Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2/A Form Sb-2, Amendment #1 69 408K
2: EX-10.7 Interpublic-Term Co-Financing Agreement 2 11K
3: EX-10.8 Miramax Term Sheet 11 30K
4: EX-11 Computation of Per Share Earnings 1 7K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1997
REGISTRATION NUMBER 333-26307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEAM COMMUNICATIONS GROUP, INC.
EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN THE CHARTER
[Download Table]
CALIFORNIA 3652 95-5419215
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------
TEAM COMMUNICATIONS GROUP, INC.
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(310) 442-3500
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES.)
------------------------
DREW S. LEVIN
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(310) 442-3500
(NAMES, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
[Download Table]
BRUCE P. VANN, ESQ. THOMAS J. POLETTI, ESQ.
KELLY, LYTTON, MINTZ & VANN KATHERINE J. BLAIR, ESQ.
1900 AVENUE OF THE STARS, SUITE 1450 FRESHMAN, MARANTZ, ORLANSKI, COOPER & KLEIN
LOS ANGELES, CALIFORNIA 90067 9100 WILSHIRE BLVD., 8E
TELEPHONE NO: (310) 277-5333 BEVERLY HILLS, CALIFORNIA
FACSIMILE NO: (310) 277-5953 TELEPHONE NO: (310) 273-1870
FACSIMILE NO: (310) 274-8357
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: as soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
[Enlarge/Download Table]
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED PER SHARE(1) PRICE(1) FEE
--------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value................... 1,495,000(2) $ 7.50 $ 11,212,500 $3,700
Common Stock Underlying Warrants............. 193,870 $ 1.00 $ 193,870 $ 64
Underwriter's Warrant........................ 1 $ 5.00 $ 5 --
Common Stock Underlying Underwriter's
Warrant.................................... 130,000 $ 9.00 $ 1,170,000 $ 386
------------
TOTAL........................................ $4,150*
==========================================================================================================================
* Previously paid.
(1) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
(2) Includes 195,000 shares which may be purchased by the Underwriter to cover
over-allotments, if any.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED MAY 14, 1997
TEAM COMMUNICATIONS GROUP, INC.
1,300,000 SHARES
Team Communications Group, Inc. (the "Company") hereby offers 1,300,000
shares of Common Stock, no par value, ("Common Stock"). Prior to this offering
(the "Offering"), there has been no public market for the Common Stock of the
Company, and there can be no assurance that an active market will develop. The
offering price is expected to be between $6.50 and $7.50 per share. The offering
price of the Common Stock has been determined by negotiation between the Company
and H.J. Meyers & Co., Inc., (the "Underwriter"), and is not necessarily related
to the Company's asset value or any other established criterion of value. For
the method of determining the initial offering price of the Common Stock, see
"Risk Factors" and "Underwriting." Application is being made to have the Common
Stock approved for listing on the Nasdaq SmallCap Market under the symbol
"TMTV."
Simultaneously with the Offering made hereby, the Company is registering
shares of Common Stock issuable upon exercise of certain outstanding warrants
that may be resold from time to time in the future by certain securityholders
(the "Selling Securityholders"). The Company has covenanted to use its best
efforts to keep the Registration Statement of which this Prospectus is a part
effective in order to permit such resales, and it is expected that such resales
will be made from time to time in the over-the-counter market or otherwise. Such
resales are subject to prospectus delivery and other requirements of the
Securities Act of 1933, as amended. The Company will not receive any proceeds
from the market sales of the shares of Common Stock issuable upon exercise of
such warrants other than proceeds relating to the exercise price of such
warrants. See "Concurrent Offering by Selling Securityholders."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[Enlarge/Download Table]
====================================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
----------------------------------------------------------------------------------------------------
Per Share...................................... $ $ $
----------------------------------------------------------------------------------------------------
Total(3)....................................... $ $ $
====================================================================================================
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $ (or $ if
the Underwriter's over-allotment option described in footnote (3) is
exercised in full) and (ii) a warrant to purchase up to 130,000 shares of
Common Stock at $ per share, exercisable over a period of four years,
commencing one year from the date of this Prospectus (the "Underwriter's
Warrant"). In addition, the Company has agreed to indemnify the Underwriter
against certain civil liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $638,000, including the Underwriter's non-accountable expense allowance.
(3) The Company and a shareholder of the Company (the "Selling Shareholder")
have granted the Underwriter an option (together, the "Underwriter's
over-allotment option"), exercisable within 30 business days of the date of
this Prospectus, to purchase up to 195,000 additional shares of Common Stock
on the same terms and conditions as set forth above to cover
over-allotments, if any. If all such additional shares of Common Stock are
purchased, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be increased to $ , $ and $ , respectively,
and the proceeds to the Selling Shareholder will be $ . See
"Underwriting" and "Principal Shareholders."
The shares of Common Stock offered hereby are offered on a "firm commitment"
basis by the Underwriter when, and if delivered to and accepted by the
Underwriter, and subject to prior sale, withdrawal or cancellation of the offer
without notice. It is expected that delivery of the certificates representing
the shares of Common Stock will be made at the offices of H.J. Meyers & Co.,
Inc., 1895 Mt. Hope Avenue, Rochester, New York 14620 on or about .
------------------------
H.J. MEYERS & CO., INC.
The date of this Prospectus is , 1997.
PICTURES
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
The Company intends to furnish its shareholders with annual reports containing
audited financial statements with a report thereon by independent accountants
and quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data appearing
elsewhere in the Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. This Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
Since its formation in February 1995, Team Communications Group, Inc. (the
"Company") has focused its efforts on the development and production of a
variety of television programming, including series, specials and
made-for-television movies for exploitation in television markets in the
domestic and international market. The Company derives substantially all of its
revenues from production fees earned in connection with Company-originated
productions, distribution fees from the exploitation of product acquired from
others, and the exploitation of Company-owned programming.
The Company's production activities have focused on (i) family programming
produced for U.S. cable and network television channels such as The Discovery
Channel, The Family Channel, USA Network, and the Public Broadcasting System
("PBS"), 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. In addition, the Company helped develop a reality based weekly and
five-day per week ("strip") syndicated program, called "Strange Universe
Tonight," which United/Chris-Craft television stations and Rysher Entertainment
are co-producing in association with the Company. This series is currently
airing on United/Chris-Craft stations and a commitment for the production of a
second 13-week run (65 episodes) has been received from United/ Chris-Craft. The
Company has also recently completed the production of a series of 22 half hour
episodes entitled "Amazing Tails," a 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
("Interpublic"). All episodes of this series have been produced and delivered to
Interpublic, and the series will air on The Discovery Channel in 1997. The
Company also has entered into a joint venture template with Interpublic for the
production of a minimum of four pilots over the next year for non-fiction and
light entertainment programming. The Company maintains a drama production unit
which is developing and will produce movies-of-the-week for exhibition on
network television, cable or ad hoc networks of independent stations which
sometimes form to air special programming.
The Company has acquired the rights to produce, and is actively developing,
a weekly dramatic television series based on the motion picture "Total Recall,"
which in 1990 grossed over $320 million in worldwide box office receipts. The
Company has entered into an agreement with Alliance Production Ltd.
("Alliance"), a leading Canadian production company, pursuant to which Alliance,
subject to certain conditions, will co-produce and co-finance the series with
the Company. The Company has also reached an agreement in principal, subject to
the execution of a definitive written contract, with PolyGram Television, L.L.C.
("PolyGram"), pursuant to which PolyGram will co-finance and acquire United
States rights to the TV series. Miramax Film Corp. ("Miramax"), which acquired
the theatrical sequel rights to "Total Recall", has also acquired home video
rights to the series. By co-producing the series with PolyGram, Miramax and
Alliance, in addition to reducing the Company's financial exposure, the Company
hopes to qualify the production for certain Canadian co-production and tax
benefits. Alliance will act as the foreign sales agent for the series. It is the
intention of the parties that each episode will be produced for approximately
$1,000,000 per episode, with the Company receiving a producing fee of $25,000
per episode. The Company also owns all related merchandising rights relating to
the television series to be produced, and expects to actively exploit these
rights. The Company expects to produce 22 one-hour episodes for this series in
1998, and Ron Shusett, the writer of the original film as well as the feature
film "Alien," has written the basic treatment (i.e., story outline) for the
pilot. The Company is negotiating with Mr. Shusett regarding his potential
participation as the lead writer for the series.
3
The Company is also developing a wide variety of family and reality-based
programing including "Capture" focusing on aerial rescues of endangered species:
"K-9 Conquest," a pet game show and "Amazing Kids," an entertaining look at kids
through the eyes of kids. The Company is also developing a new children's
series, tentatively entitled "LoCoMoTioN," which the Company hopes to place on
PBS during the third quarter of 1997. Although no assurance can be given that
the Company will obtain a PBS timeslot, the Company is currently searching for a
female celebrity to co-host this series, which will introduce toddlers to dance
and exercise through contemporary urban music.
The Company also maintains an international sales force and currently has
distribution rights to over 300 half-hours of family and documentary series and
specials.
The global television market has experienced substantial growth since 1985
and the Company believes this market will continue to experience substantial
growth during the foreseeable future as state television monopolies end and
commercial broadcast outlets expand to provide increasingly varied and
specialized content to the consumer. In the United States alone, 60 new
television channels have commenced operation since 1985. Such growth has led to
the development and commercialization of specialized channels and distribution
outlets, which, in turn, has led to increased demand for top quality and cost
efficient programming in many categories and subjects.
The Company's operating strategy is to fulfill the demand for programming
by (i) expanding the activities of each of its operating divisions, (ii)
implementing strategic acquisitions of libraries and smaller production
companies and (iii) entering into joint ventures with, or acquisitions of,
unaffiliated third parties which are intended to lower the Company's financial
risk as it expands into related activities, such as direct marketing and
interactive programming.
The Company believes that there are business opportunities to acquire other
emerging companies, as well as more established production and distribution
entities, which are engaged in programming development, production, distribution
and other related media investments. While the number of distribution channels
has been increasing, the Company believes there are economic incentives,
including economies of scale and depth of financial and programming capability,
for programmers and distribution entities to consolidate. No assurance can be
given that the Company will be successful in obtaining the financing necessary
for these acquisitions or that the acquisitions will prove financially
successful.
The Company was incorporated under the laws of the State of California in
February 1995. The Company's executive offices are located at 12300 Wilshire
Boulevard, Suite 400, Los Angeles, California 90025, and its telephone number is
(310) 442-3500.
------------------------
NOTICE TO CALIFORNIA INVESTORS
Each purchaser of shares of Common Stock in California must meet one of the
following suitability standards: (i) a liquid net worth (excluding home,
furnishings and automobiles) of $250,000 or more and gross annual income during
1996, and estimated during 1997, of $65,000 or more from all sources or (ii) a
liquid net worth (excluding home, furnishing and automobiles) of $500,000 or
more. Each California resident purchasing shares of Common Stock offered hereby
will be required to execute a representation that it comes within one of the
aforementioned categories.
4
SUMMARY OF FINANCIAL INFORMATION
[Enlarge/Download Table]
FROM INCEPTION
(FEBRUARY 1995)
THROUGH YEAR ENDED
STATEMENT OF OPERATIONS DATA: DECEMBER 31, 1995 DECEMBER 31, 1996
------------------ -------------------
Revenues........................................ $1,245,300 $ 6,116,700
Cost of revenues................................ 946,900 3,021,700
General and administrative expenses............. 1,288,200 2,323,800
Interest expense................................ 42,700 582,700
Interest income................................. -- 58,300
Other income.................................... -- 90,200
----------- ----------
Provision for income taxes...................... -- --
----------- ----------
Net income (loss)............................... $ (1,032,500) $337,000
Net income (loss) per share(1).................. ($.63) $.24
Weighted average number of shares
outstanding(1)................................ 1,640,280 1,640,280
[Enlarge/Download Table]
DECEMBER 31, 1996
------------------------------------------------
BALANCE SHEET DATA: ACTUAL PRO FORMA(2) AS ADJUSTED(3)
---------- ------------- ---------------
Total assets............................... $7,726,800 $ 8,282,635 $12,712,985
Long-term obligations...................... $ 657,700 $ 1,233,020 $ 0
Total liabilities.......................... $7,573,000 $ 7,961,520 $ 5,350,916
Shareholders' equity....................... $ 153,800 $ 321,115 $ 7,362,069
---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for information
regarding the calculation of net income (loss) per share.
(2) Reflects (i) the sale of $969,350 of bridge notes between January 1997 and
April 1997 and commissions and costs of $226,015 associated therewith, (ii)
repayment of $187,500 in respect of the "Total Recall" obligation in
February 1997 and (iii) an aggregate valuation of $393,330 ascribed to the
warrants issued in connection with the aforementioned bridge notes.
(3) As adjusted to (i) reflect the estimated net proceeds of this Offering,
based upon an assumed initial public offering price of $7.00 per share,
after deducting Underwriter's discounts and commissions and estimated
offering expenses, (ii) the conversion of a note (the "Conversion Note") in
the principal amount of $322,000 into 105,000 shares of Common Stock upon
the closing of this Offering, (iii) interest which accrued subsequent to the
period ended December 31, 1996 from the debt to be extinguished from this
Offering of $121,716, and (iv) an extraordinary loss (the "Extraordinary
Loss") of $711,330 to be incurred upon the closing of this Offering upon the
extinguishment of certain indebtedness with a portion of the proceeds of
this Offering. See "Use of Proceeds," "Capitalization" and "Description of
Securities."
THE OFFERING
Common Stock Offered by the
Company............................. 1,300,000 shares
Common Stock Outstanding after this
Offering............................ 2,631,092 shares
Use of Proceeds..................... Repayment of loans, acquisition of
foreign distribution rights to made for
television movies, acquisition of
foreign distribution rights to existing
television series and corporate
overhead and working capital, including
salaries and wages.
Proposed Nasdaq SmallCap Symbol..... "TMTV"
5
RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BELOW.
------------------------
Except as otherwise specified, all information in this Prospectus (i)
assumes no exercise of the Underwriter's over-allotment option, the
Underwriter's Warrant or stock options outstanding or reserved for issuance
under the Company's stock option plans, (ii) assumes no conversion of
outstanding convertible notes except the Conversion Note and (iii) gives effect
to a 2.2776-for-1 reverse stock split which occurred in January 1997 and a
1.0277-for-1 reverse stock split to be effectuated prior to the closing of this
Offering. See "Management," "Description of Securities" and "Underwriting."
6
RISK FACTORS
In addition to the other information in this Prospectus, each prospective
investor should carefully consider the following factors in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby. No investor should participate in the Offering unless such investor can
afford a complete loss of his or her investment. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual 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 elsewhere in this Prospectus.
GOING CONCERN ASSUMPTION. The Company's independent accountants' report on
the Company's financial statements for the fiscal year ended December 31, 1995
and December 31, 1996 contains an explanatory paragraph indicating that the
Company's losses raise substantial doubt as to the Company's ability to continue
as a going concern. There can be no assurance that future financial statements
will not include a similar explanatory paragraph if the Company is unable to
raise sufficient funds or generate sufficient cash flow from operations to cover
the cost of its operations. The existence of such an explanatory paragraph,
which will state that there exists doubt as to the Company's ability to operate
as a going concern, may have a material adverse effect on the Company's
relationship with third parties who are concerned about the ability of the
Company to complete projects that it is contractually required to develop or
produce, and could also impact the ability of the Company to complete future
financings.
LIMITED OPERATING HISTORY; LIQUIDITY DEFICIT. The Company, which was formed
in February 1995, has a limited operating history. Accordingly, prospective
purchasers hereunder have limited information upon which an evaluation of the
Company's business and prospects can be based. Although the Company has
generated profitable operations during the fiscal year ended December 31, 1996,
it has experienced a negative cash flow from operations during such period. No
assurance can be given that the Company will continue to be profitable in the
foreseeable future or that it will be able to generate positive cash flow from
its operations. The Company will be unable to implement its business plan
without the proceeds of this Offering. Implementation of the Company's business
plan is subject to all the risks inherent in the establishment of a new business
enterprise, including potential operating losses. In addition, the Company will
be subject to certain factors affecting the entertainment industry generally,
such as sensitivity to general economic conditions, critical acceptance of its
products and intense competition. The likelihood of the success of the Company
must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the formation
of a new business; accordingly a purchase of the shares of Common Stock offered
hereby should be considered to be a highly speculative investment.
As of December 31, 1996, the Company had an accumulated deficit of
($695,500) and had a liquidity deficit of ($3,488,800), such deficit being
defined as (i) cash and cash equivalents plus accounts receivables (net), and
the amount due from officer less (ii) accounts payable, accrued expenses and
other liabilities, deferred revenue, accrued participations, notes payable, due
to officer, shareholder loan and note payable, and accrued interest.
ADDITIONAL CAPITAL REQUIREMENTS; ENCUMBRANCE OF ASSETS; NO ASSURANCE OF
FUTURE FINANCINGS. The entertainment industry is highly capital intensive.
Management believes that if the Offering is completed, the net proceeds thereof,
together with projected cash flow from operations, will be sufficient to permit
the Company to conduct its operations as currently contemplated for the next 24
months. Such belief is based upon certain assumptions, including assumptions
regarding (i) anticipated level of operations, (ii) the sales of the Company's
original and acquired programming and (iii) anticipated expenditures required
for the development and production of additional programming, including "Total
Recall." However, if anticipated operations require additional financing, or the
anticipated level of sales does not materialize, the Company will seek
additional financing during this 24 month period. There can be no assurance that
any additional financing will be available on acceptable terms, or at all, when
required by the Company. Moreover, if additional financing is not available, the
Company could be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to
7
investors purchasing the shares of Common Stock offered hereby. Certain of these
transactions would require the approval of the Underwriter if they occurred
within 24 months from the effective date of this Offering. The Company has in
the past, and may continue to experience, operational difficulties or delays in
the development or production due to working capital constraints. Any such
difficulties or delays could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Going Concern Assumption," "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 12 of Notes to Consolidated Financial Statements.
At the conclusion of this Offering, the Company will have approximately
$2,337,500 of indebtedness, which indebtedness is secured by substantially all
of the assets of the Company. The Company intends to enter into a secured line
of credit (the "Proposed Bank Facility") with a third party bank, which line of
credit would permit borrowings pursuant to a specified borrowing base made up of
the value of the library, accounts receivable and other assets. The Company
currently intends to repay the $2,337,500 of indebtedness remaining after the
Offering with proceeds from the Proposed Bank Facility. No assurance can be
given that the Proposed Bank Facility will be entered into or that the Company
will be able to use proceeds from such facility as indicated herein.
COMPETITION. The entertainment industry is highly competitive. The Company
competes 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 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 the Company's present and future competitors are
organizations of substantially larger size and capacity, with far greater
financial, human and other resources and longer operating histories than the
Company. 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 and financing.
DEPENDENCE ON EMERGING MARKETS. A substantial portion of the Company's
revenues to date have been, and for the foreseeable future may be, derived from
the sale or license of its products to domestic television or cable networks
such as the WB Network, UPN, The Discovery Channel and The Learning Channel
which have been recently established, (i.e., not the traditional free network
markets of CBS, NBC, ABC and Fox) and the growing specialized pay market, as
well as the foreign television networks. The Company's success will depend in
large part upon the development and expansion of these markets. The Company
cannot predict the size of such markets or the rate at which they will grow. If
the television market serviced by the Company fails to grow, grows more slowly
than anticipated, or becomes saturated with competitors, the Company's business,
financial condition, and results of operations would be materially adversely
affected.
ACCOUNTS RECEIVABLE; RELIANCE ON SIGNIFICANT CUSTOMERS. Revenues in fiscal
1996 included approximately $680,000 recognized from the license and related
guaranty from The Gemini Corporation and Mel Giniger and Associates
(collectively, the "Giniger Entities"), relating to the Company's current
library and certain future product for Latin America and Europe. The revenues
attributable to the guaranty (the "Giniger Guaranty") were 11% of the applicable
revenues for the year ended December 31, 1996. Should the Company be unable to
collect on the portion of the guaranty which was recognized in such period the
Company would be forced to incur a significant write-down of its accounts
receivable with respect to such account. Alliance, which licenses a variety of
product from the Company's library for Canada, and King Records Company, Ltd.,
which acquired various library products for Japan, are obligated to pay the
Company the sums of $764,100 and $996,300 respectively, or 12% and 16% of
revenues, respectively, for fiscal 1996.
8
Revenues in fiscal 1996 also included the license from Interpublic of
$1,441,700 and the license from Eurolink of $618,400, both such licenses
relating to the series "Amazing Tails." Revenues attributed to the Interpublic
and Eurolink agreements respecting "Amazing Tails" constituted 24% and 10%,
respectively, of revenues during the year ended December 31, 1996.
