sub-paragraphs was a deduction from or offset
against income, profits or gains, the Deemed Tax Liability shall
be:-
(a) if the Relief was the subject of such a loss, the amount of
Tax which would, on the basis of the rates of Tax current at
the date of the loss, have been saved but for the loss
ignoring for this purpose the effect of any Purchaser's
Relief (other than deductions in computing profits for the
purpose of Tax); or
(b) if the Relief was the subject of such a use or setting off,
the amount of Tax which has been saved in consequence of the
use or setting off.
1.5 In this Schedule reference to:
1.5.1 "INCOME, PROFITS OR GAINS" shall include any income profits or
gains which are deemed to
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<PAGE> 51
be earned, accrued or received for the purposes of any Tax;
1.5.2 income, profits or gains (as defined in sub-clause 1.5.1) as
being earned, accrued or received on or before a particular date
or in respect of a particular period shall include income,
profits or gains which are deemed to have been earned, accrued or
received on or before that date or in respect of that period for
the purposes of any Tax;
1.5.3 any payment or distribution as being made on or before a
particular date shall include:-
(a) any payment or distribution which has fallen due to be made
on or before that date; and
(b) any Event which has occurred on or before that date and is,
or is deemed to be, a payment or distribution for (in either
such case) the purposes of any Tax; and
1.5.4 any "DIVIDEND" shall include anything which is deemed to be a
dividend or distribution for the purposes of any Tax and shall
also include any other Event which gives rise to an obligation to
account for advance corporation tax or amounts corresponding to
or similar to advance corporation tax.
1.6 Any stamp duty which is charged on any document executed prior to
Completion or in the case of a document executed prior to Completion
which is outside the United Kingdom at Completion any stamp duty which
would be charged on the document if it were brought into the United
Kingdom, which is necessary to establish the title of the Company to any
asset or in the enforcement or production of which the Company is
interested and any interest, fines or penalties relating to such stamp
duty shall be deemed to be a liability of the Company to make an actual
payment of Taxation.
1.7 In determining for the purposes of this Schedule whether a charge on or
power to sell, mortgage or charge any of the Company Shares or assets of
the Company exists at any time the fact that any Taxation is not yet
payable or may be paid by instalments shall be disregarded and such
Taxation shall be treated as becoming due and a charge or power to sell,
mortgage or charge as arising at the date of the transfer of value or
other date or Event on or in respect of which it becomes payable or
arises.
1.8 The provisions of section 213 Inheritance Tax Act 1984 shall not apply
to payments falling to be made under this Schedule.
1.9 Unless the context otherwise requires, references to any English legal
term for any action, remedy, method or judicial proceeding, legal
document, legal status, court, official or any legal concept or thing
shall in respect of any jurisdiction other than England be deemed to
include what most nearly approximates in that jurisdiction to the
English legal term; and
1.10 Headings in this Schedule shall be for convenience only and accordingly
shall be disregarded.
1.11 The rule known as the eiusdem generis rule shall not apply to this
Schedule and accordingly general words introduced by the word "other"
shall not be given a restrictive meaning by reason of the fact that they
are preceded by words indicating a particular class of acts, matters or
things.
1.12 General words in this Schedule shall not be given a restrictive meaning
by reason of the fact that they are followed by particular examples
intended to be embraced by the general words.
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1.13 References to persons shall include bodies corporate, unincorporated
associations and partnerships.
2. COVENANT
2.1 Subject to the provisions of this Schedule, the Selling Shareholder
covenants with the Purchaser for itself and as trustee for its
successors in title to pay to the Purchaser an amount equal to any:-
2.1.1 Tax Liability of the Company arising:-
(a) as a consequence of or by reference to any Event which
occurred on or before Completion; or
(b) in respect of or by reference to any income, profits or gains
which were earned, accrued or received on or before
Completion; or
(c) as a consequence of the Company ceasing, or being deemed to
cease, to be a member of any group or associated with any
other company for the purposes of any Tax on or before
Completion;
2.1.2 Tax Liability of the Company in respect of:
(a) any Event occurring after Completion in pursuance of a
legally binding obligation or arrangement (whether
conditional or not) entered into on or before Completion, or
pursuant to any request by the Selling Shareholder under this
Schedule or the Agreement.
(b) any Event occurring before Completion outside the ordinary
course of business of the Company as carried on at any time
before Completion and which forms part of any combination of
Events which include any Event occurring after Completion
which is inside the ordinary course of business of the
Company;
2.1.3 depletion or reduction in the value of any assets of the Company
or any increase in its liabilities arising as a result of :-
(a) any liability of the Company to repay in whole or in part any
payment for Group Relief received or make any payment for
Group Relief pursuant to any agreement or arrangement entered
into on or before Completion; and
(b) any failure by the Company to obtain a payment for Group
Relief which was taken into account as and treated as an
asset in the 7/31 Statements;
2.1.4 depletion in or reduction in the value of the assets or increase
in the liabilities of the Company as a result of any liability of
the Company to make a payment by way of reimbursement, recharge,
indemnity, damages (whether for breach of contract or arising in
tort or otherwise) or management charge by reference to Taxation:
(a) in respect of or arising from any Event occurring on or
before Completion;
(b) by reference to any income profits or gains earned or accrued
on or before Completion;
2.1.5 Tax Liability arising in respect of, or by reference to or in
consequence of any failure to discharge or default in discharging
any of the Selling Shareholder's obligations under Clauses 6 and
7 of this Schedule, including any failure to meet any relevant
time limit;
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2.1.6 depletion in or reduction in value of the assets or increase in
the liabilities of the Purchaser and/or the Company as a result
of any inheritance tax which:-
(a) is at Completion a charge on any of the shares or assets of
the Company or gives rise to a power to sell, mortgage or
charge any of the shares or assets of the Company or
(b) after Completion becomes a charge on or gives rise to a power
to sell, mortgage or charge any of the shares or assets of
the Company being a liability in respect of inheritance tax
payable as a result of the death of any person within seven
years of a transfer of value (or a deemed transfer of value)
if a charge on or power to sell, mortgage or charge any such
shares or assets existed at Completion, or would, if death
had occurred immediately before Completion and the
inheritance tax payable as a result had not been paid, have
existed at Completion; or
(c) arises as a result of a transfer of value occurring on or
before Completion (whether or not in conjunction with the
death of any person whenever occurring) which increased or
decreased the value of the estate of the Company.
2.1.7 Tax Liability or any liability in respect of Tax which is the
primary liability of or is primarily attributable to any other
person and which the Company is or becomes required to discharge
by virtue of its relationship at any time before Completion with
any other person Provided that this Clause 2.1.7 shall not apply
to the extent that specific provision or reserve is made for the
Tax Liability (other than a provision or reserve for deferred
Taxation) in the 7/31 Statements;
2.1.8 any costs and expenses reasonably and properly incurred
(including a reasonable amount in respect of management time) by
the Purchaser or the Company in connection with or in consequence
of any matters for which a claim may be made by the Purchaser
under Clause 2.1 or in connection with any action taken in
avoiding resisting or settling any such liability under Clause
2.1.
2.2 For the avoidance of doubt the Selling Shareholder shall remain liable
in accordance with the terms of this Schedule notwithstanding that any
liability giving rise to a liability of the Selling Shareholder to make
a payment pursuant to the provisions of this Schedule is or has been
discharged or suffered by the Company or the Purchaser whether before or
after the date hereof and whether by payment or by the loss, use or
set-off of any Relief.
2.3 Any payments made by the Selling Shareholder to the Purchaser under this
Schedule shall be treated as a reduction or repayment of the
consideration paid for the Company Shares pursuant to the Agreement
provided that this sub-clause shall not operate in any way to limit the
liability of the Selling Shareholder under this Schedule or the
Agreement.
3 LIMITS ON COVENANT
3.1 The covenant given in Clauses 2.1.1 - 2.1.5 (inclusive) shall not cover
any Tax Liability of the Company to the extent that:-
3.1.1 specific provision or reserve (other than a provision or reserve
for deferred Tax) in respect of that Tax Liability was made in
the 7/31 Statements; or
3.1.2 that Tax Liability arises or is increased as a result only of :
(a) an increase in rates of Taxation made after Completion with
retrospective effect; or
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(b) the passing of any legislation, or making of any subordinate
legislation or a change in a published practice generally
applied or the withdrawal of any published concession granted
by any Tax Authority, which is announced and comes into force
on or after Completion with retrospective effect;
3.1.3 the liability would not have arisen but for a voluntary
transaction, act or omission carried out or effected by the
Company after Completion except that this exclusion shall not
apply where any such transaction, act or omission:
(a) is carried out or effected pursuant to a legally binding
commitment created on or before Completion, or which for some
other reason could not reasonably have been avoided; or
(b) is carried out or effected in the ordinary course of business
of the Company; or
(c) (without prejudice to sub-paragraphs (a) and (b) of this
Clause 3.1.3) is carried out in circumstances where the
Purchaser did not know and could not reasonably be expected
to know it would or might give rise to the Tax Liability in
question.
4 OVER-PROVISIONS, RELIEFS, ETC.
4.1 If the auditors for the time being of the Company shall certify (at the
request and expense of the Selling Shareholder) that any provision for
Tax in the 7/31 Statements (excluding any provision for deferred Tax)
has proved to be an over-provision, then the amount of such
over-provision shall be dealt with in accordance with Clause 4.3.
4.2 If the auditors for the time being of the Company shall certify (at the
request and expense of the Selling Shareholder) that any Tax Liability
which has resulted in a payment having been made or becoming due from
the Selling Shareholder under this Schedule will give rise to a Relief
for the Company which would not otherwise have arisen, then, as and when
the liability of the Company to make an actual payment of or in respect
of Tax is reduced by reason of that Relief and after taking account of
the effect of all other Reliefs that are or become available to the
Company (including any Purchaser's Relief ) in calculating the amount
that that liability would have been but for the availability of that
Relief, the amount by which that liability is so reduced shall when such
tax saving is obtained be dealt with in accordance with Clause 4.3.
4.3 Where it is provided under sub-clause 4.1 or 4.2 that any amount (the
"Relevant Amount") is to be dealt with in accordance with this
sub-clause:-
4.3.1 the Relevant Amount shall first be set off against any payment
then due from the Selling Shareholder under this Schedule; and
4.3.2 to the extent there is an excess, a refund shall be made to the
Selling Shareholder of any previous payment or payments made by
the Selling Shareholder under sub-clauses 2.1.1 - 2.1.6
(inclusive) of this Schedule and not previously refunded under
this Clause 4 or Clause 5 up to the amount of such excess; and
4.3.3 to the extent that the excess referred to in sub-clause 4.3.2 is
not exhausted under that paragraph, the remainder of that excess
shall be carried forward and set off against any future payment
or payments which become due from the Selling Shareholder under
this Schedule in chronological order until exhausted
Provided that for the avoidance of doubt neither the Purchaser
nor the Company shall be under
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any obligation to use or set off any Purchaser's Relief in any such way
that may increase or maximise any benefit to the Selling Shareholder
under this Clause 4.
