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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended December 31, 1999
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934, For the transition period from ________ to ________
Commission File No. 000-23307
TEAM COMMUNICATIONS GROUP, INC.
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(Name of Small Business Issuer in Its Charter)
CALIFORNIA 954519215
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
11818 Wilshire Blvd., 2nd Floor, Los Angeles, California 90025
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(Address of Principal Executive Offices) (Zip Code)
(310) 312-4400
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(Issuer's Telephone Number, Including Area Code)
Securities Registered under Section 12(b) of the Exchange Act:
Name of Exchange
Title of Each Class on Which Registered
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Common Stock NASDAQ SmallCap Market
Securities Registered under Section 12(g) of the Exchange Act: [None]
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject of such filing requirements for the past 90 days.
Yes [ X ] No [ ]
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were $24,062,000.
The aggregate market value of the voting stock held by non-affiliates computed
based on the average of the closing bid and asked prices of such stock as of
March 31, 2000, was approximately $209 million.
The number of shares outstanding of the issuer's common equity as of
March 31, 2000, was 13,743,701 shares of common stock, no par value.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Documents Incorporated by Reference: NONE
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PART I
Item 1. Description of Business
This Annual Report contains forward-looking statements regarding
contemplated operations which involve risks and uncertainties. Our results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth in the following risk
factors and discussed elsewhere in this Form 10-KSB.
THE COMPANY
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 are currently producing
for Discovery's Animal Planet 13 one-hour drama episodes of "The Call of the
Wild," based on Jack London's classic novel, and we have been advised that
another 13 episodes have been ordered by the network. We are also producing
"Destination: Style" for Discovery's Travel Channel and "Conversations with
Remarkable People" for the Wisdom Network (a new US basic cable network). 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.
The series began airing in syndication in the United States in January 2000. We
are currently negotiating with Alliance Atlantis to produce a second season
either for a cable network, or directly for first run syndication.
In 1998, we 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 over 3,000 hours of family, dramatic and reality-based series and
specials, and films.
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RECENT EVENTS AND OUTLOOK; CERTAIN CONSIDERATIONS
On November 29, 1999, we completed the sale of 6,150,000 shares of our
common stock, 150,000 shares of which were sold by and for the account of a
selling shareholder, in an underwritten offering on the German Neuer Markt (the
"German Offering"). The German Offering was underwritten by Gontard & MetallBank
AG and a group of associated underwriters. The offering price was approximately
$6.21 per share. The net proceeds to us were approximately $31.5 million after
deducting underwriting fees and estimated offering expenses. Approximately
$9.4 million of the net proceeds has been used to repay all of our outstanding
indebtedness.
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 2,000 hours of television programming in its
library. We are currently in discussions with a number of distribution and
production companies regarding possible business combinations.
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.
RELIANCE ON SIGNIFICANT CUSTOMERS; ALLOWANCE FOR DOUBTFUL ACCOUNTS.
As of December 31, 1999, we had $18,430,600 in receivables; 85% relates to
four customers. See MD&A for a discussion. As of December 31, 1999, our
allowance for doubtful accounts was approximately $831,000. Should we be
required to make an additional allowance for doubtful accounts with respect to
these receivables, our results of operations and financial condition in future
periods could be adversely affected. Subsequent to December 31, 1999, we
collected approximately $11 million from these receivables. 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.
DEPENDENCE ON EMERGING MARKETS; DEPENDENCE ON FOREIGN SALES.
A substantial portion of our revenues to date have been, and for the
foreseeable future may be, derived from the sale or license of its products to
recently established domestic television or cable networks such as the WB
Network, UPN, The Discovery Channel and The Learning Channel, (i.e., not the
traditional free network
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markets of CBS, NBC, ABC and Fox), and the growing specialized pay market, as
well as the foreign television networks. In addition to the foregoing, a
substantial portion of our revenues are dependent on sales to sub-licensees and
sub-distributors not domiciled in the U.S. The collectibility of receivables
from these customers is subject to all of the risks associated with doing
business with foreign companies including rapid changes in the political and
economic climates of such countries. Should we become involved in a protracted
dispute with respect to the manner in which its product is distributed, or
should we be forced to initiate collection activities in order to enforce the
terms of the applicable sub-license or sub-distributor agreement, the potential
profitability of any particular product may be adversely effected.
As indicated above, as of December 31, 1999, we had $18,430,600 in
receivables. In addition to the fact that 85% of these receivables are
concentrated among four accounts, all are from entities domiciled outside the
United States. These receivables represent 26% of our total assets. Any
difficulty or delay in the collection of these receivables could have a material
adverse effect on us. Since December 31, 1999, approximately $11 million of this
receivable balance has been collected.
COMPETITION.
The entertainment industry is highly competitive. We compete with many
organizations, including major film studios, independent production companies,
individual producers, and others, including networks, who are seeking 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. Virtual all of our
competitors are organizations of substantially larger size and capacity, with
far greater financial, human and other resources and longer operating histories
than the ours. Moreover, the entertainment industry is currently evolving into
an industry in which certain multi-national, multi-media entities, including
Viacom/Paramount Pictures, The News Corporation, The Walt Disney Company/Cap
Cities-ABC, Time Warner/Turner Broadcasting and Westinghouse/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 industries activities. These competitors have
numerous competitive advantages, including the ability to acquire and attract
superior properties, personnel, actors and/or celebrity hosts and financing.
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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 are currently producing for
Discovery's Animal Planet 13 one-hour drama episodes of "Call of the Wild,"
based on Jack London's classic novel. As of April 10, 2000, we were advised that
Discovery intends to order 13 more one-hour episodes. We are also producing
"Destination: Style" for Discovery's Travel Channel and "Conversations With
Remarkable People" for the Wisdom Network (a new U.S. basic cable network).
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 and in January 2000 in syndication in the United States. We are
currently negotiating with Alliance Atlantis to produce a second season for a
United States cable network 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 (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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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. 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 a substantial portion of our
total revenue. In the next 5 years, we anticipate this percentage to increase.
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 started a new company in Germany, Team Entertainment Germany GmbH.,
based in Munich, and have already funded it with approximately $650,000. 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 Entertainment
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 Entertainment Germany GmbH., to acquire
other German production and distribution companies, and to partner with
established companies for original German language co-productions.
As described above, 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 2,000 hours of programming. Noel Cronin, the founder and
Managing Director of Dandelion, is currently 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
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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.
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 U.S., 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 the pilot is an
essential sales tool in gaining network acceptance of a proposed series. 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
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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 further 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 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 (i.e., the first exhibition in the syndication market)
is being handled by PolyGram and began airing 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, are negotiating 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. 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
additional funds have been advanced by the Fox Family Channel for the production
of "Down Fall" as of this date.
We are currently producing for Discovery's Animal Planet 13 one-hour
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episodes of "Call of the Wild," based on Jack London's classic novel. Delivery
of the series began in December 1999 and began airing in March 2000. As of
April 10, 2000, we were advised that Discovery intends to order 13 more
one-hour episodes.
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 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 sold and produced 26 half-hours of "Destination: Style" to
Discovery's Travel Channel. "Destination: Style" follows today's top models to
the world's most exotic places, offering a behind-the-scenes look at some of
today's most recognizable and desirable international models. The series debuted
in mid-October and is being produced in association with Big Daddy Productions.
Additionally, we are producing for the Wisdom Network, on a per show basis,
"Conversations with Remarkable People." 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 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.
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, ACQUISITIONS AND SIGNIFICANT LICENSES
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 selected distribution rights to over
3,000 hours of family, dramatic, reality-based series and specials and films.
With the rapid increase of networks and channels, there
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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.
As of the date hereof, we have accepted 25 of the 28 titles. Three 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 portion, or both, may be adjusted. As of the date hereof, we have
paid approximately $1,200,000 in respect of the cash portion of the purchase
price, and has issued but not yet delivered approximately 125,000 shares of our
common stock which comprise the stock portion of the purchase price.
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;
$2,662,500 of which has been paid with the balance 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
Australian production company. See "Business -- Legal Proceedings" for a
discussion regarding a lawsuit which has been filed by Beyond.
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., has enhanced our
distribution capacity in England and Europe and enables us to offer over 3,000
hours of programming.
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, $1,850,000 of which was received to
date, with the balance due on June 30, 2000. See "Certain Relationships and
Related Transactions" for a discussion of the impact of the acquisition of
Dandelion Distribution Ltd., on the receivable from Renown Pictures, Ltd.
In September 1999, the Company entered into a 10 year license agreement for
certain European territories including Germany, France a Italy, of 20
made-for-television movies with String of Pearls Plc. At December 31, 1999, the
receivable due from String of Pearls Plc was $5,085,000. Subsequent to such date
the Company received a payment of $2,000,000 per the terms of agreement. Noel
Cronin, a shareholder of the Company, has personally guaranteed the payment of
the remaining receivable.
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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, 28 full-time employees, eight of whom are members of senior
management. From time to time, as projects go into production, temporary
employees are also employed by us.
12
<PAGE> 13
Item 2. Description of Property
We have entered into a lease for approximately 11,000 square feet of
office space at 11818 Wilshire Blvd., Los Angeles, California from an
unaffiliated third party. The lease is for a period of five years which began on
February 15, 2000. The rent is initially $2.85 per square foot; gradually
increasing to $3.21 per square foot in the fifth lease year. The cost of the
build out for the new space was approximately $1,200,000, of which approximately
30 percent will be paid by the landlord. We believe that this new office space
will be adequate for our requirements over the term of the lease. Additional
space if necessary for growth or short term productions is available throughout
the Los Angeles area at commercially reasonable rates.
Item 3. Legal Proceedings
On October 24, 1999, we were served with a complaint from Beyond
Entertainment, the licensee of Water Rats Seasons I & II. The complaint, which
seeks an accounting and termination of the license agreement, seeks $3,000,000
in contractual damages and $6,000,000 for negligence and fraud. We believe the
complaint to be totally without merit and intend to vigorously contest the
matter.
At this time, the outcome of the above matter cannot be determined with
any certainty.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of our security holders during the
fourth quarter of the fiscal year ended December 31, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Our Common Stock began to trade on the Nasdaq SmallCap Market under the
symbol "TMTV" in July, 1998.
The following table sets forth the high and low last sales prices as
reported on the NASDAQ SmallCap Market for the time period that our Common Stock
has been publicly traded.
Sales Prices for Common Stock
------------------------------
Quarter Ending High Low
- -------------- ------ ------
March 31, 1999 $ 2.87 $ 1.75
June 30, 1999 10.25 2.75
September 30, 1999 8.18 6.00
December 31, 1999 7.94 5.00
Since November 29, 1999, our Common Stock has also traded on the
German Neuer Market under the symbol "TME." The high and low sales price for
our Common Stock on the German Neuer Market for the month ended December 31,
1999 was $4.62 and $6.21, respectively.