Neither the revenues relating to the Giniger Guaranty nor the revenues
related to the production of "Amazing Tails" should be considered to be
recurring revenues. If the Company does not produce a series in fiscal 1997, or
obtain other significant foreign sales, the Company's revenues will be
materially reduced.
PRODUCTION RISKS. There can be no assurance that once the Company commits
to fund the production of a series licensed to a network, the network will order
and exhibit a sufficient number of episodes to enable the Company to syndicate
the series. Typically, at least 65 episodes of a series must be produced for it
to be "stripped" or syndicated in the daily re-run market. Networks generally
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. In that event, the financial
condition of the Company could be materially and adversely affected. Similar
risks apply even if a series is produced for a non-network medium. See
"Business -- Operations" for a discussion of the financing of series and how
deficits are potentially recouped. In addition, for the fiscal year ended
December 31, 1996, the Company incurred approximately $1,977,000 in development
costs associated with projects it is currently developing but which have not
been set for principal photography. See "Risk Factors -- Development Costs" for
a discussion of the potential impact if such costs were to be written off or
otherwise amortized on an accelerated basis.
FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and results of
operations are significantly dependent upon the timing and success of the
television programming it distributes, which cannot be predicated with
certainty. Revenues may not be recognized for any particular program until such
program has been delivered to the licensee and is available (i.e., there are no
holdbacks) for exploitation in the market it has been licensed for. Production
delays may impact the timing of when revenues may be reported under generally
accepted accounting principles. Moreover, the sale of existing programming is
heavily dependent upon the occurrence of major selling markets, the most
important of which is MIPCOM in the fourth quarter. Finally, production
commitments are typically obtained from networks in the spring (second) quarter,
although production activity and delivery may not occur until subsequent
periods. As a result of the foregoing, the Company may experience significant
quarterly variations in its operations, and results in any particular quarter
may not be indicative of results in subsequent periods.
SPECULATIVE NATURE OF ENTERTAINMENT BUSINESS. Substantially all of the
Company's revenues are derived from the production and distribution of its
television series and made-for-television features. The entertainment industry
in general, and the development, production and distribution of television
programs, in particular, is highly speculative and involves a substantial degree
of risk. Since each project is an individual artistic work and its commercial
success is primarily determined by audience reaction, which is volatile and
unpredictable, there can be no assurance as to the economic success of any
entertainment property. Even if a production is a critical or artistic success,
there is no assurance that it will generate sufficient audience acceptance.
DEPENDENCE UPON KEY PERSONNEL. The Company is, and will be, heavily
dependent on the services of Drew S. Levin, its Chairman of the Board and
President. The loss of the services of Mr. Levin for any substantial length of
time would materially adversely affect the Company's results of operations and
financial condition. Mr. Levin is party to an employment agreement with the
Company which expires in the year 2002. See "Management -- Employment
Agreements." The Company has obtained a "key-man" insurance policy in respect of
Mr. Levin in the amount of $1,000,000.
In addition, the Company is highly dependent upon its ability to attract
and retain highly qualified personnel. Competition for such personnel is
intense. There can be no assurance that persons having the requisite skills and
experience will be available on terms acceptable to the Company or at all.
9
ABILITY TO MANAGE GROWTH. Subject to obtaining sufficient financing, the
Company intends to pursue a strategy which management believes may result in
rapid growth. As the Company's anticipated development, production and
distribution activities increase, it is essential that the Company maintain
effective controls and procedures regarding critical accounting and budgeting
areas, as well as obtain and/or retain experienced personnel. There can be no
assurance that the Company will be able to attract qualified personnel or
successfully manage such expanded operations.
DEVELOPMENT COSTS. Included in the Company's assets as of December 31,
1996, are approximately $1,977,000 in television program costs in respect of
projects which the Company is developing but which have not been set for
principal photography. Approximately $1,200,000 of this amount relates to the
acquisition of the rights to produce a television series based on the feature
film "Total Recall" and approximately $500,000 relates to expenditures in
respect of "LoCoMoTioN." The Company intends, consistent with the standards set
by the Financial Accounting Standards Board, including Statement of Financial
Accounting Standards ("SFAS") No. 53, to write off the costs of all development
projects when they are abandoned or, even if still being developed, if they have
not been set for principal photography within three years of their initial
development activity. In the event the Company is unable to produce either
"Total Recall" or "LoCoMoTioN," the Company would incur a significant write-down
with respect to the development costs of such projects, which, in turn, may
adversely effect ongoing financing activities.
REPAYMENT OF INSIDER DEBT; PROCEEDS OF OFFERING TO BENEFIT AFFILIATES OR
SHAREHOLDERS. Upon the closing of this Offering, a non-management shareholder of
the Company will receive approximately $250,000 for repayment of indebtedness.
Concurrently with, or shortly after the closing of this Offering, other
shareholders are also anticipated to receive $1,490,000 to eliminate all other
shareholder debt, such amounts to be obtained from the Proposed Bank Facility.
See "Use of Proceeds" and "Certain Transactions."
PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER
PROVISIONS. Certain provisions of the Company's Articles of Incorporation and
Bylaws and certain other contractual provisions could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire control of the Company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. Certain of these provisions allow the
Company to issue preferred stock with rights senior to those of the Common Stock
without any further vote or action by the shareholders, and impose various
procedural and other requirements which could make it more difficult for
shareholders to affect certain corporate actions. These provisions could also
have the effect of delaying or preventing a change in control of the Company.
The issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to the holders of Common Stock or could adversely
affect the rights and powers, including voting rights, of the holders of the
Common Stock. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Common Stock. The Company has agreed that for
a two year period following the closing of this Offering it will not, without
the prior written consent of the Underwriter, issue any shares of preferred
stock.
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE;
VOLATILITY. Prior to this Offering, there has been no public market for the
Common Stock, and there can be no assurance that an active trading market will
develop for such securities or, if any such market develops, that it will be
sustained. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Underwriter and may not
necessarily bear any relationship to the Company's asset value, book value,
financial condition, or any other recognized indicia of value. No assurance can
be given that the initial offering price will be sustained or that, in the
absence of an active trading market, that shareholders will have sufficient
liquidity to readily dispose of their shares. The trading price of the Common
Stock could be subject to significant fluctuations in response to variations in
quarterly operating results, changes in earnings estimates by analysts following
the Company, if any, and general factors affecting the entertainment industry,
as well as general economic, political and market conditions, and other factors
and such factors could cause the market price of the Common Stock to fluctuate
substantially. Due to analysts' expectations of continued growth, if any, and
the high price/earnings ratio at which the Common Stock may trade, any shortfall
in expectations could have an immediate and significant adverse effect on the
trading price of the Common Stock. In addition the stock markets of the United
States have, from time to time, experienced significant price and volume
10
fluctuations that are unrelated or disproportionate to the operating performance
of any individual company. Such fluctuations could adversely affect the price of
the Company's Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Underwriting."
CONTINUED QUOTATION ON THE NASDAQ SMALLCAP MARKET; POSSIBLE ILLIQUIDITY OF
TRADING MARKET; PENNY STOCK. The Company has applied for listing to have the
Common Stock quoted on the Nasdaq SmallCap Market upon consummation of the
Offering. However, there can be no assurance that the Company will be able to
satisfy the criteria for continued quotation on the Nasdaq SmallCap Market
following the Offering. Failure to meet the maintenance criteria in the future
may result in the Common Stock not being eligible for quotation in such market
or otherwise. In such event, a holder of the Company's Common Stock may find it
more difficult to obtain accurate quotations as to the market value of, the
Common Stock. Trading, if any, in the Common Stock would therefore be conducted
in the over-the-counter market on an electronic bulletin board established for
securities that do not meet the Nasdaq SmallCap Market Listing requirements, or
in what are commonly referred to as the "pink sheets." As a result, an investor
would find it more difficult to dispose of, or to obtain accurate quotations as
to the price of, the Company's Common Stock. In addition, if the Company's
Common Stock were removed from the Nasdaq SmallCap Market, the Common Stock
would be subject to so-called "penny stock" rules that impose additional sales
practice and market making requirements on broker-dealers, who sell and/or make
a market in such securities. Consequently, removal from the Nasdaq SmallCap
Market, if it were to occur, could affect the ability or willingness of
broker-dealers to sell and/or make a market in the Company's Common Stock and
the ability of purchasers of the Company's Common Stock to sell their securities
in the secondary market. In addition, if the market price of the Company's
Common Stock is less than $5.00 per share, the Company may become subject to
certain penny stock rules even if still quoted on the Nasdaq SmallCap Market.
While such penny stock rules should not affect the quotation of the Company's
Common Stock on the Nasdaq SmallCap Market, such rules may further limit the
market liquidity of the Common Stock and the ability of purchasers in this
Offering to sell such Common Stock in the secondary market.
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF SHARE CONSIDERATION; NO
DIVIDENDS ANTICIPATED. Assuming an initial public offering price of $7.00 per
share, purchasers of the shares of Common Stock offered hereby will experience
immediate substantial dilution of $4.20 per share or 60% of their investment,
based upon the net tangible book value of the Company at December 31, 1996. As a
result, the purchasers of the shares of Common Stock offered hereby will bear a
disproportionate part of the financial risk associated with the Company's
business while effective control will remain with the existing shareholders and
management. Also, there will be a substantial disparity based upon an assumed
initial public offering price of $7.00 per share, between the total
consideration and the average price per share paid by the Company's existing
shareholders ($747,000 and $0.56, respectively), and that paid by new investors
in this Offering ($9,100,000 and $7.00, respectively). See "Dilution."
The Company has not paid dividends since its inception and does not intend
to pay any dividends to its shareholders in the foreseeable future. No assurance
can be given that it will pay dividends at any time. The Company presently
intends to retain future earnings, if any, in the development and expansion of
its business. See "Dividend Policy."
SHARES ELIGIBLE FOR ADDITIONAL SALE; EXERCISE OF REGISTRATION RIGHTS. Sale
of substantial amounts of the Company's Common Stock in the public market or the
prospect of such sales could materially adversely affect the market price of the
Common Stock. Upon completion of this Offering, the Company will have
outstanding approximately 2,631,092 shares of Common Stock. Of these shares,
approximately 1,331,092 shares are restricted shares ("Restricted Shares") under
the Securities Act of 1933, as amended (the "Securities Act"). The 1,300,000
shares of Common Stock offered hereby will be immediately eligible for sale in
the public market without restriction on the date of this Prospectus, subject to
the lockups agreements set forth below. In addition, the Company has issued
options and warrants which entitle the holders thereof to purchase 932,778
shares of Common Stock (collectively referred to herein as the "Warrant Shares")
including 193,870 Warrant Shares which are being currently registered (the
"Registered Warrant Shares"). Holders of the Restricted Shares and the Warrant
Shares (other than the Registered Warrant Shares) are subject to lockup
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their
11
shares for certain periods of time of between twelve (12) months and eighteen
(18) months, after the date of this Prospectus without the prior written consent
of the Underwriter. The Underwriter may release some or all of the shares from
the lockup at its discretion from time to time without notice to the public. The
Underwriter has no formal policy with respect to such determinations, and may
elect to release such shares or decline to realize such shares as it may
determine in its sole and absolute discretion. Additionally, the Underwriter's
Warrant may be exercised at any time during the four year period beginning 12
months after the closing of the Offering in which case up to 130,000 shares of
Common Stock would be eligible for sale in the public markets. The Company
intends to file a registration statement on Form S-8 under the Securities Act to
register the sale of approximately 337,500 shares of Common Stock reserved for
issuance under its 1995 and 1996 Stock Plans. Shares of Common Stock issued upon
exercise of options after the effective date of the registration statement on
Form S-8 will be available for sale in the public market, subject in some cases
to volume and other limitations, including the lockup agreements referred to
above. Sales in the public market of substantial amounts of Common Stock
(including sales in connection with an exercise of certain registration rights
by one or more holders) or the perception that such sales could occur could
depress prevailing market prices for the Common Stock. See "Shares Eligible for
Future Sale," "Underwriting" and "Description of Securities."
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time, should the Company
complete this Offering and a market price for its securities be established.
Should a market in the Company's securities develop, sales of substantial
amounts of Common Stock, or the perception that such sales may occur, could
adversely affect prevailing market prices for the Common Stock in the event a
market does develop.
FORWARD-LOOKING STATEMENTS. Although not applicable as a safe harbor to
limit the Company's liability for sales made in this Offering, this Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements may be deemed to include the Company's plans to
produce "Total Recall" and "LoCoMoTioN" in 1997 and establish new strategic
alliances and business relationships and acquire additional libraries or
companies. Such forward-looking statements also may include the Company's
planned uses of the proceeds of this Offering. Actual results could differ from
those projected in any forward-looking statements for the reasons detailed in
the other sections of this "Risk Factors" portion of the Prospectus. The
forward-looking statements are made as of the date of this Prospectus and the
Company assumes no obligation to update the forward-looking statements, or to
update the reasons why actual results could differ from
those projected in the forward-looking statements.
USE OF PROCEEDS
The net proceeds of the Company from the sale of the 1,300,000 shares
offered by the Company hereby at an assumed initial public offering price of
$7.00 per share, are estimated to be approximately $7,552,000, after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company currently intends to use the estimated net proceeds of this Offering as
follows:
[Download Table]
APPROXIMATE PERCENTAGE
NET PROCEEDS OF NET PROCEEDS
------------- ---------------
Repayment of loans*........................... $ 3,121,650 41%
Acquisition of foreign distribution rights to
made for television movies.................. $ 3,000,000 40%
Acquisition of foreign distribution rights to
existing television series.................. $ 1,275,000 17%
Corporate overhead and working capital,
including salaries and wages................ $ 155,350 2%
---------------
* The Company currently has outstanding approximately $5,553,850 of
indebtedness. Approximately $2,894,350 of such indebtedness will be repaid
from the proceeds of this Offering as follows: $969,350 for repayment of the
10% convertible secured notes issued between February and April 1997 (the
"Febru-
12
ary 1997 Notes"), $700,000 for repayment of the 12% secured notes issued
between February and June 1996 (the "February 1996 Notes"), $975,000 for
repayment of the 10% convertible secured notes issued between June and October
1996 (the "June 1996 Notes"), and $250,000 for repayment of indebtedness owed
to Joseph Cayre, a shareholder of the Company, together with approximately
$227,300 for accrued interest on the foregoing. The February 1997 Notes, the
February 1996 Notes and the June 1996 Notes are referred to herein as the
"Bridge Notes." The maturity date for all of the foregoing debt has been
extended until June 30, 1997 or the completion of an initial public offering.
Prior to effectiveness of this Offering, the balance of Company indebtedness
(or approximately $2,337,500) will be extended through June 30, 1998, although
it is anticipated that this balance will be repaid from the proceeds of the
Proposed Bank Facility. The foregoing repayment schedule assumes conversion of
the Conversion Note as well as the waiver of all conversion rights by the
holders of Bridge Notes which have convertibility rights. See "Risk Factors --
Additional Capital Requirements; Encumbrance of Assets; No Assurance of Future
Financings" and "Certain Transactions."
The Company anticipates that the net proceeds of this Offering, together
with projected cash flow from operations will be sufficient to permit the
Company to conduct its operations as currently contemplated for at least the
next 24 months. Such belief is based upon certain assumptions, including
assumptions regarding the sales of the Company's original programming and
anticipated expenditures required for the development and production of
additional programming, and there can be no assurance that such resources will
be sufficient for such purpose. The Company will be required to raise
substantial additional capital in the future in order to further expand its
production and distribution capabilities. There can be no assurances that
additional financing will be available, or if available, that it will be on
acceptable terms. In addition, contingencies may arise which may require the
Company to obtain additional capital prior to such planned expansion.
The foregoing use of proceeds are estimates only, and there may be
significant variations in the use of proceeds due to changes in current economic
and industry conditions, as well as changes in the Company's business and
financial conditions. The amount and timing of expenditures will vary depending
on a number of factors, including changes in the Company's contemplated
operations and industry conditions.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception and does not intend to pay any dividends in the foreseeable future.
The Company currently intends to retain earnings, if any, in the development and
expansion of its business. The declaration of dividends in the future will be at
the election of the Board of Directors and will depend upon the earnings,
capital requirements, cash flow and financial condition, general economic
conditions, and other pertinent factors, including any contractual prohibition
with respect to the payment of dividends.
13
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company (A) at December 31, 1996, (B) pro forma to reflect (i) the sale of
$969,350 of Bridge Notes between January 1996 and April 1997 and commissions and
costs of $226,015 associated therewith, (ii) the repayment of $187,500 in
respect of the "Total Recall" obligation in February 1997 and (iii) an aggregate
valuation of $393,330 ascribed to the warrants issued in conjunction with the
aforementioned Bridge Notes and (C) as adjusted to reflect (i) the sale of
1,300,000 shares of Common Stock pursuant to this Offering at an assumed initial
public offering price of $7.00 and the application of the estimated net proceeds
therefrom and (ii) the conversion of the Conversion Note and the Extraordinary
Loss. See "Use of Proceeds."
[Enlarge/Download Table]
DECEMBER 31, 1996
------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
Short-term debt(1)................................... $3,845,900 $ 3,658,400 $ 2,386,400
========== =========== ===========
Long-term debt(2).................................... 657,000 1,233,020 0
---------- ----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding
actual, pro forma and as adjusted............... 0 0 0
Common stock, no par value; 18,000,000 shares
authorized, 1,131,344 issued and outstanding
actual, 1,131,344 issued and outstanding pro
forma, and 2,631,092 issued and outstanding as
adjusted........................................ 1,000 1,000 1,000
Paid-in capital(3).............................. 848,300 1,241,630 9,480,630
Accumulated deficit(4).......................... (695,500) (921,515) (2,119,561)
---------- ----------- -----------
Total shareholders' equity................. 153,800 321,115 7,362,069
---------- ----------- -----------
Total capitalization................................. $ 810,800 $ 1,554,135 $ 7,362,069
========== =========== ===========
---------------
(1) See Notes 5 and 7 of Notes to Consolidated Financial Statements.
(2) Includes $969,350 principal amount of February 1997 Notes. See Notes 5 and 7
of Notes to Consolidated Financial Statements.
(3) The value ascribed to the warrants, which management believes reflects the
market value of the warrants, has been reflected as a debt issuance discount
and will be amortized over the term of all Bridge Notes resulting in an
effective interest rate of approximately 25%.
(4) The Extraordinary Loss will result upon the early extinguishment of certain
indebtedness which will be repaid from the net proceeds of this Offering.
See "Use of Proceeds," "Capitalization" and "Description of Securities."
14
DILUTION
At December 31, 1996, the Company had a pro forma net tangible book value
of $321,115 or $.24 per share of Common Stock. Pro forma net tangible book value
per share represents the Company's total tangible assets less its total
liabilities, divided by the number of shares of Common Stock outstanding after
giving effect to (A) the sale of $969,350 of Bridge Notes between January 1997
and April 1997 and commissions and costs of $226,015 associated therewith, (B)
the repayment of $187,500 in respect of the "Total Recall" obligation in
February 1997 and (C) an aggregate valuation of $393,330 ascribed to the
warrants issued in conjunction with the aforementioned Bridge Notes. After
giving effect (i) to the sale by the Company of 1,300,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $7.00 per share,
and the initial application of the estimated net proceeds therefrom, (ii) the
conversion of the Conversion Note and (iii) the Extraordinary Loss, the net
tangible book value of the Company at such date would have been approximately
$7,362,069 or $2.80 per share. This represents an immediate increase in net
tangible book value of $2.56 per share to the current shareholders and an
immediate dilution of $4.20 per share to new shareholders. Dilution represents
the difference between the initial public offering price paid by purchasers in
this offering and the net tangible book value per share immediately after
completion of this Offering. The following table illustrates this per share
dilution:
[Enlarge/Download Table]
Assumed initial public offering price per share.............................. $ 7.00
Pro forma net tangible book value per share before this Offering........... .24
Increase in net tangible book value per share attributable to the sale
of the Common Stock offered hereby..................................... 2.56
-----
Adjusted net tangible book value per share after this Offering............... 2.80
-----
Dilution per share to new shareholders*...................................... $ 4.20
-----
---------------
* Represents dilution of approximately 60% to purchasers of Common Stock
offered hereto.
The following table sets forth, (i) the number of shares of Common Stock
purchased from the Company by new shareholders pursuant to this Offering and
acquired from the Company by the current shareholders of the Company (including
the shares to be obtained upon conversion of the Conversion Note), (ii) the
total consideration paid to the Company and (iii) the respective average
purchase price per share.