4.4 The provisions of sub-clause 4.3 shall not apply unless the amount of
the over provision or refund so referred to exceeds Pound Sterling
1,000.
4.5 Where any such certification as is mentioned in sub-clause 4.1 or 4.2
has been made, the Selling Shareholder or the Purchaser may request the
auditors for the time being of the Company to review such certification
in the light of all relevant circumstances, including any facts which
have become known only since such certification, and to certify whether
such certification remains correct or whether, in the light of those
circumstances, the amount that was the subject of such certification
should be amended.
4.6 If the auditors certify under sub-clause 4.5 that an amount previously
certified should be amended, that amended amount shall be substituted
for the purposes of sub-clause 4.3 as the Relevant Amount in respect of
the certification in question in place of the amount originally
certified, and such adjusting payment (if any) as may be required by
virtue of the above-mentioned substitution shall be made as soon as
practicable by the Selling Shareholder or (as the case may be) to the
Selling Shareholder.
5 RECOVERY FROM OTHER PERSONS
If the Selling Shareholder has made a payment to the Purchaser under
this Schedule pursuant to Clause 2 and the Company either is immediately
entitled at the due date for the making of that payment to recover from
some other person (not being the Purchaser, but including any Tax
Authority) any sum in respect of the Tax Liability that has resulted in
that payment becoming due from the Selling Shareholder, or at some
subsequent date becomes entitled to make such a recovery, then the
Purchaser shall procure that the Company shall (in either of those
cases) promptly notify the Selling Shareholder of the entitlement and
shall, if so required by the Selling Shareholder and at the Selling
Shareholder's sole expense and upon the Selling Shareholder indemnifying
the Company and providing security as to all costs and expenses which
may thereby be incurred to the reasonable satisfaction of the Company or
the Purchaser, procure that the Company take all appropriate steps to
enforce that recovery (keeping the Selling Shareholder fully informed of
the progress of any action taken) provided that the Company shall not be
obliged to take any action which it shall reasonably consider to be
prejudicial and, provided that the right to such payment or relief is
not prejudiced thereby, shall account to the Selling Shareholder for
whichever is the lesser of:-
5.1 any sum so recovered (including any interest or repayment
supplement paid by the Tax Authority or other person on or in
respect thereof less any Tax chargeable on the Company in respect
of the sum recovered or that interest) after deduction of all
costs and expenses incurred by the Company in enforcing such
recovery; and
5.2 the amount paid by the Selling Shareholder pursuant to Clause 2
as reduced (if at all) by Clause 4 in respect of the Tax
Liability in question.
6 CLAIMS PROCEDURE
6.1 Upon the Purchaser or the Company becoming aware of a Claim relevant for
the purposes of this Schedule ("a Tax Claim"), it shall as soon as
reasonably practicable give written notice thereof to the Selling
Shareholder but such notice shall not be a condition precedent to the
Vendor's liability under this Schedule and the Purchaser shall procure
that the Company shall (if the Selling Shareholder shall indemnify and
secure the Purchaser and/or the Company (as appropriate) to its
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reasonable satisfaction against all losses, costs, damages and expenses
(including a reasonable amount in respect of management time) and
including an increased or additional Tax Liability and interest on
overdue Tax, which may be incurred thereby) take such action and give
such information and assistance in connection with the affairs of the
Company as the Selling Shareholder may reasonably and promptly by
written notice request to avoid, resist, appeal or compromise the Tax
Claim; PROVIDED THAT the Purchaser shall not be obliged to procure that
the Company shall appeal against any Tax assessment raised on it if,
having given the Selling Shareholder written notice of the receipt of
that Tax assessment, it has not within 15 days thereafter received
instructions in writing from the Selling Shareholder to make that appeal
and in those circumstances the Purchaser and the Company shall be free
to pay or settle the Tax Claim on such terms as it or they may in its or
their absolute discretion think fit and without prejudice to the
Purchaser's rights and remedies under this Schedule; AND PROVIDED
FURTHER THAT the Purchaser shall not be obliged to procure that the
Company take any action under this Clause which involves contesting any
Tax assessment before any court or other appellate body (excluding the
authority or body demanding the Tax in question) unless the Selling
Shareholder furnish the Purchaser with the written opinion of leading
Tax Counsel acceptable to the Purchaser in its reasonable discretion to
the effect that an appeal against the Tax assessment in question will,
on the balance of probabilities, be won.
6.2 Subject to the provisions of this Clause 6 the actions which the Selling
Shareholder may reasonably request under sub-clause 6.1 shall include
(without limitation) the Company applying to postpone (so far as legally
possible) the payment of any Tax and/or allowing the Selling Shareholder
to take on or take over at its own expense the conduct of all or any
proceedings of whatsoever nature arising in connection with the Tax
Claim in question, and, if the Selling Shareholder take on or take over
the conduct of the proceedings, the Purchaser shall and shall procure
that the Company shall provide such documents, information and
assistance as the Selling Shareholder may reasonably require in
connection with the preparation for and conduct of those proceedings but
neither the Purchaser nor the Company shall be required to take any
action which it reasonably believes will be unduly onerous or materially
prejudicial to the future liability of the Purchaser or the Company to
Tax or the business or financial interests of either of them or of any
person connected with either of them.
6.3 The Selling Shareholder shall make no settlement or compromise of any
Tax Claim nor agree any matter in the conduct or any such dispute which
is likely to affect the future liability of the Company or the Purchaser
in respect of Tax without the prior written approval of the Purchaser
such approval not to be unreasonably withheld or delayed.
6.4 If any Tax Authority alleges or has alleged, or information has come to
the attention of the Purchaser or the Company which in its reasonable
opinion could constitute evidence that the Selling Shareholder or the
Company prior to Completion have committed fraud, wilful default,
neglect or conduct involving dishonesty or, if in the Purchaser's
reasonable opinion, the action is likely to adversely affect either the
future liability of the Purchaser or the Company to Tax or the business
or financial interest of any of them or of any person connected with any
of them sub-clause 6.1 shall not apply.
7 TAX RETURNS
7.1 The Purchaser shall procure in respect of the Company that the Selling
Shareholder (or their professional advisers) shall subject as
hereinafter provided, have the sole conduct of the preparation,
submission to the relevant Tax Authority in the UK or elsewhere,
negotiation, correspondence and agreement of the Tax computations for
accounting periods ending on or before the Accounts 7/31 Statements Date
("the Relevant Accounting Periods") to the extent that
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the same shall not have been prepared before Completion.
7.2 The Purchaser shall at the expense of the Selling Shareholder procure
that the Company shall provide to the Selling Shareholder or his
authorised agents and during all reasonable hours all such reasonable
assistance, co-operation and information as the Selling Shareholder may
reasonably request in respect of preparing, submitting, negotiating and
agreeing with the relevant Tax Authority the Tax computations referred
to in sub-clause 7.1 above and in respect of the Tax affairs of the
Company generally relating to the Relevant Accounting Periods.
7.3 The Purchaser shall take full responsibility for the outstanding Tax
affairs of the Company in respect of accounting periods commencing after
the Accounts Date and shall prepare and submit such computations and
returns to the appropriate Tax Authorities whether in the UK or
elsewhere and deal with all negotiations, correspondence and agreements
with respect thereto. The Purchaser shall ensure that all material
communications to the relevant Tax Authorities in respect of the
accounting period in which Completion takes place shall first be sent to
the Selling Shareholder and the Purchaser shall consult and shall
procure that the Company shall consult with the Selling Shareholder
regarding the contents of all such communications and undertakes and/or
shall procure that the Company shall undertake to have due and proper
regard to such comments. Subject to the provisions of this Clause 7 the
Purchaser shall procure that the Company shall not submit any
computations or returns which relate to any extent to a period before
the Completion Date without the prior approval of the Selling
Shareholder such approval not to be unreasonably withheld or delayed.
7.4 The Selling Shareholder shall not submit any computations or returns in
respect of the Relevant Accounting Periods without affording the
Purchaser a reasonable opportunity to consider such computations and
returns and make representations prior to submission to the Tax
Authority and the Selling Shareholder undertakes to have due and proper
regard to such comments in finalising such computations and the
Purchaser shall not be obliged to procure that the Company submits any
computation or return which is not full and accurate in all material
respects.
7.5 The Selling Shareholder covenants that all outstanding Taxation
computations for the Relevant Accounting Periods (collectively the
"Relevant Taxation Computations") shall be submitted to the relevant Tax
Authority prior to 31st January 1999 ("the Final Date").
7.6 If any of the Relevant Taxation Computations are not submitted to the
relevant Tax Authority by the Final Date sub-clause 7.1 shall cease to
apply in relation to all the Relevant Taxation Computations and the
Purchaser will assume responsibility for the conduct of preparing,
submitting and agreeing those computations and the Selling Shareholder
shall discharge all reasonable costs and expenses (including a
reasonable amount in respect of management time) incurred by the
Purchaser in preparing, submitting and agreeing such Relevant Taxation
Computations.
7.7 The Selling Shareholder and the Purchaser shall agree a timetable for
the submission of the Relevant Taxation Computations and the Selling
Shareholder shall submit a draft form of timetable for agreement to the
Purchaser for comment on a timely basis prior to the Final Date.
7.8 If the Selling Shareholder or the Company shall have committed or any
relevant Tax Authority shall allege or information shall come to the
attention of the Purchaser or the Company which in the Purchaser's
reasonable opinion could constitute evidence that the Selling
Shareholder or the Company has or have committed acts or omissions which
may constitute fraud, wilful default or neglect prior to the date of
Completion sub-clause 7.1 shall not apply or shall cease to apply and,
in that event, sub-clause 7.7 shall apply.
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7.9 It is agreed that this Clause 7 shall not apply to any returns relating
to value added tax, PAYE, national insurance or social security matters.
7.10 Nothing done by the Purchaser or the Company pursuant to this Clause 7
shall in any respect restrict or reduce any rights the Purchaser may
have to make a claim against the Selling Shareholder under this
Schedule.