Holders
The number of record holders of our Common Stock as of March 31, 2000, was
approximately 600 (exclusive of the shareholders from the German Offering).
Dividends
We have never paid cash dividends on our Common Stock. We anticipate that
any future earnings, of which there is no assurance, will be retained for
development of our businesses, and, therefore, it can be expected that no
dividends on our Common Stock will be declared in the foreseeable future.
13
<PAGE> 14
Recent Sales of Unregistered Securities
(a) As of October 6, 1999, the Company and VMR Luxembourg, S.A., entered
into an amendment (the "Amendment") to their Securities Purchase Agreements,
dated as of February 25, 1999 and March 31, 1999, to correct an error in those
agreements. Under those agreements the Company had issued warrants to purchase
an aggregate of 100,000 shares of the Company's common stock to VMR Luxembourg,
S.A., when in fact those warrants should have been issued to Century City
Securities, Inc. Pursuant to the Amendment, the warrants have now been properly
issued to Century City Securities, Inc.
(b) In June 1999, four debenture holders, Austinvest Anstalt Balzers,
Esquire Trade & Finance Inc., Amro International, S.A., and Nesher Inc.,
purchased an additional 175,000 shares of common stock for an aggregate of
$700,000.
(c) In July 1999, we arranged for a short term loan from VMR Luxembourg,
S.A., of $1,200,000 for production and development.
(d) 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.
(e) 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.
(f) 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. Pursuant to an amendment, dated as of November 1, 1999, the
exercise price was reduced to $6.50.
(g) On August 9, 1999, we sold 500,000 shares of common stock to Gontard &
MetallBank AG for $2,000,000.
(h) 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.
(i) On July 29, 1999, we sold 64,800 shares of common stock to Arab
Commerce Bank for $162,000.
(j) On September 27, 1999, the Company, pursuant to court order, issued
40,000 shares to Venture Management Consultants LLC.
(k) On September 29, 1999 we arranged for a $4,000,000 bridge loan from
Gontard & MetallBank AG.
14
<PAGE> 15
(l) On October 9, 1999 and October 15, 1999, respectively, we entered into
agreements regarding the sale of 10,000 shares of common stock to Ivonne
Altagracia Medrano Gongalez for $30,000 and 20,000 shares of common stock to
Cantor GbR for $60,000.
(m) On October 18, 1999 , we sold 175,000 shares of common stock to Arbora
Vermogensverwaltungen AG for $700,000.
(n) On October 29, 1999, the Board of Directors approved the issuance of
warrants to Ocean Marketing to purchase 100,000 of common stock; 50,000 at an
exercise price of $3.50 per share and 50,000 at an exercise price of $4.00 per
share, for consulting services.
(o) On December 1, 1999, we issued to Sal Russo warrants to purchase 75,000
shares of common stock; 25,000 at $1.88 per share, 25,000 at $2.50 per share and
25,000 at $3.00 per share.
The issuance of the shares to the foregoing recipients were made pursuant
to non-public transactions with existing security holders, service providers or
accredited investors, and were exempt from registration under Section 4(2) of
the Securities Act of 1933.
No underwriters were involved in connection with these sales.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
This Management's Discussion and Analysis of Financial Conditions and
Results of Operations contains certain "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Such statements
relating to future events and financial performance are forward-looking
statements involving risks and uncertainties that are detailed from time to time
in our various Securities and Exchange Commission filings. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of uncontrollable factors. The following discussion
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto appearing elsewhere in this 10-KSB.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 the pilot is an
essential sales tool in gaining network acceptance of a proposed series. 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
16
<PAGE> 17
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.
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 1999, we have recorded $662,000 as a
provision for an allowance for doubtful accounts. In 1998, the Company recorded
$664,000 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 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
For the year ended December 31, 1999, the Company reported a net income of
approximately $1.8 million on total revenues of approximately $24.1 million
compared to net income of approximately $0.4 million on total revenues of
approximately $13.6 million for the same period ended December 31, 1998. Revenue
for the period ended December 31, 1999 includes approximately $14.2 million on
the sale of certain broadcast rights from the Company's library of
movie-of-the-week and documentary titles. Also, revenue includes approximately
$2.1 million from sales of the library of movie-of-the-week and documentary
titles by Team Dandelion since its acquisition on October 1, 1999. In addition,
revenue for the 1999 includes the delivery on the Company's current productions
of $7.8 million including approximately $3.4 million from the delivery of
twenty-four episodes of "Destination: Style" to Discovery's Travel Channel and
an international distributor, approximately $3.1 million from sales and delivery
of episodes of "Total Recall: 2070," and approximately $1.3 million from the
delivery of six episodes of "Call of the Wild" to Discovery's Animal Planet.
Revenue for the period ended December 31, 1998 included approximately $2.8
million on the Company's completion and delivery of the made-for-television
movie "Earthquake in New York," approximately $6.7 million on sales and
availability of episodes of the dramatic series "Total Recall 2070,"
approximately $1.5 million on the sales for the reality based series "Amazing
Tails," and approximately $2.6 million on sales of the Company's library of
movie-of-the-week and documentary titles.
Cost relating to revenues was approximately $10.6 million for the year
ended December 31, 1999 as compared to approximately $9.1 million for the year
ended December 31, 1998. The costs relate to amortization of production or
acquisition costs of television programming for which revenue was recognized
during the period. Gross profit margin on sales of television programming for
the year ended December 31, 1999 was 56 percent compared to 33 percent for the
period ended December 31, 1998. The higher gross profit margin for the year
ended December 31, 1999 was due to the Company selling television programming
acquired by the Company at attractive rates as opposed to selling more
programming owned and produced by the Company in the year ended December 31,
1998.
General and administrative expense increased to approximately $8.3 million
for the year ended December 31, 1999 from approximately $3.3 million for the
same period in 1998. Due to the Company's increased activities related to film
production, the 1999 amount excludes approximately $1.7 million in general and
administrative expense that was capitalized to television programming costs, as
an allocation of costs related to production, in accordance with SFAS No. 53.
The overall increase in general and administrative expenses of $6.7 million is a
result of an increase in employee expenses, primarily for the Company's
increased activities in production and development and European expansion, an
increase in the accounts receivable allowance for doubtful accounts resulting
from the significant increase in accounts receivables and certain litigation
costs. The increase is also due to
17
<PAGE> 18
expenses associated with the issuance of securities to outside consultants as
payment for their services. The Company believes that payments with these
securities issuances are justifiable even though dilutive to current
shareholders as opposed to cash outlays.
The Company also incurred an extraordinary loss, net of tax, of $0.6
million related to the conversion to common stock and early extinguishment of
$5.8 million in debt. Interest expense was $0.8 million for the year ended
December 31, 1999, as compared to $0.9 million for the year ended December 31,
1998.
Receivables at December 31, 1999 were approximately $18.4 million, all of
which are from entities domiciled outside the United States. These receivables
represent approximately 26% of the total assets of the Company. As a consequence
of the Company's October 1999 acquisition of Dandelion Distribution Ltd.
("Dandelion"), certain receivables resulting from sales made prior to the
acquisition are now considered due from related parties for financial reporting
purposes. In June 1999, the Company entered into a five year license agreement
for certain territories including the UK of 20 made-for-television movies with
Renown Pictures, Ltd., a UK company owned by Noel Cronin, formerly the owner of
Dandelion. At December 31, 1999 the receivable due from Renown was approximately
$2.2 million. Subsequent to December 31, 1999, the Company received payments of
$1.5 million per the terms of the agreement. Noel Cronin is also a director of
String of Pearls Plc. In September 1999, the Company entered into a 10 year
license agreement for certain European territories including Germany, France and
Italy, of 20 made-for-television movies with String of Pearls Plc. At December
31, 1999, the receivable due from String of Pearls Plc was approximately $5.0
million. Mr. Cronin has personally guaranteed the obligation to pay the license
fee from String of Pearls to us. Subsequent to December 31, 1999, the Company
received a payment of $2.0 million per the terms of agreement. We have
established $831,000 as an allowance for doubtful accounts as of December 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the German Offering we have a liquidity surplus of
approximately $23.1 million at December 31, 1999. We define liquidity surplus
as:
- cash and cash equivalents plus accounts receivable (net), and the amount
due from officer, less
- accounts payable, accrued expenses and other liabilities, deferred taxes,
deferred revenue, accrued participations, notes payable, line of credit
and accrued interest.
We continue to finance our operations from our own sales and production
activities, equity financing, notes payables and lines of credit.
18
<PAGE> 19
On December 2, 1999, we completed the sale of 6,150,000 shares of our
common stock, 150,000 shares of which were sold by and for the account of a
selling shareholder, in the German Offering. The German Offering was
underwritten by Gontard & MetallBank AG and a group of associated underwriters.
The offering price was $6.21 per share. The net proceeds to us were
approximately $31.5 million after deducting underwriting fees and estimated
offering expenses. Approximately $9.4 million of the net proceeds has been used
to repay all of our outstanding indebtedness.
We are involved in a financing transaction with Imperial Bank with respect
to "Call of the Wild" which we anticipate will close in the second quarter of
2000. Pursuant to that transaction, we will defer all of our distribution fees
on "Call of the Wild" until Imperial Bank's loan has been repaid.
We currently have a substantial liquidity surplus of approximately $23.1
million, however, as the entertainment industry is highly capital intensive we
continue to pursue and work toward financing alternatives and search for
additional capital. We also continue to explore a variety of other financial
alternatives to increase our working capital, including obtaining a significant
production 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.
RECENT 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."
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.
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.
Adoption of these pronouncements did not materially affect the financial
statements.
Recent Pronouncements Effective Subsequent to 1999
In October 1998, the Accounting Standards Board 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.
19
<PAGE> 20
Item 7. Financial Statements
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Team Communications Group, Inc.
We have audited the consolidated balance sheet of Team Communications
Group, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for the
two 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 audit.
We conducted our audit 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 audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the financial position of Team
Communications Group, Inc. and subsidiaries at December 31, 1999, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1999 and 1998, in conformity with generally accepted accounting
principles.
/s/ STONEFIELD JOSEPHSON, INC.
STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
April 14, 2000
20
<PAGE> 21
PART 1 - FINANCIAL INFORMATION
Company or group of companies for which report is filed:
TEAM COMMUNICATIONS GROUP, INC.