[Enlarge/Download Table]
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
---------- ------- ----------- ------- ---------------
Current shareholders............... 1,331,092 50.59% $ 747,000 7.6% $0.56
New shareholders................... 1,300,000 49.41 9,100,000 92.4 $7.00
--------- ------ ---------- ------
Total.................... 2,631,092 100.00% $ 9,847,000 100.00%
========= ====== ========== ======
---------------
(1) The information set forth above does not reflect 375,000 shares of Common
Stock reserved for issuance under the Company's stock option plans (of which
approximately 128,000 shares are issuable upon exercise of stock options
outstanding as of the date of the Prospectus) and 130,000 shares of Common
Stock issuable upon exercise of the Underwriter's Warrant. See
"Management -- Stock Option Plans" and "Underwriting."
15
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the period ended
December 31, 1995 and the year ended December 31, 1996, and the consolidated
balance sheet data at such dates are derived from the Company's Consolidated
Financial Statements included elsewhere in this Prospectus that have been
audited by Price Waterhouse LLP, independent accountants, as indicated in their
report which is also included elsewhere in this Prospectus. Such selected
consolidated financial data should be read in conjunction with those
Consolidated Financial Statements and Notes thereto.
SUMMARY OF FINANCIAL INFORMATION
[Enlarge/Download Table]
FROM INCEPTION
(FEBRUARY 1995)
THROUGH YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------ -------------------
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 1,245,300 $ 6,116,700
Cost of revenues................................ 946,900 3,021,700
General and administrative expenses............. 1,288,200 2,323,800
Interest expense................................ 42,700 582,700
Interest income................................. -- 58,300
Other income.................................... -- 90,200
----------- ----------
Provision for income taxes...................... -- --
----------- ----------
Net income (loss)............................... $(1,032,500) $337,000
Net income (loss) per share..................... ($.63) $.24
Weighted average number of shares outstanding... 1,640,280 1,640,280
[Enlarge/Download Table]
DECEMBER 31, 1996
------------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ------------- ---------------
BALANCE SHEET DATA:
Total assets............................... $7,726,800 $ 8,282,635 $12,712,985
Long-term obligations...................... $ 657,000 $ 1,233,020 $ --
Total liabilities.......................... $7,573,000 $ 7,961,520 $ 5,350,916
Shareholders' equity....................... $ 153,800 $ 321,115 $ 7,362,069
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual 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 and elsewhere in this Prospectus. The
following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
GENERAL
The Company derives substantially all of its revenues from production fees
earned in connection with Company originated productions, distribution fees from
the exploitation of product acquired from others, and the exploitation of
Company-owned programming. The Company was incorporated in February 1995 and
commenced operations in March 1995.
The Company is 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. If a script
is accepted for production as a television feature or pilot, or if a pilot is
accepted for production as a series, the Company and the network or distributor
negotiate a license fee or distribution advance. This fee is a flat sum payment
through which the Company generally attempts to cover a significant portion of
its 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), the Company attempts 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, the Company
generally attempts to negotiate significant license fees for both series and
movies of the week. In many cases, the Company may invest additional sums in
excess of network license fees to produce the best possible made-for-television
feature, as such features are an essential sales tool in gaining network
acceptance of a projected series, if applicable. In these cases, the Company
will 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, the
Company 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, the Company 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.
The Company recognizes 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."
The Company, as required by SFAS No. 53, values its film cost at the lower
of unamortized cost or net realizable value on an individual title basis. Film
costs represent those costs incurred in the development, production and
distribution of television projects. These costs have been capitalized in
accordance with SFAS No. 53. Amortization of film cost is charged to expense and
third party participations are accrued using the individual film forecast method
whereby expense is recognized in the proportion that current year revenues bear
to an estimate of ultimate revenues. These estimates of revenues are prepared
and reviewed by management. The Company anticipates that a majority of its
production or acquisition costs for its projects will be amortized within three
years from the completion or acquisition of such project, with the balance
amortized over an additional two years.
17
RESULTS OF OPERATIONS
Year ended December 31, 1996 versus the period from inception (February 27,
1995) to December 31, 1995. Revenues for the year ended December 31, 1996 were
$6,116,700 compared with $1,245,300 in the period from inception (February 27,
1995) through December 31, 1995 (the "95 Period"). The revenues from the prior
period were primarily attributable to the completion and delivery of "Simply
Style." Revenues for the year ended December 31, 1996 included $1,441,700 from
the recognition of revenues from Interpublic for the completion of the series
"Amazing Tails," which revenues accounted for 24% of revenues during such
period, a revenue guarantee received from the sale of certain library rights and
revenue from the sales generated by the existing library. Included in this
amount are revenues of approximately $680,000 arising from a license of a
certain portion of the Company's film library to the Giniger Entities, with
respect to the sale of a certain portion of the Company's library in certain
Latin America countries and Europe. These revenues were 11% of revenues in that
period. Finally, revenues in the period included $618,400 from Eurolink
respecting additional sales of "Amazing Tails." This sale was approximately 10%
of the Company's revenue during the period. Revenue from the Giniger Entities,
Eurolink, and the production of "Amazing Tails" should not be considered to be
recurring. If the Company does not produce a series in fiscal 1997, or obtain
other significant foreign sales, the Company's revenues will be materially
reduced. See "Risk Factors -- Accounts Receivable; Reliance on Significant
Customers" for a further discussion of the non-recurring nature of these
revenues, and recognition of future revenues from the Giniger Entities.
Cost of revenues was $3,021,700 for the year ended December 31, 1996 as
compared to $946,900 for the 95 Period, such increase being principally
attributable to the increase in amortization of the product produced and
acquired by the Company.
Gross profit margin improved from 24% for the 95 Period to 51% for the year
ended December 31, 1996 primarily because the profit margin on "Amazing Tails"
and revenues recognized from the Giniger Entities is greater than the profit
margin on "Simply Style."
General and administrative expenses were $2,323,800 for the year ended
December 31, 1996 as compared to $1,288,200 for the 95 Period, resulting
primarily from increased personnel costs and debt issuance costs associated with
the February, May and November 1996 offerings of the Company's Bridge Notes. As
a percentage of revenues, however, general and administrative expenses decreased
from 103% to 38%. The debt issuance costs were expensed and not capitalized
because the expected maturity dates were within one year. See "-- Liquidity and
Capital Resources."
Interest expense was $582,700 as compared to $42,700 for the 95 Period
reflecting the issuance of Bridge Notes in the period.
Net income for the year ended December 31, 1996 was $337,000 compared with
a net loss of $1,032,500 incurred during the 95 Period, resulting primarily from
an increase in sales activity in 1996. The 95 Period had limited sales activity,
as the Company was in a start-up phase, but it included the costs associated
with the Company's initial exhibition at trade shows, acquisition costs for
programming and distribution, professional costs, and increases in personnel to
accommodate future production activities and distribution.
LIQUIDITY AND CAPITAL RESOURCES
The entertainment industry is highly capital intensive. As of December 31,
1996, the Company had a liquidity deficit of ($3,488,800), such deficit being
defined as (i) cash and cash equivalents plus accounts receivables (net), and
the amount due from officer (ii) less accounts payable, accrued expenses and
other liabilities, deferred revenues, accrued participations, notes payable, due
to officer, shareholder loan and note payable and accrued interest.
Included in the Company's assets as of December 31, 1996, are approximately
$1,977,000 relating to projects which the Company is developing but which have
not been set for principal photography. Approximately $1,200,000 of this amount
relates to the acquisition of the rights to produce a television series based on
the feature film "Total Recall" and approximately $500,000 relates to
expenditures in respect of
18
"LoCoMoTioN." The Company intends, consistent with the standards set by the
Financial Accounting Standards Board, including SFAS No. 53, to write off the
costs of all development projects when they are abandoned or, even if not
abandoned, if they have not been set for principal photography within three
years of their initial development activity. In the event the Company is unable
to produce either "Total Recall" or "LoCoMoTioN," the Company would incur a
significant write-down with respect to the development costs of such projects,
which, in turn, may effect ongoing financing activities.
The Company has financed its operations from its own sales and production
activities, loans from its shareholders aggregating $2,272,000, the sale of the
Bridge Notes aggregating $2,994,350, and the special financing obtained with
respect to "Total Recall" (the "Total Recall Financing") in the principal amount
$1,200,000.
A portion of the shareholder loans are from (i) Joseph Cayre (two loans
aggregating $750,000), (ii) Morris Wolfson, entities which may be affiliates of
Mr. Wolfson and other parties to which Mr. Wolfson disclaims a beneficial
ownership interest in or control of $822,000 (as more fully described below) and
(iii) Affida Bank ($300,000). The Cayre loans, which were made in February and
August 1995, bear interest at 14% and 10%, respectively, and are subject to an
agreement requiring the payment of $250,000 from the net proceeds of this
Offering and the pledge of certain assets to cover the unpaid amount due
thereunder. Prior to the effectiveness of this Offering, the Company anticipates
obtaining the consent from Mr. Cayre, subject to certain conditions, to extend
the maturity date of any remaining amounts due to him to June 30, 1998. See
"Certain Transactions -- Transactions with Joseph Cayre."
A loan in the principal amount of $322,000 was made in January 1996 from
AMAE Ventures, an affiliate of Mr. Wolfson, which was used by the Company for
general overhead purposes and bears interest at 12%. This note is due on the
earlier to occur of June 30, 1997 or the closing of this Offering. The holder of
such note has the right to convert the principal amount into 105,000 shares of
the Company's Common Stock on a fully diluted basis through the completion of
this Offering, and has indicated that it intends to convert such note. An April
1996 loan by South Ferry #2 L.P., a Delaware limited partnership, in the
principal amount of $500,000 was used for the pre-production of "LoCoMoTioN."
This loan bears interest at 10% and is currently due on June 30, 1998. Prior to
the effectiveness of this Offering, the Company anticipates obtaining an
extension of the maturity date of this obligation to June 30, 1998. Finally the
Chana Sasha Foundation, an entity controlled by Mr. Wolfson, extended the
Company a $400,000 line of credit on a secured basis in November 1996, which
credit line has been used and subsequently repaid by funds from the Company's
operations. See "Certain Transactions" for additional information regarding
these transactions.
The July 1996 proceeds from the sale of the notes in the Total Recall
Financing were used to acquire the rights to produce a television series based
on "Total Recall." These notes, which are secured by the Company's underlying
rights to the "Total Recall" series, bear interest at 10% and are due on the
earlier of the closing of this Offering or June 30, 1997. The holders of these
notes have agreed to extend the maturity date thereto through June 30, 1998. In
addition, the holders of these notes received an aggregate of 53,403 shares of
Common Stock, warrants to acquire 14,954 shares of Common Stock at an exercise
price of $.43 and a 13% net profit participation in the Company's interest in
the series. As of the date hereof, $502,500 has been repaid in respect to this
obligation. See "Certain Transactions" for a description of the consideration
paid to Mr. Wolfson in connection with this transaction.
In November 1996, the Company obtained a $300,000 loan from Affida Bank,
which loan carries interest at 8%, and matures upon the earlier of the closing
of this Offering or December 31, 1997. Affida Bank also received warrants to
acquire 25,634 shares of the Company's Common Stock at an exercise price of $.43
in connection with this loan. Prior to the effectiveness of this Offering, the
Company anticipates obtaining an extension of the maturity date of this
obligation to June 30, 1998. The proceeds of this loan were used for working
capital.
In February 1996, the Company commenced a private placement of its secured
notes and sold to accredited investors $900,000 in principal amount of secured
promissory notes which bear interest at 12% and are due at the earlier to occur
of this Offering or June 30, 1997. This offering was changed pursuant to its
original terms with respect to subsequent investors in June 1997 when the
Company completed the sale to
19
accredited investors of $975,000 principal amount of secured notes which bear
interest at 10% and are due at the earlier of the closing of this Offering or
May 31, 1998. In December 1996, the Company obtained a $150,000 loan from an
outside investor, which loan carries interest at 10% and matures upon the
earlier of the closing of this Offering or December 31, 1997. Prior to the
effectiveness of this Offering, the Company anticipates obtaining an extension
of the maturity date of this obligation to June 30, 1998. The proceeds of this
loan were used for working capital. In February and March 1997, the Company
completed the sale of $969,350 of convertible secured notes to accredited
investors (the "February 1997 Notes"). Each of the foregoing notes are secured,
pro-rata and pari passu, by liens on substantially all of the Company's assets,
except that the February 1997 Notes are junior to the other bridge notes.
Assuming the repayment of short-term indebtedness as specified under the
caption "Use of Proceeds," at the conclusion of this Offering, the Company will
have approximately $2,337,500 of indebtedness, which indebtedness is due on June
30, 1998 and is secured by substantially all of the assets of the Company. The
Company intends to enter into a secured line of credit (the "Proposed Bank
Facility") with a third party bank, which line of credit would permit borrowings
pursuant to a specified borrowing base made up of the value of the library,
accounts receivable and other assets. The Company currently intends to repay the
$2,337,500 of indebtedness remaining after the Offering with proceeds from the
Proposed Bank Facility. No assurance can be given that the Proposed Bank
Facility will be entered into or that the Company will be able to use proceeds
from such facility as indicated herein.
Management believes that if this Offering is completed, the net proceeds
thereof, together with projected cash flow from operations, will be sufficient
to permit the Company to conduct its operations as currently contemplated for at
least the next twenty four (24) months. Such belief is based upon certain
assumptions, including assumptions regarding (i) the sales of the Company's
original and acquired programming and (ii) anticipated expenditures required for
the development and production of additional programming, including "Total
Recall." After such time period, the Company has assumed that its operations
will be financed by cash flow from operations, proceeds from the Proposed Bank
Facility (if obtained) and/or additional financings. See "Risk Factors -- Going
Concern Assumption," "-- Additional Capital Requirements; Encumbrance of
Existing Assets; No Assurance of Future Financing," "Capitalization" and
"Description of Securities."
20
BUSINESS
The following Business section contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
GENERAL
Since its formation in February 1995, the Company has focused its efforts
on the development and production of a variety of television programming,
including series, specials and made-for-television movies for exploitation in
television markets in the domestic and international market. The Company derives
substantially all of its revenue from production fees earned in connection with
Company-originated productions, distribution fees from the exploitation of
product acquired from others, and the exploitation of Company-owned programming.
References to the Company after December 1995 refers to Team Communications
Group, Inc. (formerly known as DSL Entertainment, Inc.) and its wholly-owned
subsidiaries. In December 1995, two companies under common control of the
shareholders of the Company were contributed to the Company without additional
consideration. References to the Company prior to December 1995 refer to those
three entities on a combined basis.
The Company's development and production activities have focused on (i)
family programming produced for U.S. cable and network television channels such
as The Discovery Channel, The Family Channel, USA Network, and PBS, (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, and (iii)
reality based weekly and five-day per week ("strip") syndicated programming,
such as "Strange Universe Tonight," which the Company is currently co-producing
with the United/Chris-Craft television stations and Rysher Entertainment. This
series is currently airing on United/Chris-Craft stations and a commitment for
the production of a second 13-week run (65 episodes) has been received from
United/Chris-Craft. The Company has also recently completed a production of a
series of 22 half hour episodes entitled "Amazing Tails," a series focusing on
extraordinary pets, which has been financed in conjunction with Friskies Pet
Foods, a division of Nestles Food, and advertising leader Interpublic. All
episodes of this series have been produced and delivered to Interpublic, and the
series is scheduled to air on The Discovery Channel in 1997. The Company has
entered into a joint venture template with Interpublic for the production of a
minimum of four pilots over the next year for non-fiction and light
entertainment programming. The Company also maintains a dramatic development and
production unit which is developing and will produce movies-of-the-week for
exhibition on network television, cable or ad hoc networks of independent
stations which sometimes form to air special programming.
The Company has acquired the rights to produce, and is actively developing,
a weekly dramatic television series based on the motion picture "Total Recall,"
which in 1990 grossed over $320 million in worldwide box office receipts. The
Company has entered into an agreement with Alliance, a leading Canadian
production company, pursuant to which Alliance, subject to certain conditions,
will co-produce and co-finance the series with the Company. The Company has also
reached an agreement in principal, subject to the execution of a definitive
written contract, with PolyGram Television, L.L.C. ("PolyGram"), pursuant to
which PolyGram will co-finance and acquire United States rights to the series.
The Company also has an agreement with Miramax pursuant to which Miramax has
acquired domestic video rights to the series.
The Company is also developing a wide variety of family and reality-based
programing including "Capture" focusing on aerial rescues of endangered species:
"K-9 Conquest," a pet game show and "Amazing Kids," an entertaining look at kids
through the eyes of kids. The Company is also developing a new children's
series, tentatively entitled "LoCoMoTioN," which the Company hopes to place on
PBS during the third quarter of 1997. Although no assurance can be given that
the Company will obtain a PBS timeslot, the Company is currently searching for a
female celebrity to co-host this series, which will introduce toddlers to dance
and exercise through contemporary urban music.
The Company also maintains a fully staffed international sales force and
currently has distribution rights to over 300 half-hours of family and
documentary series and specials.
21
The global television market has experienced substantial growth since 1985
and the Company believes this market will continue to experience substantial
growth during the foreseeable future as state television monopolies end and
commercial broadcast outlets expand to provide increasingly varied and
specialized content to the consumer. In the United States alone, 60 new
television channels have commenced operation since 1985. Such growth has led to
the development and commercialization of specialized channels and distribution
outlets, which, in turn, has led to increased demand for top quality and cost
efficient programming in many categories and subjects.
The Company's operating strategy is to fulfill the demand for programming
by (i) expanding the activities of each of its operating divisions, (ii)
implementing strategic acquisitions of libraries and smaller production
companies, and (iii) entering into joint ventures with, or acquisitions of,
unaffiliated third parties which are intended to lower the Company's financial
risk as it expands into related activities, such as direct marketing and
interactive programming.
The Company believes 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 and other related media investments. While the number of
distribution channels has been increasing, the Company believes there are
powerful 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 the Company will be successful in
obtaining the financing necessary for these acquisitions or that the
acquisitions will prove financially successful.
The Company anticipates that the net proceeds of this Offering, together
with projected cash flows from operations, will be sufficient to permit the
Company to conduct its operations as currently contemplated for the next
twenty-four months. Such belief is based upon certain assumptions, including
assumptions regarding (i) the sales of the Company's original and acquired
programming, and (ii) anticipated expenditures required for the development and
production of additional programming, including "Total Recall." After such time
period, the Company has assumed that its operations will be financed by
internally generated funds and proceeds from additional financings. See "Risk
Factors -- Going Concern Assumption," "-- Additional Capital Requirements,
Encumbrance of Existing Assets; No Assurance of Future Financing,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Securities -- Notes."
OPERATIONS
The Company currently operates three principal divisions: (i) production;
(ii) distribution; and (iii) licensing, merchandising, and direct-marketing.
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 is generally produced for initial prime-time
exhibition on one of the major U.S. networks, which include CBS, NBC, ABC and
Fox, however, such programming may also be produced for new channels like United
Paramount, and Warner Bros. first-run pay television exhibition or directly for
syndication (i.e., independent or non-network) television, including PBS, as
well as a number of 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.
The Company is 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, it is presented to the 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, the Company and the
network or distributor negotiate a license fee or distribution
22
advance. This fee is a flat sum payment through which the Company generally
attempts to cover a significant portion of its 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 the
license fees. 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), the Company attempts 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, the Company believes that it can defray a significant
portion of the production costs of PBS programming using these alternative
financing methods, thus availing itself of the key demographics of PBS
viewership, particularly in children's programming.
With respect to series for the networks or pay cable channels, the Company
generally attempts to negotiate significant license fees for both series and
movies of the week. In many cases, the Company may invest additional sums in
excess of network license fees to produce the best possible made-for-television
feature, as such features are an essential sales tool in gaining network
acceptance of a projected series, if applicable. In these cases, the Company
will 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, the
Company 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, the Company 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.
There can be no assurance, however, that once the Company commits to fund
production of a series licensed to a network, the network will order and exhibit
sufficient episodes to enable the Company to syndicate the series. Typically, at
least 65 episodes of a series must be produced for it to be "stripped" or
syndicated in the daily re-run market. Generally, networks can cancel a series
at stated intervals and, accordingly, do not commit in advance to exhibit a
series for more than a limited period. If a series is canceled (or not carried
for the period necessary to create enough episodes for syndication purposes),
there is a significant chance that the production costs of the project will not
be fully recovered. Similar risks apply even if the series is produced for a
non-network medium. The Company believes, 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 of series of between 13 to 26
episodes per season.