8 DUE DATE OF PAYMENT
8.1 Where the Selling Shareholder becomes liable to make any payment
pursuant to Clause 2 of this Schedule, the due date for the making of
that payment shall be:-
8.1.1 in a case that involves an actual payment of Tax by the Company,
the date that is seven days before the last date on which the
Company would have had to have paid to the appropriate Tax
Authority the Tax that has given rise to the Selling Shareholder'
liability under this Schedule in order to avoid incurring a
liability to interest or a charge or penalty in respect of that
Tax Liability;
8.1.2 in a case falling within any of the sub-paragraphs of Clause 1.3,
the date falling seven days after the date when the Selling
Shareholder has been notified by the Company or the Purchaser
that the auditors for the time being of the Company have
certified, at the request of the Purchaser or the Company, that
the Selling Shareholder has a liability for a determinable amount
under Clause 2;
8.1.3 in the case of the costs and expenses referred to in Clause 2.1.8
the date of receipt of a written demand for the same;
8.1.4 in any other case, seven days after the date when the Selling
Shareholder has been notified by the Company or the Purchaser
that the Selling Shareholder has a liability for a determinable
amount.
8.2 In the case of a liability of the Selling Shareholder to pay an
additional amount to the Purchaser under:-
8.2.1 Clause 9.2, the due date for payment shall be the same as the due
date for payment of the amount from which the deduction or
withholding referred to in Clause 9.2 is required to be made;
8.2.2 Clause 9.3, the due date for payment shall be the later of the
date seven days before the date on which the Tax is required to
be paid to the relevant Tax Authority (taking into account any
postponement of such Tax obtained by the Company) and the date on
which the Selling Shareholder receives a written demand for
payment from the Purchaser.
8.3 In the case of a Tax Liability of any person other than the Company
which is charged or secured on or otherwise payable out of the Company
Shares or any asset of the Company or the proceeds of sale thereof under
section 212 or 237 of the Inheritance Tax Act 1984, the due date for
payment shall be the date on which the Selling Shareholder receives a
written demand for payment from the Purchaser.
8.4 If any payment required to be made by the Selling Shareholder under
this Schedule is not made by the due date for the making thereof, then,
except to the extent that the Selling Shareholder's liability under
Clause 2 compensates the Purchaser for the late payment by virtue of its
extending
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to interest and penalties, that payment shall be increased by an amount
equal to interest at the rate of 3 per cent per annum above the base
lending rate from time to time of The Governor and Company of the Bank
of Scotland which shall accrue on a daily basis from the due date until
payment is actually made, whether before or after any judgment.
9 DEDUCTIONS FROM PAYMENTS
9.1 All sums payable by the Selling Shareholder to the Purchaser under this
Schedule shall be paid free and clear of all deductions or withholdings
whatsoever, save only as may be required by law.
9.2 If any deductions or withholdings are required by law to be made from
any of the sums payable as mentioned in Clause 9.1, the Selling
Shareholder covenants forthwith to pay to the Purchaser such additional
amount as will, after the deduction or withholding has been made, leave
the Purchaser with the same amount as it would have received in the
absence of any such requirement to make a deduction or withholding.
9.3 If any sum payable by the Selling Shareholder to the Purchaser under
this Schedule shall be subject to Taxation in the hands of the
Purchaser, the Selling Shareholder covenants forthwith to pay to the
Purchaser such an additional amount as will, after taking into account
such Taxation and any Taxation in respect of such additional amount,
leave the Purchaser with the same amount as it would have received and
retained had the payment in question not been subject to Taxation.
10 ILLEGALITY
If at any time any provision of this Schedule is or becomes illegal,
invalid or unenforceable in any respect under any rule of law or
enactment of any jurisdiction; the legality, validity or enforceability
of the remaining provisions in that or any other jurisdiction and the
legality, validity or enforceability of such provision under the law of
any other jurisdiction shall not in any way be affected or impaired
thereby.
11 WAIVER
No delay or omission of the Purchaser or the Company in exercising any
right or power under this Schedule shall impair such right or power or
be construed as a waiver thereof and any single or partial exercise of
any such right or power shall not preclude the further exercise of any
right or power. Any waiver of a breach of, or default under, this
Schedule shall not be deemed to be a waiver of any subsequent breach or
default and shall not affect the other terms of this Schedule. The
rights and remedies of the Purchaser and the Company provided in this
Schedule are cumulative and not exclusive of any rights and remedies
provided by law.
12 ASSIGNMENT
The benefit of the covenants contained in this Schedule may be assigned.
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IN WITNESS WHEREOF, the Purchaser, the Company and the Selling Shareholder
have entered into this Agreement on the date first written above.
PURCHASER
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ JONATHAN D. SHAPIRO
-----------------------------------
Name:
Title:
COMPANY
DANDELION DISTRIBUTION LTD.
By: /s/ NOEL CRONIN
-----------------------------------
Name: NOEL CRONIN
Title: MANAGING DIRECTOR
SELLING SHAREHOLDER
/s/ NOEL CRONIN
--------------------------------------
NOEL CRONIN
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Exhibit 10.13
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 1st day of
October, 1999 and by Dandelion Distribution Limited (or any successor entity)
(the "Company"), a wholly owned subsidiary of Team Communications Group, Inc.
("Team") and Noel Cronin of Highcroft, Langley Road, Chipperfield, Herts (the
"Executive"), in connection with the Company's engagement of the Executive's
personal services as Managing Director of the Company.
1. EMPLOYMENT: DUTIES AND ACCEPTANCE
(a) Employment by the Company
The Company hereby engages the Executive and the Executive hereby agrees
to provide to the Company services as Managing Director of the Company.
In such capacity the Executive will report to, and serve under the
direction of the Board of Directors of the Company ("Board") and will be
subject to the supervision of the Chief Executive Officer and Chief
Operating Officer of Team.
(b) Duties; Executive Committee
The Executive shall be primarily responsible for the acquisition and
exploitation of film and television properties in the United Kingdom,
including identifying production or acquisition opportunities, and
implementing such strategies as are applicable to assist the Company in
maximising its operational cash flow and profitability. The Executive,
as a member of senior management of the Company shall participate in
formulating the Company's long term strategy, and assisting Team in
implementing its operations in Europe.
(c) Location of Employment
The Executive shall render his services in London. The Executive need
not render his duties away from the Company's office (in England) other
than for customary trade shows and sales trips, as well as periodic
trips to the Company's main office in Los Angeles, California. The
Company may not relocate the Executive for the term of the agreement
without the Executive's consent in writing.
(d) Hours of Employment
There are no normal hours of work applicable to the Executive but he
shall conform to such hours of work as may reasonably be required of him
and in any event he shall work such hours as may be necessary for the
proper performance of his duties. The Executive shall not be entitled to
receive any additional remuneration for work outside his normal hours
nor for work related to any subsidiary of the Company.
(e) Working Time Regulations 1998
The Executive agrees that the time limits specified in Regulation 4(1)
of the Working Time Regulations 1998 shall not apply to his employment.
The agreement contained in this Clause 1(e) shall be terminable on three
months' notice.
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(f) Duties
(i) During the continuance of this Agreement the Executive shall
(unless prevented by mental or physical incapacity or with the
written consent of the Board) give substantially the whole of his
time, abilities and attention to the businesses of the Company and
any subsidiary of the Company and shall not undertake any other
activity or interest (whether of a business nature or otherwise)
which may in the opinion of the Board interfere with the
performance of his duties hereunder and shall not without the
written consent of the Board be directly or indirectly engaged,
concerned or interested in any other trade, profession or business
(except as the owner for investment only of not more than 5 per
cent in nominal value of any class of shares or other securities
listed or dealt in on any recognised investment exchange.).
(ii) It is agreed that the Executive shall continue his directorships of
Leisureview Limited, String of Pearls plc, String of Pearls 2 plc
and Renown Pictures Limited provided that such directorships do not
interfere with the proper performance of his duties under this
Agreement.
2. TERM
(a) Commencement and Duration
The term of the Executive's employment hereunder shall be for a period
of three (3) years commencing as of the date hereof (the "Term") unless
sooner terminated pursuant to Section 7 hereof ("Termination Sections").
(b) Continuous Employment
For the purpose of the Employment Rights Act 1996, the date on which the
Executive's continuous period of service began was 6th October 1983. No
employment of the Executive prior to such date shall be treated as part
of his continuous period of employment by the Company.
3. COMPENSATION AND BENEFITS
(a) Base Compensation
Commencing on the first date of employment of the Executive pursuant to
this Agreement and continuing throughout the Term, the Executive shall
be compensated at the rate of Pound Sterling 140,000.
(b) Provisions for Payment
The Executive's compensation shall be payable, at the Base Rate in
twenty-six (26) bi-weekly payments per year. Such salary shall be less
such deductions as shall be required to be withheld by applicable law
and regulations and shall be pro-rated for any period that does not
constitute a full twelve (12) month period.
(c) Bonus
Beginning in the fiscal year beginning January 1, 2000, the Employee
shall be eligible to participate in all bonus and profit sharing plans
as may be adopted by the Company from time to time for any of its senior
executives.
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(d) Contracting out Certificate
There is no contracting out certificate in force under the Pension
Schemes Act 1993 in respect of this employment.
4. PARTICIPATION IN EXECUTIVE BENEFIT PLANS
(a) Fringe Benefits
The Executive shall be permitted during the Term to participate in any
group life, medical, hospitalisation, dental and disability plans, to
the extent that the Executive is eligible under the provisions of such
plans, and such other fringe benefits as are maintained by the Company
for the President and Chief Executive Officer of the Company during the
Term hereof, each in accordance with the terms and conditions of such
plans (collectively referred to herein as "Fringe Benefits"). Annexed
hereto as Exhibit A is a schedule outlining the present coverage
provided and to be provided to the Executive.
(b) Vacation Policy
The Executive shall have the right during each year of the Term to take
an aggregate of four weeks of paid vacation at such time as may be
mutually agreed by the Company and the Executive. Notwithstanding
anything in any Company manual or policy to the contrary, any unused
vacation shall not accumulate and the Company will not reimburse the
Executive for such time at the conclusion of the Term.
(c) Expenses
On a monthly basis, the Company will reimburse the Executive for actual
and reasonably necessary, in the Executive's discretion, travel and
accommodation costs, entertainment and other business expenses incurred
as a necessary part of discharging the Executive's duties hereunder,
subject to subsequent receipt of reasonable and appropriate
documentation by the Company. If the Executive shall undertake any
travel on behalf of the Company, the Executive shall be furnished with
coach air travel for himself and access to upgrade coupons (and if such
coupons are not available, business class tickets for travel over three
hours), and living accommodations and expenses including accommodations
in hotels suitable for business travellers (e.g. Hilton, Marriott,
Hyatt, Double Tree hotels).
5. OPTIONS
(a) Grant
Contemporaneous with the execution hereof, the Employee will be granted
options to acquire seventy-five thousand (75,000) shares of Team's
Common Stock, such options to have an exercise price equal to the
average bid and asked price of Team's common stock as quoted on the
NASDAQ Small Market (the "Options"). The options will be issued pursuant
to a standard employee stock option plan, and the options will be
subject to dilution upon the issuance of additional shares of common
stock pursuant to customary dilution provisions.