ITEM 1-FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
ASSETS
Cash and cash equivalents $ 21,088,700
Trade receivables, net of allowance for doubtful
accounts of $831,000, including $7,260,000
due from related parties 18,430,600
Television programming costs, net of accumulated
amortization of $18,544,300 27,770,600
Due from officer 170,400
Fixed assets, net 595,700
Goodwill 1,048,200
Prepaid and other assets 795,800
------------
Total Assets $ 69,900,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 9,348,300
Deferred taxes 2,405,100
Deferred revenue 559,400
Accrued participations 3,771,500
Bank line of credit 350,000
Notes payable 153,800
Accrued interest 32,100
-----------
Total Liabilities 16,620,200
-----------
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;
12,895,509 issued and outstanding 1,000
Paid in capital 51,693,000
Accumulated other comprehensive income (26,000)
Retained earnings 1,611,800
------------
Total shareholders' equity 53,279,800
------------
Total liabilities and shareholders' equity $ 69,900,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues, including $8,675,000 from
related parties, see Note 6 $ 24,062,000 $ 13,581,900
Cost of Revenues, including $2,170,000
attributable to sales to related
parties, see Note 6 10,557,100 9,076,000
General and administrative expense 8,316,300 3,274,000
------------ ------------
Earnings from operations 5,188,600 1,231,900
Interest expense 817,600 902,600
Interest income 96,000 202,900
------------ ------------
Earnings before income taxes 4,467,000 532,200
Provision for income taxes 2,055,100 57,500
------------ ------------
Earnings before extraordinary item 2,411,900 474,700
Extraordinary loss from early
extinguishment of debt, net of tax 620,700 69,500
------------ ------------
Net Earnings $ 1,791,200 $ 405,200
============ ============
Basic earnings per common share
Earnings before extraordinary item $ 0.43 $ 0.26
Extraordinary loss) (0.11) (0.04)
------------ ------------
Net earnings per share - basic $ 0.32 $ 0.22
============ ============
Weighted average number of shares
outstanding - basic 5,658,690 1,833,340
============ ============
Diluted earnings per common share
Earnings before extraordinary item $ 0.41 $ 0.20
Extraordinary loss) (0.10) (0.03)
------------ ------------
Net earnings per share - diluted $ 0.31 $ 0.17
============ ============
Weighted average number of shares
outstanding - diluted 5,928,229 2,434,017
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,791,200 $ 405,200
Adjustments to reconcile net income to cash used
for operating activities:
Depreciation and amortization 28,900 12,600
Amortization of television programming costs 10,557,100 8,980,300
Provision for doubtful accounts 662,100 664,000
Additions to television programming costs (22,508,800) (15,712,000)
Extraordinary charge for early retirement of debt 620,700 69,500
Amortization of notes payable discount 41,100 --
Stock and warrants issued in exchange for services 1,554,400 --
Changes in assets and liabilities, excluding effect of acquisition:
(Increase) decrease in trade receivables (12,259,800) 1,340,100
(Increase) decrease in prepaid and other assets (643,600) 495,300
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 6,146,700 (1,553,700)
Increase (decrease) in deferred revenue 86,500 (102,100)
Increase in accrued participations 745,700 2,041,000
Decrease in accrued interest (498,800) (367,400)
Foreign currency translation adjustment (26,000) --
------------ ------------
Net cash used for operating activities (13,702,600) (3,727,200)
------------ ------------
INVESTING ACTIVITIES:
Purchase of fixed assets (173,200) --
Acquisition of Dandelion, net of cash acquired (2,021,700) --
(Increase) decrease in due from officer (25,000) 50,100
------------ ------------
Net cash (used for) provided by investing activities (2,219,900) 50,100
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and warrants 10,998,900 2,681,000
Change in bank line of credit (764,000) 1,114,000
Principal payment on loan due to shareholder (500,000) (240,000)
Issuance of common stock 37,726,300 6,382,600
Purchase of treasury stock -- (34,600)
Sale treasury stock 34,600 --
Principal payment of notes payable (11,512,300) (5,372,600)
------------ ------------
Net cash provided by financing activities 35,983,500 4,530,400
------------ ------------
Net change in cash 20,061,000 853,300
Cash at beginning of year 1,027,700 174,400
------------ ------------
Cash at end of year $ 21,088,700 $ 1,027,700
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 929,964 $ 1,270,000
Income taxes paid $ 17,400 $ 93,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998
---------- -------
<S> <C> <C>
Issuance of shares in connection
with the acquisition of Dandelion $2,500,000 $ --
Issuance of shares and warrants in connection
with services provided to the Company $1,554,400 $ 58,000
Issuance of shares in connection with
extinguishment of debt $2,299,600 $458,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
TEAM ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Accumulated
------------------------ Other Retained
Number Paid in Treasury Comprehensive Earnings
of Shares Par Value Capital Stock Loss (Deficit)
--------- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,131,344 $ 1,000 $ 1,230,100 $ (34,600) $ -- $ (584,600)
Net Income for the year
ended December 31, 1997 -- -- -- -- -- 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 year
ended December 31, 1999 -- -- -- -- -- 1,791,200
Sale of Treasury Stock 17,000 -- -- 34,600 -- --
Issuance of common stock in
connection with conversion of debt 1,219,974 -- 2,299,600 -- -- --
Issuance of common stock for services 464,000 -- 1,032,400 -- -- --
Issuance of warrants for services -- -- 318,100 -- -- --
Issuance of warrants for debt -- -- 443,500 -- -- --
Issuance of debt with beneficial
conversion feature -- -- 730,000 -- -- --
Issuance of common stock for
Dandelion acquisition 386,847 -- 2,500,000 -- -- --
Issuance of common stock in
the German Offering 6,000,000 -- 31,508,800 -- -- --
Private placement of common stock 1,188,334 -- 4,255,200 -- -- --
Exercise of warrants 763,219 -- 788,800 -- -- --
Issuance of stock for legal settlements 40,000 -- 203,900 -- -- --
Foreign currency translation adjustments -- -- -- -- (26,000) --
---------- ----------- ----------- -------- --------- -----------
Balance at December 31, 1999 12,895,509 $ 1,000 $51,693,000 $ -- $ (26,000) $ 1,611,800
========== =========== =========== ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 26
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, children
programming and reality-based programming for both domestic and international
broadcast networks and cable channels such as Discovery's Animal Planet, The
Travel Channel, 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.
Foreign Currency Translation
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency. Assets,
including goodwill, and liabilities of these subsidiaries are translated at the
rates of exchange at the balance sheet date. Income and expense items are
translated at average monthly rates of exchange. The resulting translation
adjustments are reported as other comprehensive income. Gains and losses from
foreign currency transactions are included in net earnings.
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 five major customers accounted for approximately 73% of the
Company's total operating revenue for the year ended December 31, 1999.
Sales to four major customers accounted for approximately 69% of the Company's
total operating revenue for the year ended December 31, 1998.
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. Adoption of this pronouncement did not materially affect the
financial statements.
26
<PAGE> 27
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 December 31, 1999 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. In February 2000, the certificate of deposit matured and the
revolving line of credit was retired.
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 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 year ended December 31, 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 year ended December
31, 1999, overhead in the amount of approximately $1,740,700 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 $56,600 in accumulated depreciation at
December 31, 1999.
Prepaid and Other Assets
The balance represents security deposits, prepaid expenses and the
unamortized portion of consulting agreements.
27
<PAGE> 28
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 15%),
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. When debt is redeemed or converted to share of
common stock prior to maturity any remaining discount is expensed to
Extraordinary loss from early extinguishments of debt.
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 December 31, 1999, because of
the relatively short maturity of these instruments. The carrying value of long
term accounts receivable approximated fair value as of December 31, 1999,
because the instruments are valued at the Company's effective borrowing rate.
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.
28
<PAGE> 29
Concentration of Credit Risk
Four customers represented approximately 85% of the trade receivable
balance at December 31, 1999.
Included in Accounts Receivable as of December 31, 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
The Company computes net earnings per share following SFAS No. 128,
"Earnings Per Share." Under the provisions of SFAS No. 128, basic net income
per share is computed by dividing the net income available to common
shareholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed by
dividing the net income for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
New accounting pronouncements:
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. Adoption of this pronouncement did not materially affect the
financial statements.
29
<PAGE> 30
Recent Pronouncements Effective Subsequent to 1999
In October 1998, the Accounting Standards Board 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.
NOTE 3 - ACQUISITIONS
Effective October 1, 1999, the Company completed its acquisition of
Dandelion Distribution Ltd. (Dandelion). Aggregate consideration consisted of
386,847 shares of the Company's common stock for an equity value of $2.5 million
and $2.5 million in cash.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the acquisition cost of $5.2 million (including
transaction costs) has been allocated to the assets acquired and liabilities
assumed based on estimates of their fair value. A total of $1.1 million,
representing the excess of acquisition costs over the fair value of Dandelion's
tangible net assets, has been allocated to goodwill and is being amortized over
20 years. The Company will continually evaluate the existence, if any, of
goodwill impairment in accordance with the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." Accumulated amortization was $16,300 at December 31, 1999.
The Company's consolidated results of operations have incorporated
Dandelion's activity from the effective date of the acquisition. The following
unaudited pro forma information has been prepared assuming that this acquisition
had taken place at the beginning of the respective periods. This pro forma
information does not purport to be indicative of future results or what would
have occurred had the acquisition been made as of those dates.
30
<PAGE> 31
Acquisition Pro Forma -- Dandelion
(in Thousands, except per share amounts) (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Revenue $ 26,270 $ 16,872
Operating income 5,096 1,244
Income before extraordinary item 2,279 234
Net income 1,658 165
Basic EPS
Income before extraordinary item per share 0.38 0.11
Net income per share 0.28 0.07
Diluted EPS
Income before extraordinary item per share 0.37 0.08
Net income per share 0.27 0.06
</TABLE>
NOTE 4 -- TELEVISION PROGRAM COSTS:
Television program costs consist of the following:
<TABLE>
<S> <C>
In process and development $ 480,900
Released, less accumulated amortization 27,289,600
-------------
$ 27,770,500
==============
</TABLE>
Based on management's estimates of future gross revenue as of December 31,
1999, approximately 70% of the $27,289,600 in unamortized released television
program costs will be amortized during the three years ending December 31, 2002
and 80% will be amortized during the five years ending December 31, 2004.