The Company intends to focus its production activity in the following areas
or genres:
MOW ("Movies of the Week") and Mini-Series; Drama Series. The Company has
acquired the rights to produce a weekly dramatic television series based on the
motion picture "Total Recall," which generated over $320,000,000 in world-wide
box office receipts in 1990. The Company has entered into an agreement with
Alliance, a leading Canadian production company, pursuant to which Alliance,
subject to certain conditions, will co-produce and co-finance the series with
the Company. By co-producing the series with Alliance, in addition to reducing
the Company's financial exposure, the Company hopes to qualify the production
for certain Canadian co-production and tax benefits. Alliance will act as the
foreign sales agent for the series, and proceeds, after recoupment of production
costs, will be allocated 60% to the Company and 40% to Alliance. It is the
intention of the parties that each episode will be produced for approximately
$1,000,000 per episode, with the Company receiving a producing fee of $25,000
per episode. The Company does not intend to commence production of the series
until a domestic distribution agreement is concluded.
It is the Company's intention to expand the production of dramatic
programming over the next 24 months, which programming will be licensed in the
foreign markets through the Company's sales personnel. As of the date hereof,
foreign pre-sales of approximately $200,000 have been made with respect to
"Total Recall" for all of Asia and the Middle East, and parts of Latin America.
Still remaining available for licensing are most of the European territories,
and the remaining territories in Latin America, among others. The
23
Company is currently attempting to negotiate an agreement with respect to the
exploitation of the series in the domestic market.
The acquisition of the one hour dramatic series "Water Rats" (26 episodes
delivered for the first season with the right to acquire 26 additional episodes
now being produced for the second season) and the one hour dramatic series
"Cover Story" (26 episodes delivered), both series from the Australian
production company Southern Star, is an example of the Company's strategy to
acquire this type of programming from third parties. The Company has the rights
for distribution in all Latin American countries, including Cuba and Puerto
Rico, and has cumulative sales of approximately $1 million for Mexican broadcast
television and pan-Latin American satellite broadcast television with the
majority of terrestrial broadcast rights remaining available for sale.
Live Action and Animated Children's Programming. To take advantage of what
it believes is a significant television market for childrens' programming, the
Company intends to develop and produce inventive and original shows, including
both animated series and live-action series. The Company has commenced
pre-production of "LoCoMoTioN," and is negotiating with PBS to obtain a
commitment to broadcast this series in the third quarter of 1997. If the show is
successful, it is anticipated that it will provide the Company with licensing
and merchandising opportunities.
The Company has acquired the rights to produce, and is actively developing,
a weekly dramatic television series based on the motion picture "Total Recall,"
which in 1990 grossed over $320 million in worldwide box office receipts. The
Company has entered into an agreement with Alliance, a leading Canadian
production company, pursuant to which Alliance, subject to certain conditions,
will co-produce and co-finance the series with the Company. The Company has also
reached an agreement in principal, subject to the execution of a definitive
written contract, with PolyGram, pursuant to which PolyGram will co-finance and
acquire United States rights to the TV series. Miramax, which acquired the
theatrical sequel rights to "Total Recall," has also acquired home video rights
to the series. By co-producing the series with PolyGram, Miramax and Alliance,
in addition to reducing the Company's financial exposure, the Company hopes to
qualify the production for certain Canadian co-production and tax benefits. With
respect to "Total Recall," the Company has licensed the video rights to the
series to Miramax, which has also acquired the theatrical sequel rights to
"Total Recall." Alliance will act as the foreign sales agent for the series, and
proceeds from the foreign distribution of the series, after recoupment of
production costs, will be allocated 60% to the Company and 40% to Alliance. It
is the intention of the parties that each episode will be produced for
approximately $1,000,000 per episode, with the Company receiving a producing fee
of $25,000 per episode. The Company also owns all related merchandising rights
relating to the television series to be produced, and expects to actively
exploit these rights. The Company expects to produce 22 one-hour episodes for
this series in 1998, and Ron Shusett, the writer of the original film as well as
the feature film "Alien," has written the basic treatment (i.e., story outline)
for the pilot. The Company is negotiating with Mr. Shusett regarding his
potential participation as the lead writer for the series.
The Company continues to acquire programming on an ongoing basis. As of
October 1996 the Company acquired certain additional foreign distribution rights
to three family movies from Feature Films for Families. As of December 19, 1996,
the Company acquired thirteen 1/2 hour episodes for international distribution
of the series "Jelly Bean Jungle."
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 Fox, United
Paramount, the Warners' Brothers Network, TBS, The Discovery Channel, The
Learning Channel and Lifetime have found quality non-fiction programming to be a
mainstay of their programming portfolio. The Company intends to capitalize upon
its programming expertise developed by management prior to the formulation of
the Company, including the work by Mr. Levin in producing and distribution of
"Future Quest," a 22 episode, half-hour PBS-TV series which explores technology,
science and pop culture, to develop innovative programming of this genre.
"Future Quest" was hosted by film actor Jeff Goldblum and presents, on a weekly
basis, a gallery of futurists, scientists and social commentators. The show was
underwritten with a corporate grant from AT&T Corp. Other programming previously
produced by
24
Mr. Levin and previously distributed by the Company in this genre includes
"Hollywood Stuntmakers," "FX Masters," "Legends of Hollywood" and "Mysterious
Forces Beyond."
The Company has an extensive development slate of new series which are
currently being pre-sold in the international marketplace. Such new programs
include "Strange Universe Tonight," a 40-week, 200 half-hour strip series being
produced in association with United/Chris-Craft television stations and Rysher
Entertainment. "Amazing Tails," a weekly series of 22 half hours featuring
people and their pets, was financed by a presale for approximately $1,441,700 to
Interpublic for domestic distribution and broadcast. To date, the Company has
also licensed "Amazing Tails" in the foreign territories of Japan for $300,000
and the U.K., France, Italy, Spain, Portugal and Greece for an additional
$595,000. Miramax, which has also entered into an agreement with respect to
video rights for "Total Recall," has licensed domestic video rights to "Amazing
Tails" for $400,000, $250,000 of which was paid by a minimum guarantee.
The Company has entered into a "first look" arrangement with Interpublic
pursuant to which the Company and Interpublic have agreed to fund, subject to
the conditions contained therein, a minimum of four non-fiction or light
entertainment pilots. Series which are developed from the pilots will be
co-financed by each entity, and Interpublic will use its best efforts to seek an
advertising sponsor for each series.
Future productions include "America's Scenic Railway Journeys," a six
episode, hour long series devoted to famous railway journeys. The Company
intends to co-produce this series with John Grant, a former executive with PBS.
Other series being developed by the Company include "Rivers" and "Time
Detectives," which are currently being considered as documentary mini-series for
PBS.
Syndicated Strip Shows. The Company is making a significant creative and
development effort to provide syndicated daily programming, especially game
shows. The Company has also successfully licensed formats for such game shows as
"Young Matchmakers,"which has been successfully launched on Holland's RTL4
channel, and is now being presented to domestic broadcasters.
"How To"/Instructional Programming. From gardening and style to cooking and
home repair, "how to" and instructional programming is an expanding market in
which the Company has strived to develop, produce, and distribute a variety of
programs which both entertain and educate. "Simply Style," a 60 episode "strip"
created by the Company for The Discovery Channel and hosted by fashion expert
Leah Feldon, is the first such series produced by the Company. Mr. Levin has
previously produced "Laurie Cooks Light and Easy," 65 one-half hour episodes
previously distributed by the Company. Hosted by Laurie Burrows Grad, this daily
strip presented simple recipes prepared in a healthy manner. The show attracted
celebrities such as Jill St. John, Steve Sax, Dom Deluise, Wolfgang Puck,
Michael Tucker and Jill Eikenberry.
DISTRIBUTION
An active part of the Company's business is the presentation of its own
product and product acquired from third-party producers to the international
marketplace. This includes drama and non-fiction programming as well as Movies
of Week, and children's animation. With the rapid increase of networks and
channels, there is an expanding demand for top-quality programming. To access
these markets, the Company's distribution personnel attend such major
international trade shows as MIPCOM, Monte Carlo Television Festival, MIP and
NATPE.
In certain territories like Latin America, the Company uses subdistributors
like the Giniger Entities. The Company believes that these agents typically have
long-standing relationships in territories the Company would have difficulty
accessing or in obtaining favorable prices.
The Company has also recently entered into an agreement with Australia's
Southern Star to distribute its successful drama series "Water Rats" in Latin
America, through the Giniger Entities.
In addition, the Company has an active "format" business oversees, where it
represents and "reformats" successful foreign shows for the domestic
marketplace, and vice versa. The Company also currently represents several other
custom formats which are under consideration in numerous territories.
25
LICENSING, MERCHANDISING AND DIRECT MARKETING
The Company's strategic plan encompasses the development of additional
revenue streams through licensing and merchandising efforts. The Company hopes
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, the
Company has begun to focus on the marketing and merchandising rights that may be
available with respect to the "Total Recall" series.
The Company also intends to focus on certain types of instructional or "how
to" programming that can be translated into direct marketing opportunities. By
their design, aspects of each how to/instructional program can be extended into
a continuity club, infomercial, and retail products. For example, the Company
intends to develop from the series "Simply Style" a style file club, with
make-up and cosmetics options for women, an infomercial selling makeover
products, and a retail campaign to highlight products sold through "Simply
Style" direct marketing campaigns.
POSSIBLE ACQUISITIONS; JOINT VENTURES
The Company believes that there are numerous opportunities to acquire other
production and distribution companies, as well as existing programming
libraries. The Company believes that these acquisitions, if successful, will
result in synergistic opportunities, and may increase the Company's revenue and
income growth. No specific acquisition candidates have been identified, and no
assurance can be given that any transactions will be effected, or if effected,
will be successful.
The Company is also committed to establishing joint ventures with strategic
partners in order to expand the Company's operations without significantly
expanding its overhead. For example, the Company is completing a "first
negotiation" arrangement with Interpublic which would give Interpublic the first
opportunity to provide sponsorship, commercial underwriting, and financing of
the Company's children's and "how to" series.
COMPETITION
The entertainment industry is highly competitive. The Company competes
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 the Company's present and future competitors are
organizations of substantially larger size and capacity, with far greater
financial and personnel resources and longer operating history than the Company.
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 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 and financing.
EMPLOYEES
The Company currently employs 11 full time employees, four of whom are
members of senior management. From time to time, as projects go into production,
temporary employees are employed.
PROPERTIES
The Company currently rents its office space at 12300 Wilshire Boulevard,
Los Angeles, California from an unaffiliated third party, pursuant to a 36 month
lease that commenced on May 15, 1995. The Company currently rents approximately
4,600 square feet at a monthly rate of $1.75 per square foot. Mr. Levin has
personally guaranteed the obligations under the lease. The Company believes that
its current offices are adequate for its requirements, and that additional
space, if required, is available throughout the Los Angeles area at reasonable
rates.
26
LEGAL PROCEEDINGS
In April 1997 the Company has been purportedly served with a judgment in
the amount of $85,540 in a matter styled Levy Entertainment, Inc. vs. DSL
Entertainment, Inc. filed in Franklin Superior Court, State of Vermont. The
plaintiff in this action has obtained a writ of attachment against the Company
in California and has attempted to levy against assets of the Company. The
Company was not served with any papers relating to the case, did not enter any
defense, and disputes the amounts allegedly owed to Plaintiff. The Company is
attempting to obtain counsel in Vermont to overturn the judgment. No assurance
can be given that the Company will be successful in seeking to have the
judgement reversed.
In April 1997 the Company was served with a complaint in a matter styled
Allen vs. Team Communications Group, Inc. filed in Superior Court for the
Central District of California. In the complaint, Allen, a former employee of
the Company, alleges that the Company has breached an agreement to pay her 2% of
the proceeds derived from any series she "brought" to the Company. The Company
will file an answer to the complaint and intends to vigorously defend itself.
27
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, together with their
respective ages and positions with the Company, are as follows:
[Enlarge/Download Table]
NAME AGE POSITION
--------------- --- ----------------------------------------------------------------------
Drew S. Levin 43 President, Chief Executive Officer and Chairman of the Board
Paul Yamamoto 43 Executive Vice President and Director
Eric Elias 42 Senior Vice President, Business and Legal Affairs
Joe Kalada 31 Vice President, Corporate Finance and Director
Bruce P. Vann 41 Nominated Director(1)(2)
---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Drew S. Levin has been President and Chairman of the Board of the Company
since its founding in 1995. From 1987 through 1994, he 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 "Pop Culture Meets Pure Science" for which Mr. Levin received an Emmy
Award, "Laurie Cooks Light & Easy," "Future Quest" and "Simply Style." Mr. Levin
has extensive experience in international co-productions, including co-producing
a domestic and international version of "Top of the Pops" with the BBC for the
CBS network.
Paul Yamamoto has been Executive Vice President since September 1996 and a
Director since December 1996. Mr. Yamamoto was a managing partner of the Favored
Artists Agency from 1989 through 1992. From 1992 through July 1995, Mr. Yamamoto
was self employed and ran his own management/production company. In August 1995,
Mr. Yamamoto became the executive vice president of the Larry Thompson
Organization, where he served until September 1996.
Eric Elias has been Senior Vice President, Business and Legal Affairs since
April 1996, having consulted with the Company since its incorporation through
April 1996. Mr. Elias has previously served as corporate counsel and general
manager for a retail/wholesale leisure electronics firm and for the past five
years, has been in general private practice, providing business and legal
affairs services for similarly situated television production entities.
Joe Kalada has been Vice President, Corporate Finance since July 1996 and a
director since December 1996. From 1987 to 1992, Mr. Kalada was with Price
Waterhouse where he was a member of the audit group. From 1992 to 1994, Mr.
Kalada was an accounting manager at Metro Goldwyn Mayer. In 1994, Mr. Kalada
became controller of Broadcast Equipment Rental Company where he was responsible
for accounting matters. After this company was sold, Mr. Kalada was Vice
President of Finance for Four Point Entertainment from 1994 to 1996. Mr. Kalada
is a certified public accountant.
Bruce P. Vann, who has agreed to become a member of the Board of Directors
upon the conclusion of this Offering, is a 1980 graduate of Duke Law School. Mr.
Vann is an attorney who has been in practice in Los Angeles for over 16 years.
From 1989 to 1994, Mr. Vann was a partner in the Los Angeles office of Keck,
Mahin & Cate. He is currently a partner in the firm of Kelly & Lytton, counsel
to the Company. Mr. Vann also serves as Senior Vice President, Business and
Legal Affairs of Largo Entertainment, Inc., a subsidiary of The Victor Company
of Japan. Mr. Vann is a member of the board of directors of J2 Communications.
Directors are elected for one year terms at the Company's annual meeting of
shareholders and serve until the due election and qualification of their
successors. Officers are appointed by the Board of Directors and serve at the
discretion of the Board.
28
Although the Company's directors do not receive any compensation for their
services as directors, it is anticipated that, following this Offering,
non-management directors will receive a fee for each Board of Directors meeting
attended, plus reimbursement for expenses. Additionally, certain non-management
board members will receive mandatory stock option grants pursuant to the
Company's 1996 Directors Plan.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company for
the fiscal years ended December 31, 1995 and 1996, by the Company's Chief
Executive Officer (the "Named Officer"):
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
[Enlarge/Download Table]
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION
----------------------------------------- ---- -------- ------- ------- ------------
Drew S. Levin
Chairman of the Board and 1996 $350,000 $45,000(2) (3) $15,000(4)
Chief Executive Officer 1995 $350,000 $ -- $13,750(4)
---------------
(1) Other than salary described herein, the Company did not pay the Named
Officer any compensation, including incidental personal benefits, in excess
of 10% of such individual's salary. No other executive officer of the
Company had a total annual salary and bonus which exceeded $100,000 during
fiscal 1995 or 1996.
(2) For the fiscal year ended December 31, 1996, Mr. Levin was entitled,
pursuant to the terms of his prior agreement, to a bonus equal to certain
producer's fees relating to the series "Amazing Tales." During such period
Mr. Levin received $45,000 and, pursuant to the terms of his new employment
agreement (which will be effective upon the closing of this Offering), has
agreed to apply the balance of such accrued but unpaid bonus ($175,000) to
repay certain loans made to him by the Company. See "Certain Transactions."
This amount ($175,000) will be reflected in Mr. Levin's compensation for
fiscal 1997. In the future, Mr. Levin will not receive production bonuses.
The loan balance was $186,000 at December 31, 1996 and approximately
$265,000 at April 30, 1997. Mr. Levin has agreed to repay the balance by
making semi-annual payments of $5,000 on each of July 1 and January 1. See
"Certain Transactions."
(3) Pursuant to the terms of Mr. Levin's restated employment agreement to be
entered into concurrently with the consummation of this Offering, Mr. Levin
will be granted options to acquire 85,000 shares of the Company's Common
Stock, exercisable at the Company's initial offering price. These options
shall be deemed fully vested.
(4) Mr. Levin was entitled to received a car allowance of $1,250 each month for
all or a portion of the year. In lieu of these payments, Mr. Levin applied
such amounts to reduce his loan balance.
EMPLOYMENT AGREEMENTS
Prior to the closing of this Offering, Mr. Levin has agreed to amend his
employment agreement with the Company (the "Levin Agreement") providing for his
services as President and Chief Executive Officer for a period through 2002. The
terms of such amendment are subject to the prior approval of the Underwriter.
Pursuant to the proposed amendment, Mr. Levin will receive a salary of $240,000,
plus $125,000 per annum as an advance against a pro-rata portion of producer's
fees earned by Mr. Levin. Producer's fees in excess of $125,000 will be retained
by the Company. Mr. Levin has agreed that any producer's fees relating to
Company produced programming shall be allocated to the Company. Pursuant to the
Levin Agreement, Mr. Levin will receive (i) from 5% to 7.5% of the Company's
pre-tax profit beginning in 1997 pursuant to a formula based on specified
earnings levels and (ii) options to acquire an aggregate of 85,000 shares of the
Company's Common Stock at a per share exercise price equal to the initial public
offering price, which options shall be deemed fully vested. The amended
employment agreement will also provide that certain unpaid bonus compensation
owing to Mr. Levin will be applied to his loan from the Company. See "Certain
Transactions."
29
STOCK OPTION PLANS
On December 14, 1995, the Company's Board of Directors approved, and
recommended for adoption by the shareholders, who adopted such plans in March
1996, the 1995 Stock Option Plan and the 1995 Stock Option Plan for Non-Employee
Directors (collectively, the "1995 Plans"). As of the date hereof, 78,000
options were outstanding under the 1995 Plans. In January 1997, the Company's
shareholders voted to freeze the 1995 Plans and adopt two new plans, the Team
Communications Group, Inc. Stock Awards Plan (the "1996 Employee Plan") and the
Team Communications Group, Inc. Directors' Stock Option Plan (the "1996
Directors Plan," and together with the 1996 Employee Plan, the "1996 Option
Plans").
The following summary is qualified in its entirety by reference to the full
text of the 1996 Option Plans. Unless otherwise indicated, the summary is
applicable to each plan, as well as to the 1995 Plans.
The 1996 Plans. The 1996 Option Plans provide for the granting of awards of
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock
options ("NSOs"), and stock appreciation rights ("SARs") (awards of ISOs, NSOs,
and SARs are sometimes hereinafter collectively referred to herein as "Awards").
Purpose. The purpose of the 1996 Option Plans is to provide key employees,
officers, and directors with an additional incentive to promote the success of
the Company's business and to encourage employees to remain in the employ of the
Company.
Administration-Employee Plan. The 1996 Employee Plan is to be administered
by a committee of two or more directors of the Company; provided however, that
if the Company becomes subject to Section 12 of the Exchange Act, such directors
shall be "non-employee directors" as such term is used in Rule 16b-3 and, if
feasible, such directors shall be "Outside Directors;" and provided further that
if there are not at least two such "non-employee directors," any grants or
awards hereunder to an individual subject to Section 16 of the Exchange Act
shall also be approved by the Board of Directors of the Company. "Outside
Director" shall have the meaning set forth in Treasury Regulation
sec. 1.162-27(e)(3) as amended from time to time and as interpreted by the
Internal Revenue Service.
1996 Directors Plan. Directors who are not employees of the Company will,
on the effective date of this offering and each annual anniversary thereof,
receive options to purchase 2,500 shares of Common Stock. The option price per
share of Common Stock purchasable upon exercise of such stock options shall be
100% of the fair market value on the date of grant. Such options shall be
exercisable immediately on the date of grant by payment in full of the purchase
price in cash. The aggregate number of shares of Common Stock that may be
granted pursuant to the 1996 Directors Plan is 20,000.