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(b) Vesting
The Options shall vest one-third (1/3) after the end of the first year
of employment, one-third (1/3) after the second year of employment, and
the remaining options at the end of the third year of employment. All
options will expire 90 days after the termination of the Executive's
employment with the Company.
(c) If, in the event of a merger or consolidation, the Company is not the
surviving corporation, and in the event that the agreements governing
such merger or consolidation do not provide for the substitution of new
options or other rights in lieu of the Options granted hereunder, or for
the express assumption of such outstanding Options by the surviving
corporation, or in the event of the dissolution or liquidation of the
Company, the Executive shall have the right of not less than five (5)
days prior to the record date for the determination of shareholders
entitled to participate in such merger, consolidation, dissolution or
liquidation, to exercise the Options, in whole or in part, without
regard to any vesting provisions that may be a part of the terms and
conditions of the Options; provided, that any conditions precedent to
such exercise set forth in this Agreement, other than the passage of
time, have been satisfied.
6. CERTAIN COVENANTS OF EXECUTIVE
Without in any way limiting or waiving any right or remedy accorded to
Company or any limitation placed upon Executive by law, Executive agrees
as follows:
(a) Confidential Information
The Executive agrees that, neither during the Term nor at any time
thereafter shall the Executive (i) disclose to any persons, firm or
corporation not employed by the Company or its affiliates or
subsidiaries (a "Protected Company") or not engaged to render services
to any Protected Company or (ii) use for the benefit of himself, or
others, any confidential information of any Protected Company obtained
by the Executive prior to the execution of this Agreement, during the
Term or any time thereafter, including, without limitation, "know-how",
trade secrets, details of supplier's, manufacturer's or distributor's
contracts, pricing policies, financial data, operational methods,
marketing and sales information or strategies, product development
techniques or plans or any strategies relating thereto, technical
processes, designs and design projects, and other proprietary
information of any Protected Company; provided, however, that this
provision shall not preclude the Executive from (x) upon advice of
counsel, making any disclosure required by any applicable law or (y)
using or disclosing information known generally to the public (other
than information known generally to the public as a result of any
violation of this Section 6(a) by or on behalf of the Executive.
(b) Property of Company
Any interest in trade marks, service marks, copyright applications,
patents, patent applications, slogans, developments and processes which
the Executive, during the Term, may develop relating to the Business of
the Company in which the Company may then be engaged and any memoranda,
notes, lists, records and other documents (and all copies thereof) made
or complied by the Executive or made available to the Executive
concerning the business of any Protected Company shall belong and remain
in the possession of any Protected Company, and shall be delivered to
the
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Company promptly upon the termination of the Executive's employment with
the Company or at any other time on request.
7. TERMINATION
(a) Termination Upon Death or Disability
If during the Term, the Executive should (i) die or (ii) become so
physically or mentally disabled whether totally or partially, that the
Executive is unable to perform the duties, functions and
responsibilities required hereunder for (aa) a period of three (3)
consecutive months or (bb) shorter periods aggregating to four (4)
months within any period of twelve (12) months ("Disability"), then in
such event, the Company may, at any time thereafter, by 30 days written
notice to the Executive, terminate the Executive's employment hereunder.
The Executive agrees to submit to reasonable medical examinations upon
the reasonable request of Company. The existence of the Executive's
disability for the purposes of this Agreement shall be determined by a
reputable physician selected by the Company who is experienced in the
relevant field of medicine. If the Executive's services are terminated,
as aforesaid the Executive or the designated beneficiary of the
Executive, shall be entitled to receive the Executive's salary, accruing
at the Base Rate and the accrued share of any bonus for that Fiscal Year
(if any such plan shall have been adopted) earned through the date of
the Executive's termination.
(b) By Resignation or By Company for Cause
If the Executive's employment with the Company terminates due to his
voluntary resignation, or if the Company terminates the Executive's
employment due to Cause (as defined below), the Company shall pay the
Executive all accrued Base Compensation (with no Bonus for the year in
which the termination of employment took place) but no other
compensation or reimbursement of any kind, including without limitation,
severance compensation or the vesting of any unvested Stock Options, and
thereafter the Company's obligations hereunder shall terminate. Cause
means:
(i) if the Executive shall be guilty of gross misconduct or shall
commit a wilful breach of or shall wilfully fail to perform his
duties under this Agreement;
(ii) if the Executive shall have been guilty of any criminal offence
involving dishonesty or of conduct tending to bring himself or the
Company or any subsidiary of the Company into disrepute;
(iii) if the Executive shall have become bankrupt or compounded his
creditors generally;
(iv) if a disqualification order is made against the Executive under
the Company Director's Disqualification Act 1986;
(v) if the Executive becomes a patient under the Mental Health Act
1983.
(c) Automatic Termination
This Agreement shall terminate automatically once the Executive reaches
the normal retirement age of the Company as may be fixed by the Board
from time to time.
(d) Suspension
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If the Company has any grounds to believe it may have a right to
terminate the Executive's employment pursuant to Clause 7(b) hereof, it
shall be entitled (but without prejudice to its right subsequently to
terminate the Executive's employment on the same or any other ground) to
suspend the Executive for a period of up to one month on full pay during
the period of any enquiry or investigation into the circumstances giving
rise to such belief. The Company may, if it has reasonable grounds for
doing so, extend the one month period referred to above provided that
any payment to the Executive during this extended period shall be full
pay in accordance with the terms of this Agreement.
(e) Exclusion from Work
Without prejudice to the rights of the parties hereunder, the Company
shall have the right at any time after either party has given notice to
the other of termination of this Agreement in terms of Clause 2 hereof
until such termination to require the Executive not to attend at any
place of work and to exclude him from any premises of the Company or any
subsidiary of the Company and the Company shall be under no obligation
to vest in or assign to the Executive any powers or duties or to provide
any work for the Executive and shall have the right to suspend him from
performance of any or all obligations hereunder (provided that the
rights of the Company pursuant to this Clause 7(e) shall not be
exercised for a period exceeding twelve months in aggregate).
(f) Return of Company Equipment
All keys, equipment, memoranda, notes, records, reports, drawings or
other documents, and all specimens, models and samples made, executed or
acquired by the Executive in the course of his employment shall be the
property of the Company and shall be surrendered to the Company on
termination of his employment.
8. CONSEQUENCE OF TERMINATION
(a) Resignation as Director
Upon the termination of the employment of the Executive under this
Agreement for whatever reason, Executive shall upon the request of the
Company resign without claim for compensation from office as a Director
of the Company or any subsidiary of the Company and from all offices
held by him in any Company or any subsidiary of the Company and in the
event of his failure to do so the Company is hereby irrevocably
authorised to appoint some person in his name and on his behalf to
execute any documents and to do all things requisite to give effect
thereto. Any resignation pursuant to this Clause 8(a) shall be without
prejudice to any claim for breach of this Agreement but the Executive
shall not be entitled to any damages or compensation by reason of the
termination of his employment as a Director of any Company or any
subsidiary of the Company following on termination of this Agreement.
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(b) Continuation of Agreement
Notwithstanding any actual or purported termination or expiration of
this Agreement, the provisions of Clauses 6 and 8 and hereof shall
continue in full force and this Agreement shall be construed
accordingly.
9. GRIEVANCE AND DISCIPLINARY PROCEDURE
(a) Reference to Board
The Executive shall refer any grievance about his employment under this
Agreement to the Chairman of Board by given written notice and the
reference will be dealt with by a majority present at the next full
Board Meeting whose decision shall be final.
(b) Disciplinary Rules
The disciplinary rules relating to the Executive are such rules as the
Board shall determine from time to time and notice thereof in writing
shall be supplied to the Executive.
(c) Appeal
In the event of the Executive being dissatisfied with any disciplinary
decision relating to him, he may refer it to the Board and such
reference will be dealt with by the majority present at the relevant
Board Meeting whose decision shall be final.
10. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES
(a) Right to Enter into Agreement
The Executive has the unfettered right to enter into this entire
Agreement on all of the terms, covenants and conditions hereof, and the
Executive has not done or permitted to be done anything which may
curtail or impair any of the rights granted to the Company herein.
(b) Breach Under Other Agreement or Arrangement
Neither the execution and delivery of this Agreement nor the performance
by the Executive of any of his obligations hereunder will constitute a
violation or breach of, or a default under, any agreement, arrangement
or understanding, or any other restriction of any kind, to which the
Executive is a part or by which the Executive is bound.
(c) Services Rendered Deemed Special, etc.
The Executive acknowledges and agrees that the services to be rendered
by him hereunder are of a special, unique, extraordinary and
intellectual character which gives them peculiar value, the loss of
which cannot be adequately compensated for in an action at law and that
a breach of any term, condition or covenant hereof will cause
irreparable harm and injury to the Company and in addition to any other
available remedy the Company will be entitled to seek injunctive relief.
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11. MISCELLANEOUS
(a) Collective Agreements
No collective agreements directly affect the terms and conditions of the
Executive's employment hereunder.
(b) Health and Safety Rules
The Executive must comply with the Company's health and safety rules
from time to time in force.
(c) Variation
No variation of this Agreement shall be made unless made in writing and
signed on behalf of the Company and by the Executive.
(d) English Law
The Agreement shall be governed by and construed in accordance with
English law and the parties hereby submit to the non-exclusive
jurisdiction of the Courts of England and Wales.
12. USE OF NAME
The Company shall have the right during the Term hereof to use the
Executive's name, biography and approved likenesses in connection with
the Company's business, including advertising their products and
services; and the Company may grant such rights to others, but not for
use as a direct endorsement.
13. NOTICES
Any notice, consent or other communication under this Agreement shall be
in writing and shall be delivered personally, telexed, sent by facsimile
transmission or overnight courier (regularly providing proof of
delivery) or sent by registered, certified or express mail and shall be
deemed given when so delivered personally, telexed, sent by facsimile
transmission or overnight courier, or if mailed two (2) days after the
date of deposit in the United States or Canada mail as follows: to the
parties at the following addresses (or at such other address as a party
may specify by notice in accordance with the provisions hereof to the
other):
To Company: Team Dandelion
c/o Team Communications Group, Inc.
12300 Wilshire Blvd.
Suite 400
Los Angeles, CA 90025
Attention: Chief Executive Officer
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Facsimile: 310\442-3501
To Executive: Address as written above.
14. COMPLETE AGREEMENT; MODIFICATION AND TERMINATION
This Agreement contains a complete statement of all the arrangements
between the parties with respect to the Executive's employment by the
Company, supersedes all existing agreements between them concerning the
Executive's employment. This Agreement may be amended, modified,
superseded or cancelled, and the terms and conditions hereof may be
waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part
of any party in exercising any right or remedy hereunder shall operate
as a waiver thereof, nor shall any waiver on the part of any party of
any such right or remedy, nor any single or partial exercise of any such
right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy.