NOTE 5 -- 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:
31
<PAGE> 32
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Statutory federal tax rate 35% 34%
State income tax provision 6% 3%
Benefits of operating loss carryforward -% (26%)
Non deductible expenses 2% -
Adjustment to net operating loss 2% -
Other, net 1% -
------------ ----------
Effective tax rate 46% 11%
============ ==========
</TABLE>
Earnings before taxes and provisions for income tax expense at December 31,
1999 and 1998 are:
1999 1998
---- ----
Earnings before taxes $4,467,000 $532,200
---------- --------
Current federal income taxes 966,400 57,500
Foreign tax credits (69,900) -
Deferred federal income taxes 992,900 -
Current state income taxes 165,700 -
---------- --------
Total $2,055,100 $ 57,500
========== ========
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 liability are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 130,000
Deferred revenue 229,400
Allowance for doubtful accounts 340,600
Other 164,000
-----------
Total deferred income tax assets 864,000
-----------
Deferred income tax liabilities:
Film cost basis difference (3,269,100)
-----------
Total deferred income tax liabilities (3,269,100)
-----------
Net deferred income tax liabilities $(2,405,100)
===========
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS:
As a consequence of the Company's October 1999 acquisition of Dandelion,
certain receivables resulting from sales made prior to the acquisition are now
considered due from related parties for financial reporting purposes. In June
1999 the Company entered into a five year license agreement for certain
territories including the UK of 20 made-for-television movies with Renown
Pictures, Ltd., a UK company owned by Noel Cronin, formerly the owner of
Dandelion. At December 31, 1999 the receivable due from Renown was $2,175,000.
Subsequent to December 31, 1999, the Company received a payment of $1,450,000
per the terms of the agreement.
Noel Cronin is also a director of String of Pearls Plc. In September 1999,
the Company entered into a ten year license agreement for certain European
territories including Germany, France and Italy, of 20 made-for-television
movies with String of Pearls Plc. At December 31, 1999, the receivable due from
String of Pearls Plc was $5,085,000. Mr. Cronin has personally guaranteed the
obligation of String of Pearls Plc and pledged $1,875,000 in escrow, which is
owed to him by the Company from the Company's acquisition of Dandelion.
Subsequent to December 31, 1999, the Company has received payments of $2,000,000
per the terms of agreement.
The due from officer balance of $170,400 at December 31, 1999, 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. In February 2000, the due from officer
balance was repaid to the Company.
32
<PAGE> 33
NOTE 7 -- COMMITMENTS AND CONTINGENCIES:
On October 24, 1999, the Company was served with a complaint from Beyond
Entertainment, the licensee of Water Rats Seasons I & II. The complaint, which
seeks an accounting and termination of the license agreement, seeks $3,000,000
in contractual damages and $6,000,000 for negligence and fraud. The Company
believes the complaint to be totally without merit and intends to vigorously
contest the matter.
At this time, the outcome of any of the above matter 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 $165,000 and $78,000 for the periods ended December 31, 1999
and December 31, 1998, 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>
2000....................................................... $ 400,800
2001....................................................... 412,700
2002....................................................... 424,500
2003....................................................... 436,300
2004....................................................... 448,200
Thereafter................................................. 52,500
----------
Total...................................................... $2,175,000
==========
</TABLE>
NOTE 8 -- LINE OF CREDIT -- BANK
On December 31, 1999, the Company had an $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.
As of December 31, 1999, the outstanding balance of the line credit was
$350,000. In February 2000, this line of credit was paid off and retired.
NOTE 9 -- NOTE PAYABLE:
Notes payable consists primarily of one note originated in March 1998 when
the Company obtained a loan in the amount of $150,000 from Nick Kahla, which
carries interest at 12% per annum and matured on March 16, 1999. As of December
31, 1999, there was
33
<PAGE> 34
accrued interest of $32,100. 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.
NOTE 10 -- GEOGRAPHIC INFORMATION:
The Company operates in a single industry segment, the development,
production and distribution of television programming. The Company's
operations are conducted in the United States, UK and Germany.
A summary of the Company's revenues by geographic area is presented below:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1999 1998
------------- ------------
<S> <C> <C>
North America $12,200,000 $ 9,844,500
Europe 10,800,000 --
South America 700,000 1,351,800
Asia 400,000 1,412,900
Australia and Africa -- 972,700
----------- -----------
Total $24,100,000 $13,581,900
=========== ===========
</TABLE>
NOTE 11 -- STOCK OPTION PLANS:
The Company has established a stock option plan for its employees, its
non-employee directors and consultants (the "1999 Stock Option Plan").
The 1999 Stock Option Plan allows for options (including Incentive Stock
Options) to be granted to employees and consultants at 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 (the
"Committee"). The Committee is comprised of two members of the Board of
Directors. The 1999 Stock Option Plan has options available to grant based on
20% of the outstanding shares of common stock. The total number of options
available to grant under this plan is 2,579,102 as of December 31, 1999.
34
<PAGE> 35
A summary of the Key Employee Plan as of and for the periods December
31, 1999 and December 31, 1998 is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
KEY EMPLOYEE PLAN SHARES EXERCISED PRICE
- ----------------- ---------- ---------------
<S> <C> <C>
Outstanding as of January 1, 1998 168,000 $3.46
Granted 54,000 3.12
Exercised -- --
Forfeited/Expired -- --
----------
Outstanding as of December 31, 1998 222,000
-----------
Granted 1,567,500 5.06
Exercised (33,010) 1.91
Forfeited/Expired -- --
----------
Outstanding as of December 31, 1999 1,756,490
==========
Weighted-average fair value of options outstanding $4.90
==========
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
SHARES EXERCISABLE SHARES EXERCISABLE
AT DECEMBER 31, AT DECEMBER 31,
TOTAL SHARES EXERCISE PRICE 1999 1998
- ------------ -------------- ------------------ ------------------
<S> <C> <C> <C>
20,000 $ 0.47 20,000 --
49,990 $ 1.00 49,990 63,000
100,000 $ 1.65 100,000 10,000
30,000 $ 2.00 30,000 --
30,000 $ 2.50 30,000 50,000
865,000 $ 4.88 865,000 --
99,000 $ 5.50 99,000 99,000
422,500 $ 6.04 271,563 --
50,000 $ 6.25 6,250 --
90,000 $ 7.00 11,250 --
- ---------
1,756,490
=========
</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,
35
<PAGE> 36
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 6.5%, no dividend yield, expected lives of two and a
half years, and volatility of 1.26.
Pro forma information regarding the effect on operations 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 that statement. Pro forma
information using the Black-Scholes method at the date of grant is based on the
following assumptions:
<TABLE>
<S> <C>
Expected life (years) 2.5 years
Risk-free interest rate 6.5%
Dividend yield -
Volatility 1.26
</TABLE>
This option valuation model requires input of highly subjective
assumptions. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing model does not necessarily provide a
reliable single measure of fair value of its employee stock options.
For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information for the year ended December 31, 1999 (not material in
1998) is as follows:
<TABLE>
<CAPTION>
December 31,
1999
-------------
<S> <C>
Net earnings, as reported $ 1,791,200
Proforma net loss $(1,360,800)
Basic historical earnings per share $ 0.32
Proforma basic loss per share $ (0.24)
Diluted historical earnings per share $ 0.31
Proforma diluted loss per share $ (0.22)
</TABLE>
During 1998, the Company granted 32,000 warrants exercisable at $2.75,
5,000 warrants exercisable at $3.50, 100,000 warrants exercisable at $1.62,
75,000 warrants exercisable at $3.00, 25,000 warrants exercisable at $3.25 and
10,000 warrants exercisable at $2.00 to five outside parties for services
provided to the Company. In addition, the Company granted 131,000 warrants
exercisable at $1.62 and 20,000 warrants exercisable at $2.45 to two outside
parties in connection with debt raised by the Company.
During 1999, the Company granted 85,000 warrants exercisable at $2.16,
200,000 warrants exercisable at $2.20, 340,000 warrants exercisable at $6.50
and 35,000 warrants exercisable at $7.61 to eight outside parties in connection
with debt raised by the Company.
NOTE 12 - GERMAN OFFERING:
In November 1999, the Company completed an equity offering on Germany's
Neuer Markt of 6,000,000 shares of its common stock at approximately $6.21 per
share, raising net proceeds of approximately $31.5 million.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
No change in, or disagreement with, our independent auditor occurred during
the fiscal year ended December 31, 1999.
36
<PAGE> 37
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 1(a) of the Exchange Act
Directors, Executive Officers, Promoters and Control Persons
Our directors and executive officers, together with their respective ages
and positions with us, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Drew S. Levin.............. 46 Chairman of the Board of Directors and
Chief Executive Officer
Larry Friedricks........... 62 Co-President of Team International
Paula Fierman.............. 51 Co-President of Team International
Timothy A. Hill............ 33 Senior Vice President, Chief Financial Officer, Secretary
Eric Elias................. 45 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)..... 64 Director
Michael Solomon(1)(2)...... 62 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. 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.
Michael J. 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.
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
37
<PAGE> 38
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.
Larry Friedricks was hired to be a Co-President of a to be formed
subsidiary of the Company, Team International. Before that, he has been a
consultant to the Company since March 1998. Mr. Friedricks co-founded PAULAR
Entertainment L.L.C. in July 1996, where he has served as consultant since such
date. PAULAR specializes in sales and marketing, both domestically and
internationally, to all forms of media. Before forming PAULAR Entertainment, Mr.
Friedricks served as Executive Vice President with Jones Entertainment Group
("JEG"), a division of Jones Intercable, where he was responsible for overseeing
world-wide marketing and distribution of their television product as well as
locating outside investment opportunities. He also supervised co-productions
with European partners. Mr. Friedricks was with the NASDAQ-traded Kushner-Locke
Company from 1991 to 1995 as President of the newly formed sales division.
Between 1982 and 1991, Mr. Friedricks was Executive Vice President of
AMEX-traded Fries Entertainment. Mr. Friedricks is married to Ms. Fierman.
Paula Fierman was hired to be the other Co-President of Team International.
Before that, she has been a consultant to the Company since March 1998. From
1996 to November 1999, Ms. Fierman worked as a consultant with PAULAR
Entertainment, specialized in sales and marketing, both domestically and
internationally, to all forms of media. Before forming PAULAR Entertainment with
Larry Friedricks, Ms. Fierman served as Senior Vice President International with
Jones Entertainment Group ("JEG"), a division of Jones Intercable, where she was
responsible for marketing campaigns, public relations and promotion, as well as
direct sales of JEG television, home video and feature films worldwide. Prior to
JEG, Ms. Fierman served as Senior Vice President International at Kushner-Locke.
Between 1987 and 1991, Ms. Fierman was Senior Vice President International at
Fries Entertainment. Ms. Fierman is married to Mr. Friedricks.
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 5 years prior to joining us, Mr. O'Brien worked for several television
and motion picture companies affiliated with 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
38
<PAGE> 39
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".