1996 Employee Stock Plan. The aggregate number of shares of Common Stock
that may be granted under the 1996 Employee Plan is 180,000. The Employee Plan
provides for the authority by the Employee Plan Committee to grant ISOs to any
key employee of the Company or any affiliate of the Company and to determine the
terms and conditions of each grant, including without limitation, the number of
shares subject to each ISO. The ISO exercise price will also be determined by
the Committee and will not be less than the fair market value of the Common
Stock on the date of grant. The exercise price will not be less than 110% of
such fair market value and the exercise period will not exceed five years if the
participant was the holder of more than 10% of the Company's outstanding voting
securities.
The Manner of Exercise. The exercise price for options granted under the
1996 Option Plans may be paid in cash or shares of Common Stock, including
shares of Common Stock which the participants received upon the exercise of one
or more options provided that, with respect to ISOs, such shares have been held
by the participant for at least the greater of two years from the date the
option was granted or one year after the shares of Common Stock were transferred
to the participant.
The option exercise price may also be paid by the participant's delivery of
an election directing the Company to withhold shares of Common Stock from the
Common Stock otherwise due upon exercise of the option.
30
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENT WITH DREW LEVIN; SHORT TERM BORROWINGS BY MR. LEVIN
See "Management -- Employment Agreements" for a description of the
arrangements between the Company and Mr. Levin relevant to his employment
agreement and the amendment thereof.
From time to time, Mr. Levin has borrowed funds from the Company on a
short-term basis. As of April 30, 1997, these borrowings amounted to
approximately $265,000; assuming the application of $175,000 of accrued but
unpaid production bonuses the remaining balance would be $90,000. Any future
borrowings by any officer of the Company will require the approval of a majority
of the disinterested members of the Board. Mr. Levin has agreed to repay
remaining balance beginning in 1997 by making semi-annual payments of $5,000 on
each of July 1 and January 1, together with accrued interest accruing at the
prime rate.
In connection with the Company's facilities, Mr. Levin has personally
guaranteed the obligations under the Company's lease. See
"Business -- Properties."
TRANSACTIONS WITH JOSEPH CAYRE
As of the date hereof, the Company was indebted to Joseph Cayre, one of its
original shareholders, in respect of loans made in April and August 1995 in the
amount of $500,000 and $250,000, respectively. Interest on the loans currently
accrues at the rate of 12% and 14%, respectively. Mr. Cayre has forgiven
interest that accrued on the loans prior to December 31, 1996. Mr. Cayre's loans
are currently secured by Mr. Levin's shares and all of the assets of the
Company.
Mr. Cayre and Mr. Levin have agreed, subject to documentation, that as of
the closing date of this Offering, Mr. Cayre will receive payment of $250,000 in
respect of the amounts owed to him, and the remaining debt, subject to adequate
collateralization (which may include cash collateral) shall be extended until
June 30, 1998. Subject to the foregoing, Mr. Levin and Mr. Cayre have also
agreed, to restructure Mr. Cayre's investment in the Company. Mr. Cayre agreed
that upon the closing of this Offering, Mr. Cayre's interest in the Company
would be reduced to 164,874 shares of the Company's Common Stock by transferring
to Mr. Levin 195,774 shares of the Company's common stock held by Mr. Cayre. In
February 1996, in connection with a prior restructuring of this indebtedness,
Mr. Cayre received options to purchase 48,743 shares of Common Stock of $.43 per
share.
TRANSACTIONS WITH MORRIS WOLFSON AND OTHERS
A loan in the principal amount of $322,000 was made in January 1996 from
AMAE Ventures, an affiliate of Mr. Wolfson, which was used by the Company for
general overhead purposes and bears interest at 12%. This note is due on the
earlier to occur of June 30, 1997 or the closing of this Offering. The holder of
such note has the right to convert the principal amount into 3% of the Company's
Common Stock on a fully diluted basis through the completion of this Offering,
and has indicated that it intends to convert such note. An April 1996 loan by
South Ferry #2 L.P., a Delaware limited partnership, in the principal amount of
$500,000 was used for the pre-production of "LoCoMoTioN." This loan bears
interest at 10% and is due on the earlier to occur of June 1997 or upon the
closing of this Offering. In connection with such loan, South Ferry #2 L.P.
received 29,606 warrants exercisable at $.43 per share. Finally the Chana Sasha
Foundation, an entity controlled by Mr. Wolfson, extended the Company a $400,000
line of credit on a secured basis in November 1996, which credit line has been
used and subsequently repaid by funds from the Company's operations. In addition
the Company issued to affiliates of Mr. Wolfson and others 6,408 shares of the
Company's Common Stock as an additional fee with respect to such extension of
credit.
The July 1996 proceeds from the sale of the notes in the Total Recall
Financing were used to acquire the rights to produce a television series based
on "Total Recall." These notes, which are secured by the Company's underlying
rights to the "Total Recall" series, bear interest at 10% and are due at the
first to occur of June 30, 1997 or the closing of this Offering. The holders of
these notes have agreed to extend the maturity date thereto through June 30,
1998. In addition, the holders of these notes received an aggregate of
31
53,403 shares of common stock, warrants to acquire 21,361 shares of Common Stock
at an exercise price of $.43 and a 13% net profit participation in the Company's
interest in the series. In addition to the foregoing, Mr. Wolfson and related
entities received 17,089 shares in connection with the Total Recall Financing
and a 2% interest in the net profits of the series. As of the date hereof,
$502,500 has been repaid in respect to this obligation.
TPEG AGREEMENTS
Beginning in early 1995, The Producer's Entertainment Group, Inc. ("TPEG")
and Mr. Levin entered into a series of agreements (the "TPEG Agreements") which
provided among other things, (i) for the formation of the Company and the
retention by TPEG of a 19.9% ownership interest in the Company, (ii) the grant
to the Company of distribution rights to certain product produced by DSP
Productions, Inc. ("DSP"), (DSP was sold by Mr. Levin and other shareholders to
TPEG in 1994), (iii) the assignment to the Company of certain of DSP's entire
new production and development distribution portfolio, and (iv) production
financing for the series "Simply Style." Certain disputes arose between Mr.
Levin and Mr. Cayre, on the one hand, and TPEG on the other hand, which resulted
in the execution of a settlement agreement (the "TPEG Settlement Agreement")
with TPEG pursuant to which TPEG was obligated to complete the transfer of
"Simply Style" to the Company. The Company also agreed to repurchase from TPEG,
for $178,000, a sufficient number of Company shares to reduce TPEG's holding in
the Company to 5%, on a fully diluted basis through the completion of this
Offering. On June 28, 1996, the Company's Board of Directors determined that, in
light of the Company's liquidity position at that time and its inability to
complete the TPEG Settlement Agreement pursuant to its terms, it was advisable
to assign the obligation to effectuate the TPEG Settlement Agreement to Mr.
Levin. Consequently, Mr. Levin and a group of investors repurchased the entire
holdings of TPEG in the Company.
LOAN FROM AFFIDA BANK
In November 1996, the Company obtained a $300,000 loan from Affida Bank,
which loan carries interest at 8%, and matures upon the earlier of the closing
of this Offering or December 31, 1997. Affida Bank also received warrants to
acquire 25,634 shares of the Company's Common Stock at an exercise price of $.43
in connection with this loan. Prior to the effectiveness of this Offering, the
Company anticipates obtaining an extension of the maturity date of this
obligation to June 30, 1998. The proceeds of this loan were used for working
capital.
TRANSACTIONS WITH BRUCE P. VANN
Mr. Vann, who has agreed to become a member of the Board of Directors upon
the consummation of this Offering, is the holder of options to purchase 10,000
shares of Common Stock at a price of $1.00 per share which he acquired in
October 1996, plus 4,273 shares of Common Stock which he received in October
1996 in lieu of fees relating to the acquisition of "Total Recall." Kelly,
Lytton, Mintz & Vann, where Mr. Vann is a partner, is counsel to the Company,
has received fees from the Company through December 31, 1996 of approximately
$46,000, and has received approximately $56,000 during the first quarter of
1997.
32
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 30, 1997, as adjusted to
reflect the sale of the shares of Common Stock offered hereby and the conversion
of the Conversion Note, the ownership of the Common Stock by (i) each person who
is known by the Company to own of record or beneficially more than 5% of the
outstanding Common Stock, (ii) each of the Company's directors and (iii) all
directors and executive officers of the Company 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.
[Enlarge/Download Table]
PERCENTAGE BENEFICIALLY OWNED
NAME AND ADDRESS NUMBER ----------------------------------
OF BENEFICIAL OWNER(1) OF SHARES(2) BEFORE OFFERING AFTER OFFERING
-------------------------------------------------- ------------ --------------- --------------
Drew S. Levin(3).................................. 685,123 51.5% 26.0%
Morris Wolfson (4)................................ 296,019 22.2% 11.3%
Joe Cayre (5)..................................... 263,617 19.8% 10.0%
Affida Bank(6).................................... 82,305 6.2% 3.1%
Joe Kalada(7)..................................... 20,000 1.5% *
Bruce P. Vann (8)................................. 14,273 1.1% *
Paul Yamamoto(9).................................. 10,000 * *
All officers and directors as a group (four
persons, including one nominee director)........ 729,396 54.8% 27.7%
---------------
* Less than 1%
(1) Address is c/o Team Communications Group, Inc., 12300 Wilshire Boulevard,
Suite 400, Los Angeles, California 90025.
(2) Gives effect to the anti-dilution provisions of the sale of 2.5% of the
Company's Common Stock from Mr. Drew Levin to Mr. Morris Wolfson, Mr.
Abraham Wolfson, Mr. Aaron Wolfson and Mr. Edward Nagel and the conversion
of the Conversion Note computed on a fully diluted basis.
(3) Includes 195,774 shares which Mr. Cayre has agreed to transfer to Mr. Levin
pursuant to Mr. Levin's arrangements with Mr. Cayre. Mr. Levin has pledged
his shares and his options to Mr. Cayre pursuant to Mr. Cayre's loan
transaction with the Company. Includes options to acquire 85,000 shares of
Common Stock which the Company has agreed to grant to Mr. Levin concurrently
with the execution of his new Employment Agreement. See "Certain
Transactions" and "Employment Agreements."
(4) Includes 191,650 shares of Common Stock held by Mr. Wolfson's brothers,
which Mr. Wolfson has disclaimed beneficial ownership. Includes 94,566
shares of Common Stock to be issued upon conversion of certain convertible
debt upon the closing of this Offering.
(5) Includes options to purchase 48,743 shares of the Company's Common Stock at
an exercise price of $0.43 per share. Mr. Cayre has granted the Underwriter
a 30-day option to purchase up to 30,000 additional shares to cover
over-allotments, if any. If the Underwriter's over-allotment option is
exercised in full, Mr. Cayre will own 7.0% of the outstanding shares of
Common Stock of the Company after this Offering.
(6) Includes options to purchase 3,268 shares of Common Stock at an exercise
price of $0.43 per share.
(7) Represents options to purchase 20,000 shares of Common Stock at an exercise
price of $1.00 per share.
(8) Includes options to purchase 10,000 shares of Common Stock at an exercise
price of $1.00 per share.
(9) Represents options to purchase 10,000 shares of Common Stock at an exercise
price of $1.00 per share.
CONCURRENT OFFERING BY SELLING SECURITYHOLDERS
An additional 193,870 outstanding shares (the "Securityholder Shares") of
Common Stock issuable upon exercise of warrants held by the Selling
Securityholders have been registered pursuant to the registration statement
under the Securities Act, of which this Prospectus forms a part, for sale by
such holders. The
33
Securityholders Shares may be sold on or about the effective date of this
offering if a current prospectus relating to such Shares is in effect and the
Shares are qualified for sale. The Company will not receive any proceeds from
the market sales of the Securityholder Shares, although it will receive the
proceeds from the exercise of the warrants held by Securityholders. Sales of the
Securityholder Shares the potential of such sales could have an adverse effect
on the market price of the Company's Common Stock. See "Risk Factors -- Shares
Eligible for Future Sale."
The Selling Securityholders and the number of Securityholder Shares held by
each are as listed below.
[Enlarge/Download Table]
SECURITYHOLDER
SELLING SECURITYHOLDERS SHARES
------------------------------------------------------------------------ --------------
Alan Parnes............................................................. 5,000
Arab International Trust Co............................................. 10,000
Duck Partners, LP....................................................... 20,000
Gary & Paula Wayton..................................................... 10,000
Michael Rosenbaum....................................................... 20,000
RMK Financial LLC....................................................... 15,000
Robert Bain............................................................. 20,000
Robert Frankel.......................................................... 7,470
Roger Triemstra......................................................... 10,000
Roland McAbee........................................................... 6,400
Swan Alley (Nominees) Limited........................................... 20,000
Van Moer Santerre & Cie................................................. 50,000
-------
Total......................................................... 193,870
=======
There are no other material relationships between any of the Selling
Securityholders and the Company, nor have any such material relationships
existed within the past three years. The Company has been informed by the
Underwriter that there are no agreements between the Underwriter and any Selling
Securityholder regarding the distribution of the Securityholder Shares.
The sale of the Securityholder Shares by the Selling Securityholders may be
effected from time to time in transactions (which may include block transactions
by or for the account of the Selling Securityholders) in the over-the-counter
market or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers from whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
At the time a particular offer of Securityholder Shares is made by or on
behalf of a Selling Securityholder, to the extent required, a prospectus will be
distributed which will set forth the number of Securityholder Shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for any Securityholder shares purchased from the Selling
Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
If any of the following events occurs, this Prospectus will be amended to
include additional disclosure before offers and sales of the Securityholder
Shares are made: (a) to the extent such securities are sold at a fixed price or
by option at a price other than the prevailing market price, such price would be
set forth in the Prospectus; (b) if the securities are sold in block
transactions and the purchaser wishes to resell, such
34
arrangements would be described in the Prospectus; and (c) if the compensation
paid to broker-dealers is other than usual and customary discounts, concessions
or commissions, disclosure of the terms of the transaction would be included in
the Prospectus. The Prospectus would also disclose if there are other changes to
the stated plan of distribution, including arrangements that either individually
or as a group would constitute an orchestrated distribution of the
Securityholder Shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of Securityholder Shares may not simultaneously
engage in market making activities with respect to any securities of the Company
for a period of at least two (and possibly nine)business days prior to the
commencement of such distribution. Accordingly, in the event that the
Underwriter is engaged in a distribution of the Securityholder Shares, it will
not be able to make a market in the Company's securities during the applicable
restrictive period. However, the Underwriter has not agreed to nor is it
obligated to act as broker-dealer in the sale of the Securityholder Shares and
the Selling Securityholders may be required, and in the event that the
Underwriter is a market maker, will likely be required, to sell such securities
through another broker-dealer. In addition, each Selling Securityholder desiring
to sell Securityholder Shares will be subject to the applicable provisions of
the Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-6 and 10b-7, which provisions may limit the timing of the
purchases and sales of shares of the Company's securities by such Selling
Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities may be deemed underwriting
discounts and commissions under the Securities Act.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 18,000,000 shares of Common Stock,
no par value. Holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders. There is
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably, dividends when, as and
if declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution, or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
shares of Common Stock are validly authorized and issued, fully paid, and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 2,000,000 shares of Preferred
Stock. The Preferred Stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the Board of Directors,
without further action by shareholders and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights and sinking fund
provisions. The Company has no present plans for the issuance of shares of
Preferred Stock and any issuance of such Preferred Stock for a period of two
years from the date of this Prospectus will require the consent of the
Underwriter prior to such issuance. The issuance of any Preferred Stock could
adversely affect the rights of the holders of Common Stock and therefore, reduce
the value of the Common Stock. The ability of the Board of Directors to issue
Preferred Stock could also discourage, delay or prevent a takeover of the
Company. See "Risk Factors -- Preferred Stock; Possible Anti-Takeover Effects of
Certain Charter Provisions."
35
WARRANTS
In connection with the issuance of its prior secured notes, the Company
issued an aggregate of 447,354 warrants, each warrant entitling the holder
thereof to acquire one share of Common Stock; 224,293 warrants are exercisable
at an exercise price equal to $0.43 per share, 29,191 Warrants are exercisable
at an exercise price equal to $0.97 per share and 193,870 warrants are
exercisable at $1.00 per share, subject to adjustment as hereinafter provided.
The warrants may be exercised, at the option of the holder thereof, at any time
from the date of this Prospectus and terminating on the earlier to occur of the
third anniversary of the effective date of this Offering or June 30, 2000,
whichever is earlier (the "Termination Date"). Unless previously exercised, the
right to exercise the warrants will terminate on the Termination Date.
The warrantholders have the opportunity to profit from a rise in the market
price of the Common Stock without assuming the risk of ownership of the shares
of Common Stock issuable upon the exercise of the warrants, with a resulting
dilution in the interests of the Company's shareholders by reason of exercise of
warrants at a time when the exercise price is less than the market price for the
Common Stock. Further, the terms on which the Company could obtain additional
capital during the life of the warrants may be adversely affected. The warrant
holders may be expected to exercise their warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital by an offering of
Common Stock on terms more favorable than those provided for by the warrants.
The holders of the warrants will not have any of the rights or privileges
of shareholders of the Company, including voting rights and rights to receive
dividends, prior to exercise of the warrants. The Company will reserve out of
its authorized but unissued shares a sufficient number of shares of Common Stock
for issuance on exercise of the warrants. The Common Stock issuable on exercise
of the warrants will be, when issued, duly authorized and validly issued, fully
paid, and nonassessable.
For a holder to exercise the warrants, there must be a current registration
statement in effect with the Commission and registration or qualification with,
or approval from, various state securities agencies with respect to the shares
or other securities underlying the warrants, or an opinion of counsel for the
Company that there is an exemption from registration or qualification.
Antidilution. In the event that the Company shall at any time (i) declare a
dividend, or make a distribution, on the outstanding Common Stock payable in
shares of its capital stock (ii) subdivide the outstanding Common Stock into a
greater number of shares of Common Stock, (iii) combine the outstanding Common
Stock into a smaller number of shares, or (iv) issue any shares of its capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then, in each case, the exercise price
per warrant share in effect at the time of the record date for the determination
of shareholders entitled to receive such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying such
exercise price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such action, and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action. Upon such adjustments to the exercise price,
the number of warrant shares issuable upon exercise of each warrant shall
simultaneously be adjusted by multiplying the number of warrant shares
theretofore issuable upon exercise of such warrant by the exercise price
theretofore in effect and dividing the product so obtained by the exercise
price, as adjusted.
Reorganizations. In the event of any reclassification, capital
reorganization or other similar change of outstanding Common Stock, any
consolidation or merger involving the Company (other than a consolidation or
merger which does not result in any reclassification, capital reorganization, or
other similar change in the outstanding Common Stock), or a sale or conveyance
to another corporation of the property of the Company as, or substantially as,
an entirety, each warrant will thereupon become exercisable only for the kind
and number of shares of stock or other securities, assets or cash to which a
holder of the number of shares of Common Stock issuable (at the time of such
reclassification, reorganization, consolidation, merger or sale)
36
upon exercise of such warrant would have been entitled upon such
reclassification, reorganization, consolidation, merger or sale. In the case
above, the effect of these provisions would be that the holder of a warrant
would thereafter be limited to exercising such warrant at the exercise price in
effect at such time for the amount of cash per share that a warrant holder would
have received had such holder exercised such warrant and received Common Stock
immediately prior to the effective date of such cash merger or transaction.
Depending upon the terms of such cash merger or transaction, the aggregate
amount of cash so received could be more or less than the exercise price of the
warrant.
Exercise Procedure. Each holder of a warrant may exercise such warrant by
surrendering the certificate evidencing such warrant, with the subscription form
on the reverse side of such certificate properly completed and executed,
together with payment of the exercise price, to the Company at its executive
offices. Such offices will initially be located at 12300 Wilshire Blvd., Los
Angeles, California 90025. The exercise price will be payable by cash or by
certified or official bank check payable in United States dollars to the order
of the Company. If fewer than all of the warrants evidenced by a warrant
certificate are exercised, a new certificate will be issued for the remaining
number of warrants. Certificates evidencing the warrants may be exchanged for
new certificates of different denominations by presenting the warrant
certificates at the office of the Company.