15. NO LIABILITY TO SHAREHOLDERS
This Agreement is expressly between the Executive and the Company, and
nothing herein shall be deemed to infer or imply that the Executive has
any rights against any shareholder or officer of the Company, or that
any such shareholder has any obligations to the Executive, all of such
rights or obligations, if any, being expressly waived hereunder. For the
avoidance of doubt, the Executive shall have no right to institute an
action against any shareholder for any breach of any of the agreements
hereunder or under any claims of alter ego or breach of any corporate
veil.
16. RESTRICTIVE COVENANT
(a) The Executive, in consideration of and as a condition of the Company
entering into this Agreement, undertakes with the Company (both for
itself and as trustee for any subsidiary) that he will not and, in the
case of sub-clauses (ii), (iii) and (iv) below, will procure that any
body corporate of which he has for the time being control and/or any
partnership and/or business in which he may be engaged will not,
directly or indirectly:
(i) within the United Kingdom be employed by, concerned or interested
in, or provide technical or commercial advice to any business
which supplies goods or services of a type similar to the goods or
services supplied by any Group Company for a period of 6 months
after the termination of his employment by the Company;
(ii) for a period of 6 months after the termination of his employment
by the Company, supply or seek to supply, to a client or
prospective client, goods
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<PAGE> 10
or services of a type similar to the goods or services supplied by
any Group Company within the 12 month period prior to the
termination of his employment by the Company;
(iii) for a period of 6 months after the termination of his employment
by the Company, induce or endeavour to induce a client or
prospective client not to enter into any contract or arrangement
with any Group Company for the supply of goods or services by any
Group Company of a type similar to any supplied by any Group
Company within the 12 month period prior to the termination of his
employment by the Company;
(iv) for a period of 12 months after the termination of his employment
by the Company, solicit or entice away or endeavour to solicit or
entice away from any Group Company any director and/or senior
employee of any Group Company who was such a director or senior
employee prior to the termination of the Executive's employment.
and that these restrictions shall apply howsoever his employment with
the Company is terminated.
(b) After the termination of the Executive's employment for whatever
reason or, if later, the date of his ceasing to be a director of
Company, the Executive will not without the written approval of the
Board represent himself or permit himself to be held out as being in any
way connected with or interested in the business of the Company and
after that termination he will not without the written approval of the
board of directors of the Company concerned represent himself or permit
himself to be held out as being in any way connected with the business
of any other Group Company except if and for so long as he remains a
director or an employee of that Group Company.
(c) The following expressions shall have the following meanings for the
purposes of this Clause 16:-
"client" any person to whom the Executive or any employee
of any Group Company reporting directly to the
Executive supplied services or goods on behalf of
any Group Company at any time during the period
of one year prior to the termination of the
Executive's employment with the Company;
"Group Company" means the Company and any parent undertaking or
subsidiary undertaking of the Company as defined
in Section 262 of the Companies Act 1985;
"prospective client" any person to whom the Executive or any employee
of any Group Company reporting directly to the
Executive was actively seeking to supply services
or goods on behalf of any Group Company at any
time during the period of six months prior to the
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<PAGE> 11
termination of the Executive's employment with
the Company;
"seek" shall where the context so admits extend to the
expression "solicit canvass or otherwise approach
with a view to the supply of".
(d) In this Clause references to acting directly or indirectly include
(without prejudice to the generality of that expression) references to
acting alone or jointly with or on behalf of or by means of any other
person.
(e) The Executive acknowledges that each of the restrictions in this Clause
16 hereof constitutes an entirely separate and independent restriction
on him and is no greater than is necessary to protect the legitimate
business interests (including business connections) of the Company and
any Group Company and the parties consider the restrictions to be
reasonable in all the circumstances. If any such restriction shall be
held by any Court to be void as going beyond what is reasonable in all
the circumstances for the protection of the interests of the Company the
said restrictions shall apply with such modifications as may be
necessary to render them valid and effective.
(f) If the Company exercises its right to suspend the Executive's duties for
a period of up to one month under Clause 7(d) hereof during any period
after notice of termination of employment has been given by the Company
or the Executive, the aggregate of the period of the suspension and the
period after the termination of employment for which the covenants in
this Clause 16 hereof shall apply shall not exceed the period relevant
to each restriction as specified in each sub-clause of this Clause 16
hereof (each the "Relevant Period") and, if the aggregate of the two
periods would exceed the Relevant Period, the period after termination
of employment for which the covenants in Clause 16 hereof shall apply
shall be reduced accordingly.
(g) The Executive agrees to bring the terms of this Clause 16 to the
attention of any third party proposing to employ, appoint or engage him,
before entering into the related contract with that third party.
(h) Notwithstanding anything contained in this Clause 16 the Executive shall
not be prevented from fulfilling existing obligations under contracts
with Leisureview Limited, String of Pearls plc, String of Pearls 2 plc
and Renown Pictures Limited or as a director of such companies named
herein but only for such time as the nature and scope of such companies
are conducted as at present.
17. HEADINGS
The headings in this Agreement are solely for convenience of reference
and shall not affect its interpretation.
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WHEREFORE, the parties hereto have executed this Agreement as of the 1st day of
October 1999
Signed by a director for and on behalf of
Dandelion Distribution Limited
/s/ Jonathan D. Shapiro
- --------------------------
Director
AGREED TO AND ACCEPTED:
/s/ Noel Cronin
- --------------------------
NOEL CRONIN
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<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 11th day of
October 1999 and by Dandelion Distribution Limited (or any successor entity)
(the "Company"), a wholly owned subsidiary of Team Communications Group, Inc.
("Team") and John Clutton of (the "Executive"), in connection with the Company's
engagement of the Executive's personal services as Sales Director of the
Company.
1. EMPLOYMENT: DUTIES AND ACCEPTANCE
(a) Employment by the Company
The Company hereby engages the Executive and the Executive hereby agrees
to provide to the Company services as Sales Director of the Company. In
such capacity the Executive will report to, and serve under the
direction of the Board of Directors of the Company ("Board") and will be
subject to the supervision of the Managing Director.
(b) Duties; Executive Committee
The Executive shall be primarily responsible for assisting the Managing
Director in the acquisition and exploitation of film and television
properties in the United Kingdom, including identifying production or
acquisition opportunities, and implementing such strategies as are
applicable to assist the Company in maximising its operational cash flow
and profitability. The Executive, as a member of senior management of
the Company shall participate in formulating the Company's long term
strategy, and assisting Team in implementing its operations in Europe.
(c) Location of Employment
The Executive shall render his services in London. The Executive need
not render his duties away from the Company's office (in England) other
than for customary trade shows and sales trips, as well as periodic
trips to the Company's main office in Los Angeles, California. The
Company may not relocate the Executive for the term of the agreement
without the Executive's consent in writing.
(d) Hours of Employment
There are no normal hours of work applicable to the Executive but he
shall conform to such hours of work as may reasonably be required of him
and in any event he shall work such hours as may be necessary for the
proper performance of his duties. The Executive shall not be entitled to
receive any additional remuneration for work outside his normal hours
nor for work related to any subsidiary of the Company.
(e) Working Time Regulations 1998
The Executive agrees that the time limits specified in Regulation 4(1)
of the Working Time Regulations 1998 shall not apply to his employment.
The agreement contained in this Clause 1(e) shall be terminable on three
months' notice.
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(f) Duties
During the continuance of this Agreement the Executive shall (unless
prevented by mental or physical incapacity or with the written consent
of the Board) give the whole of his time, abilities and attention to the
businesses of the Company and any subsidiary of the Company and shall
not undertake any other activity or interest (whether of a business
nature or otherwise) which may in the opinion of the Board interfere
with the performance of his duties hereunder and shall not without the
written consent of the Board be directly or indirectly engaged,
concerned or interested in any other trade, profession or business
(except as the owner for investment only of not more than 5 per cent in
nominal value of any class of shares or other securities listed or dealt
in on any recognised investment exchange.)
2. TERM
(a) Commencement and Duration
The term of the Executive's employment hereunder shall be for a period
of three (3) years commencing on the date hereof (the "Term") unless
sooner terminated pursuant to Section 7 hereof ("Termination Sections").
(b) Continuous Employment
For the purpose of the Employment Rights Act 1996, the date on which the
Executive's continuous period of service began was 6th October 1983. No
employment of the Executive prior to such date shall be treated as part
of his continuous period of employment by the Company.
3. COMPENSATION AND BENEFITS
(a) Base Compensation
Commencing on the first date of employment of the Executive pursuant to
this Agreement and continuing throughout the Term, the Executive shall
be compensated at the rate of Pound Sterling 90,000.
(b) Provisions for Payment
The Executive's compensation shall be payable, at the Base Rate in
twenty-six (26) bi-weekly payments per year. Such salary shall be less
such deductions as shall be required to be withheld by applicable law
and regulations and shall be pro-rated for any period that does not
constitute a full twelve (12) month period.
(c) Bonus Scheme
Beginning in the fiscal year beginning January 1, 2000, the Employee
shall be eligible to participate in all bonus and profit sharing plans
as may be adopted by the Company from time to time for any of its senior
executives.
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<PAGE> 3
(d) Contracting out Certificate
There is no contracting out certificate in force under the Pension
Schemes Act 1993 in respect of this employment.
(e) Fixed Bonus Scheme
The Executive shall be paid a bonus of Pound Sterling 150,000 payable in
three instalments of Pound Sterling 50,000 each on the following dates:
1st November 1999, 1st February 2000 and 30th April 2000.
(f) Company Car
The Executive shall be entitled to either:
(i) retain the use of the company car currently being used by him on
terms to be agreed by the board of the Company; or
(ii) a monthly car allowance on terms to be agreed by the board of the
Company.
4. PARTICIPATION IN EXECUTIVE BENEFIT PLANS
(a) Fringe Benefits
The Executive shall be permitted during the Term to participate in any
group life, medical, hospitalisation, dental and disability plans, to
the extent that the Executive is eligible under the provisions of such
plans, and such other fringe benefits as are maintained by the Company
for the President and Chief Executive Officer of the Company during the
Term hereof, each in accordance with the terms and conditions of such
plans (collectively referred to herein as "Fringe Benefits"). Annexed
hereto as Exhibit A is a schedule outlining the present coverage
provided and to be provided to the Executive.
(b) Vacation Policy
The Executive shall have the right during each year of the Term to take
an aggregate of four weeks of paid vacation at such time as may be
mutually agreed by the Company and the Executive. Notwithstanding
anything in any Company manual or policy to the contrary, any unused
vacation shall not accumulate and the Company will not reimburse the
Executive for such time at the conclusion of the Term.