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely on a review of Forms 3 and 4 furnished to us since January 1,
1999, Drew S. Levin, Timothy A. Hill, Eric Elias, Larry Friedricks, Paula
Fierman and Stuart Gruca, have filed all Forms 3 or Form 4, although such
filings were not made on a timely basis.
39
<PAGE> 40
ITEM 10. 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, 1999, 1998 and 1997 by our Chief Executive Officer and
certain executive officers (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
TO BE UPDATED
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION
------------------------------ ---- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Drew S. Levin 1999 $463,326 $585,025(1) 1,115,000 $ 14,250
Chairman of the Board 1998 $220,000 $145,000 85,000 $ 13,400
and Chief Executive Officer 1997 $220,000 $145,000
Jonathan D. Shapiro(2)
Former President and 1999 $220,000 $262,500 90,000 $ 2,111
Chief Operating Officer 1998 $ 37,500
Timothy A. Hill
Senior Vice President and 1999 $127,630 $ 85,000 40,000 $ 4,200
Chief Financial Officer 1998 $ 37,593 10,000 $ 1,400
Eric Elias
Senior Vice President 1999 $ 17,288 $ 25,000 50,000 $ 139,034
Business and Legal Affairs 1998 12,500 $ 170,000
1997 $ 125,000
Jane Sparango
Senior Vice President 1999 $103,577 $ 15,000
Development Reality Programming 1998 $ 13,077
Declan O'Brien
Senior Vice President, 1999 $102,788 $ 15,000
Development Fictional Programming 1998 $ 57,307
</TABLE>
(1) Approximately $335,000 of Mr. Levin's bonus will be paid in year 2000 in
respect of services performed in 1999.
(2) Mr. Shapiro resigned effective January 14, 2000.
STOCK OPTION GRANT TABLE
Set forth below is information with respect to grants of stock options
during the fiscal year ended December 31, 1999, to the Named Executive Officers.
All such options were granted with an exercise price equal to the market value
of the underlying Common Stock on the date of the grant. Stock appreciation
rights are not available under the Company's 1999 Stock Option Plan.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Individual Grants
-----------------------------
Number of % of Total
Securities Options Granted
Underlying to Employees Exercise Expiration
Named Officers Options in Fiscal Year Price Date
- -------------- -------- -------------- --------- ------------------
<S> <C> <C> <C> <C>
Drew S. Levin 250,000 15.95% $ 6.04 September 27, 2004
Drew S. Levin 865,000 55.18% $ 4.88 December 2, 2004
Jonathan D. Shapiro 90,000 5.74% $ 1.65 January 1, 2004
Timothy A. Hill 40,000 2.55% $ 6.04 September 27, 2004
Eric Elias 50,000 3.19% $ 6.25 September 27, 2004
</TABLE>
STOCK OPTION EXERCISES AND YEAR-END HOLDINGS
The following table contains certain information pertaining to stock options
(i) exercised during the fiscal year ended December 31, 1999 and (ii) held as
of December 31, 1999 by the Named Executive Officers. The Company has no
long-term incentive compensation plans pursuant to which stock appreciation
rights may be awarded.
AGGREGATED OPTION EXERCISES IN 1999 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Options at
Shares December 31, 1999 December 31, 1999(1)
Acquired Value --------------------------- ---------------------------
Named Officers On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Drew S. Levin - - 1,200,000 - $ - $ -
Jonathan D. Shapiro - - 90,000 - $267,750 $ -
Timothy A. Hill - - 18,000 32,000 $ 29,750 $ -
Eric Elias - - 62,500 - $ - $ -
</TABLE>
- --------------
(1) The closing price of our common stock on December 31, 1999 was $4.625.
DIRECTOR COMPENSATION
Under 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. Mr. Solomon received
his option in 1998 and Mr. Barry in 1999. Non-employee directors received no
other compensation from the Company in fiscal year 1999. On February 18, 2000,
the Board of Directors approved issuing to all newly elected non-employee
directors, an option to purchase 30,000 shares of our common stock, to vest
ratably over the first year of service. The Board of Directors also approved
issuing to all incumbent non-employee directors, an annual option grant of
10,000 shares, to vest ratably over that year of service.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
AGREEMENTS
Drew Levin. The Board of Directors approved, as of October 8, 1999, which
was subsequently amended as of October 29, 1999 and February 15, 2000, 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"). Mr. Levin is to receive a one time bonus of $250,000, $100,000 of
which was paid to him on October 29, 1999, the remaining $150,000 was paid in
January, 2000. Mr. Levin has also repaid the outstanding loans he had from the
Company with his proceeds as a selling shareholder in the German Offering in
February 2000. Mr. Levin will also receive an annual bonus calculated for each
fiscal year at 7.5% of net pre-tax earnings. Mr. Levin has received options to
purchase an aggregate of 1,865,000 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 were granted on the date the German Offering closed,
December 2, 1999, vesting at the time of grant and are exercisable at $4.88 per
share. 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.
The Levin Agreement was amended on February 17, 2000 to provide for the
grant to Mr. Levin of an additional 750,000 stock options, which are exercisable
at a price of $5.00, per share, and the inclusion of a performance bonus
pursuant to which Mr. Levin will receive a cash bonus equal to 10% of the value
between the market capitalization as of such date, and the market capitalization
as of the date any transaction is entered into resulting in a sale of all or
substantially all of the Company.
Larry Friedricks. We have entered into an employment agreement with Larry
Friedricks (the "Friedricks Agreement") to serve as Co-President of Team
International, a to be formed wholly owned subsidiary of the Company dated as of
November 1, 1999. The term of the Friedricks Agreement is for 3 years,
commencing on November 15, 1999 and ending on December 31, 2002, subject to Mr.
Friedricks' right to terminate his employment upon 60 days prior written notice
should Mr. Drew Levin no longer be the Company's Chairman of the Board and Chief
Executive Officer. Mr. Friedricks is to be paid an annual salary of $220,000,
with 4 percent increases on each anniversary date of the Friedricks Agreement.
Mr. Friedricks shall be eligible to participate in all bonus and profit sharing
plans adopted by the Company. Mr. Friedricks is to be granted 60,000 stock
options at an exercise price equal to the average of the bid and asking price of
the Company's common stock on the date immediately preceding the date of the
Friedricks Agreement, $6.04 per share. The options vest as follows: 20,000 after
the end of the first year of employment; 20,000 after the end of the second year
of employment; and 20,000 after the end of the third year of employment. All
options expire 90 days after the termination of Mr. Friedricks' employment with
the Company.
Paula Fierman. We have entered into an employment agreement with Paula
Fierman (the "Fierman Agreement") to serve as Co-President of Team
International, a to be formed wholly owned subsidiary of the Company dated as of
November 15, 1999. The term of the Fierman Agreement is for 3 years, commencing
on November 15, 1999 and ending on December 31, 2002, subject to Ms. Fierman's
right to terminate her employment upon 60 days prior written notice should Mr.
Drew Levin no longer be the Company's Chairman of the Board and Chief Executive
Officer. Ms. Fierman is to be paid an annual salary of $180,000, with 4 percent
increases on each anniversary date of the Fierman Agreement. Ms. Fierman shall
be eligible to participate in all bonus and profit sharing plans adopted by the
Company. Ms. Fierman is to be granted 30,000 stock options at an exercise price
equal to the average of the bid and asking price of the Company's common stock
on the date immediately preceding the date of the Fierman Agreement, $6.04 per
share. The options vest as follows: 10,000 after the end of the first year of
employment; 10,000 after the end of the second year of employment; and 10,000
after the end of the third year of employment. All options expire 90 days after
the termination of Ms. Fierman's employment with the Company.
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, 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, $6.04
per share.
Jane Sparango. We have entered into an employment agreement with Jane
Sparango (the "Sparango Agreement") to serve as Vice President of Development
and Production. The initial term of the Sparango Agreement was for 1 year,
which began on November 9, 1998, and was extended for an additional 1 year
period. Ms. Sparango's salary for the period November 9, 1998 to February 12,
1999, was $85,000. Her salary for the period February 13, 1999, through the end
of the term shall be at the rate of $100,000 per year. Ms. Sparango shall also
be eligible for discretionary stock option grants. On February 23, 2000, the
Board of Directors approved the issuance to Ms. Sparango of an option to
purchase 20,000 shares of common stock at an exercise price of $6.125. The
options vest ratably over a 2 year period and have a 5 year term. Ms. Sparango
is also entitled to additional compensation in the form of episodic bonuses for
projects she produces.
Declan O'Brien. We have entered into an employment agreement with Declan
O'Brien (the "O'Brien Agreement") to serve as Senior Vice President,
Development and Production. The term of the O'Brien Agreement is for 3 years,
commencing on January 1, 2000 and ending on December 31, 2002. Mr. O'Brien is to
be paid a base salary of $150,000 for year 1, and $165,000 for years 2 and 3.
In addition to his base salary, Mr. O'Brien shall be paid an annual bonus of not
less than $25,000. Mr. O'Brien shall also receive an option to purchase 30,000
shares of common stock, 10,000 of which shall vest each year on a monthly
basis. The options have a term of 5 years and are exercisable at $6.125 per
share.
41
<PAGE> 41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 1999, certain information
regarding the ownership of Common Stock by: (i) each person who is known by the
us to own of record or beneficially more than 5% of the outstanding Common
Stock; (ii) each of our directors; and (iii) each named executive officer; and
(iv) all directors and executive officers as a group. Except as otherwise
indicated, the shareholders listed in the table have sole voting and investment
power with respect to the shares indicated.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY OWNED
------------------------
NAME NUMBER PERCENTAGE
- ---- --------- ----------
<S> <C> <C>
OFFICERS AND DIRECTORS:
Drew S. Levin(3) 2,400,123 15.3%
Michael J. Solomon(4) 50,000 *
W. Russell Barry(5) 30,000 *
Jonathan D. Shapiro(6) 90,000 *
Eric Elias(7) 62,500 *
Timothy Hill(8) 18,000 *
Jane Sparango(9) 833 *
Declan O'Brien(10) 2,083 *
All Officers and Directors (8 persons) 3,105,200 19.4%
</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., 11818 Wilshire Boulevard, 2nd Floor, 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 November 10, 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 13,743,701 shares of Common Stock outstanding as of March
31, 2000.
(3) Includes options to purchase 85,000 shares of common stock at an exercise
price of $5.50 per share, options to purchase 250,000 shares of common stock
at an exercise price of $6.063 per share, and options to purchase 865,000
shares of common stock at an exercise price $4.88 per share. Also, includes
options to purchase 750,000 shares of common stock at an exercise price of
$5.00 per share, which were granted to Mr. Levin on February 17, 2000.