UNDERWRITER'S WARRANT
At the closing of this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 125,000 shares
of Common Stock. The Underwriter's Warrant will be exercisable for a four-year
period commencing one year from the date of this Prospectus. The exercise price
of the Underwriter's Warrant will be $8.40 per share (based upon an assumed
initial public offering price of $7.00 per share). The Underwriter's Warrant
will contain anti-dilution provisions. The Underwriter's Warrant does not
entitle the Underwriter to any rights as a stockholder of the Company until such
Warrant is exercised and shares are purchased thereunder. The Underwriter's
Warrant and the shares of Common Stock thereunder may not be offered for sale
except in compliance with the applicable provisions of the Securities Act. The
Company has agreed that, if it shall cause to be filed with the Securities and
Exchange Commission either an amendment to the Registration Statement of which
this Prospectus is part or a separate registration statement, the Underwriter
shall have the right during the four-year period commencing on the date of this
Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the shares of Common Stock issuable upon its exercise
at no expense to the Underwriter. Additionally, the Company has agreed that,
upon written request by a holder or holders of 50% or more of the Underwriters
Warrant which is made during the period prior to the exercise of the
Underwriter's Warrant, the Company will, on two separate occasions, register the
Underwriter's Warrant and the shares of Common Stock issuable upon exercise
thereof. The initial such registration will be at the Company's expense and the
second such registration will be at the expense of the holder(s) of the
Underwriter's Warrant.
BRIDGE NOTES
To finance its working capital needs, the Company has issued three separate
series of bridge notes. In February 1997, the Company commenced the placement of
Units consisting off $50,000 principal amount of 10% Convertible Notes (the
"February 1997 Notes") and 10,000 common stock purchase warrants. The Company
sold an aggregate of $969,350 principal amount of the February 1997 Notes. The
principal amount of, and interest on, the February 1997 Notes shall be due and
payable on the earlier to occur of (i) five business days after the completion
of either a public offering of the Company's Common Stock (the "Initial Public
Offering") or (ii) the public or private placement of debt or equity securities
with gross proceeds to the Company in excess of $5,000,000 (together with an
Initial Public Offering, a "Financing Event") or the second anniversary of the
Closing Date (as defined therein). The February 1997 Notes are convertible into
shares of Common Stock (the "Conversion Shares") of the Company during the
period commencing 60 days after the Closing Date and continuing through the
effective date of the Initial Public Offering, at which time any February 1997
Notes not so converted will be repaid. The conversion price (the "Conversion
Price") is
37
$5.00 per share, subject to an adjustment in certain events. The holders of
these notes will waive, prior to the effective date of this Offering, their
right to so convert.
In June 1996 the Company commenced the placement of Units consisting of
$50,000 principal amount of 10% Secured Convertible Notes (the "June 1996
Notes") and 10,000 common stock purchase warrants. The Company sold an aggregate
of $975,000 principal amount of the June 1996 Notes. The principal amount of,
and interest on, the June 1996 Notes shall be due and payable on the completion
of this offering. The June 1996 Notes are secured by substantially all of the
assets of the Company. The June 1996 Notes are convertible into shares of Common
Stock of the Company, beginning 12 months after the completion of an Initial
Public Offering, at a conversion price of $5.00 per share, subject to an
adjustment in certain events. The holders of these notes will waive, prior to
the effective date of this Offering, their right to so convert. It is
anticipated that after the closing of this Offering, approximately $200,000 of
the June 1996 Notes will extend repayment until June 1998.
In February 1996, the Company commenced the placement of Units consisting
of $50,000 principal amount of 12% Secured Notes (the "February 1996 Notes") and
10,000 common stock purchase warrants. The Company sold an aggregate of $900,000
principal amount of the February 1996 Notes. The principal amount of, and
interest on, the February 1996 Notes shall be due and payable on the second
anniversary of the initial closing date thereof, and were secured by
substantially all of the assets of the Company. These notes were not
convertible.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is U.S. Stock Transfer
Corporation, Glendale, California, which also is responsible for record keeping
functions in connection with the same.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Sales of substantial amounts of Common Stock of the
Company in the public market or the perception that such sales could occur could
materially adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this Offering, the Company will have outstanding
approximately 2,631,092 shares of Common Stock. Of these shares, 1,331,092 are
Restricted Shares and 932,778 are Warrant Shares. The 1,300,000 shares of Common
stock that are sold by the Company to the public in this Offering will be freely
tradeable without restriction under the Securities Act, unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act.
The remaining shares of Common Stock outstanding upon completion of this
Offering, determined as if all outstanding warrants have been exercised, will be
held by approximately 60 holders and will be "restricted securities" as that
term is defined in Rule 144 under the Securities Act ("Restricted Stock").
Restricted Stock may be sold in the public market only if registered or if
qualified for an exemption from registration under Rule 144 or 701 promulgated
under the Securities Act, which are summarized below, or other exemptions. Sales
of the Restricted Stock in the public market, or the availability of such shares
for sale, could materially adversely affect the market price of the Common
Stock. In general, under Rule 144, which goes into effect on April 29, 1997,
beginning 90 days after the date of this Prospectus, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Stock for at least
one year (including the holding period of any prior owner other than an
affiliate of the Company) would be entitled to sell within any three month
period a number of shares that does not exceed the greater of (i) one percent of
the number of shares of Common Stock then outstanding or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
filing of notice of such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. Under amended Rule 144(k), which
goes into effect on April 29, 1997, a person who is not deemed to have been an
affiliate of the Company at any time during the three months
38
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years (including the holding period of any prior owner except
an affiliate of the Company) is entitled to sell such shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144. Unless otherwise restricted, such shares of Restricted
Stock may therefore be sold immediately upon the completion of this Offering.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates of the Company to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that nonaffiliated shareholders may sell such shares in reliance on
Rule 144 without having to comply with the public information, volume limitation
or notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus before selling
such shares.
The holders of substantially all shares of Restricted Stock have entered,
or are anticipated to enter, into contractual "lock-up" agreements providing
that they will not offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of the shares of stock owned by them or that could be
purchased by them through the exercise of options to purchase stock of the
Company, for 12 months (as to the Warrant Shares) and 18 months (as to the
Restricted Shares) after the date of this Prospectus without the prior written
consent of the Underwriter.
Taking into account the lock-up agreements and the restrictions of Rules
144 and 701 described above, approximately no Restricted Shares will be eligible
for sale immediately after this Offering and approximately all Restricted Shares
will be eligible for sale beginning 18 months after the date of this Prospectus,
subject, in some cases, to the volume restrictions of Rule 144.
The Company has agreed that for a period of 12 months from the date of this
Prospectus, it will not sell any securities, with the exception of the shares of
Common Stock issued upon exercise of currently outstanding options, without the
Underwriter's prior written consent, which consent shall not be unreasonably
withheld. In addition, for a period of 24 months from the date of this
Prospectus, the Company will not issue any shares of Preferred Stock or sell or
issue any securities pursuant to Regulation S under the Securities Act without
the Underwriter's prior written consent.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering shares of Common Stock reserved for issuance under the
1995 Plans and the 1996 Plans. Based on the number of shares reserved for
issuance under such Plans, such registration statement would cover approximately
337,500 shares. Such registration statement will automatically become effective
upon filing. Accordingly, shares registered under such registration statement
will, subject to Rule 144 volume limitations applicable to affiliates of the
Company, be available for sale in the open market, subject to vesting
restrictions and the lock-up agreements described above.
39
UNDERWRITING
The Underwriter has agreed to purchase from the Company, subject to the
terms and conditions of the Underwriting Agreement between the Company and the
Underwriter, the number of shares of Common Stock set forth opposite its name.
The underwriting discount set forth on the cover page of this Prospectus will be
allowed to the Underwriter at the time of delivery to the Underwriter of the
shares so purchased.
[Download Table]
NUMBER OF
SHARES TO BE
NAME OF UNDERWRITER PURCHASED
------------------------------------------------ -------------
H.J. Meyers & Co., Inc. ........................ 1,300,000
=========
The Underwriter has advised the Company that it proposes to offer the
shares to the public at an offering price of $ per Share and that the
Underwriter may allow certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") a concession of not in excess
of $ per share. After commencement of the Offering, the public offering
price and concession may be changed.
Each of the Company and the Selling Shareholder has granted to the
Underwriter an option, exercisable during the 30 business-day period from the
date of this Prospectus, to purchase up to an aggregate of 195,000 additional
shares on the same terms set forth above. The Underwriter may exercise such
rights only to satisfy over-allotments in the sale of the shares.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the total proceeds of the Offering, or $273,000 at an
assumed initial public offering price of $7.00 per share (or $ payable
by the Company and $ payable by the Selling Shareholder if the
Underwriter exercises the over-allotment option in full). Of such
non-accountable expense allowance, $60,000 has been paid to date. In addition to
the Underwriter's commission and the Underwriter's non-accountable expense
allowance, the Company is required to pay the costs of qualifying the shares of
Common Stock, under federal and state securities laws, together with legal and
accounting fees, printing and other costs in connection with this Offering,
estimated to total approximately $365,000.
At the closing of this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 130,000 shares
of Common Stock. The Underwriter's Warrant will be exercisable for a four-year
period commencing one year from the date of this Prospectus. The exercise price
of the Underwriter's Warrant will be $ per share (120% of the initial
public offering price). The Underwriter's Warrant will not be transferable prior
to its exercise date except to officers of the Underwriter and members of the
selling group and officers and partners thereof. The Underwriter's Warrant will
contain anti-dilution provisions. The Underwriter's Warrant does not entitle the
Underwriter to any rights as a shareholder of the Company until such Warrant is
exercised and the shares of Common Stock are purchased thereunder. The
Underwriter's Warrant and the shares of Common Stock thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that, if it shall cause to be filed with
the Commission either an amendment to the Registration Statement of which this
Prospectus is a part or a separate registration statement, the Underwriter shall
have the right during the five-year period commencing on the date of this
Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the shares of Common Stock issuable upon its exercise
at no expense to the Underwriter. Additionally, the Company has agreed that,
upon written request by a holder or holders of 50% or more of the Underwriter's
Warrant which is made during the exercise period of the Underwriter's Warrant,
the Company will on two separate occasions, register the Underwriter's Warrant
and the shares of Common Stock issuable upon exercise thereof. The initial such
registration will be at the Company's expense and the second such registration
will be at the expense of the holder(s) of the Underwriter's Warrant.
For the period during which the Underwriter's Warrant is exercisable, the
holder or holders will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder or holders of the
Underwriter's Warrant can be expected to exercise it at a time when the Company
would, in all likelihood, be able to obtain
40
any needed capital from an offering of its unissued Common Stock on terms more
favorable to the Company than those provided for in the Underwriter's Warrant.
Such facts may materially adversely affect the terms on which the Company can
obtain additional financing. To the extent that the Underwriter realizes any
gain from the resale of the Underwriter's Warrant or the securities issuable
thereunder, such gain may be deemed additional underwriting compensation under
the Securities Act.
The Company has agreed to enter into a consulting agreement with the
Underwriter under the terms of which the Underwriter has agreed to perform
consulting services related to corporate finance and will be paid a
non-refundable fee of $3,000 per month for 12 months. The Company has agreed to
pay the Underwriter the entire one year fee upon closing.
Holders of all of the Company's capital stock outstanding prior to the
Offering are subject to lock-up agreements under which the holders of such
shares will agree not to sell or dispose of any shares owned by them prior to
this Offering, or subsequently acquired under any option, warrant or convertible
security owned prior to this Offering, for a period of 12 months (as to the
Warrant Shares) and 18 months (as to the Restricted Shares) after the date of
this Prospectus without prior written consent of the Underwriter.
The Company has agreed that for a period of 12 months from the date of this
Prospectus, it will not sell or otherwise dispose of any securities, with the
exception of the shares of Common Stock issued upon exercise of currently
outstanding options, without the Underwriter's prior written consent, which
consent shall not be unreasonably withheld. In addition, for a period of 24
months from the date of this Prospectus, the Company will not sell or issue any
securities pursuant to Regulation S under the Securities Act without the
Underwriter's prior written consent.
In addition, the Company has agreed that, for the three years following the
Offering, it will not implement a "poison pill" or other device designed to
prevent a hostile takeover of the Company, or increase the size of the Company's
Board of Directors, without the approval of those members of the Company's Board
of Directors who are not employees of the Company. Moreover, the Company has
agreed, for three years following the Offering, that it will not increase the
compensation of or introduce severance packages for, its directors and officers,
without the consent of the Compensation Committee of the Company's Board of
Directors.
On July 16, 1996, the National Association of Securities Dealers, Inc.
("NASD") issued a notice of acceptance of Acceptance, Waiver and Consent (the
"AWC") whereby the Underwriter was censured, and order to pay fines and
restitution to retail customers in the amount of $250,000 and approximately
$1.025 million, respectively. The AWC was issued in connection with claims by
the NASD that the Underwriter charged excessive markups and markdowns in
connection with the trading of four certain securities originally underwritten
by the Underwriter; the activities in question occurred during period between
December 1990 and October 1993. The Underwriter has informed the Company that
the fines and refunds will not have material adverse effect on the Underwriter's
operations and that the Underwriter has effected remedial measures to help
ensure that the subject conduct does nor recur.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The Underwriter has advised the Company that the Underwriter does not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this Offering, there has been no public market for the shares of
Common Stock. The initial public offering price has been negotiated among the
Company and the Underwriter. Among the factors considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, are estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
41
In connection with the Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may overallot the offering, creating a syndicate
short position. In addition, the Underwriter may bid for and purchase shares of
Common Stock in the open market to cover syndicate short positions or to
stabilize the price of the Common Stock. Finally, the underwriting syndicate may
reclaim selling concessions from syndicate members in the Offering, if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriter is not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
Certain legal matters in connection with the validity of the shares of
Common Stock being offered hereby will be passed upon for the Company by Kelly &
Lytton, 1900 Avenue of the Stars, Suite 1450, Los Angeles, California 90067.
Bruce P. Vann, a member of Kelly, Lytton, Mintz & Vann, is a director of the
Company and the beneficial owner of 4,273 and options to acquire 10,000 shares
of the Company's Common Stock. Certain legal matters will be passed upon for the
Underwriter by Freshman, Marantz, Orlanski, Cooper & Klein, Beverly Hills,
California.
EXPERTS
The consolidated financial statements as of December 31, 1995 and September
30, 1996 included in the Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, and are so included in
reliance upon the report given on their authority as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington D.C. 20549 a
Registration Statement on Form SB-2 (including all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is hereby made to the Registration Statement, including
exhibits, schedules and reports filed as a part thereof. Statements contained in
this Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement referred to herein set forth the material
terms of such contract or other document but are not necessarily complete, and
in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the principal
office of the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington D.C. 20549, and at the Commission's
Regional Offices located at The Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can also be obtained at
prescribed rates by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement,
including the exhibits and schedules thereto, can also be accessed through the
EDGAR terminals in the Commission's Public Reference Rooms in Washington,
Chicago and New York or through the World Wide Wed at http://www.sec.gov.
42
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
[Enlarge/Download Table]
PAGE
---------
Report of Independent Accountants................................................. F-2
Consolidated Balance Sheet at December 31, 1995 and December 31, 1996............. F-3
Consolidated Statement of Operations for the period from February 27, 1995 to
December 31, 1995 and the year ended December 31, 1996.......................... F-4
Consolidated Statement of Cash Flows for the period from February 27, 1995 to
December 31, 1995 and for the year ended December 31, 1996...................... F-5
Consolidated Statement of Shareholders' Equity (Deficit) for the period from
February 27, 1995 to December 31, 1995 and for the year ended December 31,
1996............................................................................ F-7
Notes to Consolidated Financial Statements........................................ F-8
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
May 14, 1997
To the Board of Directors and
Shareholders of Team Communications Group, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity (deficit) and of
cash flows present fairly, in all material respects, the consolidated financial
position of Team Communications Group, Inc. and its subsidiaries at December 31,
1996 and December 31, 1995 and the results of their operations and their cash
flows for year ended December 31, 1996 and for the period from February 27, 1995
to December 31, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company's recurring losses from operations and limited
capital resources raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 12. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PRICE WATERHOUSE, LLP
F-2
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
[Enlarge/Download Table]
DECEMBER 31, DECEMBER 31,
1996 1995
------------- ------------
Cash and cash equivalents......................................... $ 214,400 $ 39,000
Trade receivables, less allowance for doubtful accounts of $63,800
and $0, respectively (Note 2)................................... 3,709,100 53,100
Television program costs, less accumulated amortization of
$1,599,691 and $490,600, respectively (Note 3).................. 3,430,000 596,100
Due from officer (Note 5)......................................... 186,300 42,200
Fixed assets, net (Note 2)........................................ 42,100 18,200
Organizational costs and other assets (Note 2).................... 144,900 24,500
---------- -----------
Total assets............................................ $7,726,800 $ 773,100
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and
other liabilities (Note 2)...................................... $1,220,200 $ 458,800
Deferred revenue (Note 2)......................................... 4,500 498,000
Accrued participations (Note 2)................................... 1,428,400 126,100
Notes payable (Note 7)............................................ 3,762,900 18,500
Accrued interest (Note 5 and 7)................................... 242,000 40,200
Due to officer (Note 5)........................................... 175,000 0
Shareholder loan and note payable (Note 5)........................ 740,000 750,000
---------- -----------
Total liabilities....................................... 7,573,000 1,891,600
---------- -----------
Commitments and contingencies (Notes 6 and 10)
Shareholders' deficit:
Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued and outstanding (Note 11).................. 0 0
Common stock, no par value; 18,000,000 shares authorized;
1,131,344 and 1,024,059 shares issued and outstanding
(Note 2).................................................... 1,000 1,000
Paid in capital.............................................. 848,300 0
Treasury stock receivable (Note 10).......................... 0 (87,000)
Accumulated deficit.......................................... (695,500) (1,032,500)
---------- -----------
Total shareholders' equity (deficit).................... 153,800 (1,118,500)
---------- -----------
Total liabilities and shareholders' equity (deficit).... $7,726,800 $ 773,100
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
[Enlarge/Download Table]
FOR THE PERIOD FROM
FOR THE YEAR ENDED FEBRUARY 27, 1995
DECEMBER 31, 1996 TO DECEMBER 31, 1995
------------------------- --------------------
Revenues (Note 2).................................... $ 6,116,700 $ 1,245,300
Cost of revenues..................................... 3,021,700 946,900
General and administrative expense................... 2,323,800 1,288,200
---------- -----------
Net income from operations........................... 771,200 (989,800)
Interest expense (Note 5)............................ 582,700 42,700
Interest income...................................... 58,300 0
Other income......................................... 90,200 0
---------- -----------
Net income (loss) before income taxes................ 337,000 (1,032,500)
Provision for income taxes (Note 4).................. 0 0
---------- -----------
Net income (loss).................................... $ 337,000 $ (1,032,500)
========== ===========
Net income (loss) per share (Note 2)................. $ 0.23 $ (0.63)
========== ===========
Weighted average number of shares outstanding (Note
2)................................................. 1,640,280 1,640,280
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
[Enlarge/Download Table]
FOR THE PERIOD FROM
FOR THE YEAR ENDED FEBRUARY 27, 1995
DECEMBER 31, 1996 TO DECEMBER 31, 1995
-------------------- --------------------
OPERATING ACTIVITIES:
Net income (loss)...................................... $ 337,000 $(1,032,500)
Adjustments to reconcile net income to cash used for
operating activities:
Depreciation and amortization....................... 15,600 4,500
Loss on TPEG settlement (Note 10)................... 0 180,000
Provision for doubtful accounts receivable.......... 63,800 10,600
Amortization of television program costs............ 1,100,800 490,700
Additions to television program costs............... (3,934,700) (1,045,800)
Amortization of notes payable discount.............. 353,300 0
Changes in assets and liabilities:
Increase in trade receivables..................... (3,719,800) (193,700)
Increase in organization costs and other assets... (123,000) (25,400)
Increase in accounts payable, accrued expense and
other liabilities.............................. 939,400 280,800
Increase (decrease) in deferred revenue........... (343,500) 498,000
Increase in accrued participations................ 1,302,300 126,100
Increase in accrued interest...................... 201,800 40,200
----------- -----------
Net cash used for operating activities......... (3,807,000) (666,500)
----------- -----------
INVESTING ACTIVITIES:
Purchase of fixed assets............................... (36,900) (21,800)
Increase in due to officer............................. 175,000 0
Increase in due from officer........................... (144,100) (42,200)
----------- -----------
Net cash used for investing activities......... (6,000) (64,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from shareholder loan and notes payable....... 0 750,000
Proceeds from issuance of note payable and warrants.... 4,747,000 67,500
Principal payment on loan due to stockholder........... (10,000) 0
Principal payment of notes payable..................... (748,600) (49,000)
Issuance of common stock............................... 0 1,000
----------- -----------
Net cash provided by financing activities...... 3,988,400 769,500
----------- -----------
Net change in cash....................................... 175,400 39,000
Cash at beginning of period.............................. 39,000 0
----------- -----------
Cash at end of period.................................... $ 214,400 $ 39,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.......................................... $ 15,100 $ 2,500
=========== ===========
Income taxes paid...................................... $ 4,000 $ 2,400
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
[Enlarge/Download Table]
FOR THE PERIOD FROM
FOR THE YEAR ENDED FEBRUARY 27, 1995
DECEMBER 31, 1996 TO DECEMBER 31, 1995
-------------------- ---------------------
TPEG settlement (Note 10):
Treasury stock receivable............................ $ 0 $ 87,000
Television program costs received.................... $ 0 $ 41,000
Receivable assigned to TPEG.......................... $ 0 $ 130,000
Assumption of payable associated with settlement..... $ 0 $ 178,000
Extinguishment of TPEG settlement payable by assignment
of the treasury stock receivable..................... $178,000 $ 0
Issuance of warrants in conjunction with notes payable
(Note 7):............................................ $602,700 $ 0
Transfer of shares by principal shareholder to notes
payable holder (Note 7).............................. $ 45,700 $ 0
Issuance of shares in connection with notes payable
(Note 7)............................................. $ 84,200 $ 0
Issuance of shares in connection with services provided
to Company........................................... $ 24,700 $ 0
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
[Enlarge/Download Table]
PREFERRED STOCK COMMON STOCK
-------------------- -------------------- TREASURY
NUMBER NUMBER PAID IN STOCK ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT
--------- ------ --------- ------ -------- ----------- -----------
Balance at February 27,
1995................... 0 $ 0 0 $ 0 $ 0 $ 0 $ 0
Common stock issued...... 1,024,059 1,000
TPEG settlement (Note
10).................... (87,000)
Net loss for period from
February 27, 1995 to
December 31, 1995...... (1,032,500)
----- ----- --------- ------ -------- ----- ----------
Balance at December 31,
1995................... 0 0 1,024,059 1,000 0 (87,000) (1,032,500)
Transfer of shares by
principal shareholder
to notes payable holder
(Note 7)............... 45,700
Exchange of treasury
stock receivable with
related party for
extinguishment of TPEG
settlement payable
(Note 10).............. 91,000 87,000
Issuance of shares in
connection with notes
payable (Note 7)....... 79,708 0 84,200
Issuance of warrants in
connection with private
placements (Note 7).... 602,700
Issuance of shares in
connection with anti-
dilution provisions of
convertible promissory
note (Note 7).......... 4,292
Issuance of shares in
connection with
services provided to
the Company............ 23,285 24,700
Net income for year ended
December 31, 1996...... 337,000
----- ----- --------- ------ -------- ----- ----------
Balance at December 31,
1996................... 0 $ 0 1,131,344 $1,000 $848,300 $ 0 $ (695,500)
===== ===== ========= ====== ======== ===== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
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 television series,
programs and specials, and made-for-television movies in the domestic and
foreign television markets. The Company's focus is on developing and producing
children's programming and reality based programming for PBS and alternative
cable channels such as the Learning Channel and the Discovery Channel.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated statements include the accounts of Team
Communications Group, Inc. and subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
REVENUE RECOGNITION
Revenue from licensing agreements covering entertainment product owned by
the Company is recognized when the entertainment product is available to the
licensee for telecast, exhibition or distribution, and other conditions of the
licensing agreements have been met in accordance with Statement of Financial
Accounting Standard ("SFAS") No. 53, "Financial Reporting by Producers and
Distributors of Motion Picture Films." The portion of recognized revenue which
is to be shared with the producers and owners of the license program material
(participations payable and due to producers) is accrued as the revenue is
recognized. Deferred revenues consist principally of advance payments received
on television contracts for which program materials are not yet available for
broadcast or exploitation. Such amounts are normally repayable by the Company
only if it fails to deliver the related product to the licensee.