(c) Expenses
On a monthly basis, the Company will reimburse the Executive for actual
and reasonably necessary, in the Executive's discretion, travel and
accommodation costs, entertainment and other business expenses incurred
as a necessary part of discharging the Executive's duties hereunder,
subject to subsequent receipt of reasonable and appropriate
documentation by the Company. If the Executive shall undertake any
travel on behalf of the Company, the Executive shall be furnished with
coach air travel for himself and access to upgrade coupons (and if such
coupons are not available, business class tickets for travel over three
hours), and living accommodations and expenses including accommodations
in hotels suitable for business travellers (e.g. Hilton, Marriott,
Hyatt, Double Tree hotels).
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<PAGE> 4
5. OPTIONS
(a) Grant
Contemporaneous with the execution hereof, the Employee will be granted
options to acquire forty thousand (40,000) shares of Team's Common
Stock, such options to have an exercise price equal to the average bid
and asked price of Team's common stock as quoted on the NASDAQ Small
Market (the "Options"). The options will be issued pursuant to a
standard employee stock option plan, and the options will be subject to
dilution upon the issuance of additional shares of common stock pursuant
to customary dilution provisions.
(b) Vesting
The Options shall vest one-third (1/3) after the end of the first year
of employment, one-third (1/3) after the second year of employment, and
the remaining options at the end of the third year of employment. All
options will expire 90 days after the termination of the Executive's
employment with the Company.
(c) If, in the event of a merger or consolidation, the Company is not the
surviving corporation, and in the event that the agreements governing
such merger or consolidation do not provide for the substitution of new
options or other rights in lieu of the Options granted hereunder, or for
the express assumption of such outstanding Options by the surviving
corporation, or in the event of the dissolution or liquidation of the
Company, the Executive shall have the right of not less than five (5)
days prior to the record date for the determination of shareholders
entitled to participate in such merger, consolidation, dissolution or
liquidation, to exercise the Options, in whole or in part, without
regard to any vesting provisions that may be a part of the terms and
conditions of the Options; provided, that any conditions precedent to
such exercise set forth in this Agreement, other than the passage of
time, have been satisfied.
6. CERTAIN COVENANTS OF EXECUTIVE
Without in any way limiting or waiving any right or remedy accorded to
Company or any limitation placed upon Executive by law, Executive agrees
as follows:
(a) Confidential Information
The Executive agrees that, neither during the Term nor at any time
thereafter shall the Executive (i) disclose to any persons, firm or
corporation not employed by the Company or its affiliates or
subsidiaries (a "Protected Company") or not engaged to render services
to any Protected Company or (ii) use for the benefit of himself, or
others, any confidential information of any Protected Company obtained
by the Executive prior to the execution of this Agreement, during the
Term or any time thereafter, including, without limitation, "know-how",
trade secrets, details of supplier's, manufacturer's or distributor's
contracts, pricing policies, financial data, operational methods,
marketing and sales information or strategies, product development
techniques or plans or any strategies relating thereto, technical
processes, designs and design projects, and other proprietary
information of any Protected Company; provided, however, that this
provision shall not preclude the Executive from (x) upon advice of
counsel, making any disclosure required by any applicable law or (y)
using or disclosing information known generally to the public
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<PAGE> 5
(other than information known generally to the public as a result of any
violation of this Section 6(a) by or on behalf of the Executive.
(b) Property of Company
Any interest in trade marks, service marks, copyright applications,
patents, patent applications, slogans, developments and processes which
the Executive, during the Term, may develop relating to the Business of
the Company in which the Company may then be engaged and any memoranda,
notes, lists, records and other documents (and all copies thereof) made
or complied by the Executive or made available to the Executive
concerning the business of any Protected Company shall belong and remain
in the possession of any Protected Company, and shall be delivered to
the Company promptly upon the termination of the Executive's employment
with the Company or at any other time on request.
7. TERMINATION
(a) Termination Upon Death or Disability
If during the Term, the Executive should (i) die or (ii) become so
physically or mentally disabled whether totally or partially, that the
Executive is unable to perform the duties, functions and
responsibilities required hereunder for (aa) a period of three (3)
consecutive months or (bb) shorter periods aggregating to four (4)
months within any period of twelve (12) months ("Disability"), then in
such event, the Company may, at any time thereafter, by 30 days written
notice to the Executive, terminate the Executive's employment hereunder.
The Executive agrees to submit to reasonable medical examinations upon
the reasonable request of Company. The existence of the Executive's
disability for the purposes of this Agreement shall be determined by a
reputable physician selected by the Company who is experienced in the
relevant field of medicine. If the Executive's services are terminated,
as aforesaid the Executive or the designated beneficiary of the
Executive, shall be entitled to receive the Executive's salary, accruing
at the Base Rate and the accrued share of any bonus for that Fiscal Year
(if any such plan shall have been adopted) earned through the date of
the Executive's termination.
(b) By Resignation or By Company for Cause
If the Executive's employment with the Company terminates due to his
voluntary resignation, or if the Company terminates the Executive's
employment due to Cause (as defined below), the Company shall pay the
Executive all accrued Base Compensation (with no Bonus for the year in
which the termination of employment took place) but no other
compensation or reimbursement of any kind, including without limitation,
severance compensation or the vesting of any unvested Stock Options, and
thereafter the Company's obligations hereunder shall terminate. Cause
means:
(i) if the Executive shall be guilty of gross misconduct or shall
commit a wilful breach of or shall wilfully fail to perform his
duties under this Agreement;
(ii) if the Executive shall have been guilty of any criminal offence
involving dishonesty or of conduct tending to bring himself or
the Company or any subsidiary of the Company into disrepute;
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<PAGE> 6
(iii) if the Executive shall have become bankrupt or compounded his
creditors generally;
(iv) if a disqualification order is made against the Executive under
the Company Director's Disqualification Act 1986;
(v) if the Executive becomes a patient under the Mental Health Act
1983.
(c) Automatic Termination
This Agreement shall terminate automatically once the Executive reaches
the normal retirement age of the Company as may be fixed by the Board
from time to time.
(d) Suspension
If the Company has any grounds to believe it may have a right to
terminate the Executive's employment pursuant to Clause 7(b) hereof, it
shall be entitled (but without prejudice to its right subsequently to
terminate the Executive's employment on the same or any other ground) to
suspend the Executive for a period of up to one month on full pay during
the period of any enquiry or investigation into the circumstances giving
rise to such belief. The Company may, if it has reasonable grounds for
doing so, extend the one month period referred to above provided that
any payment to the Executive during this extended period shall be full
pay in accordance with the terms of this Agreement.
(e) Exclusion from Work
Without prejudice to the rights of the parties hereunder, the Company
shall have the right at any time after either party has given notice to
the other of termination of this Agreement in terms of Clause 2 hereof
until such termination to require the Executive not to attend at any
place of work and to exclude him from any premises of the Company or any
subsidiary of the Company and the Company shall be under no obligation
to vest in or assign to the Executive any powers or duties or to provide
any work for the Executive and shall have the right to suspend him from
performance of any or all obligations hereunder (provided that the
rights of the Company pursuant to this Clause 7(e) shall not be
exercised for a period exceeding twelve months in aggregate).
(f) Return of Company Equipment
All keys, equipment, memoranda, notes, records, reports, drawings or
other documents, and all specimens, models and samples made, executed or
acquired by the Executive in the course of his employment shall be the
property of the Company and shall be surrendered to the Company on
termination of his employment.
8. CONSEQUENCE OF TERMINATION
(a) Resignation as Director
Upon the termination of the employment of the Executive under this
Agreement for whatever reason, Executive shall upon the request of the
Company resign without claim for compensation from office as a Director
of the Company or any subsidiary of the Company and from all offices
held by him in any Company or any subsidiary
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of the Company and in the event of his failure to do so the Company is
hereby irrevocably authorised to appoint some person in his name and on
his behalf to execute any documents and to do all things requisite to
give effect thereto. Any resignation pursuant to this Clause 8(a) shall
be without prejudice to any claim for breach of this Agreement but the
Executive shall not be entitled to any damages or compensation by reason
of the termination of his employment as a Director of any Company or any
subsidiary of the Company following on termination of this Agreement.
(b) Continuation of Agreement
Notwithstanding any actual or purported termination or expiration of
this Agreement, the provisions of Clauses 6 and 8 and hereof shall
continue in full force and this Agreement shall be construed
accordingly.
9. GRIEVANCE AND DISCIPLINARY PROCEDURE
(a) Reference to Board
The Executive shall refer any grievance about his employment under this
Agreement to the Chairman of Board by given written notice and the
reference will be dealt with by a majority present at the next full
Board Meeting whose decision shall be final.
(b) Disciplinary Rules
The disciplinary rules relating to the Executive are such rules as the
Board shall determine from time to time and notice thereof in writing
shall be supplied to the Executive.
(c) Appeal
In the event of the Executive being dissatisfied with any disciplinary
decision relating to him, he may refer it to the Board and such
reference will be dealt with by the majority present at the relevant
Board Meeting whose decision shall be final.
10. EXECUTIVE'S REPRESENTATIONS AND WARRANTIES
(a) Right to Enter into Agreement
The Executive has the unfettered right to enter into this entire
Agreement on all of the terms, covenants and conditions hereof, and the
Executive has not done or permitted to be done anything which may
curtail or impair any of the rights granted to the Company herein.
(b) Breach Under Other Agreement or Arrangement
Neither the execution and delivery of this Agreement nor the performance
by the Executive of any of his obligations hereunder will constitute a
violation or breach of, or a default under, any agreement, arrangement
or understanding, or any other restriction of any kind, to which the
Executive is a part or by which the Executive is bound.
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(c) Services Rendered Deemed Special, etc.
The Executive acknowledges and agrees that the services to be rendered
by him hereunder are of a special, unique, extraordinary and
intellectual character which gives them peculiar value, the loss of
which cannot be adequately compensated for in an action at law and that
a breach of any term, condition or covenant hereof will cause
irreparable harm and injury to the Company and in addition to any other
available remedy the Company will be entitled to seek injunctive relief.
11. MISCELLANEOUS
(a) Collective Agreements
No collective agreements directly affect the terms and conditions of the
Executive's employment hereunder.
(b) Health and Safety Rules
The Executive must comply with the Company's health and safety rules
from time to time in force.
(c) Variation
No variation of this Agreement shall be made unless made in writing and
signed on behalf of the Company and by the Executive.
(d) English Law
The Agreement shall be governed by and construed in accordance with
English law and the parties hereby submit to the non-exclusive
jurisdiction of the Courts of England and Wales.
12. USE OF NAME
The Company shall have the right during the Term hereof to use the
Executive's name, biography and approved likenesses in connection with
the Company's business, including advertising their products and
services; and the Company may grant such rights to others, but not for
use as a direct endorsement.