42
<PAGE> 42
(4) Includes an option to purchase 30,000 shares of common stock at an exercise
price of $2.50 per share.
(5) Includes an option to purchase 30,000 shares of common stock at an exercise
price of $2.00 per share.
(6) Includes an option to purchase 90,000 shares of common stock at an exercise
price of $1.625 per share.
(7) Includes an option to purchase 12,500 shares of common stock at $5.50 per
share and an option to purchase 50,000 shares of common stock at $6.25 per
share.
(8) Includes an option to purchase 10,000 shares of common stock at $1.65 per
share and an option to purchase 8,000 shares of common stock at $6.04 per
share. Does not include an option to purchase 32,000 of common stock at an
exercise price of $6.04 per share, none of which have yet vested.
(9) Includes an option to purchase 833 shares of common stock at an exercise
price of $6.125 per share. Does not include an option to purchase 19,167
shares of common stock at an exercise price of $6.125 per share, none of
which have yet vested.
(10) Includes an option to purchase 1,250 shares of common stock at an exercise
price of $5.50 per share and an option to purchase 833 shares of common
stock at an exercise price of $6.125 per share. Does not include an option
to purchase 29,167 shares of common stock at an exercise price of $6.125
per share, none of which have yet vested.
Item 12. Certain Relationships and Related Transactions
Short Term Borrowings by Mr. Levin. The Company as of December 31, 1999,
had due from officer a balance of $170,400, representing short-term interest
free loans made by the Company to Mr. Levin, less producer's fees earned for
services on a Company production. 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 owed the Company and
there was no interest accruing on the producer fees previously owed by the
Company to Mr. Levin. Mr. Levin repaid the outstanding balance with his receipt
of the proceeds of the sale of his common stock offered pursuant to the German
offering, in February 2000.
Mr. Levin has pledged 375,123 shares of the Company's common stock which he
owns to Gontard & MetallBank AG, the lead underwriter of the German Offering, as
collateral for a 1 year loan in the amount of $1,800,000, which loan bears
interest at 10% per year.
Transactions With Eric Elias. Mr. Elias, who serves as Senior Vice
President, Business and Legal Affairs, is paid through his private law firm.
In 1999 Mr. Elias received approximately $139,034, 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 is fully
vested.
Transactions With Renown Pictures, Ltd.; Transactions with Noel Cronin. As
of April 2, 2000, the Company was owed $725,000 in respect of a receivable from
Renown Pictures, Ltd., a United Kingdom corporation ("Renown"), pursuant to the
acquisition of a five year license for 20 movies-of-the-week. Prior to such
date, $2,575,000 had been paid by Renown. Renown is owned by Noel Cronin,
formerly the owner of 100% of the stock of Dandelion Distribution Ltd, which was
acquired by us in October 1999. Mr. Cronin currently owns 386,847 shares of the
Company's common stock (approximately 3%). So as to avoid any conflicts, Mr.
Cronin has assigned the rights to the programming and the obligation to pay the
balance of the receivable to Doljac Television Limited. Mr. Cronin, on behalf of
the Company, has retained the right to act as a subdistributor of the product
acquired by Renown.
43
<PAGE> 43
In effectuating the acquisition of the 20 movies-of-the-week, Renown acted
on behalf of a group of investors (the "Investors") who treated the transaction
as a sale-leaseback through Renown, thus entitling them to certain tax
deductions under UK law. The Investors have confirmed that they will complete
all additional funding with Doljac so as to complete the acquisition.
Noel Cronin is also a director of String of Pearls Plc. In September 1999,
the Company entered into a 10 year license agreement for certain European
territories including Germany, France and Italy, of 20 made-for-television
movies with String of Pearls Plc. At December 31, 1999, the receivable due from
String of Pearls Plc was $5,085,000. Mr. Cronin has personally guaranteed the
obligation to pay the license fee from String of Pearls Plc to us. Since
December 31, 1999, the Company received payments of $2,000,000 per the terms of
the agreement.
In August 1999, the Company acquired the "Victory 1" library from DD Video
for $3,400,000. Mr. Cronin sold DD Video to its current owners in April 1998.
Mr. Cronin is a director of DD Video, although he received no compensation,
either directly or indirectly, in respect of this action.
Transactions with Gontard & MetallBank. Gontard & MetallBank, the
underwriter of the German Offering, owns 500,000 shares of our outstanding
common stock. This represents 4% of our outstanding stock. These shares were
purchased at a price of $4.00, a discount of approximately $2.00 per share from
the then current market price. In connection with the German Offering, Gontard &
MetallBank received commissions and fees, including the reallowance for members
of the underwriting syndicate, of 10%.
Gontard & MetallBank has loaned Mr. Drew Levin $1,800,000 for a period of 1
year. The loan bears interest at 10% per year and is collateralized by a pledge
by Mr. Levin of 365,123 of the Company's common stock that he owns.
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.
Item 13. Exhibits and Reports on Form 8-K
(a)(1) Financial Statements are included in Item 7, Part II of this report.
(a)(2) Exhibits: The Exhibits listed in the accompanying Exhibit Index are
filed or incorporated by reference as part of this annual report.
(b) Reports on Form 8-K
During the quarter ended December 31, 1999, the Company filed a Current
Report on Form 8-K, as follows: Date of Event: October 18, 1999, wherein the
Company reported the acquisition of Dandelion Distribution Ltd. Such Current
Report on Form 8-K is incorporated herein by this reference.
44
<PAGE> 44
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
------------------------------------
Drew S. Levin
Chairman of the Board of
Directors and Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/ DREW S. LEVIN Date: April 14, 1999
--------------------------------
Drew S. Levin
Chairman of the Board of
Directors and Chief Executive
Officer
/s/ MICHAEL JAY SOLOMON Date: April 14, 2000
--------------------------------
Michael Jay Solomon
Director
/s/ W. RUSSELL BARRY Date: April 14, 2000
--------------------------------
W. Russell Barry
Director
/s/ TIMOTHY A. HILL Date: April 14, 2000
--------------------------------
Timothy A. Hill
Senior Vice President and
Chief Financial Officer
Secretary
45
<PAGE> 45
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)
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
4.36 1999 Stock Option, Deferred Stock and Restricted Stock
Plan(7)
4.37 Amendment No. 1 to VMR Securities Purchase Agreement dated
as of October 6, 1999, amending the February 25, 1999
Securities Purchase Agreement(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 as amended as of October 29,
1999, as further amended as of February 15, 2000(11)
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)
10.13 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)
10.21 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)
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.27 Consulting Agreement, dated May 3, 1999 between the Company
and Marathon Consulting Corporation(8)
10.28 Employment Agreement dated as of November 15, 1999, between
the Company and Paula Fierman(9)
10.29 Employment Agreement dated as of November 1, 1999, between
the Company and Larry Friedricks(9)
10.30 Lease between the Company and The Marcel George Family Trust
of September 2, 1982, dated November 3, 1999(9)
10.31 License Agreement with String of Pearls Plc, dated as of
September 10, 1999(9)
10.32 Employment Agreement dated October 29, 1998, between the Company
and Jane Sparango(11)
10.33 Employment Agreement dated as of January 1, 2000, between the
Company and Declan O'Brien(11)
21 Subsidiaries of the Registrant(9)
27 Financial Data Schedule(11)
</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) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, File No. 333-89323, effective November 23, 1999.
(10) Incorporated by reference to the Registration Statement on Form SB-2, File
No. 333-91283, effective December 8, 1999.
(11) Filed herewith.
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of the day of
February 15 , 2000 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").
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<PAGE> 2
3. COMPENSATION AND BENEFITS:
(a) Salary.
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"). 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 within thirty
(30) days following the preparation and filing of the company's annual
statements (10K 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.
2
<PAGE> 3
(c) Upon a sale of all or substantially all of the Company, or upon a
"Change of Control" (as defined below), Employee shall receive a bonus equal to
10% of the "Net Appreciation". For purposes of this agreement, "Net
Appreciation" means the difference between (i) the total purchase price
consideration received by the Company (or its shareholders) in a sale or, in the
event of a Change of Control", the market value of the Company, determined by
reference to its closing bid or ask price on the date the Change of Control
occurs and (ii) the market value today as of February 15, 2000.
(d) 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 Company's 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 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.
The Company will also issue to Executive options to acquire 750,000 shares of
common stock at an exercise price of $ 5.00, such options to vest as of the date
of this restated agreement with automatic vesting upon the occurrence of a
Change of Control or a termination without cause. All such options will have a
term of five (5) years.
(e) 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
3
<PAGE> 4
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.
(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.
4
<PAGE> 5
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,
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.
5
<PAGE> 6
(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.
(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.
6
<PAGE> 7
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.
(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
7
<PAGE> 8
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.
For the avoidance of doubt, upon the occurrence of a Change of Control
event, in addition to any other bonus payments which Executive may be entitled
to under Section 3(c), Executive shall be entitled, at his option, to deem a
Change of Control event as termination without cause. For purposes of this
Agreement, a "Change of Control" shall be deemed to occur: (A) upon a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended ("Exchange Act"), whether or not the Company is then
subject to such reporting requirement; (B) any "person" (as such term is defined
in Section 3(a) (9) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities; (C) during
any period of two (2) consecutive years (the "Period"), individuals who at the
beginning of the Period constitute the Board, including for this purpose any new
director whose election or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the Period (or whose election or
nomination was similarly approved by the Board), cease for any reason to
constitute a majority thereof; (D) the sale of all or substantially all of the
assets of the Company; or, (E) the merger of the Company with any other
corporation if shareholders of the Company prior to the effective date of the
merger own, immediately following the merger, less than seventy-five percent of
the combined voting power of the surviving corporation excluding from such
ownership any voting securities not received in exchange for or in respect of
voting securities of the Company.
(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 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.
8
<PAGE> 9
(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.
(f) 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.
8. 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.
9. 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 Association with
discovery proceedings pursuant to Section 1283.05 of the California Code of
Civil
9
<PAGE> 10
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.
10. 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.
11. 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
10
<PAGE> 11
partial exercise of any such right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy.
12. 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.