Sales to six major customers accounted for approximately 81% of the
Company's total operating revenue for the year ended December 31, 1996. Sales to
two major customers accounted for approximately 73% of the Company's total
operating revenue for 1995.
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.
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 $16,700 and $3,600 in accumulated
depreciation at December 31, 1996 and December 31, 1995, respectively.
F-8
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ORGANIZATIONAL COSTS AND OTHER ASSETS
The balance represents security deposits, prepaid expenses and the
unamortized portion of the original costs relating to the incorporation of the
Company. Organizational costs are amortized using the straight-line method over
five years and are net of $2,600 and $900 in accumulated amortization at
December 31, 1996 and at December 31, 1995, respectively.
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, and deferred
revenue approximated fair value as of December 31, 1996 because of the
relatively short maturity of these instruments. The carrying value of long term
accounts receivable approximated fair value as of December 31, 1996 because the
instrument is valued at the Company's effective borrowing rate. The fair value
of notes payable is described in Note 7 and shareholders' loan and note payable
in Note 5.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMMON STOCK
In January 1996 the Company effected a 2,397.004 for one stock split for
shareholders of record on February 23, 1996. In addition, authorized shares were
increased from 1,000 to 20,000,000. In January and April of 1997, the Company
effected a 2.2776 and 1.0277 for one share reverse stock splits, respectively.
All share and per share data in the financial statements reflect the stock split
and subsequent reverse stock split for all periods presented.
CONCENTRATION OF CREDIT RISK
Approximately 72% of the trade receivable balance at December 31, 1996 were
represented by four customers.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common shares
and common stock equivalents outstanding during each period, after retroactive
adjustment for the stock splits (see above). Pursuant to requirements of the
Staff of the Securities and Exchange Commission, shares related to stock sold
and options issued subsequent to February 6, 1996 have been shown as outstanding
for all periods presented. Fully diluted earnings per common and common
equivalent shares are not presented as such amounts are the same as primary
earnings per share.
F-9
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The convertible debt was not included in the calculation of weighted
average shares because the President and principal shareholder has personally
guaranteed to the Company that he will assume any convertible debt where the
debt holder wishes to convert in exchange for his own personal shares. The total
number of shares that the convertible debt may convert into is 195,000.
NOTE 3 -- TELEVISION PROGRAM COSTS:
Television program costs consist of the following:
[Download Table]
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
In process and development......................... $1,977,000 $213,700
Released, less accumulated amortization............ 1,453,000 382,400
---------- --------
Total television program costs........... $3,430,000 $596,100
========== ========
Based on management's estimates of future gross revenue as of December 31,
1996, approximately 60% of the $1,453,000 in unamortized released television
program costs will be amortized during the three years ending December 31, 1999
and 80% will be amortized during the four years ending December 31, 2000.
NOTE 4 -- INCOME TAXES:
During the period ended December 31, 1995, the Company generated a net loss
before taxes on a consolidated basis, however, since the individual subsidiaries
were not eligible for consolidation until December 31, 1995, the tax provision
is calculated on the individual companies, separately. One company's loss does
not offset another company's income, as the companies are not consolidated for
tax purposes. For the period ended December 31, 1996, the tax provision is
calculated on the consolidated basis.
Deferred tax expense results 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 was as follows for the period ended December 31, 1996 and the
period ended December 31, 1995:
[Download Table]
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Statutory federal tax (benefit) rate............... 34% (34)%
State income tax provision, net of federal
benefit.......................................... 0% 0%
Benefits of operating loss carryforward............ (34)% 0%
Increase in valuation reserve against deferred tax
asset............................................ 0% 34%
----- ---- -
Effective tax rate................................. 0% 0%
===== =====
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.
F-10
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INCOME TAXES: (CONTINUED)
The components of the net deferred tax asset are as follows:
[Download Table]
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Net operating loss (carryforward).................. $ 176,016 $ 348,225
Valuation allowance................................ (176,016) (348,225)
--------- ---------
Net deferred tax asset................... $ 0 $ 0
========= =========
Total current and deferred taxes payable........... $ 0 $ 0
========= =========
At December 31, 1996, the Company has a federal net operating loss
carryforward of $517,693 which will begin to expire in 2010.
NOTE 5 -- RELATED PARTY TRANSACTIONS:
The due from officer balances of $186,300 and $42,200, at December 31, 1996
and December 31, 1995, respectively, represent payments made by the Company on
behalf of and loans made to the President and principal shareholder.
The due to officer balance of $175,000 at December 31, 1996 represent
producer's fees earned by the president and principal shareholder for services
on a company production.
The shareholder loan and note payable balance are comprised of the
following:
[Enlarge/Download Table]
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
Promissory notes:
12% secured promissory note due July 1, 1996(i)..... $500,000 $500,000 $500,000 $500,000
14% secured promissory note due July 1, 1996(ii).... 240,000 240,000 250,000 250,000
-------- -------- -------- --------
$740,000 $740,000 $750,000 $750,000
======== ======== ======== ========
---------------
(i) In April 1995, the Company entered into a $500,000 promissory note with a
shareholder. The notes accrued interest at 10% through December 31, 1995
and at 12% thereafter. The note and all unpaid interest was due by July 1,
1996. The Company did not make the required payment and has received a
notice of default. The Company is negotiating a wavier and extension of the
payment terms. The note is secured by all of the President and principal
shareholders' shares and the assets of the Company. The carrying value
approximates fair value because of the short maturity. The shareholder has
waived all accrued interest relating to this note as of December 31, 1996
which totaled $91,300
(ii) In August 1995, the Company entered into a $250,000 promissory note with a
shareholder. The notes accrued interest at 12% through November 1, 1995 and
at 14% thereafter. The note and all unpaid interest was due by July 1,
1996, as amended. The Company did not make the required payment and has
received a notice of default. The Company is negotiating a wavier and
extension of the payment terms. The note is secured by all of the President
and principal shareholders' shares and the assets of the Company. The
carrying value approximates fair value because of the short maturity. The
shareholder has waived all accrued interest relating to this note as of
December 31, 1996, which totaled $37,100. The Company issued 48,743
warrants exercisable at $0.43 in connection with the extension of the
maturity date of the loan to July 1, 1996.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
The Company has entered into an employment agreement with the president of
the Company requiring payment of annual compensation of $250,000 for a period of
seven years commencing February 1995 and ending February 2002. The employment
agreement also provides for bonus compensation. Several additional
F-11
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES: (CONTINUED)
agreements provide for the payment by the Company of certain profit
participation based upon the profits from specific programs, individual
subsidiaries or the Company as a consolidated entity, as provided in the
applicable agreements.
The Company has obtained a distribution guarantee from Mel Giniger &
Associates for the Latin American territories and The Gemini Corporation for the
European territories (collectively the "Giniger Entities"). This guarantee
relates to the Company's current library and certain future product for Latin
America and Europe. Revenue of $680,000, was recognized against this guarantee
which represents 11% of revenue for 1996. The Company believes that the Giniger
Entities ability to deliver on this distribution guarantee is predicate on its
licensing the Company's product to unaffiliated third parties. As such, the
Company only recognized the portion of the guarantee for which the Giniger
Entities has entered into sales agreements with unaffiliated third parties for
such rights and for which program materials were available to the Giniger
Entities.
The Company leases office space and certain office equipment. The total
lease expense was $113,700 and $84,400 for the year ended December 31, 1996 and
for the period ended December 31, 1995, respectively. The various operating
leases to which the Company is presently subject require minimum lease payments
for the years ending December 31, as follows:
[Download Table]
1997.............................................. $110,300
1998.............................................. 44,600
1999.............................................. 5,600
2000.............................................. 4,600
2001.............................................. 0
--------
$165,100
========
The Company has been purportedly served with a judgment in the amount of
$85,540 in a matter styled Levy Entertainment, Inc. vs. DSL Entertainment, Inc.
filed in Franklin Superior Court, State of Vermont. The plaintiff in this action
has obtained a writ of attachment against the Company in California and has
attempted to levy against assets of the Company. The Company was not served with
any papers relating to the case, did not enter any defense, and disputes the
amounts allegedly owed to Plaintiff. The Company is attempting to obtain counsel
in Vermont to overturn the judgment. No assurance can be given that the Company
will be successful in seeking to have the judgment reversed.
F-12
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NOTE PAYABLE:
Notes payable consists of the following at December 31, 1996:
[Enlarge/Download Table]
CARRYING VALUE FAIR VALUE
-------------- ----------
Private placements:
12% secured notes due June 1997(i).............................. $ 900,000 $ 843,000
10% secured convertible notes due May 1998(ii).................. 657,000 657,000
Promissory notes:
12% convertible secured promissory note due June 1997(iii)...... 322,000 301,600
10% secured promissory note due June 1997(iv)................... 500,000 500,000
10% secured promissory note due June 1997(v).................... 885,000 885,000
8% secured note due December 1997(vi)........................... 239,900 239,900
10% secured note due December 1997(vii)......................... 124,100 124,100
11% unsecured promissory note due March 1997(viii).............. 134,900 134,900
---------- ----------
$3,762,900 $3,685,500
========== ==========
---------------
(i) During February - June 1996, the Company participated in a private
placement offering. The Company sold 18 placement units. Each unit
consisted of a $50,000 note payable with interest of 12% per annum,
compounded quarterly, and 6,408 Common Stock Purchase warrants. The
accrued interest balance was $88,400 at December 31, 1996. Each warrant
entitles the holder to buy one share of common stock at an exercise price
of $0.43. The warrants are exercisable commencing two business days
following the effective date of the registration statement relating to an
initial public offering and terminating on the third anniversary of that
date. Through this private offering, the Company raised $900,000 and
issued 115,351 warrants. Principal and interest are due no later than June
30, 1997, as amended. The notes are secured by substantially all of the
assets of the Company. The fair value of the notes and the carrying amount
and fair value of the associated warrants were determined by the market
rate for a financial instrument of this risk. The carrying value of the
warrants amounted to $127,600 and is included in paid in capital.
(ii) During June - October 1996, the Company participated in a second private
placement offering. The Company sold 19.5 placement units. Each unit
consisted of a $50,000 senior convertible note payable with interest of
10% per annum, compounded quarterly, and 4,272 Common Stock Purchase
warrants. The notes are convertible at their principal amount into common
stock of the Company at any time one year after the initial public
offering through maturity at the conversion price of $5.00 per share
subject to adjustment in certain circumstances. Each warrant entitles the
holder to buy one share of common stock at an exercise price of $0.43. The
warrants are exercisable commencing two business days following the
effective date of the registration statement relating to an initial public
offering and terminating on the third anniversary of that date. As of
December 31, 1996, the Company raised $975,000 and issued 83,308 warrants.
Principal and interest are due no later than May 31, 1998. The accrued
interest balance was $36,800 at December 31, 1996. The notes are secured
by substantially all of the assets of the Company. The carrying amount and
fair value of the notes and associated warrants were determined by the
market rate for a financial instrument of this risk. The carrying value of
the warrants amounted to $382,600 and is included in paid in capital.
(iii) In January 1996, the Company entered into an agreement with an outside
investor. The Company received $322,000 in exchange for (i) a convertible
secured promissory note, convertible into 3% of the Company's outstanding
stock on a fully diluted basis through an initial public offering and
(ii) the transfer from the principal shareholder of 4% of the Company's
issued and outstanding stock on a fully diluted basis through an initial
public offering. The note accrues interest at 12% per annum and is due
June 30, 1997, as amended. The note is secured by certain receivables and
television distribution rights.
F-13
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NOTE PAYABLE: (CONTINUED)
The accrued interest balance was $36,200 at December 31, 1996. The fair
value of the note and carrying value and fair value of the associated
shares were determined by the market rate for a financial instrument of
this risk. The carrying value of the shares amounted to $45,700 and is
included in paid in capital.
(iv) In April 1996, the Company entered into a $500,000 promissory note with
an outside investor to finance a television program. The note accrues
interest at 10% per annum and is due on June 30, 1997, as amended. The
accrued interest balance was $29,600 at December 31, 1996. The note is
secured by certain assets and rights associated with the television
program. There were 29,906 warrants (exercisable at $0.43 per warrant)
issued in connection with this note. The fair value of the note was
estimated using discounted cash flow methods based on the Company's
current borrowing rates for similar types of borrowing arrangements with
comparable terms and maturities.
(v) In July 1996, the Company entered into a $1,200,000 promissory note with
outside investors to acquire the television rights to "Total Recall." The
note accrues interest at 10% per annum and is due on June 30, 1997, as
amended. As of December 31, 1996 there has been $315,000 repaid in
respect to this debt. The accrued interest balance was $47,800 at
December 31, 1996. The note is secured by the rights that were acquired.
There were 34,178 shares of common stock issued in connection with the
origination of this debt. An additional 36,314 shares and 21,361 warrants
(exercisable at $0.43 per warrant) were issued to extend the loan. The
outside investors are also entitled to 15% of any net profits earned from
the exploitation of these rights. The fair value of the notes was
estimated using discounted cash flow methods based on the Company's
current borrowing rates for similar types of borrowing arrangements with
comparable terms and maturities.
(vi) In November 1996, the Company entered into a $300,000 promissory note
with a shareholder. The note bears interest at 8% per annum, compounding
quarterly, and is due the sooner of an initial public Offering or
December 31, 1997. The accrued interest balance was $2,800 at December
31, 1996. The note is secured by substantially all of the assets of the
Company. There were 25,634 Common Stock Purchase warrants issued in
connection with this note. Each warrant entitles the note holder to buy
one share of common stock at an exercise price of $.43. The warrants are
currently exercisable and terminate on the earlier to occur of the third
anniversary of the effective date of an initial public offering or June
30, 2000. The note is secured by substantially all of the assets of the
Company. The carrying amount and fair value of the notes and associated
warrants were determined by the market rate for a financial instrument of
this risk. The carrying value of the warrants amounted to $66,000 and is
included in paid in capital.
(vii) In December 1996, the Company entered into a $150,000 promissory note
with an outside investor. The note bears interest at 10% per annum,
compounding quarterly, and is due the sooner of an initial public
offering or December 31, 1997. The accrued interest balance was $400 at
December 31, 1996. The note is secured by substantially all of the assets
of the Company. There were 29,191 Common Stock Purchase warrants issued
in connection with this note. Each warrant entitles the note holder to
buy one share of common stock at an exercise price of $.97. The warrants
are currently exercisable and terminate on the earlier to occur of the
third anniversary of the effective date of an initial public offering or
June 30, 2000. The note is secured by substantially all of the assets of
the Company. The carrying amount and fair value of the notes and
associated warrants were determined by the market rate for a financial
instrument of this risk. The carrying value of the warrants amounted to
$26,500 and is included in paid-in capital.
(viii) In September 1996, the Company entered into a $150,000 unsecured
promissory note with a vendor to repay an advance provided to the Company
in October 1995. The note bears interest at 11% per annum
F-14
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NOTE PAYABLE: (CONTINUED)
from October 1995 and required payments such that the note would be
repaid by March 31, 1997. As of December 31, 1996, there was no accrued
interest balance. During 1996, the Company made a $15,125 principal
payment and a $15,125 interest payment. The holder of the note has not
filed a notice of default and the Company is negotiating an extension of
the payment terms.
NOTE 8 -- GEOGRAPHIC INFORMATION:
The Company operates in a single industry segment, the development,
production and distribution of television programming. All of the Company's
operations are conducted in the United States.
A summary of the Company's revenues by geographic area is presented below:
[Download Table]
1996 1995
---------- ----------
North America..................................... $2,588,800 $ 768,000
Europe............................................ 1,332,900 185,000
South America..................................... 732,400 25,000
Asia.............................................. 1,306,500 196,300
Australia and Africa.............................. 156,100 71,000
---------- ----------
Total................................... $6,116,700 $1,245,300
========== ==========
NOTE 9 -- STOCK OPTION PLANS:
The Company has established stock option plans for its employees and
consultants (the "1995 Stock Option Plan") and for its non-employee directors
(the "1995 Stock Option Plan for Non-Employee Directors").
The 1995 Stock Option Plan allows for options (including Incentive Stock
Options) to be granted to employees and consultants at less than fair market
value at date of grant. These options may be immediately exercisable and expire
over a period determined by the Stock Option Committee of the Board of Directors
(the "Committee"). The Committee is comprised of two members of the Board of
Directors. The total number of options available to grant under this plan is
270,000.
The 1995 Stock Option Plan for Non-Employee Directors allows for a set
number of immediately exercisable options to be granted at fair market value to
non-employee members of the Board of Directors. The total number of options
available to grant under this plan is 67,500. There were no options granted
exercised, forfeited, expired or outstanding pursuant to the Director Plan for
the year ended December 31, 1996.