13. NOTICES
Any notice, consent or other communication under this Agreement shall be
in writing and shall be delivered personally, telexed, sent by facsimile
transmission or overnight courier (regularly providing proof of
delivery) or sent by registered, certified or express mail and shall be
deemed given when so delivered personally, telexed, sent by facsimile
transmission or overnight courier, or if mailed two (2) days after the
date of deposit in the United States or Canada mail as follows: to the
parties at the following addresses (or at such other address as a party
may specify by notice in accordance with the provisions hereof to the
other):
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<PAGE> 9
To Company: Team Dandelion
c/o Team Communications Group, Inc.
12300 Wilshire Blvd.
Suite 400
Los Angeles, CA 90025
Attention: Chief Executive Officer
Facsimile: 310\442-3501
To Executive: Address as written above
14. COMPLETE AGREEMENT; MODIFICATION AND TERMINATION
This Agreement contains a complete statement of all the arrangements
between the parties with respect to the Executive's employment by the
Company, supersedes all existing agreements between them concerning the
Executive's employment. This Agreement may be amended, modified,
superseded or cancelled, and the terms and conditions hereof may be
waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part
of any party in exercising any right or remedy hereunder shall operate
as a waiver thereof, nor shall any waiver on the part of any party of
any such right or remedy, nor any single or partial exercise of any such
right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy.
15. NO LIABILITY TO SHAREHOLDERS
This Agreement is expressly between the Executive and the Company, and
nothing herein shall be deemed to infer or imply that the Executive has
any rights against any shareholder or officer of the Company, or that
any such shareholder has any obligations to the Executive, all of such
rights or obligations, if any, being expressly waived hereunder. For the
avoidance of doubt, the Executive shall have no right to institute an
action against any shareholder for any breach of any of the agreements
hereunder or under any claims of alter ego or breach of any corporate
veil.
16. RESTRICTIVE COVENANT
(a) The Executive, in consideration of and as a condition of the Company
entering into this Agreement, undertakes with the Company (both for
itself and as trustee for any subsidiary) that he will not and, in the
case of sub-clauses (ii), (iii) and (iv) below, will procure that any
body corporate of which he has for the time being control and/or any
partnership and/or business in which he may be engaged will not,
directly or indirectly:
-9-
<PAGE> 10
(i) within the United Kingdom be employed by, concerned or
interested in, or provide technical or commercial advice to any
business which supplies goods or services of a type similar to
the goods or services supplied by any Group Company for a period
of 6 months after the termination of his employment by the
Company;
(ii) for a period of 6 months after the termination of his employment
by the Company, supply or seek to supply, to a client or
prospective client, goods or services of a type similar to the
goods or services supplied by any Group Company within the 12
month period prior to the termination of his employment by the
Company;
(iii) for a period of 6 months after the termination of his
employment by the Company, induce or endeavour to induce a
client or prospective client not to enter into any contract or
arrangement with any Group Company for the supply of goods or
services by any Group Company of a type similar to any supplied
by any Group Company within the 12 month period prior to the
termination of his employment by the Company;
(iv) for a period of 12 months after the termination of his
employment by the Company, solicit or entice away or endeavour
to solicit or entice away from any Group Company any director
and/or senior employee of any Group Company who was such a
director or senior employee prior to the termination of the
Executive's employment.
and that these restrictions shall apply howsoever his employment with
the Company is terminated.
(b) After the termination of the Executive's employment for whatever reason
or, if later, the date of his ceasing to be a director of Company, the
Executive will not without the written approval of the Board represent
himself or permit himself to be held out as being in any way connected
with or interested in the business of the Company and after that
termination he will not without the written approval of the board of
directors of the Company concerned represent himself or permit himself
to be held out as being in any way connected with the business of any
other Group Company except if and for so long as he remains a director
or an employee of that Group Company.
(c) The following expressions shall have the following meanings for the
purposes of this Clause 16:
"client" any person to whom the Executive or any employee
of any Group Company reporting directly to the
Executive supplied services or goods on behalf of
any Group Company at any time during the period of
one year prior to the termination of the
Executive's employment with the Company;
-10-
<PAGE> 11
"Group Company" means the Company and any parent undertaking or
subsidiary undertaking of the Company as defined
in Section 262 of the Companies Act 1985;
"prospective client" any person to whom the Executive or any employee
of any Group Company reporting directly to the
Executive was actively seeking to supply services
or goods on behalf of any Group Company at any
time during the period of six months prior to the
termination of the Executive's employment with the
Company;
"seek" shall where the context so admits extend to the
expression "solicit canvass or otherwise approach
with a view to the supply of".
(d) In this Clause references to acting directly or indirectly include
(without prejudice to the generality of that expression) references to
acting alone or jointly with or on behalf of or by means of any other
person.
(e) The Executive acknowledges that each of the restrictions in this Clause
16 hereof constitutes an entirely separate and independent restriction
on him and is no greater than is necessary to protect the legitimate
business interests (including business connections) of the Company and
any Group Company and the parties consider the restrictions to be
reasonable in all the circumstances. If any such restriction shall be
held by any Court to be void as going beyond what is reasonable in all
the circumstances for the protection of the interests of the Company the
said restrictions shall apply with such modifications as may be
necessary to render them valid and effective.
(f) If the Company exercises its right to suspend the Executive's duties for
a period of up to one month under Clause 7(d) hereof during any period
after notice of termination of employment has been given by the Company
or the Executive, the aggregate of the period of the suspension and the
period after the termination of employment for which the covenants in
this Clause 16 hereof shall apply shall not exceed the period relevant
to each restriction as specified in each sub-clause of this Clause 16
hereof (each the "Relevant Period") and, if the aggregate of the two
periods would exceed the Relevant Period, the period after termination
of employment for which the covenants in Clause 16 hereof shall apply
shall be reduced accordingly.
(g) The Executive agrees to bring the terms of this Clause 16 to the
attention of any third party proposing to employ, appoint or engage him,
before entering into the related contract with that third party.
17. HEADINGS
The headings in this Agreement are solely for convenience of reference
and shall not affect its interpretation.
-11-
<PAGE> 12
WHEREFORE, the parties hereto have executed this Agreement as of the 11th day of
October 1999
Signed by a director for and on behalf of
Dandelion Distribution Limited
/s/ JONATHAN D. SHAPIRO
- --------------------------
Director
AGREED TO AND ACCEPTED:
/s/ JOHN D. CLUTTON
- --------------------------
JOHN CLUTTON
-12-
<PAGE> 1
EXHIBIT 10.16
[GONTARD & METALLBANK AG LETTERHEAD]
Team Communications Group, Inc.
12300 Wilshire Blvd., Suite 400
Los Angeles, CA 90025
U.S.A.
August 2, 1999
SECONDARY LISTING AND PUBLIC OFFERING OF TEAM COMMUNICATIONS GROUP, INC.
(THE "COMPANY") SHARES OF COMMON STOCK IN GERMANY
Dear Sirs,
We are pleased to act as lead manager for the public offering ("Offering") and
listing of shares of the Company in Germany. We appreciate that Gontard &
MetallBank AG shall be appointed as lead manager (the "Lead Manager"). We agree
with such an appointment and will take all necessary steps to facilitate the
co-operation between us and the Co-Manager. In the following we would like to
set out the contractual basis for our services in connection with the Offering:
1. We are hereby appointed by the Company as the lead manager for the offering
of shares of the Company in Germany and the listing of such shares on a
German stock exchange (the "Lead Manager"). In this function the Lead
Manager takes on the following obligations:
- The Lead Manager shall advise the Company, its management and
shareholders on all aspects of the capital increase, the placement of
the shares and
1
<PAGE> 2
the admission of the shares to trading in the New Market segment
(Neuer Markt) of the Geregelter Markt of the Frankfurt Stock Exchange.
- The Lead Manager shall advise the Company on the preparation of
offering documents (selling prospectus, Company report
(Unternehmensbericht) to be prepared under the observance of all
applicable rules and regulations. The contents of the offering
documents must in each case be agreed between the Lead Manager and
the Company.
- The Lead Manager will take all necessary steps to obtain admission of
all of the shares of Common Stock of the Company to trading in the
New Market segment (Neuer Markt) of the Geregelter Markt of the
Frankfurt Stock Exchange, and will make presentations vis-a-vis the
Frankfurt Stock Exchange jointly with the Company and its advisors.
- The Lead Manager shall, together with the Company and its advisors,
organise the roadshow and the pre-marketing campaign, and arrange the
necessary meetings with investors. The Lead Manager will provide an
overview of the scheduled dates and locations for the planned roadshow
and the pre-marketing campaign as soon as possible. The schedules for
the roadshow and the pre-marketing campaign shall be finalised jointly
with the Company and its advisors.
- The Lead Manager shall prepare a draft of the underwriting agreement
by not later than August 30, 1999. To the extent that this
engagement letter already contains agreements on certain issues,
these shall be fully reflected in the underwriting agreement. The
underwriting agreement will be subject to German law. The place of
performance and the place of jurisdiction will be Frankfurt am Main.
The underwriting agreement shall be entered into by the Lead Manager
and the Company no later than three days, on which banks are open for
business in Frankfurt am Main, prior to the day on which the Company
and the Lead Manager formally apply to the Admission Board of the
2
<PAGE> 3
Frankfurt Stock Exchange for the approval of the preliminary selling
prospectus.
- - The Lead Manager will invite other reputable banks to be agreed upon
between the Lead Manager and the Company to participate in the banking
syndicate and shall further invite VEM Virtuelles Emissionshaus AG,
subsidiary of the Company's financial advisor VMR Value Management &
Research AG, to participate in the selling group for the Offering. The
final composition of the syndicate and the selling group will be decided
jointly by the Company and the Lead Manager.
- - The new shares resulting from the capital increase envisaged by the Company
in connection with the Offering will be underwritten by the Lead Manager
and the Co-Managers subject to the entering into and the provisions of the
underwriting agreement. The Lead Manager agrees to surrender the proceeds
of the sale of the newly issued shares to the Company.
- - The Lead Manager is willing to serve as market maker (Designated Sponsor)
for the New Market for a minimum of two years. In the first year the
services as Designated Sponsor are free of charge to the Company.
Thereafter the Lead Manager shall receive a fee of DM 60.000,--for each
year of service. The Lead Manager agrees that in its function as Designated
Sponsor it will initiate research on the Company by issuing a comprehensive
research report, a comprehensive annual study and take the appropriate
measures to sustain investor interest in the stock. The Lead Manager
further accepts the engagement of other Designated Sponsors by the Company.
- - In order to allow the Lead Manager to stabilize the share price after the
Offering, the Lead Manager shall be entitled to purchase up to 5% of the
offer volume at the offer price and subject to all other terms and
conditions of the Offering.
3
<PAGE> 4
The Lead Manager confirms that it will devote its full attention to the
above-mentioned tasks.