13. 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/ Drew S. Levin
---------------------------
Agreed to and Accepted:
/s/ Drew S. Levin
- ------------------------
Drew S. Levin
11
<PAGE> 1
EXHIBIT 10.32
October 29, 1998
Mr. Richard Lawrence
Abrams, Rubaloff & Lawrence
8075 West Third Street #303
Los Angeles CA 90048
RE: MS. JANE SPARANGO
Dear Mr. Lawrence:
The following is to confirm the terms of our offer of employment with TEAM
Communications Group, Inc. ("TEAM") to your client, Ms. Jane Sparango. The terms
are as follows:
1. Her title will be Vice President of Development and Production.
2. Her responsibilities will include development for the company in the
specific areas of light entertainment, reality and nonfiction
television. Furthermore, her responsibilities will include, but not be
limited to, the development of properties for specials, acquiring
existing or outside production material, and assistance in the sale and
placement of such television projects at the networks, cable systems and
syndicators and such other job related tasks that are assigned to her by
TEAM's management. Her services in these areas will be exclusive to
TEAM, with the exclusion of the series project known as "Adventure
Quest."
3. Term: Initial term, one (1) year, commencing November 9, 1998, with TEAM
to have an option for one additional year, such option to be
exercised no later than thirty (30) days prior to the expiration
of the first year.
4. Compensation:
Salary to be as follows:
From November 9, 1998 through February 12, 1999, at the salary
rate of $85,000 per year, in equal weekly installments on the
company's regularly scheduled pay period. From February 13,
1999, through the balance of the initial one year term, (and the
option term, if exercised) will be at the salary rate of
$100,000 per year in equal installments on the company's
regularly scheduled pay period;
5. She will further receive:
Stock options at the anniversary date of her employment each
year, at the discretion of the Board of Directors. Such stock
options will vest ratably over the subsequent course of
employment with terms no less favorable than granted to any
other employees of similar status.
<PAGE> 2
Ms. Jane Sporango
October 29, 1998
Page 2
6. Additional Compensation: Upon the completion, delivery and acceptance of
each project upon which she renders significant services, she will
receive a bonus determined as follows:
For each episode for a cable series: $250.00
For each episode for a syndicated series: $500.00
For each episode for a network (ABC, CBS, NBC, FOX or WB) series:
$1000.00
7. She will be provided with a computer with Internet access, a shared
assistant, office space, parking, reimbursement of all reasonable
pre-approved business expenses, two weeks vacation per twelve months of
employment and health insurance as it is provided to other comparable
executives. Any travel required would be pursuant to Company standard
policy for similar employee status and subject to pre-approval. It is
anticipated that she will attend those trade shows at which the Company
participates, which may include NATPE, MIP and/or MIPCOM. In the event
of multiple day out of town travel, she will be provided with a prepaid
airplane ticket, and a reasonable travel allowance advance.
8. Subject to third party approval, and content requirements (i.e., Canada)
her on-air credit for projects produced under her auspices will be
"Supervising Producer" for the first three (3) projects produced, and
then "Co-Executive Producer" for all projects produced thereafter, with
size and placement to be determined by TEAM.
9. Results and Proceeds:
All results and proceeds of her services to TEAM shall be deemed a "work
made for hire" and the sole, exclusive and absolute property of TEAM for
any and all purposes whatsoever in perpetuity.
10. Confidentiality:
She agrees that all proprietary information, trade secrets and internal
operations of TEAM, including but not limited to the terms and
conditions of this offer, shall remain confidential, except as necessity
arises to have this agreement reviewed by attorneys, accountants or
other professionals in the ordinary and usual course of business. She
also expressly agree that this confidentiality provision will survive
her employment, and continue to be binding upon her after her employment
with TEAM.
11. Termination for Cause:
TEAM expressly reserves the right to terminate her employment for
incompetence, intoxication, drug addiction, insubordination, and any
violation of any rule or regulation
<PAGE> 3
Ms. Jane Sporango
October 29, 1998
Page 3
that may be established from time to time for the conduct of TEAM's
employees, for any failure of hers to perform any agreement, duty or
obligation of her employment under this Agreement. If TEAM discharges
her pursuant to the provisions of this section or for any reason
referred to, TEAM shall have the right in its sole discretion to give
her four weeks notice, or four weeks severance pay. There will not be
any additional notice requirement or severance pay necessary if her
employment is terminated as a result of the expiration of the term of
her contract.
12. All other points not addressed herein shall be negotiated in good faith
at the appropriate time.
Please review the above and have your client indicate her understanding,
acceptance of, and agreement with all of the above terms and conditions by
signing the attached copy of this letter and returning it to me. This letter
will serve as our agreement until such time, if any, that it is replaced with a
more formal document incorporating the above and other usual and customary terms
and conditions.
Thank you.
Sincerely,
/s/ ERIC S. ELIAS
- -------------------------------------
Eric S. Elias
Business Affairs
ESE/ja
AGREED AND ACCEPTED:
/s/ JANE SPARANGO Dated:
- ------------------------------------- --------------------------
Jane Sparango
Social Security No.__________________
<PAGE> 1
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of January 1, 2000, (the "Effective Date"), by
and between TEAM COMMUNICATIONS GROUP, INC., a California corporation (herein
referred to as the "Company"), and you, DECLAN O'BRIEN.
In consideration of the mutual covenants, terms and conditions set forth
herein, you and the Company agree as follows:
1. The Company hereby employs you pursuant and subject to the terms,
conditions and provisions of this Agreement. You hereby accept such employment
and agree to render your services exclusively to the Company as provided herein,
where and when required by the Company (presently in Los Angeles, California),
all of which services shall be performed conscientiously and to the full extent
of your ability. You further agree to abide by all rules, regulations and
policies of the Company.
2. Your title and position with the Company shall be Senior Vice
President, Development and Production.
3. You shall report to the Company's chief executive officer, currently
Drew S. Levin. Any conflict between divisions of responsibility between you and
any other employee shall be resolved by the chief executive officer.
4. The services to be rendered by you hereunder shall include, without
limitation, all services customarily rendered by persons engaged in the same
capacity or in a similar capacity in the entertainment industry, and such other
services as may be requested by the Company from time to time hereunder. Your
services shall be exclusive to the Company during the Term of this Agreement.
5. The Term of your employment by the Company under this Agreement shall
commence as of the Effective Date and (unless earlier terminated pursuant to
this Agreement) shall continue thereafter through December 31, 2002 (the
"Term").
6. (a) As full consideration for all services to be rendered by you
pursuant hereto, and for all rights and interests herein granted by you to the
Company, and provided that you are not in breach or default of this Agreement
and that you have kept and performed all of your obligations hereunder, and
subject to the terms and conditions hereof, you shall be entitled to receive a
base salary in an amount equal to One Hundred Fifty Thousand Dollars ($150,000)
commencing on the Effective Date and continuing through December 31, 2000. From
January 1, 2001 through the end of the Term you shall be entitled to receive a
base salary in an amount equal to One Hundred Sixty Five Thousand Dollars
($165,000).
(b) Such compensation shall be paid in accordance with the
Company's normal payroll practices. The Company may make such deductions,
withholdings or payments from any sum payable to you pursuant to this Agreement
as are required by any applicable law, rule or regulation for taxes or similar
charges. Compensation payments made to you by the Company or
<PAGE> 2
any affiliate of the Company shall be deemed made pursuant to this Agreement and
any compensation paid to you from and after the Effective Date of this Agreement
shall be deemed to have been paid hereunder.
7. In addition to the base salary set forth in Paragraph 6, you shall be
eligible to receive:
(a) Such bonus compensation as the Company may elect to award to you in
the Company's sole and absolute discretion. Such bonus compensation is
guaranteed to be no less than Twenty Five Thousand Dollars ($25,000) for each
year under this contract. The minimum amount will be paid quarterly, payable
within the first ten (10) days of each quarter. Nothing in this Paragraph 8
shall require or otherwise obligate the Company to pay you a bonus beyond the
minimum amount of Twenty Five Thousand Dollars ($25,000) annually.
(b) 30,000 stock options with the exercise price at the current market
price on the date of approval by the Board of Directors. These stock options
will vest monthly at the rate of 10,000 per year, or pro rata portion thereof.
Such options shall have a five (5) year term commencing on the Effective Date
and shall be subject in all respects to the Team Communications Stock Option
Plan.
(c) Subject to third party approval, on-screen credit as "co-executive
producer" or next best available.
8. You represent and warrant that you are free to enter into the
Agreement and to grant the rights and interests to the Company that you purport
to grant thereunder and that there are no agreements or arrangements in effect,
whether written or oral, which could prevent you from rendering exclusive
services to the Company during the Term, and that you have not made and will not
make any commitment or do any act in conflict with the Agreement.
9. On the condition that you are not in breach or default of the
Agreement, the Company shall reimburse you for all of your reasonable
pre-approved expenses incurred while employed and performing your duties under
and in accordance with the terms and conditions of the Agreement, subject to
your full accounting therefor and your providing the Company with appropriate
documentation, including without limitation receipts, for all such expenses in
the manner required pursuant to Company's policies and procedures and the
Internal Revenue Code, and subject to the Company's prior approval. Furthermore,
the Company will provide you a monthly automobile allowance of Three Hundred
Fifty Dollars ($350) or an annual amount of Four Thousand Two Hundred Dollars
($4,200). This allowance will be considered additional compensation and shall be
paid along with your base compensation in accordance with the Company's normal
payroll practices.
10. You and the Company agree that the services to be rendered by you
pursuant to the Agreement, and the rights and interests granted by you to the
Company pursuant to the Agreement, are of a special, unique, extraordinary and
intellectual character, which gives them a peculiar value, the loss of which
cannot be reasonably or adequately compensated in damages in any action at law,
and that a breach by you of any of the terms of the Agreement will cause the
Company great and irreparable injury and damage. You hereby expressly agree that
the Company
2
<PAGE> 3
shall be entitled to the remedies of injunction, specific performance and other
equitable relief to prevent a breach of the Agreement by you. This provision
shall not, however, be construed as a waiver of any of the rights which the
Company may have hereunder, at law, for damages, or otherwise.
11. (a) In the event that (i) you become incapacitated or prevented from
fully rendering your services hereunder by reason of your illness, mental,
physical or other disability, and such incapacity or inability shall continue
for sixty (60) consecutive days during any period of the Term; or (ii) the
Company's normal operations are prevented or interrupted because of force
majeure events or any other cause beyond the Company's sole control (e.g., any
labor dispute, strike, fire, war, civil disturbance, act of God, governmental
action or proceeding or any event sufficient to excuse performance as a matter
of law), and such prevention or interruption shall continue for sixty (60)
consecutive days during any period of the Term; then the Company shall have the
right to terminate your employment under the Agreement immediately upon the
expiration of said six (6)-week period without any further liability or
obligation to you hereunder except for any accrued compensation payable to you
as of the date of such termination (such a termination herein referred to as a
termination "For Disability or Force Majeure").