A summary of the Key Employee Plan as of and for the year ended December
31, 1996 is presented below:
[Download Table]
WEIGHTED AVERAGE
KEY EMPLOYEE PLAN SHARES EXERCISE PRICE
----------------------------------------------------- ------- ----------------
Outstanding as of January 1, 1996.................... -- --
Granted............................................ 35,000 $ 1.14
Exercised.......................................... -- --
Forfeited/Expired.................................. -- --
-------
Outstanding as of December 31, 1996.................. 35,000
=======
Weighted-average fair value of options granted during
the year........................................... $ 1.14
=======
F-15
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- STOCK OPTION PLANS: (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1996:
[Download Table]
SHARES EXERCISABLE AT DATE
TOTAL SHARES EXERCISE PRICE DECEMBER 31, 1996 OPTIONS EXPIRE
------------ -------------- --------------------- --------------
30,000 $ 1.00 10,000 July 1, 2006
5,000 $ 2.00 5,000 June 6, 2006
------ ------
35,000 15,000
====== ======
The Company has elected, as permitted by FASB Statement No. 123,
"Accounting for Stock Based Compensation" ("FAS 123"), to account for its stock
compensation arrangements under the provisions of Accounting Principles Board
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of such pronouncement.
The fair value for these options was estimated at the date of grant using the
binomial option pricing model with the following weighted average assumptions:
risk-free interest rate of 6.33%, no dividend yield, expected lives of two and a
half years, and volatility of 0%.
For purposes of pro forma disclosure, the estimated fair value of the
options is zero, hence neither proforma net income on earnings per share are
presented.
During the period, the Company issued 21,362 warrants exercisable at $1.07
and 20,934 warrants exercisable at $0.43 to two outside parties for services
provided in raising outside debt. The Company also issued 23,000 warrants
exercisable at $1.00 and 20,000 warrants exercisable at $2.00 to two outside
parties for services rendered to the Company. The Company recognized $5,000 in
compensation related to these warrants during the year ended December 31, 1996.
In January 1997, the Company's shareholders voted to freeze the 1995 Stock
Option Plans and adopt two new plans, the Team Communications Group, Inc. Stock
Awards plan (the "1996 Employee Plan") and the Team Communications Group, Inc.
Directors' Stock Option Plan (the "1996 Director's Plan").
The 1996 Directors Plan allows Directors who are not employees of the
Company, on the effective date of an initial public offering and each annual
anniversary thereof, to receive options to purchase 2,500 shares. The option
price per share of Common Stock purchasable upon exercise of such stock options
shall be 100% of the fair market value on the date of grant. Such options shall
be exercisable immediately on the date of grant by payment in full of the
purchase price in cash. The aggregate number of shares of Common Stock that may
be granted pursuant to the 1996 Directors Plan is 20,000.
The aggregate number of shares of Common Stock that may be granted under
the 1996 Employee Plan is 180,000. The Employee Plan provides for the authority
by the Employee Plan Committee to grant ISO's to any key employee of the Company
or any affiliate of the Company and to determine the terms and conditions of
each grant, including without limitation, the number of shares subject to each
ISO. The ISO exercise price will also be determined by the Committee and will
not be less than the fair market value of the Common Stock on the date of grant.
The exercise price will not be less than 110% of such fair market value and the
exercise period will not exceed five years if the participant was the holder of
more than 10% of the Company's outstanding voting securities.
F-16
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- TPEG SETTLEMENT:
The Company was a cross complainant and a defendant in an action entitled
The Producer's Entertainment Group ("TPEG") v. Drew S. Levin. In the action,
which arose from disputes over the February 1995 separation agreements between
TPEG and Drew S. Levin, the Company and TPEG sought, among other things, damages
and a court order regarding the copyright interest in the series "Simply Style."
Effective December 1995, this action was settled, pending final payment as per
the terms of the TPEG Litigation Settlement Agreement. Pursuant to the TPEG
Litigation Settlement Agreement TPEG agreed to (i) transfer to the Company all
rights, title and interest to the series "Simply Style;" and (ii) sell back to
the Company a sufficient number of shares of the Company's common stock, such
that TPEG would own five percent of the Company's common stock issued and
outstanding. In connection with the TPEG settlement agreement, the Company
agreed to pay TPEG $258,000, of which $130,000 was paid by the assignment of a
certain receivable. The Company incurred an additional $50,000 obligation to
TPEG when it was unable to pay the remaining balance as of February 28, 1996.
The resulting balance was payable on June 30, 1996. The Company's agreement
to repurchase 152,585 shares of the Company's common stock (14.9% of the
Company's common stock issued and outstanding) resulted in a treasury stock
receivable as of December 31, 1995. After giving value to the other elements of
the settlement, the treasury stock was attributed a value of $87,000 or $0.10
per share.
The Company recorded a loss on the settlement of $180,000. On June 27, 1996
the Company assigned to its President and principal shareholder the rights and
obligations pursuant to the TPEG Settlement Agreement. The President and
principal shareholder paid the final payment due on June 30, 1996 and received
the 14.9% of outstanding common stock pursuant to the settlement agreement. In
conjunction with the assignment, the President and principal shareholder sold
79,037 of the 152,585 shares acquired in this transaction to an outside investor
for $185,000. The President and principal shareholder subsequently agreed to
acquire the remaining five percent owned by TPEG. In conjunction therewith, the
President and principal shareholder arranged for the sale of one-half of this
stock to an outside investor. This stock was sold on the agreement that the
President and principal shareholder, through transfers from his personal stock
holdings, would see that this holding represents 2.5% of the Company's common
stock on a fully diluted basis.
NOTE 11 -- SUBSEQUENT EVENTS:
In March 1997, the Company completed a private placement offering. The
Company sold 19.387 placement units. Each unit consists of a $50,000 convertible
note payable with interest of 10% per annum, payable at six month intervals, and
10,000 common stock purchase warrants The notes are convertible at their
principal amount into common stock of the Company at any time before an initial
public offering at the conversion price of $5.00 per share, subject to
adjustment in certain circumstances. The maturity date of the notes will be no
later than two years. The warrants are currently exercisable and terminate three
years after an initial public offering.
In January 1997, the Board of Directors reduced the authorized common stock
shares from 20,000,000 to 18,000,000 and authorized 2,000,000 shares of
preferred stock. All references in the financial statements to number of shares
of the Company's common stock and preferred stock have been retroactively
restated.
The Company has signed a letter of intent with an underwriter for the sale
of its common stock to the public. The underwriter expects to sell 1,300,000
shares of common stock at $6.50 to $7.50 per share.
NOTE 12 -- GOING CONCERN:
The Company's financial statements for the year ended December 31, 1996
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company expects to incur substantial expenditures to
F-17
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- GOING CONCERN: (CONTINUED)
produce television programs and/or acquire distribution rights to television
programs produced by third parties. The Company's working capital plus limited
revenue from the licensing of its current inventory of television programs will
not be sufficient to fund the Company's ongoing operations, including completing
projects that the Company is contractually required to develop or produce.
Management recognizes that the Company must generate additional resources
to enable it to continue operations. Management's plans include the sale of
additional equity securities. Towards this goal management is seeking an
underwriter to assist in the initial public offering of the Company's common
stock. However, no assurance can be given that the Company will be successful in
raising additional capital. Further, there can be no assurance, assuming the
Company successfully raises additional equity, that the Company will achieve
profitability or positive cash flow.
F-18
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
[Download Table]
PAGE
-----
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 12
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Consolidated Financial
Data................................ 16
Management's Discussions and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 21
Management............................ 28
Certain Transactions.................. 31
Principal Securityholders............. 33
Concurrent Offering by Selling
Securityholders..................... 33
Description of Securities............. 35
Shares Eligible for Future Sale....... 38
Underwriting.......................... 40
Legal Matters......................... 42
Experts............................... 42
Additional Information................ 42
Index to Consolidated Financial
Statements.......................... F-1
------------------------
UNTIL , 1997 (25 CALENDAR DAYS
AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
=============================================
======================================================
1,300,000 SHARES
TEAM COMMUNICATIONS GROUP, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
H.J. MEYERS & CO., INC.
, 1997
======================================================
PART II
EXHIBITS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Directors of the Company are presently entitled to indemnification as
expressly authorized under Section 317 of the California General Corporation Law
("Section 317") and the Bylaws of the Company (which generally authorize the
Company to indemnify its Agents where such indemnification is authorized by
Section 317). Section 317 provides a detailed statutory framework covering
indemnification of any agent of a corporation who is threatened to be made a
party to any legal proceeding by reason of his or her actions on behalf of the
corporation.
Article 5 of the Company's Articles of Incorporation (exhibit 3.1) provides
that a director will not be liable for monetary damages arising out of the
director's breach of his or her fiduciary duties to the Company and the
shareholders to the fullest extent permissible under the California Law.
Liability for breach of a director's fiduciary duty arises when the director has
failed to exercise sufficient care in reaching decisions or otherwise attending
to his responsibilities as a director and in other circumstances. Article V does
not eliminate these duties; it only eliminates monetary damage awards occasioned
by a breach of these duties. Accordingly, a breach of fiduciary duty is still a
valid basis for a suit seeking to stop a proposed transaction from occurring.
However, after a transaction has occurred, the Shareholders do not have a claim
against directors for monetary damages based on a breach of fiduciary duty, even
if that breach involves negligence on the part of the directors. Additionally,
as a practical matter, equitable remedies such as rescission may not be
available after a transaction has already been consummated or in other
circumstances.
The Company intends to enter into indemnification agreements with the
Company that attempt to provide the maximum indemnification allowed under the
California Law. The Indemnification Agreements will make mandatory
indemnification which is permitted by California Law in situations in which the
Indemnitee would otherwise be entitled to indemnification only if the Board of
Directors, the Shareholders, independent legal counsel retained by the Company
or a court in which an action was or is pending made a discretionary
determination in a specific case to award such indemnification. However, in part
because the California Law was only recently enacted, the extent to which the
indemnification permitted by the California Law may be expanded by
indemnification agreements is unsettled and has yet to be the subject of any
judicial interpretation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered are as follows (estimated except as noted):
[Download Table]
SEC registration fee (actual)..................................... $ 4,150
NASD filing fee (actual).......................................... 1,758
Nasdaq SmallCap Market listing fee (actual)....................... 20,000
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 90,000
Accounting fees and expenses...................................... 90,000
Transfer agent and registration fees and expenses................. 10,000
Underwriters non-accountable expense allowance(1)................. 273,000
Blue sky qualification fees and expenses.......................... 35,000
Miscellaneous..................................................... 14,092
--------
Total................................................... $ 638,000
========
---------------
(1) $313,950 if the Underwriter exercises the over-allotment option in full.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
1. A loan in the principal amount of $322,000 was made in January 1996 from
AMAE Ventures, an affiliate of Mr. Wolfson, which was used by the Company for
general overhead purposes and bears interest at 12%. This note is due on the
earlier to occur of June 30, 1997 or the closing of this Offering. The holder of
such note has the right to convert the principal amount into 3% of the Company's
common stock on a fully diluted basis through the completion of this Offering,
and has indicated that it intends to convert such note.
2. Mr. Cayre and Mr. Levin have agreed, subject to documentation, that as
of the closing date of this Offering, Mr. Cayre will receive payment of $250,000
in respect of the amounts owed to him, and the remaining debt, subject to
adequate collateralization (which may include cash collateral) shall be extended
until June 30, 1998. Subject to the foregoing, Mr. Levin and Mr. Cayre have also
agreed, to restructure Mr. Cayre's investment in the Company. Mr. Cayre agreed
that upon the closing of this Offering, Mr. Cayre's interest in the Company
would be reduced to 164,874 shares of the Company's Common Stock by transferring
to Mr. Levin 195,774 shares of the Company's common stock held by Mr. Cayre. In
February 1996, in connection with a prior restructuring of this indebtedness,
Mr. Cayre received options to purchase 48,743 shares of Common Stock of $.43 per
share.
3. In June 1996, South Ferry #2, L.P., an entity controlled by Mr.
Wolfson's brother, advanced to the Company the sum of $500,000 in respect of
"LoCoMoTioN" in consideration of which such entity received options to acquire
29,906 shares of Common Stock at $.43 per share. This loan bears interest at 10%
and is due on the earlier to occur of June 30, 1997 or upon the closing of this
Offering.
4. The Chana Sasha Foundation, an entity controlled by Mr. Wolfson,
extended the Company a $400,000 line of credit on a secured basis in November
1996, which credit line has been used and subsequently repaid by funds from the
Company's operations In October 1996 Mr. Wolfson extended the Company
approximately $400,000 of credit on a secured basis in November 1996, which
credit line has been used and subsequently repaid by funds from the Company's
operations. Mr. Wolfson received 6,408 shares of the Company's Common Stock with
respect to such extension of credit.
5. The July 1996 proceeds from the sale of the notes in the Total Recall
Financing were used to acquire the rights to produce a television series based
on "Total Recall." These notes, which are secured by the Company's underlying
rights to the "Total Recall" series, bear interest at 10% and are due at the
first to occur of June 30, 1997 or this Offering. The holders of these notes
have agreed to extend the maturity date thereto through June 30, 1998. In
addition, the holders of these notes received an aggregate of 53,403 shares of
common stock , warrants to acquire 14,954 shares of Common Stock at an exercise
price of $.43 and a 13% net profit participation in the Company's interest in
the series. As of the date hereof, $502,500 has been repaid in respect to this
obligation. Mr. Wolfson received 8,544 shares of the Company's Common Stock and
2% of the net profits of the series with respect to the Total Recall Financing.
6. The Company commenced two private placements of its Secured Notes in
February and in May, 1996. In February 1996, the Company sold to accredited
investors $900,000 in principal amount of secured promissory notes which bear
interest at 12% and are due at the earlier to occur of this Offering or June 30,
1997. In June through November 1996, the Company sold to accredited investors
$1,025,000 principal amount of secured notes which bear interest at 10% and are
due at the earlier of this Offering or May 31, 1998. An aggregate of 198,659
warrants to purchase a like number of shares of Common Stock at an exercise
price of $.43 per share were issued in connection with such placements. The
holders of these notes have waived all conversion rights with respect thereto.
7. In October 1996, the Company obtained a loan from Affida Bank in the
amount of $300,000 and, in connection therewith, issued warrants to acquire
29,191 shares of Common Stock at an exercise price of $.97 per share.
8. In January, February and March 1997, the Company completed the sale of
$969,350 of convertible secured notes to accredited investors (the "February
1997 Notes"). Each of the foregoing notes are secured, pro-rata and pari passu,
by liens on substantially all of the Company's assets, except that the February
1997 Notes are junior to the prior notes. An aggregate of 193,970 warrants to
purchase a like number of shares of Common Stock at an exercise price of $1.00
per share were issued in connection with such placements.
II-2
9. In October 1996, Bruce P. Vann received 4,273 shares of Common Stock
lieu of fees relating to the acquisition of "Total Recall."
The above securities were offered by the Registrant in reliance upon an
exemption from registration under either (i) Section 4(2) of the Securities Act
as transactions not involving any public offering or (ii) Rule 701 under the
Securities Act. No underwriters were involved in connection with the sales of
securities referred to in this Item 15.
ITEM 27. (a) EXHIBITS
[Download Table]
1.0 Form of Underwriting Agreement(1)
3.1 Articles of Incorporation.(1)
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 Form of Convertible Note March 1996 and related Security Agreement(1)
4.5 Form of Convertible Note May 1996 and related Security Agreement(1)
4.6 Form of Convertible Note February 1997(1)
4.7 Extensions relating to Wolfson Indebtedness*
4.8 Restated Joe Cayre Agreement*
4.9 Agreement with AMAE Ventures and related note(1)
4.10 Agreements re Total Recall Financing July 1996(1)
4.11 Agreements re LoCoMoTioN Financing(1)
4.12 1996 Employee Stock Option Plan(1)
4.13 1996 Directors Stock Option Plans(1)
4.14 Form of Consulting Agreement between H.J. Meyers & Co., Inc. and the
Company*
4.15 Specimen Certificates*
4.16 Form of Underwriter's Warrant(1)
5.0 Opinion and Consent of Kelly, Lytton, Mintz & Vann regarding legality of
securities (to be filed by amendment).*
10.1 Agreement with Mel Ginger(1)
10.2 Eurolink Contract(1)
10.3 Interpublic Group of Companies Contract(1)
10.4 Employment Agreement, dated as of June 1, 1997, between the Company and Drew
Levin.(1)
10.5 Lease between the Company and TCW.(1)
10.6 Agreement with Alliance Production Ltd. re Total Recall*
10.7 Interpublic -- Team Co-financing Agreement(2)
10.8 Miramax Term Sheet(2)
11 Statement re: Computation of per share earnings(2)
21 Subsidiaries of the Registrant(1)
23.1 Consent of experts and named counsel*
23.2 Consent of Nominated Director(1)
24 Power of Attorney (included in the signature pages)
---------------
* To be filed by Amendment.
(1) Previously filed.
(2) Filed herewith.
II-3
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriter at the
closing specified in the underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the California General Corporation Law, the Articles of
Incorporation of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim of or
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration Statement
or any material change to such information in the registration
Statement."
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
SIGNATURES
In accordance with the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable ground to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Los Angeles, State of California, on
this 14th day of May, 1997.
Team Communications Group, Inc.
By: /s/ DREW LEVIN
------------------------------------
DREW LEVIN
Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
[Enlarge/Download Table]
SIGNATURE CAPACITY DATE
--------------------------------------------- ------------------------------- -------------
/s/ DREW LEVIN Chairman of the Board, May 14, 1997
--------------------------------------------- President, Chief Executive
DREW LEVIN Officer and Director
* Director May 14, 1997
---------------------------------------------
PAUL YAMAMOTO
* Director and May 14, 1997
--------------------------------------------- Chief Financial Officer
JOE KALADA
By: /s/ DREW LEVIN
----------------------------------
DREW LEVIN
Attorney-in-Fact
II-5
TEAM COMMUNICATIONS GROUP, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM FEBRUARY 27, 1995 TO DECEMBER 31, 1995
AND THE YEAR ENDED DECEMBER 31, 1996
[Enlarge/Download Table]
1996
----------------------------------------------------------------
OTHER
BALANCE ADDITIONS DEDUCTIONS ADJUSTMENTS BALANCE AT
AT BEGINNING CHARGED FROM DURING END OF
DESCRIPTION OF PERIOD TO INCOME RESERVE PERIOD PERIOD
------------------------------------------- ------------ --------- ---------- ----------- ----------
Deducted from accounts receivable for
doubtful accounts and returns............ $0 $71,300 $ (7,500) $ 0 $ 63,800
[Enlarge/Download Table]
1995
----------------------------------------------------------------
Deducted from accounts receivable for
doubtful accounts and returns............ $0 $10,600 $(10,600) $ 0 $ 0
S-1
INDEX TO EXHIBITS
[Enlarge/Download Table]
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ------------------------------------------------------------------------- ------------
1.0 Form of Underwriting Agreement(1)........................................
3.1 Articles of Incorporation(1).............................................
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 Form of Convertible Note March 1996 and related Security Agreement(1)....
4.5 Form of Convertible Note May 1996 and related Security Agreement(1)......
4.6 Form of Convertible Note February 1997(1)................................
4.7 Extensions relating to Wolfson Indebtedness*.............................
4.8 Restated Joe Cayre Agreement*............................................
4.9 Agreement with AMAE Ventures and related note(1).........................
4.10 Agreements re Total Recall Financing July 1996(1)........................
4.11 Agreements re LoCoMoTioN Financing(1)....................................
4.12 1996 Employee Stock Option Plan(1).......................................
4.13 1996 Directors Stock Option Plans(1).....................................
4.14 Form of Consulting Agreement between H.J. Meyers & Co., Inc. and the
Company*.................................................................
4.15 Specimen Certificates*...................................................
4.16 Form of Underwriter's Warrant(1).........................................
5.0 Opinion and Consent of Kelly, Lytton, Mintz & Vann regarding legality of
securities (to be filed by amendment)*...................................
10.1 Agreement with Mel Ginger(1).............................................
10.2 Eurolink Contract(1).....................................................
10.3 Interpublic Group of Companies Contract(1)...............................
10.4 Employment Agreement, dated as of June 1, 1997, between the Company and
Drew Levin(1)............................................................
10.5 Lease between the Company and TCW(1).....................................
10.6 Agreement with Alliance Production Ltd. re Total Recall*.................
10.7 Interpublic -- Term Co-financing Agreement(2)............................
10.8 Miramax Term Sheet(2)....................................................
11 Statement re: Computation of per share earnings(2).......................
21 Subsidiaries of the Registrant(1)........................................
23.1 Consent of experts and named counsel*....................................
23.2 Consent of Nominated Director(1).........................................
24 Power of Attorney (included in the signature pages)......................
---------------
* To be filed by Amendment.
(1) Previously filed.
(2) Filed herewith.
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000950148-97-001440 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Thu., May 2, 4:24:09.1pm ET 