2. The Lead Manager agrees to co-operate with the Company and its advisors and
with the Co-Manager in good faith. The Lead Manager agrees to inform the
Company and its advisors immediately on all issues having a bearing on the
proposed offering and listing of the shares of the Company.
3. The parameters of the Offering of the Company are presently the following:
Objectives: (i) to provide new funds to the Company for its future
development, (ii) provide a large enough "float" on the
chosen stockmarket, (iii) obtain excellent research coverage
through the participation of the Lead Manager and other
investment banking firms, (iv) allow for a limited disposal
of Shares by certain current shareholders and (v) to provide
liquidity for the existing shareholders after a certain
lock-up period to be phased out on a period of no more than
one year.
Volume of the
Offering: 1) Gross proceeds of USD 25-30 M10 USD
excluding greenshoe.
2) In addition, up to a maximum of 10% of the offered shares
may be offered by agreed upon current shareholders, the
exact amount to be decided after discussion with such
shareholders.
Valuation: The shares of Common Stock shall be offered at an offer
price (the "Offer Price") which will be mutually agreed
between the Lead Manager and the Company based (i) either on
the arithmetical average of the moving average share price
of the
4
<PAGE> 5
TMTV shares of Common Stock on the Frankfurt, Berlin and
Munich OTC Markets (Freiverkehr) and on the NASDAQ during an
appropriate period preceding the commencement of the
Offering, from which arithmetical average an appropriate
discount will be made if necessary, or (ii) based on the
outcome of a pre-marketing with institutional investors
prior to the Offering and a bookbuilding conducted by the
Lead Manager.
Listing
of the shares: Regulated Market (Geregelter Markt) with admission to
trading on the New Market (Neuer Markt) of the Frankfurt
Stock Exchange.
Greenshoe: Up to 10% of the volume of the Offering, coming from newly
issued shares of the Company
Preferred
Allocation: Up to 10% of the Offering in agreement with the Lead
Manager; any larger amount to be discussed between the
Company, its advisors and the Lead Manager
Timing: Offering and listing in October/November 1999 or, if this
time frame cannot be achieved due to restrictions existing
for the finally selected stock exchange market segment,
during the course of the fourth quarter of 1999, at the
latest.
Offering: Public offering in Germany, private placement with
institutional investors in the rest of Europe (UK, France
and possibly other countries). VMR responsible for
institutional investors within the agreed private placement
Investor Profile: 40% of the offered shares to be allocated to private
investors, 60% of institutional investors.
5
<PAGE> 6
4. The underwriting quota of the Lead Manager and the underwriting quota of the
other syndicate members will be agreed upon by the Lead Manager, the
Co-Managers and the Company in the Underwriting Agreement. The Lead Manager
will ensure full access for the Company and its advisors to all materials
connected with, and full transparency of, the marketing process. This
includes daily information on the results of the marketing discussions of
the Lead Manager.
5. The Lead Manager co-ordinates the research of the banking syndicate for the
purpose of this Offering. The banks in the syndicate will disclose research
reports, analytical material or disseminate any other information in
connection with this Offering only after the contents have been discussed
with the Company and its advisors and the Company has had the opportunity to
clarify possible misunderstandings. All communication of the Lead Manager
with the press in connection with the Offering will be co-ordinated with the
Company and its advisors and vice versa.
6. Prior to the allocation of the shares to investors, the Lead Manager and the
Company, together with its advisors, will agree on objective investor
quality criteria. The allocation of shares to the banking syndicate and
investors will be decided jointly by the Lead Manager and the Company based
upon the agreed criteria. The Company and its advisors must be invited to
all relevant meetings dealing with allocation of shares to investors.
7. In the framework of the due diligence to be conducted by the Lead Manager
for the purposes of the Offering, the Company agrees to grant the Lead
Manager access to all relevant documents, specified people and customers as
well as strategic elaborations which the Lead Manager or its advisors have
reasonably requested to see. The Company and the Lead Manager shall agree on
a list of appropriate people and customers to be contacted by the Lead
Manager, before any such individuals are approached by the Lead Manager. The
Company, its management and its auditors will assist the Lead Manager in the
due diligence process and will, at the reasonable request of the Lead
Manager, be available for questions and discussions. The legal due
6
<PAGE> 7
diligence will be conducted by the Lead Manager and its advisors. The Lead
Manager shall ensure that the auditors appointed, if any, keep in constant
contact with the management of the Company and its advisors during the
financial due diligence and that a draft of the report to be rendered by
the auditors is discussed with the Company and its advisors prior to its
finalisation. The Company shall receive one original copy of the report.
If the Lead Managers require help from outside technical consultants, such
consultants will be appointed at the Lead Manager's own expense. The Lead
Manager will mutually agree on its advisors, including legal advisors and
auditors, together with the Company and its advisor Value Management &
Research AG.
8. The Company shall pay to the banking syndicate a fee of 5% of the gross
proceeds of the Offering (including proceeds from the Green Shoe
allocation but excluding proceeds from the purchase of shares by the Lead
Manager at the occasion of the Offering as contemplated under no. 1
hereof). The Company furthermore agrees to pay to the banking syndicate a
fee of 5% of the gross proceeds from the sale of shares to the Lead
Manager at the occasion of the Offering as contemplated under no. 1
hereof.
The total fees payable pursuant to the foregoing consist of three
components: the management commission (20%), the underwriting commission
(20%) and the selling concession (60%). The selling commission and the
underwriting commission shall be allocated among the Syndicate Banks in
accordance with their respective underwriting commitment. However, the
share of the Lead Manager in the selling concession shall be 80%
irrespective of the respective selling efforts of the Syndicate members.
The remaining selling concession shall be allocated among the other
Syndicate members in relation to the total number of shares for which
each such Syndicate member has generated investor orders in the framework
of the Offering and in share trading within the three weeks directly
following the first quotation of the shares on the Frankfurt Stock
Exchange's Neuer Markt; such allocation shall be the Lead Manager's
responsibility. We recognise the Company's desire to provide an allocation
that fosters competition between banks on the Syndicate Banks, provides
incentives for our best efforts and minimises distracting and
time-consuming disputes about compensation and we commit to participate
in the Offering in that spirit.
7
<PAGE> 8
The Company shall also pay a fee for the Lead Manager's participation in
the listing of the shares for trade on Frankfurt Stock Exchange's New
Market Segment of USD 0.01 per share.
The above fees are gross fees and include value added tax, if any.
9. The Company will bear the following expenses incurred in connection with
certain activities relating to the Offering: preparing, translating,
printing, filing with the Frankfurt Stock Exchange, and publishing a
registration statement for Neuer Markt; preparing, translating, printing,
and delivering such number of preliminary, final and any supplemental
prospectuses as reasonably requested by the banks; photocopying and
delivering all underwriting and selling documents; fees and expenses of
the Company's legal counsel; all the Company's costs related to the road
show; and fees and costs charged by the Frankfurt Stock Exchange/Neuer
Markt in connection with the listing. The Company furthermore agrees to
bear the fees (including value added tax, if any) of a limited financial
and business due diligence review by Ernst & Young incurred by the Lead
Manager in connection with the Offering, provided, however, that the due
diligence criteria shall be mutually agreed upon between the Lead Manager
and the Company in each case. The Lead Manager agrees to bear all
expenses related to the syndication and travel costs of its employees and
advisors and post-offering advertising of the Offering (e.g. tombstone),
but shall bear none of the expenses of a private placement of shares with
institutional investors outside Germany.
10. As regards information obtained by the Lead Manager and its advisors from
the Company in connection with the Engagement, the Lead Manager agrees to
treat all such information as being strictly confidential. However, the
Lead Manager shall:
(a) be free to make disclosures or announcements required by any law,
regulation or order of a court or regulatory body, or pursuant to
governmental action, regulatory requirement or request, or necessary
in the view of the Lead
8
<PAGE> 9
Manager to seek to establish any defence in any legal proceeding or
investigation; and
(b) be free to make any disclosure if the Company specifically consents
to such disclosure.
The Lead Manager shall pass on such information only to employees involved
in the offering strictly on a "need-to-know" basis.
Any reports analyses or other material supplied by the Company and its
advisors to the Lead Manager in connection with the engagement are solely
for the Lead Manager's information and use and may not be used for any
other purpose or be delivered to any third party, including, but not
limited to, the shareholders of the Company, without the prior written
consent of the Company.
11. This letter is subject to German law. Place of performance and place of
jurisdiction shall be Frankfurt/Main.
9
<PAGE> 10
As a sign of your agreement with the contents of this letter we would like to
ask you to counter-sign the second copy of this letter and return it to us.
Gontard & MetalBank AG
by: [SIGNATURE ILLEGIBLE]
--------------------------------------
Name in print: [ILLEGIBLE]
Position in print: Member of the board
by: [SIGNATURE ILLEGIBLE]
--------------------------------------
Name in print:
Position in print: Corporate Finance
10
<PAGE> 11
We agree with the above:
Team Communications Group, Inc.
by: /s/ Drew S. Levin
-----------------------------------------
Name in print: DREW S. LEVIN
Position in print: Chairman & CEO
by: /s/ Timothy Hill
------------------------------------------
Name in print: TIMOTHY HILL
Position in print: Sr. Vice President,
CFO and Secretary
11
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated April 15, 1999,
relating to the financial statements of Team Communications Group, Inc., which
appears in such Prospectus. We also consent to the references to us under the
headings "Experts" and "Selected Consolidated Financial Data" in such
Prospectus.
/s/ STONEFIELD JOSEPHSON, INC.
STONEFIELD JOSEPHSON, INC.
Santa Monica, California
October 18, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our reports dated 15 October 1999 and 7
December 1998 relating to the financial statements of Dandelion Distribution
Ltd., which appears in such Prospectus and state explicitly that the financial
statements and our reports thereon were prepared only for the purpose of
complying with UK statutory reporting requirements and they should not be relied
upon for any other purpose. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Barnes Roffe
Barnes Roffe
Dartford, Kent
18 October 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND FOR THE
THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 937,600
<SECURITIES> 0
<RECEIVABLES> 7,481,600
<ALLOWANCES> 337,000
<INVENTORY> 16,766,200
<CURRENT-ASSETS> 870,900
<PP&E> 30,000
<DEPRECIATION> 54,800
<TOTAL-ASSETS> 20,086,300
<CURRENT-LIABILITIES> 14,489,500
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 11,595,700
<TOTAL-LIABILITY-AND-EQUITY> 20,086,300
<SALES> 7,019,900
<TOTAL-REVENUES> 7,019,900
<CGS> 4,136,200
<TOTAL-COSTS> 5,175,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280,100
<INCOME-PRETAX> 1,634,200
<INCOME-TAX> 581,700
<INCOME-CONTINUING> 1,052,500
<DISCONTINUED> 0
<EXTRAORDINARY> 248,200
<CHANGES> 0
<NET-INCOME> 804,300
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