(b) In the event you, at any time, breach any provision of the
Agreement, fail, refuse or neglect (other than by reason of any above-referenced
disability or incapacity) to perform fully your obligations hereunder, or engage
or participate in any serious or willful misconduct in connection with any of
your obligations under the Agreement, the Company shall have the right to
terminate your employment under the Agreement at any time thereafter (such a
termination herein referred to as a termination "For Cause"). In the event of
any termination For Cause, you shall be entitled to receive only accrued
compensation payable to you as of the date of such termination, without regard
to any other compensation, benefits or perquisites.
(c) In addition to the right to terminate For Cause or For
Disability or Force Majeure, the Company shall have the right to terminate your
employment under the Agreement at any time for any reason, upon thirty (30)
days' notice to you (such a termination herein referred to as a termination
"Without Cause"); provided, however, that if termination of your employment is a
termination Without Cause, you shall continue to be entitled only to your base
annual compensation under Paragraph 6 of the Agreement until the end of the
Term.
(d) Any termination under this Paragraph 12 shall not be deemed
to be a waiver by the Company of any of the Company's rights or remedies
otherwise available to the Company hereunder, at law, in equity or otherwise.
12. You shall not enter into any contracts or make any commitments on
behalf of the Company outside of the ordinary course of your duties and services
in the ordinary course of the Company's business nor for an amount in excess of
such limits as may be specified by the Company without the prior written
approval and consent of the Company in accordance with the standard practices
and operating procedures thereof.
13. During the Term hereof you shall be entitled to:
3
<PAGE> 4
(a) The Company's basic health and life insurance benefits
generally available to other senior executives of the Company, including any
applicable major medical insurance benefits, subject to compliance with
provisions relating to eligibility or qualification; and
(b) During the first year of the Term you will be entitled to
three (3) weeks vacation, and four (4) weeks per year thereafter, with pay, and
normal and customary holidays in accordance with the Company's policy for
vacations and holidays for senior executives of the Company.
(c) To participate in any Company retirement or similar benefit
plan available to Company's senior executives, including, without limitation,
the Company's IRA plan, subject to all terms and conditions of any such plan.
For the purpose of determining your length of service with the Company with
respect to the applicable provisions of any benefit to which you may be entitled
hereunder (except with respect to stock options and the vesting provisions
thereof), such determination shall include your previous term of employment with
the Company from April 13, 1998.
14. The Company may secure in its own name or otherwise, and at its own
expense, life, health, accident and other insurance covering you or you and
others, and you shall not have any right, title or interest in or to such
insurance other than as expressly provided herein. You agree to assist the
Company in procuring such insurance by submitting to the usual and customary
medical and other examinations to be conducted by such physician(s) as the
Company or such insurance company may designate and by signing such applications
and other written instruments as may be required by the insurance companies to
which application is made for such insurance.
15. During the Term, you shall not directly or indirectly compete or
interfere with the actual or contemplated businesses or activities of the
Company. In this regard, during the Term, you shall not, without the prior
written consent of the Company, become an officer, employee, consultant, agent,
partner (other than a limited partner) or director of any other business
enterprise engaged in any of the actual or contemplated businesses or activities
of the Company.
16. You agree that you will not, during the Term or thereafter, disclose
to any other person or entity the terms or conditions of the Agreement
(including the financial terms thereof) and shall not directly or indirectly
issue or permit the issuance of any publicity whatsoever regarding, or grant any
interview or make any statements concerning, the Company's engagement of you
hereunder without the prior written consent of the Company.
17. The primary place of your employment under the Agreement shall be
the Los Angeles Metropolitan Area. You shall make such trips away from the
County of Los Angeles as requested by the Company or as may be required for the
conduct of your duties under the Agreement.
18. The Company hereby represents and warrants that it has obtained all
approvals necessary to enter into this Agreement.
4
<PAGE> 5
19. The Agreement shall be governed by, and construed in accordance
with, the laws of the State of California applicable to contracts entered into
and fully performed therein.
20. The Company shall have the right to assign or otherwise delegate the
Agreement or any of its rights or obligations thereunder, in whole or in part,
to any person or entity. Without limiting the generality of the foregoing, the
Company shall have the right to license, delegate, lend or otherwise transfer
any of its rights to any or all of your services under the Agreement to any
person, company or other entity controlling, controlled by, or under common
control with the Company, and you agree to render such services required under
the Agreement for such person, company or other entity as part of the services
to be rendered under the Agreement for no additional compensation other than as
provided for in this Agreement. You shall not have any right to assign, delegate
or otherwise transfer any duty or obligation to be performed by you hereunder to
any person or entity, nor to assign or transfer any rights hereunder.
21. All notices which either party is required or may desire to give to
the other party under or in connection with the Agreement shall be sufficient if
given by addressing the same to the respective party at the address set forth
below or at such other place as may be designated by the respective party:
To Company: Team Communications Group, Inc.
12300 Wilshire Boulevard Suite 400
Los Angeles, California 90025
Attention: Drew Levin
To You: Declan O'Brien
922 E. Olive Avenue
Burbank CA 91501
When notices addressed as required by this Paragraph 21 shall be hand delivered,
telexed, or deposited, postage prepaid, registered or certified mail, in the
United States mail, or delivered to a telegraph office, toll prepaid, the
Company or you, as appropriate, shall be deemed to have delivered such notice.
22. If the compensation provided by the Agreement shall exceed the
amount permitted by any present or future law or governmental order or
regulation, such stated compensation shall be reduced, while such limitation is
in effect, to the amount which is so permitted. The payment of such reduced
compensation shall be deemed to constitute full performance by the Company of
its obligations hereunder with respect to compensation for such period;
provided, however, that the Company shall pay you the aggregate amount of such
reduction if and when such payment becomes permissible at law.
23. You agree to execute and deliver to the Company such further
documents and instruments as the Company may desire to further evidence,
effectuate or protect the Company's rights hereunder. The Agreement may be
modified only by a written instrument duly executed by each of the parties
thereto. No person has any authority on behalf of the Company to make any
5
<PAGE> 6
representation or promise not set forth in the Agreement, and you hereby
represent and warrant that the Agreement has not been executed in reliance upon
any representation or promise except those contained therein. No waiver by the
Company of any default or other breach of the Agreement shall be deemed to be a
waiver of any preceding or succeeding breach or default.
24. Concurrently with your execution and delivery to Company of this
Agreement, you shall execute and deliver to the Company an Employee
Confidentiality Agreement in the form of Exhibit A attached hereto.
6
<PAGE> 7
25. This Agreement supersedes all, prior or contemporaneous agreements,
whether oral or written, between the parties hereto concerning the subject
matter hereof, and constitutes the valid, binding and entire agreement between
the parties with respect thereto, enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TEAM COMMUNICATIONS GROUP, INC.
By /S/ DREW LEVIN
----------------------------------
Drew Levin, Chairman and CEO
ACCEPTED AND AGREED TO:
/S/ DECLAN O'BRIEN
- ------------------------------
Declan O'Brien
Social Security Number:
7
<PAGE> 8
EXHIBIT A
EMPLOYEE CONFIDENTIALITY AGREEMENT
In consideration of my employment, or my continued employment, as
the case may be, by Team Communications Group, Inc., or by any direct or
indirect subsidiary or affiliate of Team Communications Group, Inc. (such
employer for the purposes of this Employee Confidentiality Agreement being
hereinafter referred to as the "Company"), I agree with the Company as follows:
As long as I shall remain in the employ of the Company I shall
devote my best efforts and ability to the service of the Company in my
employment capacity, as the Company shall from time to time direct, and I shall
perform my duties faithfully and diligently. Further, I shall abide by all
rules, regulations and policies of the Company (including without limitation
those contained in the Company's current employee manual as it may hereafter be
modified, supplemented or replaced), and I acknowledge that I am familiar with
the same.
I shall not, during my employment by the Company or thereafter,
use or disclose to others without the prior written consent of the Company, any
trade or business secrets, secret "know-how", confidential, secret, technical,
financial or proprietary information or other nonpublic information relative to
the business or activities of the Company, obtained by me while in the employ of
the Company or otherwise. Upon leaving the employ of the Company, I shall not
take with me any confidential, secret, technical, financial or proprietary data,
drawings, documents or information obtained by me as the result of my
employment, or any reproductions thereof. All such items and all copies thereof,
including without limitation all memoranda, notes, records and other documents
related to the actual or contemplated business or activities of the Company that
were made or compiled by me, or made available to me during the term of my
employment by the Company, shall be and remain the Company's property, and I
shall surrender the same to the Company on the termination of my employment by
the Company, or at any other time on request.
I agree that the Company shall be entitled to injunctive or other
appropriate equitable relief to prevent or remedy my proposed, anticipatory or
actual breach of the terms of this agreement including, without limitation, the
disclosure of any information, data, documents or other materials covered by the
terms of this agreement.
This agreement shall inure to the benefit of the Company, its
subsidiaries, affiliates, allied companies, successors and assigns or the
nominees of the Company; and I specifically agree to execute any and all
documents considered necessary or desirable to assign, transfer, sustain or
maintain inventions, discoveries, applications, copyrights, trademarks or
patents, both in the United States and in foreign countries.
IN WITNESS WHEREOF, I have hereunto signed my name as of the date
of the Employment Agreement to which this document is attached and effective as
of the Effective Date (as defined in the Employment Agreement).
/S/ DECLAN O'BRIEN
----------------------------
Declan O'Brien
ACCEPTED:
Team Communications Group, Inc.
/S/ DREW LEVIN
- -------------------------------
By: Drew Levin
Its: Chairman and CEO
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 21,088,700
<SECURITIES> 0
<RECEIVABLES> 19,261,600
<ALLOWANCES> 831,000
<INVENTORY> 27,770,600
<CURRENT-ASSETS> 40,485,500
<PP&E> 652,300
<DEPRECIATION> 56,600
<TOTAL-ASSETS> 69,900,000
<CURRENT-LIABILITIES> 16,620,200
<BONDS> 153,800
0
0
<COMMON> 1,000
<OTHER-SE> 53,278,800
<TOTAL-LIABILITY-AND-EQUITY> 69,900,000
<SALES> 24,062,000
<TOTAL-REVENUES> 24,062,000
<CGS> 10,557,100
<TOTAL-COSTS> 18,873,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 662,100
<INTEREST-EXPENSE> 817,600
<INCOME-PRETAX> 4,467,000
<INCOME-TAX> 2,055,100
<INCOME-CONTINUING> 2,411,900
<DISCONTINUED> 0
<EXTRAORDINARY> 620,700
<CHANGES> 0
<NET-INCOME> 1,791,200
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.31
</TABLE>
